424B3 1 d424b3.htm FINAL PROSPECTUS Final Prospectus

Filed Pursuant to Rule 424(b)(3)

Registration Statement No. 333-130416

 

PROSPECTUS

 

6,300,000 Shares

 

LOGO

 

Common Stock

 


 

This prospectus relates to the resale of 6,300,000 shares of our common stock, which includes 4,500,000 shares of our common stock issued to the selling stockholders in a private placement transaction and 1,800,000 shares of our common stock that may be issued upon exercise of warrants issued to such selling stockholders in the private placement transaction. We are registering our common stock for resale by these selling stockholders who may offer such shares for sale from time to time at market prices prevailing at the time of sale or at privately negotiated prices. The selling stockholders may sell the shares directly to purchasers or through underwriters, broker-dealers or agents that may receive compensation in the form of discounts, concessions or commissions. See “Plan of Distribution” for more information. We will not receive any of the proceeds from the disposition of the shares offered under this prospectus. However, certain of the shares of common stock covered hereby will be issued only upon the exercise of warrants. Upon exercise of these warrants, we will receive the proceeds of the exercise prices of such warrants if they are exercised other than on a cashless exercise basis. We will bear costs relating to the registration of these shares.

 

Our common stock is traded on the Nasdaq National Market under the symbol “KNTA.” On December 15, 2005, the last reported sales price for our common stock as quoted on the Nasdaq National Market was $2.60 per share.

 


 

Our business and an investment in our common stock involve significant risks. These risks are described under the caption “ Risk Factors” beginning on Page 4 of this prospectus.

 


 

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.

 

January 11, 2006


TABLE OF CONTENTS

 

     Page

Our Company

   1

The Offering

   3

Risk Factors

   4

Forward-Looking Statements

   14

Use of Proceeds

   14

Dilution

   14

Plan of Distribution

   15

Selling Stockholders

   17

Legal Matters

   19

Experts

   19

Where You Can Find Additional Information

   19

Incorporation of Documents By Reference

   21

 

You should rely only on the information contained in this prospectus or other information to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus.


OUR COMPANY

 

Overview

 

We are an innovative provider of software and services that enable nonprofit organizations to use the Internet to increase donations, reduce fundraising costs, improve operations and build awareness and affinity for their causes by bringing employees, volunteers and donors together in online, interactive communities. Nonprofit organizations raised approximately $241 billion in donations in 2003 according to Giving USA (a publication of the AAFRC Trust for Philanthropy researched and written by the Center on Philanthropy at Indiana University). Many of the more than 2.0 million nonprofit organizations registered with the Internal Revenue Service in the United States use Internet software tools to enhance their fundraising and communication efforts. According to the Nonprofit Times, a publication for nonprofit managers, we estimate online giving to have been approximately $3.0 billion in 2004, and we believe this amount will continue to grow.

 

Our flagship product, Kintera Sphere, is managed as a single system and offered to nonprofit organizations as a service accessed with a web browser. Nonprofit organizations use Kintera Sphere to manage their websites, special events and membership, organize individuals, advocate causes, perform wealth screening, raise major gifts, deliver services and programs and execute personalized marketing campaigns. We also offer services, software and data to nonprofit organizations to assist them with their fundraising efforts and awareness campaigns as well as directed giving program tools and services, accounting software and consulting and advocacy services.

 

We typically enter into customer contracts for Kintera Sphere that are one year or more in duration. Our customers pay us upfront fees and monthly service fees for access to Kintera Sphere and transaction-based fees tied to the donations and purchases we process. We also enter into service contracts that are typically 12 months or longer in duration.

 

Since launching our service in the first quarter of 2001, we have experienced significant growth with our total online donations processed increasing from $9.0 million in 2002 to $53.0 million in 2003 to $149.2 million in 2004. Acquisitions have also been an important part of our development to date. These acquisitions have enabled us to expand our service offerings to include wealth profiling and screening services, directed giving programs, accounting software, consulting and advocacy services. We may continue to acquire companies that provide us with proprietary technology, access to key accounts, or personnel with significant experience in the nonprofit industry.

 

Our principal offices are located at 9605 Scranton Road, Suite 240, San Diego, California 92121. Our telephone number is (858) 795-3000. Our website address is www.kintera.com. The information contained on our website is not intended to be incorporated by reference into this prospectus.

 

Our Products and Services

 

Kintera Sphere

 

Kintera Sphere automates the workflow of a nonprofit organization’s employees, volunteers and donors, thereby facilitating better communication and more effective fundraising. Using our system, nonprofit organizations motivate and reward community members with timely feedback, personalized communications and targeted content. By building a stronger sense of community, nonprofit organizations can increase the commitment of employees, volunteers and donors to a cause and improve the success of their fundraising efforts. Key elements of Kintera Sphere include:

 

    Content Management. Our content management tools enable nonprofit organizations to build and manage websites optimized for community-building and fundraising.

 

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    Contact Management. We provide a comprehensive set of customer relationship management tools that build user profiles by tracking content viewing and preferences, website usage patterns, event attendance and transactional activities.

 

    Communication. We automate and simplify many of the tasks required to manage enterprise-wide or individual email campaigns. Our tools manage the preparation, targeting and distribution of emails and electronic newsletters.

 

    Reporting. Our online reporting system delivers extensive, real-time information such as account status, website visitation metrics, member profiles and donation data. Nonprofit organizations can generate a variety of standard and customized reports on individual donors and campaigns.

 

    Commerce. Our software can be used to collect donations, sell products and services, run online stores, provide membership and benefit centers, manage event registration and offer tribute cards.

 

    Community. Our community tools coordinate users’ interaction with our content, communication, database and other tools. A user’s role or status in the organization determines which data, tools, features and content they are able to access. Community tools also track the activities of employees, volunteers and donors.

 

Wealth Profiling and Screening Services

 

In February 2004, we completed the acquisition of Prospect Information Network, LLC, a provider of software, services and data for nonprofit organizations. As a result of this acquisition, we now offer our Kintera P!N service, a wealth and screening profiling service that enables nonprofits to more efficiently identify, profile, monitor and rank the wealth of prospects in their databases. Kintera P!N also enables nonprofits to edit, analyze, prioritize and combine external data collected from a wide range of sources with their internal donor databases. In addition, in August 2004, we completed the acquisition of Kamtech, Inc., a provider of wealth screening services, enabling us to further broaden our suite of wealth profiling and screening services.

 

Directed Giving Programs

 

Workplace Giving Programs. In August 2004, we completed the acquisition of certain intellectual property and other assets of KindMark, Inc., a developer of corporate giving solutions. As a result of this acquisition, we now offer enhanced workplace giving tools that help corporations and nonprofits automate and support their workplace giving programs. These tools include corporate employee gift matching, volunteer tracking and management, political action committee membership and fundraising drives. Our workplace giving tools can also be combined with other modules of Kintera Sphere for an integrated solution. In addition, for corporations that have established collection campaigns for multiple nonprofits, we offer payment processing services for payroll deductions as well as standard checks, cash and credit cards. We also disburse funds to the appropriate organizations/chapters.

 

Donor Advised Funds Programs. In September 2004, we completed the acquisition of certain intellectual property and other assets of Giving Capital, Inc., a provider of on-demand solutions for donor-advised funds and wealth management products to major financial institutions and money center banks. We provide services to these institutions to deliver donor advised fund infrastructure and support. We receive a setup and maintenance fee as well as variable fees based on the amount of assets being administered.

 

Accounting Software

 

In December 2004, we completed our acquisition of American Fundware Holding Company, Inc., the provider of FundWare® accounting software for nonprofit organizations and governments. As a result of this acquisition, we now offer a full suite of products designed to manage complex finances for nonprofit organizations and governments, including cities, towns, counties, governmental agencies and schools. FundWare financial management programs streamline day-to-day accounting tasks, enable organizations to spend more time

 

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on strategic financial management, and demonstrate accountability to current and potential funding sources. While we currently offer Fundware as a separate software product, we intend to build the FundWare accounting functionality into Kintera Sphere, providing a unified system for nonprofits and governments to manage, and grow, their business.

 

Advocacy Services

 

In March 2004, we completed the acquisition of Carol/Trevelyan Strategy Group, a provider of online advocacy solutions. As a result of this acquisition, we now offer advocacy consulting services that assist nonprofit organizations with melding offline and online strategies and tools to build membership, affinity and impact for their organizations, political campaigns and unions.

 

THE OFFERING

 

On December 2, 2005, we completed the sale of 4,500,000 shares of our common stock and warrants to purchase up to 1,800,000 shares of our common stock for gross proceeds of $13,500,000 in a private placement transaction with institutional investors, which we refer to in this prospectus as the private placement. This prospectus relates to the resale of up to 6,300,000 shares of our common stock sold in the private placement or issuable upon exercise of the warrants sold in the private placement. We are registering our common stock for resale by the selling stockholders. The prices at which these stockholders may sell the shares will be determined by the prevailing market for the shares or in negotiated transactions. See “Plan of Distribution” for more information.

 

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RISK FACTORS

 

You should consider each of the following factors as well as the other information in this prospectus in evaluating our business and our prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common stock could decline, which could result in a complete loss of your investment. You should also refer to the other information set forth in this prospectus and incorporated by reference into this prospectus, including our financial statements and the related notes.

 

Risks Related to Our Business

 

Because we have a limited operating history, it is difficult to evaluate our prospects.

 

We incorporated in February 2000 and first achieved meaningful revenues in 2001. As a result, we will encounter risks and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets. These risks include the following:

 

    we may not increase our sales to our existing customers and expand our customer base;

 

    fees related to Kintera Sphere are our principal source of revenues, and we may not successfully introduce new services and enhance existing services of Kintera Sphere;

 

    we may not successfully expand our sales and marketing efforts;

 

    we may not attract and retain key sales, technical and management personnel; and

 

    we may not effectively manage our anticipated growth.

 

In addition, because of our limited operating history and the early stage of the market for online fundraising solutions, we have limited insight into trends that may emerge and affect our business.

 

We have a history of losses, and we may not achieve or maintain profitability.

 

We have experienced operating and net losses in each fiscal quarter since our inception, and as of September 30, 2005, we had an accumulated deficit of $83.1 million. We incurred net losses of $8.3 million for the three months ended September 30, 2005 and $4.5 million for the three months ended September 30, 2004. We incurred net losses of $30.1 million for the nine months ended September 30, 2005 and $13.4 million for the nine months ended September 30, 2004. We will need to increase revenues and reduce operating expenses to achieve profitability, and we may not be able to do so. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. We also may fail to accurately estimate our increased operating expenses as we grow. If our operating expenses exceed our expectations, our financial performance will be adversely affected.

 

Our operating results have fluctuated and may fluctuate significantly, and these fluctuations may cause our stock price to fall.

 

Our operating results have varied significantly in the past and will likely vary in the future as the result of fluctuations in our revenues and operating expenses. For example, our revenues increased to $12.1 million for the three months ended September 30, 2005, from $7.0 million for the three months ended September 30, 2004 and our net loss increased to $8.3 million for the three months ended September 30, 2005, from $4.5 million for the three months ended September 30, 2004. Although we have reviewed and implemented plans to help reduce our overall operating expenses and will continue to do so, operating expenses may increase in the future as we expand our selling and marketing activities and hire additional personnel. Our revenues in any period depend substantially on monthly service fees, on the number and size of donations that we process in that period for customer sponsored fundraising events and on the sale and licensing of our software products. In addition, the

 

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number and size of transactions we process tends to be seasonal, with the first calendar quarter representing the seasonal low for non-profit fundraising. As a result, it is possible that in some future periods, our revenues may not meet our expectations or, due to our increased expense levels, our results of operations may be below the expectations of current or potential investors. If this occurs, the price of our common stock may decline.

 

Recent acquisitions and potential future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources, which could prevent us from properly servicing and maintaining customer relationships.

 

Acquisitions have been an important part of our development to date. During 2004, we completed acquisitions of several complementary businesses including Prospect Information Network, Carol/Trevelyan Strategy Group, BNW, Inc., Kindmark, Kamtech, Inc., Giving Capital, Inc. and American Fundware, Inc. In 2005, we have completed the acquisition of Gold Box, Inc. We are in the process of integrating the operations of these businesses with ours and finalizing the purchase price allocation for each of these acquisitions. We cannot assure you that we will succeed in completing these integration efforts on a timely basis, or at all. As part of our business strategy, we may acquire companies, services and technologies that we feel could complement or expand our business, augment our market coverage, enhance our technical capabilities, provide us with important customer contacts or otherwise offer growth opportunities. Acquisitions and investments involve numerous risks, including:

 

    difficulties in integrating operations, technologies, services, accounting and personnel;

 

    difficulties in supporting and transitioning customers of our acquired companies;

 

    diversion of financial and management resources from existing operations;

 

    risks of entering new sectors of the nonprofit industry;

 

    potential loss of key employees; and

 

    inability to generate sufficient revenues to offset acquisition or investment costs.

 

Acquisitions also frequently result in recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our operating results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. As a result, if we fail to properly evaluate and execute acquisitions or investments, we may not achieve the anticipated benefits of any such acquisition, and we may incur costs in excess of what we anticipate.

 

If we are not able to manage our growth effectively, we may not become profitable.

 

Since commencing operations in 2000, we have experienced significant growth, and we anticipate that expansion will continue to be required to address potential market opportunities. There can be no assurance that our infrastructure will be sufficiently scalable to manage our experienced growth and any future projected growth. For example, our anticipated growth will result in a significant increase in the volume of transactions handled by our payment processing system. If we are unable to sufficiently enhance and improve this system to handle this increased volume, our profitability and growth may suffer. There also can be no assurance that if we continue to expand our operations, management will be effective in expanding our physical facilities or that our systems, procedures or controls will be adequate to support such expansion. Our inability to manage our growth may harm our business.

 

Nonprofit organizations have not traditionally used the Internet or online software solutions, and they may not adopt our solution.

 

The market for online fundraising solutions for nonprofit organizations is new and emerging. Nonprofit organizations have not traditionally used the Internet or online software solutions for fundraising. We cannot be certain that the market will continue to develop and grow or that nonprofit organizations will elect to adopt our

 

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solution rather than continuing to use traditional offline methods, attempting to develop software solutions internally or utilizing standardized software solutions without integrating them. Nonprofit organizations that have already invested substantial resources in other fundraising methods may be reluctant to adopt a new approach like ours to supplement or replace their existing systems or methods. In addition, increasing concerns about fraud, privacy, reliability and other problems may cause nonprofit organizations not to adopt the Internet as a method for fundraising. We expect that we will continue to need to pursue intensive marketing and sales efforts to educate prospective nonprofit organization customers about the uses and benefits of our solution. If demand for and market acceptance of our solution does not occur, we may not grow our business as we expect.

 

If our efforts to increase awareness of Kintera Sphere and expand sales to other sectors of the nonprofit industry do not succeed, our revenue may not increase as we expect.

 

We have primarily sold our Kintera Sphere solution to nonprofit organizations in the health and human services, religion and education sectors, in part because they rely on special events for fundraising. Based on our experience, we believe that many nonprofit organizations in all nonprofit sectors are still unaware of the benefits that can be achieved through the use of Kintera Sphere. We intend to commit significant resources to promote awareness of Kintera Sphere, but we cannot assure you that we will be successful in this effort. Developing and maintaining awareness of Kintera Sphere is important to our success. If we fail to successfully promote Kintera Sphere, our financial condition could suffer.

 

We have also begun, and intend to continue, to market Kintera Sphere to nonprofit organizations in additional nonprofit sectors. Organizations in these other sectors may not rely on special events or be as willing to purchase our solutions as health and human services nonprofit organizations. If we are unable to increase awareness of Kintera Sphere and expand sales to other sectors of the nonprofit industry, our revenue may not increase as we expect.

 

Any failure to manage and accurately account for large amounts of donations we process could diminish the use of Kintera Sphere, which may prevent or delay our becoming profitable.

 

Our ability to manage and account accurately for the online donations we process requires a high level of internal controls. We have a limited operating history in maintaining these internal controls. As our business continues to grow, we must monitor our internal controls to ensure they are effective. Our success requires significant customer and donor confidence in our ability to handle large and growing donation volumes and amounts. Any failure to maintain necessary controls or to accurately manage online donations could severely diminish nonprofit organizations’ and donors’ use of Kintera Sphere.

 

We may experience customer dissatisfaction and lose sales if our solution does not scale to accommodate a high volume of traffic and transactions.

 

We seek to generate a high volume of traffic and transactions on the websites we host for our customers. A portion of our revenues depends on the number of donations raised by our customers using Kintera Sphere. Accordingly, the satisfactory performance, reliability and availability of our solution, including its processing systems and network infrastructure, are critical to our reputation and our ability to attract and retain new customers. Any system interruptions that result in the unavailability of our solution or reduced donor activity would reduce the volume of donations and may also diminish the attractiveness of our solution to our customers. Furthermore, our inability to add software and hardware or to develop and further upgrade our existing technology, payment processing systems or network infrastructure to accommodate increased traffic or increased transaction volume may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired quality of the user’s experience, and delays in reporting accurate financial information. There can be no assurance that we will be able to effectively upgrade and expand our systems or to integrate smoothly any new technologies with our existing systems. Any inability to do so would have an adverse effect on our ability to maintain customer relationships and grow our business.

 

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We may not be able to develop new enhancements to or support services for Kintera Sphere at a rate required to achieve customer acceptance in our rapidly changing market.

 

Although Kintera Sphere is designed to operate with a variety of network hardware and software platforms, we will need to continuously modify and enhance Kintera Sphere to keep pace with changes in Internet-related hardware, software, communication, browser and database technologies. Our future success depends on our ability to develop new enhancements to or support services for Kintera Sphere that keep pace with rapid technological developments and that address the changing needs of our nonprofit customers. We may not be successful in either developing such services or introducing them to the market in a timely manner. In addition, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our development expenses. Any failure of our services to operate effectively with the existing and future network platforms and technologies could limit or reduce the market for our services, result in customer dissatisfaction or cause our revenue growth to suffer.

 

If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers and safeguard confidential donor data, our reputation may be harmed and customers may be reluctant to use our service.

 

We rely on encryption and authentication technology to provide secure transmission of confidential information, including customer credit card and bank account numbers, and protect confidential donor data. Identity thieves and criminals using stolen credit card or bank account numbers could still potentially circumvent our anti-fraud systems. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the technology we use to protect sensitive transaction data. If any such compromise of our security were to occur, it could result in misappropriation of our proprietary information or interruptions in our operations and have an adverse impact on our reputation. We may have to spend significant money and time protecting against such security breaches or alleviating problems caused by such breaches. If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers or protect confidential donor data, our business may suffer.

 

If we were found subject to or in violation of any laws or regulations governing privacy or electronic fund transfers, we could be subject to liability or forced to change our business practices.

 

It is possible that the payment processing component of Kintera Sphere and certain services we provide are subject to various governmental regulations. In addition, we may be subject to the privacy provisions of the Gramm-Leach-Bliley Act and related regulations. Pending and enacted legislation at the state and federal levels, including those related to fundraising activities, may also restrict further our information gathering and disclosure practices, for example, by requiring us to comply with extensive and costly registration, reporting or disclosure requirements. Existing and potential future privacy laws may limit our ability to develop new products and services that make use of data gathered through our service. The provisions of these laws and related regulations are complicated, and we do not have extensive experience with these laws and related regulations. Even technical violations of these laws can result in penalties that are assessed for each non-compliant transaction. Given the high volumes of transactions we process, if we were found to be subject to and in violation of any of these laws or regulations, our business would suffer and we would likely have to change our business practices. In addition, these laws and regulations could impose significant compliance costs on us and make it more difficult for donors to make online donations.

 

System failure could harm our reputation and reduce the use of Kintera Sphere by nonprofit organizations, which could cause our revenues and operating results to decline.

 

If nonprofit organizations believe Kintera Sphere to be unreliable, they will be unlikely to use Kintera Sphere which will harm our revenue and profits. Our systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, electronic virus or worm

 

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attacks and similar events. They also could be subject to break-ins, sabotage and intentional acts of vandalism. Our business interruption insurance may not be sufficient to compensate us for losses that may occur. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities could result in interruptions in our services. Interruptions in our service could harm our reputation and reduce our revenues and profits.

 

Sales cycles to major customers can be long, which makes it difficult to forecast our results.

 

It typically takes us between three and nine months to complete a sale to a major customer account, but it can take us up to one year or longer. It is therefore difficult to predict the quarter in which a particular sale will occur and to forecast our sales. The period between our initial contact with a potential customer and its purchase of Kintera Sphere is relatively long due to several factors, including:

 

    our need to educate potential customers about the uses and benefits of Kintera Sphere;

 

    our customers have budget cycles which affect the timing of purchases; and

 

    many of our customers have lengthy internal approval processes before purchasing our services.

 

Any delay or failure to complete sales in a particular quarter could reduce our revenues in that quarter, as well as subsequent quarters over which revenues for the sale may be recognized. If our sales cycle unexpectedly lengthens in general or for one or more large orders, it would adversely affect the timing of our revenues.

 

Because we recognize revenue from upfront payments ratably over the term of the contract, downturns in sales may not be immediately reflected in our revenues.

 

We have derived the substantial majority of our historical revenues from fees paid by nonprofit organizations related to their use of Kintera Sphere, and we anticipate that Kintera Sphere will account for an increasing portion of our revenues in future periods. The fees we receive for Kintera Sphere include upfront fees that nonprofit organizations pay for the right to access to Kintera Sphere. We recognize revenue from the upfront service fees over the term of the contract, which is typically one year or more. As a result, a portion of our revenues in each quarter is deferred revenue from contracts entered into and paid for during previous quarters. Because of this deferred revenue, the revenues we report in any quarter or series of quarters may mask significant downturns in sales and the market acceptance of Kintera Sphere.

 

Our ability to generate increased revenues depends in part on the efforts of our strategic partners, over whom we have little control.

 

Our ability to generate increased revenues depends in part upon the ability and willingness of our strategic partners to increase awareness of our solution to their customers. We cannot control the level of effort these partners expend or the extent to which any of them will be successful in increasing awareness of our solution. We may not be able to prevent these parties from devoting greater resources to support services developed by them or other third parties. If our strategic partners fail to increase awareness of our solution or to assist us in getting access to decision-makers, then we may need to increase our marketing expenses, change our marketing strategy or enter into marketing relationships with different parties, any of which could impair our ability to generate increased revenues.

 

We are dependent on our management team, and the loss of any key member of this team may prevent us from achieving our business plan in a timely manner.

 

Our success depends largely upon the continued services of our executive officers and other key personnel. In particular, we rely on Harry E. Gruber, M.D., our President, Chief Executive Officer and Chairman. We do not have employment agreements with our executive officers and, therefore, they could terminate their employment with us at any time without penalty. We do not maintain key person life insurance policies on any of our

 

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employees. The loss of one or more of our key employees could seriously harm our business, results of operations and financial condition. We cannot assure you that in such an event we would be able to recruit personnel to replace these individuals in a timely manner, or at all, on acceptable terms.

 

In addition, in the past six months, we appointed Richard Davidson as our new Chief Financial Officer and hired a new corporate controller. Because of these changes, these newly-hired employees have not worked with our senior management team and finance personnel for a significant length of time, and we cannot assure you that these management transitions will not result in some disruption of our business. If our new senior management team and finance department are unable to work together effectively to implement our strategies, manage our operations and accomplish our objectives, our business, operations and financial results could be severely impaired.

 

Because competition for highly qualified sales and software development personnel is intense, we may not be able to attract and retain the employees we need to support our planned growth.

 

To execute our growth plan, we have significantly increased the size of our sales force and software development staff. To successfully meet our objectives, we must continue to attract and retain highly qualified sales and software development personnel with specialized skill sets focused on the nonprofit industry. Competition for qualified sales and software development personnel can be intense, and we cannot assure you that we will be successful in retaining current employees or attracting and retaining new ones. The pool of qualified personnel with experience working with or selling to non-profit organizations is limited. Our ability to expand our sales team will depend on our ability to recruit, train and retain top quality people with advanced skills who understand sales to nonprofit organizations. Because the sale of online fund raising solutions is still relatively new, there is a shortage of sales personnel with the experience we need. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications for our business. In addition, it takes time for our new sales personnel to become productive, particularly with respect to obtaining major customer accounts. In many cases, newly hired sales personnel are unable to develop their skills rapidly enough, which results in a relatively high turnover rate and a corresponding increased need to make continual new hires. If we are unable to hire or retain qualified sales and software development personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our solution, and we may experience a shortfall in revenues and not achieve our planned growth.

 

Our failure to compete successfully against current or future competitors could cause our revenues or market share to decline.

 

Our market is fragmented, competitive and rapidly evolving, and there are limited barriers to entry for some aspects of this market. We mainly face competition from four sources:

 

    traditional fundraising methods;

 

    custom developed solutions created by technical staff or outside custom service providers;

 

    companies that offer specialized software designed to address needs of businesses across a variety of industries; and

 

    companies that offer integrated software solutions designed to address the needs of nonprofit organizations.

 

In the past, we have competed with these companies by focusing on and committing significant resources to promote awareness of Kintera Sphere to nonprofit organizations in the health and human services sector, and by developing features to better meet the needs of our customers. However, the companies we compete with may have greater financial, technical and marketing resources, generate greater revenues and better name recognition than we do. These competitive pressures could cause our revenues and market share to decline.

 

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Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and establish our Kintera Sphere brand.

 

Our success and ability to compete depend in part on our internally developed technology and software applications. We rely on patent, trademark, copyright and trade secret laws and restrictions in the United States and other jurisdictions, together with contractual restrictions on our employees, strategic partners and customers, to protect our proprietary rights. Any of our trademarks may be challenged by others or invalidated through administrative process or litigation. As of December 15, 2005, we have three issued patents and 19 pending patent applications in the United States. We may not be successful in obtaining these patents and we may be unable to obtain additional patent protection in the future. In addition, any issued patents may not provide us with any competitive advantages, or may be challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our solution is available. As a result, we cannot assure you that our means of protecting our proprietary rights will be adequate. Furthermore, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property. Any such infringement or misappropriation could have a material adverse effect on our revenues and prospects for growth.

 

Risks Related to this Offering

 

Our common stock price may fluctuate substantially, and your investment could suffer a decline in value.

 

The market price of our common stock may be volatile and could fluctuate substantially due to many factors, including:

 

    actual or anticipated fluctuations in our results of operations;

 

    the introduction of new products or services, or product or service enhancements by us or our competitors;

 

    developments with respect to our or our competitors’ intellectual property rights;

 

    announcements of significant acquisitions or other agreements by us or our competitors;

 

    our sale of common stock or other securities in the future;

 

    the trading volume of our common stock;

 

    conditions and trends in the nonprofit industry;

 

    changes in our pricing policies or the pricing policies of our competitors;

 

    changes in the estimation of the future size and growth of our markets; and

 

    general economic conditions.

 

In addition, the stock market in general, the Nasdaq National Market, and the market for shares of technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, the market prices of securities and technology companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, shareholder derivative lawsuits securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.

 

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Our publicly-filed reports are reviewed from time to time by the SEC and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common stock.

 

The reports of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company’s reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply, in all material respects with the published rules and regulations of the SEC, we could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review. Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock.

 

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

 

As discussed in Note 2 to the consolidated financial statements contained in the Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31, 2005, during our prior review of our consolidated financial statements for the second fiscal quarter of 2005, we restated our previously published consolidated financial statements as of and for the quarter ended March 31, 2005, which we determined indicated ineffective controls over the application of accounting policies with respect to the capitalization of software developments costs and therefore represented a material weakness in our internal controls. Although we have made significant changes in our internal controls and operations that we believe will help prevent the occurrence of financial reporting problems in the future, there can be no assurances that we will not discover additional instances of breakdowns in our internal controls and operations of the types that led to the previous restatement of our financial statements.

 

Any failure to remediate the conditions reported or to implement new or improved controls, or any difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Inferior controls and procedures could also cause our customers to lose confidence in our internal controls and investors to lose confidence in our reported financial information, all of which could have a negative impact on our revenues as well as the trading price of our stock.

 

Because of their significant stock ownership, some of our existing stockholders will be able to exert control over us and our significant corporate decisions.

 

Our executive officers, directors and their affiliates own, in the aggregate, approximately 35% of our outstanding common stock. As a result, these persons, acting together, have the ability to exercise significant influence the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any significant transaction involving us. In addition, these persons, acting together, have the ability to control the management and affairs of our company. This concentration of ownership may harm the market price of our common stock by, among other things:

 

    delaying, deferring, or preventing a change in control of our company;

 

    impeding a merger, consolidation, takeover, or other business combination involving our company;

 

    causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or

 

    discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

 

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Our future capital needs are uncertain, and we may need to raise additional funds in the future which may not be available on acceptable terms or at all.

 

Our capital requirements will depend on many factors, including:

 

    acceptance of, and demand for, Kintera Sphere and our other product and service offerings;

 

    the costs of developing new products, services or technology;

 

    the extent to which we invest in new technology and product development;

 

    the number and timing of acquisitions and other strategic transactions; and

 

    the costs associated with the growth of our business, if any.

 

Our existing sources of cash and cash flows may not be sufficient to fund our activities. As a result, we may need to raise additional funds, and such funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those or our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.

 

Our certificate of incorporation authorizes our board of directors to issue new series of preferred stock that may have the effect of delaying or preventing a change of control, which could adversely affect the value of your shares.

 

Our certificate of incorporation, as amended, provides that our board of directors will be authorized to issue from time to time, without further stockholder approval, up to 20,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates, conversion rights, voting rights, rights of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of any series. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. We may issue additional preferred stock in ways which may delay, defer or prevent a change of control of our company without further action by our stockholders. Such shares of preferred stock may be issued with voting rights that may adversely affect the voting power of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights.

 

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock.

 

Our certificate of incorporation, as amended, and our bylaws, as amended, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. In addition, our certificate of incorporation, as amended, and our bylaws, as amended, provide that our board of directors is classified into three classes of directors, with each class elected at a separate election. The existence of a staggered board could delay a potential acquiror from obtaining majority control of our board, and thus deter potential acquisitions that might otherwise provide our stockholders with a premium over the then current market price for their shares.

 

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, as amended, and our bylaws, as

 

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amended, and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest or other change of control transaction involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could prevent the consummation of a transaction in which our stockholders could receive a premium over the then current market price for their shares.

 

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FORWARD-LOOKING STATEMENTS

 

This prospectus contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words “anticipate,” “believe,” “estimate,” “will,” “may,” “future,” “plan,” “intend” and “expect” and similar expressions generally identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in the forward-looking statements are reasonable, we cannot be sure that they will be achieved. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in “Risk Factors”, contained elsewhere in this prospectus or that may be set forth in other documents that we subsequently incorporate by reference into this prospectus. These factors are not intended to represent a complete list of the general or specific factors that may affect us. It should be recognized that other factors, including general economic factors and business strategies, may be significant, presently or in the future. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. These forward-looking statements are made only as of the date of this prospectus. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

USE OF PROCEEDS

 

The shares are being registered hereunder for resale by the selling stockholders. We will not receive any proceeds from the sale of the shares by the selling stockholders. We will receive the proceeds from the exercise of the warrants by the selling stockholders if they are exercised other than on a cashless exercise basis.

 

DILUTION

 

The pro forma net tangible book value per share of our common stock will be substantially below an assumed public offering price of $2.60. Our pro forma net tangible book value as of September 30, 2005 (after giving effect to the sale of 4,500,000 shares of our common stock and warrants exercisable for up to 1,800,000 shares of our common stock on December 2, 2005 for net proceeds of $13.5 million) was approximately $35,547 million, or approximately $0.99 per share. Pro forma net tangible book value per share represents our total net tangible assets as of September 30, 2005 (after giving effect to the receipt of $13.5 million from the sale of our common stock on December 2, 2005), divided by the number of shares of our common stock outstanding at September 30, 2005 plus 4,500,000 shares of common stock sold on December 2, 2005. Dilution in pro forma net tangible book value per share represents the difference between the amount per share of our common stock that you pay and the pro forma net tangible book value per share of our common stock immediately afterwards. Assuming an offering price of $2.60, you will incur immediate and substantial dilution of $1.61 per share. The actual prices at which the selling stockholders may sell shares of our common stock will vary from time to time. Therefore, the actual amount of dilution that you will experience, if any, will depend upon the price at the time of your purchase.

 

The following table illustrates this dilution per share:

 

Assumed offering price per share

   $ 2.60

Pro forma net tangible book value per share as of September 30, 2005

   $ 0.99
    

Dilution per share to you

   $ 1.61
    

 

The above table:

 

    Assumes no exercise of options or warrants after September 30, 2005. As of December 15, 2005, there were outstanding (i) options to purchase a total of 5,870,945 shares of common stock at a weighted average exercise price of $5.647 per share and (ii) warrants to purchase a total of 1,800,000 shares of common stock at a price per share of $3.50. To the extent outstanding options or warrants are exercised, you would experience further dilution. In addition, to the extent there are purchases made under our employee stock purchase plan, you may experience further dilution.

 

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PLAN OF DISTRIBUTION

 

The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

    ordinary brokerage transactions and transactions in which the broker-dealer solicits investors;

 

    block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

    purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

    an exchange distribution in accordance with the rules of the applicable exchange;

 

    privately negotiated transactions;

 

    to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the Commission;

 

    broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 

    a combination of any such methods of sale; and

 

    any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

 

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of our common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of our common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

 

Upon being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of our common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will file a supplement to this prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon being notified in writing by a selling stockholder that a donee or pledgee intends to sell more than 500 shares of our common stock, we will file a supplement to this prospectus if then required in accordance with applicable securities law.

 

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The selling stockholders also may transfer the shares of our common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to us that it acquired the securities subject to this registration statement in the ordinary course of such selling stockholder’s business and, at the time of its purchase of such securities such selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.

 

We have advised each selling stockholder that it may not use shares registered on the registration statement of which this prospectus is a part to cover short sales of our common stock made prior to the date on which this registration statement shall have been declared effective by the Commission. If a selling stockholder uses this prospectus for any sale of shares of our common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling stockholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling stockholders in connection with resales of their respective shares under this registration statement.

 

We are required to pay all fees and expenses incident to the registration of the shares, but we will not receive any proceeds from the sale of the shares of our common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

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SELLING STOCKHOLDERS

 

On November 21, 2005 we entered into a securities purchase agreement with the selling stockholders pursuant to which we sold 4,500,000 shares of common stock at $3.00 per share and issued warrants to purchase 1,800,000 shares of our common stock with an exercise price of $3.50 per share which may be exercised for five years from the date of the closing of the private placement. All of those shares and the shares issuable upon exercise of the warrants are included among the shares whose resale are covered by this prospectus. In connection with the securities purchase agreement, we entered into a registration rights agreement under which we agreed to register all of these shares under the Securities Act for resale to the public, and subject to the terms and conditions of such agreement, to cause the registration statement of which this prospectus is a part to be kept effective until the earlier of (i) five years from the date the registration statement was declared effective by the SEC, (ii) such time as all of the shares offered by this prospectus have been sold, and (iii) such time as all of the shares may be sold pursuant to Rule 144(k) under the Securities Act.

 

The following table sets forth the names of the selling stockholders, the number of shares being registered for sale as of the date of this prospectus and the number of shares of common stock known by us to be beneficially owned by each of the selling stockholders. The following table assumes that the selling stockholders will sell all of the shares being offered for their account by this prospectus. However, we are unable to determine the exact number of shares that actually will be sold.

 

Except as set forth below in the table, none of the selling stockholders is a registered broker-dealer or is an affiliate of a registered broker-dealer. BTG Investments, LLC is affiliated with Roth Capital Partners, the placement agent engaged by us in connection with the private placement. Except as noted in the preceding sentence, none of the selling stockholders has had a material relationship with us within the past three years other than as a result of the ownership of our shares or other securities.

 

    

Shares of Common

Stock Beneficially

Owned Prior to Offering


    Shares
Offered
by This
Prospectus


  

Shares of Common

Stock Beneficially

Owned After the

Offering


 

Name of Selling Stockholder


   Number

   Percentage(1)

       Number

   Percentage(1)

 

BTG Investments, LLC(2)

                           

c/o BTG Investments, LLC

24 Corporate Plaza

Newport Beach, CA 92660

   260,000    *     245,000    15,000    *  

CCM Master Qualified Fund, Ltd.(3)

c/o Coghill Capital Management, LLC

One N. Wacker Dr., #4350

Chicago, IL 60606

   3,251,309    8.9 %   2,555,000    1,426,309    3.9 %

Magnetar Capital Master Fund Ltd.(4)

c/o Magnetar Financial, LLC

1603 Orrington Avenue, 13th Floor

Evanston, IL 60201

   2,346,423    6.5 %   2,100,000    246,423    *  

Walker Smith Capital / SRB Greenway

c/o Walker Smith Capital / SRB Greenway

300 Crescent Court, Suite 1111

Dallas, TX 75201

                           

Walker Smith International Fund, Ltd(5)

   320,600    *     320,600        

Walker Smith Capital (QP), L.P.(6)

   224,886    *     224,886        

Walker Smith Capital, L.P.(7)

   36,914    *     36,914        

SRB Greenway Offshore Operating Fund, L.P.(8)

   75,846    *     45,546    30,300    *  

SRB Greenway Capital (QP), L.P.(9)

   971,154    2.7 %   569,054    402,100    1.1 %

SRB Greenway Capital, L.P.(10)

   144,300    *     85,400    58,900    *  

HHMI Investments, L.P.(11)

   117,600    *     117,600        

 

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* Represents less than one percent.

 

(1) Applicable percentage ownership is based on 36,249,569 shares of our common stock outstanding as of December 5, 2005. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, based on factors including voting and investment power with respect to shares, subject to the applicable community property laws. Shares of our common stock subject to options or warrants currently exercisable, or exercisable within 60 days after December 5, 2005, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person.

 

(2) Includes (a) 70,000 shares issuable upon exercise of a warrant held by BTG Investments, LLC; (b) 175,000 shares of common stock held by BTG Investments, LLC; and (c) 15,000 shares of common stock held by Gordon J. Roth. Gordon J. Roth and Byron C. Roth of BTG Investments, LLC exercise shared voting and dispositive powers with respect to the 254,000 shares held by BTG Investments, LLC. Gordon J. Roth exercises sole voting and dispositive power with respect to the 15,000 shares held in his name. BTG Investments, LLC is an affiliate of Roth Capital Partners, a broker-dealer engaged as placement agent in connection with the private placement.

 

(3) Clint D. Coghill of CCM Master Qualified Fund, Ltd. exercises sole voting and dispositive powers with respect to the shares registered on behalf of CCM Master Qualified Fund, Ltd. The amount of shares indicated does not include warrants to purchase shares of common stock that are not exercisable within 60 days.

 

(4) Includes 600,000 shares issuable upon exercise of a warrant. Magnetar Financial LLC is the investment advisor of Magnetar Capital Master Fund, Ltd (“Magnetar Master Fund”) and consequently has voting control and investment discretion over securities held by Magnetar Master Fund. Magnetar Financial LLC disclaims beneficial ownership of the securities held by Magnetar Master Fund. Alec Litowitz is the manager of Magnetar Capital Partners LLC, which is the sole member of Magnetar Financial LLC. As a result, Mr. Litowitz may be considered the beneficial owner of any shares deemed to be beneficially owned by Magnetar Financial LLC. Mr. Litowitz disclaims beneficial ownership of these shares.

 

(5) Includes 91,600 shares issuable upon exercise of a warrant. Reid S. Walker and G. Stacy Smith of Greenway Capital / Walker Smith exercise shared voting and dispositive powers with respect to the shares registered on behalf of Walker Smith International Fund, Ltd.

 

(6) Includes 64,253 shares issuable upon exercise of a warrant. Reid S. Walker and G. Stacy Smith of Greenway Capital / Walker Smith exercise shared voting and dispositive powers with respect to the shares registered on behalf of Walker Smith Capital (QP), L.P.

 

(7) Includes 10,547 shares issuable upon exercise of a warrant. Reid S. Walker and G. Stacy Smith of Greenway Capital / Walker Smith exercise shared voting and dispositive powers with respect to the shares registered on behalf of Walker Smith Capital, L.P.

 

(8) Includes 13,013 shares issuable upon exercise of a warrant. Steven R. Becker of Greenway Capital / Walker Smith exercises sole voting and dispositive powers with respect to the shares registered on behalf of SRB Greenway Offshore Operating Fund, L.P.

 

(9) Includes 162,587 shares issuable upon exercise of a warrant. Steven R. Becker of Greenway Capital / Walker Smith exercises sole voting and dispositive powers with respect to the shares registered on behalf of SRB Greenway Capital (QP), L.P.

 

(10) Includes 24,400 shares issuable upon exercise of a warrant. Steven R. Becker of Greenway Capital / Walker Smith exercises sole voting and dispositive powers with respect to the shares registered on behalf of SRB Greenway Capital, L.P.

 

(11) Includes 33,600 shares issuable upon exercise of a warrant. Reid S. Walker and G. Stacy Smith of Greenway Capital / Walker Smith exercise shared voting and dispositive powers with respect to the shares registered on behalf of HHMI Investments, L.P.

 

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LEGAL MATTERS

 

The validity of the common stock offered by this prospectus will be passed upon for Kintera by Morrison & Foerster LLP, San Diego, California.

 

EXPERTS

 

The consolidated financial statements of Kintera, Inc. appearing in Kintera Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2004, and Kintera, Inc. management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 included therein (which did not include an evaluation of the internal control over financial reporting of Prospect Information Network, LLC, Carol/Trevelyan Strategy Group, BNW, Inc., Kamtech, Inc., Giving Capital, Inc., and American Fundware Holding Company, Inc.), have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, which as to the report on internal control over financial reporting contains an explanatory paragraph describing the above referenced exclusion of Prospect Information Network, LLC, Carol/Trevelyan Strategy Group, BNW, Inc., Kamtech, Inc., Giving Capital, Inc., and American Fundware Holding Company, Inc. from the scope of management’s assessment and such firm’s audit of internal control over financial reporting, included therein, and incorporated herein by reference. Such financial statements and management’s assessment have been incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the Securities and Exchange Commission a registration statement on Form S-3 under the Securities Act with respect to the common stock offered by this prospectus. When used in this prospectus, the term “registration statement” includes amendments to the registration statement as well as the exhibits, schedules, financial statements and notes filed as part of the registration statement. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement. This prospectus omits information contained in the registration statement as permitted by the rules and regulations of the Securities and Exchange Commission. For further information with respect to us and the common stock offered by this prospectus, reference is made to the registration statement. Statements herein concerning the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed with the Securities and Exchange Commission as an exhibit to the registration statement, each such statement being qualified by and subject to such reference in all respects. With respect to each such document filed with the Securities and Exchange Commission as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved.

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance with such laws, will file reports and other information with the Securities and Exchange Commission. Reports, registration statements, proxy statements, and other information filed by us with the Securities and Exchange Commission can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W. Washington, D.C. 20549. The Securities and Exchange Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the site is http://www.sec.gov. Copies of materials not available on the website can be obtained at prescribed rates from the Public Reference Section of the Securities and Exchange Commission, through an electronic mail message to the Internet group mailbox publicinfo@sec.gov, by fax (202) 777-1027 or by mail 100 F Street, N.E. Room 1580, Washington, D.C. 20549. Information regarding the operation of the public reference facilities may be obtained by calling 1 800 SEC 0330.

 

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We intend to furnish holders of our common stock with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish other reports as we may determine or as may be required by law.

 

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INCORPORATION OF DOCUMENTS BY REFERENCE

 

The Securities and Exchange Commission allows us to “incorporate by reference” information into this prospectus, which means that we may disclose important information to you by referring you to another document filed separately with the Securities and Exchange Commission. The information incorporated by reference is deemed to be part of this prospectus, and information that we file later with the Securities and Exchange Commission will automatically update and supersede this information.

 

We incorporate by reference the documents listed below and any future filings made by us with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the offering is complete:

 

    Annual Report on Form 10-K for the fiscal year ended December 31, 2004;

 

    Definitive Proxy Statement on Schedule 14A for our annual meeting of stockholders held on July 21, 2005, filed on June 21, 2005;

 

    Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2005, June 30, 2005 and September 30, 2005;

 

    Current Reports on Form 8-K filed with the Securities and Exchange Commission on February 17, 2005, May 10, 2005, May 12, 2005, August 16, 2005, November 9, 2005, November 22, 2005 and December 5, 2005;

 

    Current Report on Form 8-K/A filed with the Securities and Exchange Commission on February 14, 2005; and

 

    The description of our common stock that is contained in the Registration Statement on Form 8-A filed pursuant to Section 12 of the Exchange Act that became effective on December 11, 2003, including any amendments or reports filed for the purpose of updating such description.

 

We will provide to each person who so requests, including any beneficial owner to whom a prospectus is delivered, a copy of these filings excluding exhibits except to the extent such exhibits are specifically incorporated by reference. You may request a copy of these filings, at no cost, by writing us at Kintera, Inc., 9605 Scranton Road, Suite 240, San Diego, California 92121 or telephoning us at (858) 795-3000.

 

You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not making any offer of these securities in any state where the offer is not permitted. You should not assume the information in this prospectus or any prospectus supplement is accurate as of any date other than the date of the front of those documents.

 

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