1089907--7/6/2006--KANA_SOFTWARE

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{product, market, service}

{system, service, information}

{customer, product, revenue}

{property, intellectual, protect}

{control, financial, internal}

{acquisition, growth, future}

{regulation, change, law}

{operation, international, foreign}

{competitive, industry, competition}

{interest, director, officer}

{personnel, key, retain}

{stock, price, operating}

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{product, candidate, development}

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{product, liability, claim}

Risks Related to Our Business and Industry 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. We may not be able to forecast our revenues accurately because our products have a long and variable sales cycle and we rely on systems integrator partners for sales. Our business relies heavily on customer service solutions, and these solutions may not gain market acceptance. Our expenses are generally fixed and we will not be able to reduce these expenses quickly if we fail to meet our revenue expectations. 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. If we fail to grow our customer base or generate repeat business, our operating results could be harmed. We face substantial competition and may not be able to compete effectively. We have a history of losses and may not be able to generate sufficient revenue to achieve and maintain profitability. 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. Reductions in our workforce may adversely affect our ability to release products and product updates in a timely manner. We may be unable to hire and retain the skilled personnel necessary to develop and grow our business. 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. Our failure to manage multiple technologies and technological change could reduce demand for our products. Failure to develop new products or enhancements to existing products on a timely basis would hurt our sales and damage our reputation. Failure to license necessary third party software incorporated in our products could cause delays or reductions in our sales. Our independent registered public accounting firm has 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. 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 Report on Form 10-K for the years ended December 31, 2004 and 2005. Our common stock was recently delisted from The NASDAQ National Market. Our stock price has been highly volatile and has experienced a significant decline, and may continue to be volatile and decline. We have experienced transitions 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. Our pending patents may never be issued and, even if issued, may provide little protection. We rely upon trademarks, copyrights and trade secrets to protect our proprietary rights, which may not be sufficient to protect our intellectual property. We may become involved in litigation over proprietary rights, which could be costly and time consuming. We may face liability claims that could result in unexpected costs and damages to our reputation. We may face higher costs and lost sales if our software contains errors. Our security could be breached, which could damage our reputation and deter customers from using our services. Our international operations expose us to additional risks. International laws and regulations may expose us to potential costs and litigation. We may suffer foreign exchange rate losses. If we acquire companies, products, or technologies, we may face risks associated with those acquisitions. The role of acquisitions in our future growth may be limited, which could harm our business and strategy. Compliance with new regulations governing public company corporate governance and reporting will result in additional costs. Changes in the accounting treatment of stock options could adversely affect our results of operations. We have adopted anti-takeover defenses that could delay or prevent an acquisition of the Company. 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. 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. Privacy concerns relating to the Internet are increasing, which could result in legislation that negatively affects our business in reduced sales of our products.

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1089907--7/6/2006--KANA_SOFTWARE_INC