10-Q 1 egan-20141231x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

OR

◻TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-35314

eGAIN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware |  | 77-0466366
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
1252 Borregas Avenue, Sunnyvale, CA |  | 94089
(Address of principal executive offices) |  | (Zip Code)

(408) 636-4500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”; “accelerated filer” and “smaller reporting company”, in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer |  | ◻ |  | Accelerated filer |  | ☒
Non-accelerated filer |  | ◻ (Do not check if a smaller reporting company) |  | Smaller reporting company |  | ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ◻ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class |  | Outstanding at February 5, 2015
Common Stock $0.001 par value |  | 26,685,679

Table of Contents

eGAIN CORPORATION

Quarterly Report on Form 10-Q

For the Quarterly Period Ended December 31, 2014

TABLE OF CONTENTS

|  |  | Page
PART I. | FINANCIAL INFORMATION |  | 2
Item 1. | Financial Statements (Unaudited) |  | 2
| Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2014 |  | 2
| Condensed Consolidated Statements of Operations for the Three and Six M onths ended December 31, 2014 and 2013 |  | 3
| Condensed Consolidated Statements of Comprehensive Loss for the Three and Six M onths ended December 31, 2014 and 2013 |  | 4
| Condensed Consolidated Statements of Cash Flows for the Six M onths Ended December 31, 2014 and 2013 |  | 5
| Notes to Condensed Consolidated Financial Statements |  | 6
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 20
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |  | 32
Item 4. | Controls and Procedures |  | 33
PART II. | OTHER INFORMATION |  | 34
Item 1. | Legal Proceedings |  | 34
Item 1A. | Risk Factors |  | 34
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 46
Item 6. | Exhibits |  | 47
| Signatures |  | 48

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PART I. FINANCIAL INFORMATIO N

Item 1. Financial Statements

eGAIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited)

(in thousands, except par value data)

|  | December 31, |  | June 30, |
|  | 2014 |  | 2014 |
ASSETS |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 8,296 |  | $ | 8,785 |
Restricted cash |  |  | 1,017 |  |  | 30 |
Accounts receivable, less allowance for doubtful accounts of $517 and $574 as of December 31, 2014 and June 30, 2014, respectively |  |  | 10,736 |  |  | 11,163 |
Deferred commissions |  |  | 533 |  |  | 865 |
Prepaid and other current assets |  |  | 1,867 |  |  | 1,348 |
Total current assets |  |  | 22,449 |  |  | 22,191 |
Property and equipment, net |  |  | 3,941 |  |  | 4,489 |
Deferred commissions, net of current portion |  |  | 178 |  |  | 337 |
Intangible assets, net |  |  | 9,010 |  |  | — |
Goodwill |  |  | 13,230 |  |  | 4,880 |
Other assets |  |  | 1,193 |  |  | 750 |
Total assets |  | $ | 50,001 |  | $ | 32,647 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |
Accounts payable |  | $ | 2,555 |  | $ | 2,162 |
Accrued compensation |  |  | 7,159 |  |  | 5,729 |
Accrued liabilities |  |  | 2,894 |  |  | 1,456 |
Deferred revenue |  |  | 11,473 |  |  | 12,920 |
Capital lease obligations |  |  | 437 |  |  | 392 |
Bank borrowings |  |  | 500 |  |  | 1,417 |
Total current liabilities |  |  | 25,018 |  |  | 24,076 |
Deferred revenue, net of current portion |  |  | 1,157 |  |  | 793 |
Capital lease obligations, net of current portion |  |  | 386 |  |  | 625 |
Bank borrowings, net of current portion |  |  | 16,500 |  |  | 3,583 |
Other long term liabilities |  |  | 2,043 |  |  | 521 |
Total liabilities |  |  | 45,104 |  |  | 29,598 |
Commitments and contingencies (Note 5) |  |  |  |  |  |  |
Stockholders' equity: |  |  |  |  |  |  |
Common stock, $0.001 par value - authorized: 50,000 shares; outstanding: 26,674 shares as of December 31, 2014 and 25,471 as of June 30, 2014 |  |  | 27 |  |  | 25 |
Additional paid-in capital |  |  | 339,779 |  |  | 330,657 |
Notes receivable from stockholders |  |  | (76) |  |  | (83) |
Accumulated other comprehensive loss |  |  | (1,156) |  |  | (970) |
Accumulated deficit |  |  | (333,677) |  |  | (326,580) |
Total stockholders' equity |  |  | 4,897 |  |  | 3,049 |
Total liabilities and stockholders' equity |  | $ | 50,001 |  | $ | 32,647 |

See accompanying notes to condensed consolidated financial statements

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eGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION S (Unaudited)

(in thousands, except per share data)

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |
Subscription and support |  | $ | 10,956 |  | $ | 10,246 |  | $ | 21,401 |  | $ | 19,712 |
License |  |  | 3,583 |  |  | 3,065 |  |  | 10,311 |  |  | 6,903 |
Professional services |  |  | 4,364 |  |  | 4,354 |  |  | 7,895 |  |  | 6,732 |
Total revenue |  |  | 18,903 |  |  | 17,665 |  |  | 39,607 |  |  | 33,347 |
Cost of subscription and support |  |  | 3,264 |  |  | 1,951 |  |  | 6,143 |  |  | 3,922 |
Cost of license |  |  | 26 |  |  | 26 |  |  | 54 |  |  | 52 |
Cost of professional services |  |  | 4,951 |  |  | 3,859 |  |  | 9,031 |  |  | 7,395 |
Total cost of revenue |  |  | 8,241 |  |  | 5,836 |  |  | 15,228 |  |  | 11,369 |
Gross profit |  |  | 10,662 |  |  | 11,829 |  |  | 24,379 |  |  | 21,978 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development |  |  | 4,160 |  |  | 2,390 |  |  | 7,901 |  |  | 4,496 |
Sales and marketing |  |  | 9,599 |  |  | 8,617 |  |  | 18,104 |  |  | 16,012 |
General and administrative |  |  | 2,573 |  |  | 1,930 |  |  | 5,515 |  |  | 4,136 |
Total operating expenses |  |  | 16,332 |  |  | 12,937 |  |  | 31,520 |  |  | 24,644 |
Loss from operations |  |  | (5,670) |  |  | (1,108) |  |  | (7,141) |  |  | (2,666) |
Interest expense, net |  |  | (145) |  |  | (37) |  |  | (268) |  |  | (129) |
Other income (expense), net |  |  | 163 |  |  | (18) |  |  | 153 |  |  | (278) |
Loss before income tax provision |  |  | (5,652) |  |  | (1,163) |  |  | (7,256) |  |  | (3,073) |
Income tax benefit (provision) |  |  | 191 |  |  | (54) |  |  | 159 |  |  | (148) |
Net loss |  | $ | (5,461) |  | $ | (1,217) |  | $ | (7,097) |  | $ | (3,221) |
Per share information: |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted net loss per common share |  | $ | (0.20) |  | $ | (0.05) |  | $ | (0.27) |  | $ | (0.13) |
Weighted average shares used in computing basic and diluted net loss per common share |  |  | 26,657 |  |  | 25,356 |  |  | 26,422 |  |  | 25,267 |

See accompanying notes to condensed consolidated financial statements

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eGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in thousands)

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Net loss |  | $ | (5,461) |  | $ | (1,217) |  | $ | (7,097) |  | $ | (3,221) |
Other comprehensive loss, net of taxes: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (192) |  |  | 28 |  |  | (186) |  |  | 148 |
Comprehensive loss |  | $ | (5,653) |  | $ | (1,189) |  | $ | (7,283) |  | $ | (3,073) |

See accompanying notes to condensed consolidated financial statements

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eGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

|  | Six Months Ended |
|  | December 31, |
|  | 2014 |  | 2013 |
Cash flows from operating activities: |  |  |  |  |  |  |
Net loss |  | $ | (7,097) |  | $ | (3,221) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |  |  |  |  |  |
Depreciation and amortization |  |  | 1,291 |  |  | 984 |
Amortization of acquired intangibles |  |  | 1,120 |  |  | — |
Amortization of deferred commissions |  |  | 638 |  |  | 1,010 |
Amortization of deferred financing costs |  |  | 10 |  |  | — |
Stock-based compensation |  |  | 1,308 |  |  | 740 |
Provisions for doubtful accounts |  |  | — |  |  | 424 |
Accrued interest on related party notes payable |  |  | — |  |  | 19 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |
Accounts receivable |  |  | 1,014 |  |  | 3,023 |
Deferred commissions |  |  | (191) |  |  | (299) |
Prepaid expenses and other current assets |  |  | (303) |  |  | 654 |
Accounts payable |  |  | (316) |  |  | (394) |
Accrued compensation |  |  | (1,196) |  |  | (322) |
Accrued liabilities |  |  | (792) |  |  | (1,112) |
Deferred revenue |  |  | (3,146) |  |  | (179) |
Other long term liabilities |  |  | (214) |  |  | (150) |
Net cash (used in) provided by operating activities |  |  | (7,874) |  |  | 1,177 |
Cash flows from investing activities: |  |  |  |  |  |  |
Acquisition, net of cash acquired |  |  | (1,905) |  |  | — |
Purchases of property and equipment |  |  | (428) |  |  | (1,163) |
Increase in restricted cash |  |  | (1,196) |  |  | — |
Net cash used in investing activities |  |  | (3,529) |  |  | (1,163) |
Cash flows from financing activities: |  |  |  |  |  |  |
Payment on related party notes payable |  |  | — |  |  | (2,916) |
Payments on bank borrowings |  |  | (11,950) |  |  | (1,334) |
Payments on capital lease obligations |  |  | (296) |  |  | (119) |
Proceeds from bank borrowings |  |  | 23,950 |  |  | — |
Payments made for debt issue costs |  |  | (538) |  |  |  |
Proceeds from exercise of stock options |  |  | 103 |  |  | 457 |
Net cash provided by (used in) financing activities |  |  | 11,269 |  |  | (3,912) |
Effect of change in exchange rates on cash and cash equivalents |  |  | (355) |  |  | 183 |
Net decrease in cash and cash equivalents |  |  | (489) |  |  | (3,715) |
Cash and cash equivalents at beginning of period |  |  | 8,785 |  |  | 16,206 |
Cash and cash equivalents at end of period |  | $ | 8,296 |  | $ | 12,491 |
Supplemental cash flow disclosures: |  |  |  |  |  |  |
Cash paid for interest |  | $ | 282 |  | $ | 139 |
Cash paid for taxes |  | $ | 227 |  | $ | 108 |
Non-cash items: |  |  |  |  |  |  |
Purchases of equipment through trade accounts payable |  | $ | 42 |  | $ | 65 |
Property and equipment acquired under a capital lease |  | $ | 136 |  | $ | 482 |
Issuance of common stock in connection with business acquisition |  | $ | 7,719 |  | $ | — |

See accompanying notes to condensed consolidated financial statements

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eGAIN CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S (Unaudited)

Note 1. Summary of Business and Significant Accounting Policies

Organization and Nature of Business

eGain Corporation (“eGain”, the “Company”, “our”, “we”, or “us”) is a leading provider of cloud-based and on-site customer engagement software solutions. For over a decade, our solutions have helped improve customer experience, grow sales, and optimize service processes across the web, social, and phone channels. Hundreds of global enterprises rely on us to transform fragmented sales engagement and customer service operations into unified customer engagement hubs. We provide advanced analytics and management software that help enterprises use their customer contact and call center resources more effectively, improving their customers’ experience, reducing churn and enhancing productivity. Our products enable organizations to move away from legacy contact center infrastructure and consolidate in cloud environments, which enhances productivity and improves customer experience. We have operations in the United States, United Kingdom, Netherlands, Ireland, Italy, Germany, France, South Africa, and India.

Principles of Consolidation

We have prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission and included the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain information and footnote disclosures, normally included in condensed consolidated financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted pursuant to such rules and regulations although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented.

These condensed consolidated financial statements and notes should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2014, included in our Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 2014 has been derived from audited financial statements as of that date but does not include all the information and footnotes required by GAAP for complete financial statements. The results of our operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 30, 2015.

Business Combinations

Business combinations are accounted for at fair value under the purchase method of accounting. Acquisition costs are expensed as incurred and recorded in general and administrative expenses and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.

Segment Information

We operate in one segment, the development, license, implementation and support of our customer interaction software solutions. Operating segments are identified as components of an enterprise for which discrete financial

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information is available and regularly reviewed by the Company’s chief operating decision-makers in order to make decisions about resources to be allocated to the segment and assess its performance. Our chief operating decision-makers, under Accounting Standards Codification, or ASC, 280, Segment Reporting, are our executive management team. Our chief operating decision-makers review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

Information relating to our geographic areas for the three and six months ended December 31, 2014 and 2013 is as follows (unaudited, in thousands):

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Total Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 8,395 |  | $ | 9,033 |  | $ | 20,624 |  | $ | 17,873 |
EMEA |  |  | 10,081 |  |  | 7,870 |  |  | 18,250 |  |  | 14,656 |
Asia Pacific |  |  | 427 |  |  | 762 |  |  | 733 |  |  | 818 |
|  | $ | 18,903 |  | $ | 17,665 |  | $ | 39,607 |  | $ | 33,347 |
Operating Loss: |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | (3,397) |  | $ | (494) |  | $ | (2,476) |  | $ | (1,038) |
EMEA |  |  | (1,211) |  |  | 28 |  |  | (2,303) |  |  | 356 |
Asia Pacific* |  |  | (1,062) |  |  | (642) |  |  | (2,362) |  |  | (1,984) |
|  | $ | (5,670) |  | $ | (1,108) |  | $ | (7,141) |  | $ | (2,666) |

*Includes costs associated with corporate support.

In addition, identifiable tangible assets corresponding to our geographic areas are as follows (unaudited, in thousands):

|  | December 31, |  | June 30, |
|  | 2014 |  | 2014 |
Identifiable Tangible Assets: |  |  |  |  |  |  |
North America |  | $ | 10,388 |  | $ | 14,365 |
EMEA |  |  | 15,142 |  |  | 11,282 |
Asia Pacific |  |  | 2,231 |  |  | 2,065 |
|  | $ | 27,761 |  | $ | 27,712 |

The following table provides total revenue by category for the three and six months ended December 31, 2014 and 2013, respectively, (unaudited, in thousands):

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |
Subscription and support |  | $ | 10,956 |  | $ | 10,246 |  | $ | 21,401 |  | $ | 19,712 |
License |  |  | 3,583 |  |  | 3,065 |  |  | 10,311 |  |  | 6,903 |
Professional services |  |  | 4,364 |  |  | 4,354 |  |  | 7,895 |  |  | 6,732 |
|  | $ | 18,903 |  | $ | 17,665 |  | $ | 39,607 |  | $ | 33,347 |

For the three months ended December 31, 2014, there were two different customers that accounted for 15% and 10% of total revenue. For the three months ended December 31, 2013, there was one customer that accounted for 16% of total revenue. For the six months ended December 31, 2014, there were three different customers that accounted for 13%, 11% and for 10% of total revenue. For the six months ended December 31, 2013, there was one customer that accounted for 18% of total revenue.

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Revenue Recognition

We enter into arrangements to deliver multiple products or services (multiple-elements). We apply software revenue recognition rules and multiple-elements arrangement revenue guidance. Significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period. Material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail. We present revenue, net of taxes collected from customers and remitted to governmental authorities.

We derive revenue from three sources:

| (i) |  | Subscription and support fees primarily consist of cloud revenue from customers accessing our enterprise cloud computing services, term license revenue, and maintenance and support revenue;

| (ii) |  | License fees primarily consist of perpetual software license revenue;

| (iii) |  | Professional services primarily consist of consulting, implementation services and training.

Revenue is recognized when all of the following criteria are met:

| · |  | Persuasive evidence of an arrangement exists: Evidence of an arrangement consists of a written contract signed by both the customer and management prior to the end of the period. We use signed software license, services agreements and order forms as evidence of an arrangement for sales of software, cloud, maintenance and support. We use signed statement of work as evidence of arrangement for professional services.

| · |  | Delivery or performance has occurre d: Software is delivered to customers electronically or on a CD-ROM, and license files are delivered electronically. Delivery is considered to have occurred when we provide the customer access to the software along with login credentials.

| · |  | Fees are fixed or determinable: We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. Arrangements where a significant portion of the fee is due beyond 90 days from delivery are generally not considered to be fixed or determinable.

| · |  | Collectibility is probable: We assess collectibility based on a number of factors, including the customer’s past payment history and its current creditworthiness. Payment terms generally range from 30 to 90 days from invoice date. If we determine that collection of a fee is not reasonably assured, we defer the revenue and recognize it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment.

We apply the provisions of ASC 985-605, Software Revenue Recognition, to all transactions involving the licensing of software products. In the event of a multiple element arrangement for a license transaction, we evaluate the transaction as if each element represents a separate unit of accounting taking into account all factors following the accounting standards. We apply ASC 605, Revenue Recognition, for cloud transactions to determine the accounting treatment for multiple elements. We also apply ASC 605-35 for fixed fee arrangements in which we use the percentage of completion method to recognize revenue when reliable estimates are available for the costs and efforts necessary to complete the implementation services. When such estimates are not available, the completed contract method is utilized. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete.

When licenses are sold together with system implementation and consulting services, license fees are recognized upon shipment, provided that (i) payment of the license fees is not dependent upon the performance of the consulting and implementation services, (ii) the services are available from other vendors, (iii) the services qualify for separate accounting as we have sufficient experience in providing such services, have the ability to estimate cost of providing such services, and we have vendor-specific objective evidence, or VSOE, of fair value, and (iv) the services are not essential to the functionality of the software.

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We enter into arrangements with multiple-deliverables that generally include subscription, support, and professional services. We evaluate whether each of the elements in these arrangements represents a separate unit of accounting, as defined by ASC 605, using all applicable facts and circumstances, including whether (i) we sell or could readily sell the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, and (iii) there is a general right of return. We use VSOE, of fair value for each of those units, when available. For revenue recognition with multiple-deliverable elements, in certain limited circumstances when VSOE of fair value does not exist, we apply the selling price hierarchy, which includes VSOE, third-party evidence of selling price, or TPE, and best estimate of selling price, or BESP. We determine the relative selling price for a deliverable based on VSOE, if available, or BESP, if VSOE is not available. We have determined that TPE is not a practical alternative due to differences in our service offerings compared to other parties and the availability of relevant third-party pricing information.

We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration include our discounting practices, the size and volume of our transactions, customer demographic, the geographic area where services are sold, price lists, go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is made through consultation with and approval by our management, taking into consideration the go-to-market strategy. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.

Subscription and Support Revenue

Cloud Revenue

Cloud services revenue consists of fees from customers subscribing to our cloud-based service offerings. We recognize cloud services revenue ratably over the period of the applicable agreement as services are provided. Cloud agreements typically have an initial term of one or two years and automatically renew unless either party cancels the agreement. The majority of the cloud services customers purchase a combination of our cloud service and professional services. In some cases, the customer may also acquire a license for our software.

We consider the applicability of ASC 985-605, on a contract-by-contract basis. In cloud services agreements, where the customer does not have the contractual right to take possession of the software, the revenue is recognized on a monthly basis over the term of the contract. Invoiced amounts are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. We consider a software element to exist when we determine that the customer has the contractual right to take possession of our software at any time during the cloud term without significant penalty and can feasibly run the software on its own hardware or enter into another arrangement with a third party to host the software. Additionally, we have established VSOE for the cloud and maintenance and support elements of perpetual license sales, based on the prices charged when sold separately and substantive renewal terms. Accordingly, when a software element exists in a cloud services arrangement, license revenue for the perpetual software license element is determined using the residual method and is recognized upon delivery. Revenue for the cloud and maintenance and support elements is recognized ratably over the contractual time period. Professional services are recognized as described below under “Professional Services Revenue.” If VSOE of fair value cannot be established for the undelivered elements of an agreement, the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered.

Term License Revenue

Term license revenue includes arrangements where our customers receive license rights to use our software along with bundled maintenance and support services for the term of the contract. The majority of our contracts provide customers with the right to use one or more products up to a specific license volume. Certain of our license agreements specify that customers can exceed pre-determined base capacity levels, in which case additional fees are specified in the license agreement. Term license revenue is recognized ratably over the term of the license contract.

Maintenance and Support Revenue

Maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise software. We use VSOE of fair value for maintenance and support to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Maintenance and support revenue is recognized ratably over the term of the maintenance contract, which is typically one year. Maintenance and support is

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renewable by the customer on an annual basis. Maintenance and support rates, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the arrangement.

License Revenue

License revenue includes perpetual licenses sold to customers to use our software in conjunction with related maintenance and support services. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. In software arrangements that include rights to multiple software products and/or services, we use the residual method under which revenue is allocated to the undelivered elements based on VSOE of the fair value of such undelivered elements. The residual amount of revenue is allocated to the delivered elements and recognized as revenue, assuming all other criteria for revenue recognition have been met. Such undelivered elements in these arrangements typically consist of software maintenance and support, implementation and consulting services and in some cases, cloud services.

We periodically sell to resellers. License sales to resellers as a percentage of total revenue were approximately 10% and 2% for the three months ended December 31, 2014 and 2013, respectively. License sales to resellers as a percentage of total revenue were approximately 20% and 9% for the six months ended December 31, 2014 and 2013, respectively. Revenue from sales to resellers is generally recognized upon delivery to the reseller but depends on the facts and circumstances of the transaction, such as our understanding of the reseller’s plans to sell the software, if there are any return provisions, price protection or other allowances, the reseller’s financial status and our experience with the particular reseller. Historically sales to resellers have not included any return provisions, price protections or other allowances.

Professional Services Revenue

Professional services revenue includes system implementation, consulting and training. For license transactions, the majority of our consulting and implementation services qualify for separate accounting. We use VSOE of fair value for the services to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Our consulting and implementation service contracts are bid either on a fixed-fee basis or on a time-and-materials basis. Substantially all of our contracts are on a time-and-materials basis. For time-and-materials contracts, where the services are not essential to the functionality, we recognize revenue as services are performed. If the services are essential to functionality, then both the license revenue and the service revenue are recognized under the percentage of completion method. For a fixed-fee contract, we recognize revenue based upon the costs and efforts to complete the services in accordance with the percentage of completion method, provided we are able to estimate such cost and efforts.

Under ASC 605-25, in order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. For cloud services, in determining whether professional services have standalone value, we consider the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer’s satisfaction with the professional services work.

We determined at or around July 1, 2013 that we had established standalone value for consulting and implementation services under cloud contracts. This was primarily due to the change in our business focus, the growing number of partners we trained and certified to perform these deployment services and the consequential sale of subscription services without bundled implementation service. Revenues earned from professional services related to consulting and implementation of a majority of our core subscription services are being accounted for separately from revenues earned from subscription services beginning July 1, 2013 when the standalone value was established for those professional services.

For those contracts that have standalone value, we recognized the services revenue when rendered for time and material contracts, when the milestones are achieved and accepted by the customer for fixed price contracts or by percentage of completion basis if there is no acceptance criteria.

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For cloud, consulting and implementation services that do not qualify for separate accounting, we recognize the services revenue ratably over the estimated life of the customer cloud relationship, once the cloud has gone live or is system ready. We currently estimate the life of the customer cloud relationship to be approximately 28 months, based on the average life of all cloud customer relationships.

Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.

Deferred Revenue

Deferred revenue primarily consists of payments received in advance of revenue recognition from cloud, term license, and maintenance and support services and is recognized as the revenue recognition criteria are met. We generally invoice customers in annual or quarterly installments. The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable cloud or maintenance and support agreements. Deferred revenue is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity within the quarter.

Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent.

Deferred Commissions

Deferred commissions are the direct and incremental costs directly associated with cloud contracts with customers and consist of sales commissions to the Company’s direct sales force.

The commissions are deferred and amortized over the terms of the related customer contracts, which are typically 12 to 36 months. The commission payments are paid based on contract terms in the month following the quarter in which the commissions are earned. The deferred commission amounts are recognized under “Sales and marketing” expense in the condensed consolidated statements of operations over the terms of the related customer contracts, in proportion to the recognition of the associated revenue.

Accounts Receivable and Allowance for Doubtful Accounts

We extend unsecured credit to our customers on a regular basis. Our accounts receivable are derived from revenue earned from customers and are not interest bearing. We also maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables. We review our trade receivables by aging category to identify specific customers with known disputes or collectibility issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S. and internationally, and changes in customer financial conditions. If we made different judgments or utilized different estimates, material differences may result in additional reserves for trade receivables, which would be reflected by charges in general and administrative expenses for any period presented. We write off a receivable after all collection efforts have been exhausted and the amount is deemed uncollectible.

Deferred Financing Costs
Costs relating to obtaining the credit agreement with Wells Fargo Bank are capitalized and amortized over the term of the related debt using the effective interest method. Deferred financing costs and accumulated amortization as of December 31, 2014 was $538,469 and $10,017, respectively and are included in other assets in the accompanying condensed consolidated balance sheets. Amortization of deferred financing costs recorded as interest expense was $10,017 for three months ended December 31, 2014. When a loan is paid in full, any unamortized financing costs are removed from the related accounts and charged to operations.

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Leases

Lease agreements are evaluated to determine whether they are capital or operating leases in accordance with ASC 840, Leases. When any one of the four test criteria in ASC 840 is met, the lease then qualifies as a capital lease.

Capital leases are capitalized at the lower of the net present value of the total amount payable under the leasing agreement (excluding finance charges) or the fair market value of the leased asset. Capital lease assets are depreciated on a straight-line basis, over a period consistent with our normal depreciation policy for tangible fixed assets, but not exceeding the lease term. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation model assumptions such as stock price volatility and expected option term.

Below is a summary of stock-based compensation included in the costs and expenses (unaudited, in thousands):

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Stock-Based Compensation: |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of revenue |  | $ | 174 |  | $ | 85 |  | $ | 303 |  | $ | 152 |
Research and development |  |  | 217 |  |  | 52 |  |  | 410 |  |  | 99 |
Sales and marketing |  |  | 195 |  |  | 160 |  |  | 319 |  |  | 293 |
General and administrative |  |  | 164 |  |  | 97 |  |  | 276 |  |  | 196 |
Total stock-based compensation expense: |  | $ | 750 |  | $ | 394 |  | $ | 1,308 |  | $ | 740 |

We utilized the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted. All shares of our common stock issued pursuant to our stock option plans are only issued out of an authorized reserve of shares of common stock, which were previously registered with the Securities and Exchange Commission on a registration statement on Form S-8.

During the three months ended December 31, 2014 and 2013, there were 47,100 and 119,700 shares of common stock granted with a weighted-average fair value of $3.01 and $7.44, per share, respectively. During the six months ended December 31, 2014 and 2013 there were 720,400 and 261,850 shares of common stock granted with a weighted-average fair value of $3.77 and $7.16 per share respectively, using the following assumptions:

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Dividend yield |  | — |  | — |  | — |  | — |
Expected volatility |  | 80 | % | 80 | % | 80 | % | 80 | %
Average risk-free interest rate |  | 1.60 | % | 1.44 | % | 1.69 | % | 1.47 | %
Expected life (in years) |  | 4.50 |  | 4.50 |  | 4.50 |  | 4.50 |

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. We determined the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock, as adjusted for certain events that management deemed to be non-

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recurring and non-indicative of future events. The risk-free interest rate is derived from the average U.S. Treasury Strips rate with maturities approximating the expected lives of the awards during the period, which approximate the rate in effect at the time of the grant.

We base our estimate of expected life of a stock option on the historical exercise behavior, and cancellations of all past option grants made by the Company during the time period which its equity shares have been publicly traded, the contractual term of the option, the vesting period and the expected remaining term of the outstanding options.

Total compensation cost, net of forfeitures, of all options granted but not yet vested as of December 31, 2014 was $3,047,463, which is expected to be recognized over the weighted average period of 1.61 years. There were 25,097 and 38,537 options exercised for the three and six months ended December 31, 2014 and 77,929 and 288,482 options exercised for the three and six months ended December 31, 2013.

New Accounting Pronouncements

In June 2014, the Financial Accounting and Standards Board, or the FASB, issued Accounting Standards Update, or ASU 2014-12, Compensation-Stock Compensation which applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 (our fiscal 2017). We do not anticipate the adoption of this amendment to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016 (our fiscal 2018), including interim periods within that reporting period, with early application not permitted. The Company is currently evaluating the effects that the adoption of this guidance will have on the Company’s financial position, results of operations and cash flows.

Note 2. Net Loss per Common Share

Basic net loss per common share is computed using the weighted-average number of shares of common stock outstanding. In periods where net income is reported, the weighted–average number of shares outstanding is increased by warrants and options in the money to calculate diluted net income per common share.

The following table represents the calculation of basic and diluted net loss per common share (unaudited, in thousands, except per share data):

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Net loss applicable to common stockholders |  | $ | (5,461) |  | $ | (1,217) |  | $ | (7,097) |  | $ | (3,221) |
Basic net loss per common stock |  | $ | (0.20) |  | $ | (0.05) |  | $ | (0.27) |  | $ | (0.13) |
Weighted-average common shares used in computing basic net loss per common share |  |  | 26,657 |  |  | 25,356 |  |  | 26,422 |  |  | 25,267 |
Effect of dilutive options |  |  | — |  |  | — |  |  | — |  |  | — |
Weighted-average common shares used in computing diluted net loss per common share |  |  | 26,657 |  |  | 25,356 |  |  | 26,422 |  |  | 25,267 |
Diluted net loss per common stock |  | $ | (0.20) |  | $ | (0.05) |  | $ | (0.27) |  | $ | (0.13) |

Weighted average shares of stock options to purchase 2,910,740 and 2,667,888 shares of common stock for the three and six months ended December 31, 2014 and 2,136,411 and 2,210,706 shares of common stock for the three and

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six months ended December 31, 2013 were not included in the computation of diluted net loss per common share due to their anti-dilutive effect. Such securities could have a dilutive effect in future periods.

Note 3. Bank Borrowings

On November 21, 2014, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, as administrative agent and the lenders party thereto. The Credit Agreement provides for the extension of revolving loans (“Revolving Loans”) in an aggregate principal amount not to exceed $10.0 million, and a term loan (“Term Loan”) in an aggregate principal amount not to exceed $10.0 million, but in each case limited by an amount not to exceed 60% of our trailing twelve month recurring revenues from subscription and support fees attributable to software, as calculated under the Credit Agreement. The obligations under the Credit Agreement mature on November 21, 2019.

Borrowings under the Credit Agreement bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the applicable LIBOR rate, plus 4.75%. Borrowings under the Credit Agreement that are not LIBOR rate loans bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds Rate plus 0.50%, (B) the one month LIBOR rate plus 1.00% per annum, and (C) the rate of interest announced, from time to time, by Wells Fargo Bank, National Association as its “prime rate,” plus (ii) 3.75%.

We will pay certain recurring fees with respect to the Credit Agreement, including servicing fees to the administrative agent. Prior to the first anniversary of the closing date of the Credit Agreement voluntary repayments of the Term Loan, voluntary permanent reductions of the commitment related to the Revolving Loans and certain mandatory prepayments are subject a prepayment premium of 1.0% of the amount prepaid or reduced.

Subject to certain exceptions, the loans extended under the Credit Agreement are subject to customary mandatory prepayment provisions with respect to the following: net proceeds from certain asset sales; net proceeds from certain issuances or incurrences of debt (other than debt permitted to be incurred under the terms of the Credit Agreement); net proceeds of certain judgments, settlements and other claims or causes of action of us; and a portion with step-downs based upon the achievement of a financial covenant linked to the Leverage Ratio; as such term is defined in the Credit Agreement of our annual excess cash flow and our subsidiaries, and with such required prepayment amount to be reduced dollar-for-dollar by any voluntary prepayments of term loans.

The Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting our ability and our subsidiaries to: incur additional indebtedness; incur liens; engage in mergers or other fundamental changes; consummate acquisitions; sell certain property or assets; change the nature of their business; prepay or amend certain indebtedness; pay dividends, other distributions or repurchase our equity interests or our subsidiaries; make investments; or engage in certain transactions with affiliates. In addition, the Credit Agreement contains financial covenants which initially require us to achieve minimum EBITDA and liquidity levels. However, subject to the conditions of the Credit Agreement, once we have achieved (but in any event no earlier than June 30, 2016) a minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.50 to 1.00 and a Leverage Ratio of less than 2.50 to 1.00, we will be required to comply with a minimum Fixed Charge Coverage Ratio and a specific Leverage Ratio.

The Credit Agreement contains customary events of default, including with respect to: nonpayment of principal, interest, fees or other amounts; failure to perform or observe covenants; monetary judgment defaults; bankruptcy, insolvency and dissolution events; cross-default to other material indebtedness; material inaccuracy of a representation or warranty when made; failure to perfect a lien; actual or asserted invalidity or impairment of any definitive loan documentation or repudiation of guaranties; or a change of control. As of December 31, 2014, balances on the Term Loan and Revolving Loans were $10.0 million and $7.0 million, respectively.

As a condition to entering into the Credit Agreement, the Company pledged certain property and assets as collateral for the benefit of Wells Fargo Bank.

Concurrently with our entry into the Credit Agreement described above, we paid in full and terminated that certain Loan and Security Agreement dated June 7, 2011, as amended, between us and Comerica Bank.

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Note 4. Income Taxes

Income taxes are accounted for using the asset and liability method in accordance with ASC 740, Income Tax. Under this method, deferred tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. For the legacy eGain business in the United States and United Kingdom, b ased upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets. The remaining eGain foreign operations as well as Exony’s business have historically been profitable and we believe it is more likely than not that those assets will be realized. Our benefit primarily relates to foreign operations and realized benefits of amortized book intangibles as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carry-forwards which had previously been valued against.

The Company accounts for uncertain tax positions according to the provisions of ASC 740. ASC 740 contains a two-step approach for recognizing and measuring uncertain tax positions. Tax positions are evaluated for recognition by determining if the weight of available evidence indicates that it is probable that the position will be sustained on audit, including resolution of related appeals or litigation. Tax benefits are then measured as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. No material changes have occurred in the Company’s tax positions taken as of June 30, 2014 and in the six months ended December 31, 2014.

Note 5. Commitments and Contingencies

Warranty

We generally warrant that the program portion of our software will perform substantially in accordance with certain specifications for a period up to one year from the date of delivery. Our liability for a breach of this warranty is either a return of the license fee or providing a fix, patch, work-around or replacement of the software.

We also provide standard warranties against and indemnification for the potential infringement of third party intellectual property rights to our customers relating to the use of our products, as well as indemnification agreements with certain officers and employees under which we may be required to indemnify such persons for liabilities arising out of their duties to us. The terms of such obligations vary. Generally, the maximum obligation is the amount permitted by law.

Historically, costs related to these warranties have not been significant. Accordingly, we have no liabilities recorded for these costs as of December 31, 2014 and June 30, 2014. However, we cannot guarantee that a warranty reserve will not become necessary in the future.

Indemnification

We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request.

Transfer pricing

We have received transfer pricing assessments from tax authorities with regard to transfer pricing issues for certain fiscal years, which we have appealed with the appropriate authority. We believe that such assessments are without merit and would not have a significant impact on our consolidated financial statements.

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Litigation

In the ordinary course of business, we are from time to time involved in various legal proceedings and claims related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour, and other claims.

Note 6. Fair Value Measurement

ASC 820, Fair Value Measurement and Disclosures, defines fair value, establishes a framework for measuring fair value of assets and liabilities, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the assets or liabilities in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. ASC 820 applies whenever other statements require or permit assets or liabilities to be measured at fair value.

ASC 820 includes a fair value hierarchy, of which the first two are considered observable and the last unobservable, that is intended to increase the consistency and comparability in fair value measurements and related disclosures. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1 – instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Level 2 – instrument valuations are obtained from readily-available pricing sources for comparable instruments.

Level 3 – instrument valuations are obtained without observable market value and require a high level of judgment to determine the fair value.

The following table summarizes the fair value hierarchy of our financial assets and liabilities measured (unaudited, in thousands):

|  | As of December 31, 2014 |  | As of June 30, 2014 |
|  | Level 1 |  | Total Balance |  | Level 1 |  | Total Balance |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |
Cash, cash equivalents and restricted cash: |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 222 |  | $ | 222 |  | $ | 1,622 |  | $ | 1,622 |
Total assets |  | $ | 222 |  | $ | 222 |  | $ | 1,622 |  | $ | 1,622 |

The Company uses quoted prices in active markets for identical assets or liabilities to determine fair value of Level 1 investments.

As of December 31, 2014 and June 30, 2014, we did not have any Level 2 or 3 assets or liabilities.

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt. We do not have any derivative financial instruments. We believe the reported carrying amounts of these financial instruments approximate fair value, based upon their short-term nature and comparable market information available at the respective balance sheet dates. Based on borrowing rates currently available to the Company for loans with similar terms and capital leases, the carrying value of the bank borrowings and capital lease obligations approximates fair value.

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Note 7. Share Repurchase Program

On September 14, 2009, we announced that our board of directors approved a repurchase program under which we may purchase up to 1,000,000 shares of our common stock. The duration of the repurchase program is open-ended. Under the program, we purchase shares of common stock from time to time through the open market and privately negotiated transactions at prices deemed appropriate by management. The repurchase is funded by cash on hand. For the six months ended December 31, 2014 and 2013, there were no shares repurchased.

Note 8. Acquisition

On July 30, 2014, we entered into a Share Purchase Agreement (“Purchase Agreement”) with Exony Limited, a privately held United Kingdom company (“Exony”), and certain of its shareholders (collectively, the “Shareholders”), pursuant to which we agreed to acquire all the outstanding share capital of Exony for (A) an aggregate of 1,209,308 shares of the Company’s common stock, $0.001 par value per share (“Company Stock”), with a value of $8.02 million as of August 6, 2014, the closing date of the acquisition (based on the closing price of the Company’s common stock as of such date) and (B) an aggregate of $8.13 million in cash (collectively “Acquisition Consideration”), with 15% of each of the cash and Company Stock being held in an escrow account to secure certain indemnification obligations of the Shareholders. The Acquisition Consideration is subject to an adjustment based on Exony’s working capital as of the closing. The other purchase consideration relates to two shareholders of Exony who have the right to exercise their options within six months from the acquisition date which entitles them to $299,000 (45,119 shares) of Company stock and $289,000 of cash acquisition consideration. The cash portion of the transaction was funded from eGain’s existing cash and its available credit facility. We have incurred acquisition costs of approximately $844,000 through December 31, 2014, which are included in general and administrative expenses.

The purchase price for this acquisition had been allocated based on preliminary estimates of the fair values of the acquired assets and assumed liabilities at the date of acquisition as follows (in thousands):

Purchase consideration: |  |  |  |  |  |
Cash | $ | 7,841 |  |  |  |
Stock (1,164,189 shares of Company Stock) |  | 7,719 |  |  |  |
Other purchase consideration (includes 45,119 shares of Company Stock) |  | 588 |  |  |  |
Estimated working capital adjustment |  | 1,451 |  |  |  |
Total purchase price |  |  |  | $ | 17,599 |
Fair value of assets acquired and liabilities assumed: |  |  |  |  |  |
Cash and cash equivalents |  | 2,751 |  |  |  |
Restricted cash |  | 3,185 |  |  |  |
Accounts receivable |  | 2,850 |  |  |  |
Prepaid and other current assets |  | 281 |  |  |  |
Property and equipment |  | 315 |  |  |  |
Total assets acquired |  |  |  |  | 9,382 |
Accounts payable |  | (786) |  |  |  |
Accrued compensation |  | (3,139) |  |  |  |
Accrued liabilities |  | (352) |  |  |  |
Deferred revenue |  | (4,185) |  |  |  |
Other liabilities |  | (326) |  |  |  |
Total liabilities assumed |  |  |  |  | (8,788) |
Fair value of identifiable intangibles at acquisition-date: |  |  |  |  |  |
Developed technology |  | 6,990 |  |  |  |
Customer relationships |  | 2,990 |  |  |  |
Trade name |  | 150 |  |  |  |
Total identifiable intangibles at acquisition-date |  |  |  |  | 10,130 |
Deferred tax liability: |  |  |  |  | (1,475) |
Goodwill |  |  |  | $ | 8,350 |

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The allocation of the purchase price consideration was based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date) as we gather additional information regarding the assets acquired and the liabilities assumed, and finalize the working capital adjustment.

Included in the acquisition of Exony are operating lease commitments for office space in Newbury, England. The annual lease payment for a 5 year term lease is approximately $260,000 and $91,000 for a 2 year term lease.

The goodwill of $8.3 million arising from the Exony acquisition largely reflects the expansion of our service offerings complementary to our existing products. As Exony is considered an innovative contact center software provider, t he acquisition was intended to extend eGain's platform with contact center management, reporting and analytics capabilities to our customers.

Intangible assets will be amortized over the estimated lives, as follows (in thousands):

Intangible Asset |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Balance |  | Life |  | Income Statement Category
Developed technology |  | $ 6,990 |  | $ (704) |  | $ 6,286 |  | 4 |  | Research and development expense
Customer relationships - software license |  | 1,380 |  | (278) |  | 1,102 |  | 2 |  | Sales and marketing expense
Customer relationships - maintenance license |  | 1,610 |  | (108) |  | 1,502 |  | 6 |  | Cost of sales
Trade name |  | 150 |  | (30) |  | 120 |  | 2 |  | General and administrative expense
|  | $ 10,130 |  | $ (1,120) |  | $ 9,010 |  |  |  |

Amortization expense related to the above intangible assets for the three and six months ended December 31, 2014 was approximately $0.7 million and $1.1 million, respectively.

Estimated future amortization expense remaining at December 31, 2014 for intangible assets acquired is as follows:

|  | Year Ending |
|  | June 30, |
2015 |  | $ | 1,391 |
2016 |  |  | 2,781 |
2017 |  |  | 2,090 |
2018 |  |  | 2,016 |
2019 |  |  | 438 |
Thereafter |  |  | 294 |
Total future amortization expense |  | $ | 9,010 |

The operating results for this acquisition are included in the consolidated results of operations from August 6, 2014 (the date of acquisition). The Company determined that it is impracticable to provide comparative pro forma financial information related to the acquisition. Exony, a private company, did not historically prepare financial statements in accordance with U.S. GAAP for interim financial reporting. Accordingly, significant estimates of amounts to be included in pro forma financial information would be required and subject to an inordinate level of subjectivity. Exony contributed revenues of $2.3 million and $3.8 million for the three and six month periods ended December 31, 2014, respectively. Net loss of $1.2 million and net loss of $1.9 million was incurred from Exony in the three and six month periods ended December 31, 2014.

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Note 9. Subsequent Events

None.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) 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 Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by the use of the words such as “expects”, “aims”, “anticipates,” “believes,” “continue,” “could,” “would,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential”, ”projects”, “seeks” “assumes”, “should,” or “will” and similar expressions or the negative of those terms. The forward-looking statements include, but are not limited to, statements regarding: the effect of changes in macroeconomic factors beyond our control; our hybrid revenue model and its potential impact on our total revenue; our ability to predict subscription renewals or upgrade rates; the result of our failure to comply with the covenants under the Wells Fargo Bank Facility; our lengthy sales cycles and the difficulty in predicting timing of sales or delays; a s we acquire companies or technologies, we may not realize the expected business benefits; competition in the markets in which we do business and our failure to compete successfully therein; our expectations regarding the composition of our customers and the result of a loss of a significant customer; the adequacy of our capital resources and need for additional financing and the effect of failing to obtain adequate funding; the development and expansion of our strategic and third party distribution partnership and relationships with systems integrators; our ability to effectively implement and improve our current products; our ability to innovate and respond to rapid technological change and competitive challenges; legal liability or the effect of negative publicity for the services provided to consumers via our technology platforms; legal and regulatory uncertainties and other risks related to protection of our intellectual property assets; our ability to anticipate our competitors; the operational integrity and maintenance of our systems; the effect of unauthorized access to a customer’s data or our data or our IT systems; the uncertainty of demand for our products; the anticipated customer benefits from our products; the actual mix in new business between cloud and license transactions when compared with management’s projections; our ability to develop and expand strategic and third party distribution channels; the ability to increase revenue as a result of the increased investment in sales and marketing; our ability to hire additional personnel and retain key personnel; the effect of any future changes to our sales organization on our revenue growth rate; our ability to expand and improve our sales performance and marketing activities; our ability to manage our expenditures and estimate future expenses, revenue, and operational requirements; the expenses associated with new data centers, additional data center capacity, real estate and office facilities space; our ability to manage our business plans, strategies and outlooks and any business-related forecasts or projections; the effect of changes to management judgments and estimates; the impact of any modification to our pricing practices in the future; risks from our substantial international operations; our ability to manage future growth; the trading price of our common stock; geographical and currency fluctuations; and our expectations in fiscal 2015 with respect to revenue, cost of revenue, expenses and other financial metrics. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, those risks discussed in “Risk Factors” Item 1A in this report and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014 which is incorporated herein by reference. Our actual results could differ materially from those discussed in statements relating to our future plans, product releases, objectives, expectations and intentions, and other assumptions underlying or relating to any of these statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified below, under “Risk Factors” and elsewhere in this report, for factors that may cause actual results to be different than those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

All references to “eGain”, the “Company”, “our”, “we” or “us” mean eGain Corporation and its subsidiaries, except where it is clear from the context that such terms mean only this parent company and excludes subsidiaries.

Overview

eGain Corporation is a leading provider of cloud-based and on-site customer engagement software solutions. For over a decade, our solutions have helped improve customer experience, grow sales, and optimize service processes across the web, social, and phone channels. Hundreds of global enterprises rely on eGain to transform fragmented sales engagement and customer service operations into unified Customer Interaction Hubs. We provide advanced analytics

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and management software that helps enterprises use their customer contact and call center resources more effectively, improving their customers’ experience, reducing churn and enhancing productivity. Our products enable organizations to move away from legacy contact center infrastructure and consolidate in cloud environments, which enhances productivity and improves customer experience.

We have operations in the United States, United Kingdom, Netherlands, Ireland, Italy, Germany, South Africa and India.

We provide advanced analytics and management software that help enterprises use their customer contact and call center resources more effectively, improving their customers’ experience, reducing churn and enhancing productivity. Exony products enable organizations to move away from legacy contact center infrastructure and consolidate in cloud environments, which enhances productivity and improves customer experience.

Unbilled Deferred Revenue

Unbilled deferred revenue represents business that is contracted but not yet invoiced or collected and off–balance-sheet and, accordingly, is not recorded in deferred revenue. As such, the deferred revenue balance on our condensed consolidated balance sheets does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. As of December 31, 2014, unbilled deferred revenue increased to $29.1 million, from approximately $22.6 million as of June 30, 2014.

Key Financial Measures

We monitor the key financial performance measures set forth below as well as cash and cash equivalents and available debt capacity, which are discussed in “Liquidity and Capital Resources,” to help us evaluate trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational effectiveness and efficiencies. These key financial performance measures include certain non-GAAP metrics, including Adjusted EBITDA as defined below. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Adjusted EBITDA, a non-GAAP financial measure, defined as net income (loss), adjusted for the impact of purchase accounting adjustments to deferred revenue related to acquisitions, depreciation and amortization, stock-based compensation expense, interest ex pense, net, income tax provision (benefit), amortization of acquired intangibles, and acquisition-related expenses.

Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from Adjusted EBITDA because (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (2) such expenses can vary significantly between periods as a result of the timing of new stock-based awards and acquisitions.

Adjusted EBITDA was a loss of $2.4 million and a loss of $1.5 million for the three and six months ended December 31, 2014, respectively. For the three and six months ended December 31, 2013, a djusted EBITDA was a loss of $0.3 million and a loss of $1.2 million, respectively.

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The following table presents our key financial measures, including a reconciliation of Adjusted EBITDA to net loss for each of the periods indicated:

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Revenue |  | $ | 18,903 |  | $ | 17,665 |  | $ | 39,607 |  | $ | 33,347 |
Gross Profit |  |  | 10,662 |  |  | 11,829 |  |  | 24,379 |  |  | 21,978 |
Adjusted EBITDA |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (5,461) |  | $ | (1,217) |  | $ | (7,097) |  | $ | (3,221) |
Add: | Purchase accounting adjustments to deferred revenue related to acquisitions |  |  | 162 |  |  | — |  |  | 248 |  |  | — |
| Depreciation and amortization |  |  | 623 |  |  | 463 |  |  | 1,291 |  |  | 984 |
| Stock-based compensation expense |  |  | 750 |  |  | 394 |  |  | 1,308 |  |  | 740 |
| Interest expense, net |  |  | 145 |  |  | 37 |  |  | 268 |  |  | 129 |
| Income tax provision (benefit) |  |  | (191) |  |  | 54 |  |  | (159) |  |  | 148 |
| Amortization of acquired intangible assets |  |  | 695 |  |  | — |  |  | 1,120 |  |  | — |
| Acquisition-related expenses |  |  | 229 |  |  | — |  |  | 844 |  |  | — |
| Severance and related charges |  |  | 644 |  |  | — |  |  | 704 |  |  | — |
Adjusted EBITDA |  | $ | (2,404) |  | $ | (269) |  | $ | (1,473) |  | $ | (1,220) |

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an on-going basis, our management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, deferred tax, valuation allowance and accrued liabilities, long-lived assets, stock-based compensation goodwill and intangible assets and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to these estimates for the periods presented in this Quarterly Report on Form 10-Q. For a detailed explanation of the judgments made in these areas, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Annual Report on Form 10-K for the year ended June 30, 2014, which we filed with the Securities and Exchange Commission, or SEC, on September 12, 2014.

We have reassessed the critical accounting policies as disclosed in our Annual Report on Form 10-K filed with the SEC on September 12, 2014 and determined that there were no significant changes to our critical accounting policies in the six months ended December 31, 2014.

Business Combinations

Business combinations are accounted for at fair value under the purchase method of accounting. Acquisition costs are expensed as incurred and recorded in general and administrative expenses and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business,

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and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.

Revenue Recognition

We enter into arrangements to deliver multiple products or services (multiple-elements). We apply software revenue recognition rules and multiple-elements arrangement revenue guidance. Significant management judgments and estimates are made and used to determine the revenue recognized in any accounting period. Material differences may result in changes to the amount and timing of our revenue for any period if different conditions were to prevail. We present revenue, net of taxes collected from customers and remitted to governmental authorities. We derive revenue from three sources:

| (i) |  | Subscription and support fees primarily consist of cloud revenue from customers accessing our enterprise cloud computing services, term license revenue, and maintenance and support revenue;

| (ii) |  | License fees primarily consist of perpetual software license revenue;

| (iii) |  | Professional services primarily consist of consulting, implementation services and training.

Revenue is recognized when all of the following criteria are met:

| · |  | Persuasive evidence of an arrangement exists: Evidence of an arrangement consists of a written contract signed by both the customer and management prior to the end of the period. We use signed software license, services agreements and order forms as evidence of an arrangement for sales of software, cloud, maintenance and support. We use signed statement of work as evidence of arrangement for professional services.

| · |  | Delivery or performance has occurre d: Software is delivered to customers electronically or on a CD-ROM, and license files are delivered electronically. Delivery is considered to have occurred when we provide the customer access to the software along with login credentials.

| · |  | Fees are fixed or determinable: We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. Arrangements where a significant portion of the fee is due beyond 90 days from delivery are generally not considered to be fixed or determinable.

| · |  | Collectibility is probable: We assess collectibility based on a number of factors, including the customer’s past payment history and its current creditworthiness. Payment t erms generally range from 30 to 90 days from invoice date. If we determine that collection of a fee is not reasonably assured, we defer the revenue and recognize it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment.

We apply the provisions of ASC 985-605, Software Revenue Recognition, to all transactions involving the licensing of software products. In the event of a multiple element arrangement for a license transaction, we evaluate the transaction as if each element represents a separate unit of accounting taking into account all factors following the accounting standards. We apply ASC 605, Revenue Recognition, for cloud transactions to determine the accounting treatment for multiple elements. We also apply ASC 605-35 for fixed fee arrangements in which we use the percentage of completion method to recognize revenue when reliable estimates are available for the costs and efforts necessary to complete the implementation services. When such estimates are not available, the completed contract method is utilized. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete.

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When licenses are sold together with system implementation and consulting services, license fees are recognized upon shipment, provided that (i) payment of the license fees is not dependent upon the performance of the consulting and implementation services, (ii) the services are available from other vendors, (iii) the services qualify for separate accounting as we have sufficient experience in providing such services, have the ability to estimate cost of providing such services, and we have vendor-specific objective evidence, or VSOE, of fair value, and (iv) the services are not essential to the functionality of the software.

We evaluate whether each of the elements in these arrangements represents a separate unit of accounting, as defined by ASC 605, using all applicable facts and circumstances, including whether (i) we sell or could readily sell the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, and (iii) there is a general right of return. We use VSOE, of fair value for each of those units, when available. For revenue recognition with multiple-deliverable elements, in certain limited circumstances when VSOE of fair value does not exist, we apply the selling price hierarchy, which includes VSOE, third-party evidence of selling price, or TPE, and best estimate of selling price, or BESP. We determine the relative selling price for a deliverable based on VSOE, if available, or BESP, if VSOE is not available. We have determined that TPE is not a practical alternative due to differences in our service offerings compared to other parties and the availability of relevant third-party pricing information.

We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration include our discounting practices, the size and volume of our transactions, customer demographic, the geographic area where services are sold, price lists, its go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is made through consultation with and approval by our management, taking into consideration the go-to-market strategy. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.

Subscription and Support Revenue

Cloud Revenue

Cloud services revenue consists of fees from customers subscribing to our cloud-based service offerings. We recognize cloud services revenue ratably over the period of the applicable agreement as services are provided. Cloud agreements typically have an initial term of one or two years and automatically renew unless either party cancels the agreement. The majority of the cloud services customers purchase a combination of our cloud service and professional services. In some cases, the customer may also acquire a license for our software.

We consider the applicability of ASC 985-605, on a contract-by-contract basis. In cloud services agreements, where the customer does not have the contractual right to take possession of the software, the revenue is recognized on a monthly basis over the term of the contract. Invoiced amounts are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. We consider a software element to exist when we determine that the customer has the contractual right to take possession of our software at any time during the cloud period without significant penalty and can feasibly run the software on its own hardware or enter into another arrangement with a third party to host the software. Additionally, we have established VSOE for the cloud and maintenance and support elements of perpetual license sales, based on the prices charged when sold separately and substantive renewal terms. Accordingly, when a software element exists in a cloud services arrangement, license revenue for the perpetual software license element is determined using the residual method and is recognized upon delivery. Revenue for the cloud and maintenance and support elements is recognized ratably over the contractual time period. Professional services are recognized as described below under “Professional Services Revenue.” If VSOE of fair value cannot be established for the undelivered elements of an agreement, the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered.

Term License Revenue

Term license revenue includes arrangements where our customers receive license rights to use our software along with bundled maintenance and support services for the term of the contract. The majority of our contracts provide

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customers with the right to use one or more products up to a specific license volume. Certain of our license agreements specify that customers can exceed pre-determined base volume levels, in which case additional fees are specified in the license agreement. Term license revenue is recognized ratably over the term of the license contract.

Maintenance and Support Revenue

Maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise software. We use VSOE of fair value for maintenance and support to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Maintenance and support revenue is recognized ratably over the term of the maintenance contract, which is typically one year. Maintenance and support is renewable by the customer on an annual basis. Maintenance and support rates, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the arrangement.

License Revenue

License revenue includes perpetual licenses sold to customers to use our software in conjunction with related maintenance and support services. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. In software arrangements that include rights to multiple software products and/or services, we use the residual method under which revenue is allocated to the undelivered elements based on VSOE of the fair value of such undelivered elements. The residual amount of revenue is allocated to the delivered elements and recognized as revenue, assuming all other criteria for revenue recognition have been met. Such undelivered elements in these arrangements typically consist of software maintenance and support, implementation and consulting services and in some cases, cloud services.

We periodically sell to resellers. License sales to resellers as a percentage of total revenue were approximately 10% and 2% for the three months ended December 31, 2014 and 2013, respectively. License sales to resellers as a percentage of total revenue were approximately 20% and 9% for the six months ended December 31, 2014 and 2013, respectively. Revenue from sales to resellers is generally recognized upon delivery to the reseller but depends on the facts and circumstances of the transaction, such as our understanding of the reseller’s plans to sell the software, if there are any return provisions, price protection or other allowances, the reseller’s financial status and our experience with the particular reseller. Historically sales to resellers have not included any return provisions, price protections or other allowances.

Professional Services Revenue

Professional services revenue includes system implementation, consulting and training. For license transactions, the majority of our consulting and implementation services qualify for separate accounting. We use VSOE of fair value for the services to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Our consulting and implementation service contracts are bid either on a fixed-fee basis or on a time-and-materials basis. Substantially all of our contracts are on a time-and-materials basis. For time-and-materials contracts, where the services are not essential to the functionality, we recognize revenue as services are performed. If the services are essential to functionality, then both the license revenue and the service revenue are recognized under the percentage of completion method. For a fixed-fee contract, we recognize revenue based upon the costs and efforts to complete the services in accordance with the percentage of completion method, provided we are able to estimate such cost and efforts.

Under ASC 605-25, in order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. For cloud services, in determining whether professional services have standalone value, we consider the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription service start date and the contractual dependence of the subscription service on the customer’s satisfaction with the professional services work.

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We determined at or around July 1, 2013 that we had established standalone value for these implementation services under cloud contracts. This was primarily due to the change in our business focus, the growing number of partners we trained and certified to perform these deployment services and the consequential sale of subscription services without bundled implementation service. Revenues earned from professional services related to consulting and implementation of a majority of our core subscription services are being accounted for separately from revenues earned from subscription services beginning July 1, 2013 when the standalone value was established for those professional services.

For those contracts that have standalone value, we recognized the services revenue when rendered for time and material contracts, when the milestones are achieved and accepted by the customer for fixed price contracts or by percentage of completion basis if there is no acceptance criteria.

For cloud, consulting and implementation services that do not qualify for separate accounting, we recognize the services revenue ratably over the estimated life of the customer cloud relationship, once cloud has gone live or system ready. We currently estimate the life of the customer cloud relationship to be approximately 28 months, based on the average life of all cloud customer relationships.

Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.

Deferred Revenue

Deferred revenue primarily consists of payments received in advance of revenue recognition from cloud, term license, and maintenance and support services and is recognized as the revenue recognition criteria are met. We generally invoice customers in annual or quarterly installments. The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable cloud or maintenance and support agreements. Deferred revenue is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity within the quarter.

Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent. As of December 31, 2014, deferred revenue decreased to $12.6 million, compared to $13.7 million as of June 30, 2014.

Deferred Commissions

Deferred commissions are the direct and incremental costs directly associated with cloud contracts with customers and consist of sales commissions to the Company’s direct sales force.

The commissions are deferred and amortized over the terms of the related customer contracts, which are typically one or two years. The commission payments are paid based on contract terms in the month following the quarter in which the commissions are earned. The deferred commission amounts are recognized as “Sales and marketing” expense in the condensed consolidated statements of operations over the terms of the related customer contracts, in proportion to the recognition of the associated revenue.

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Results of Operations

The following table sets forth certain items reflected in our condensed consolidated statements of operations expressed as a percent of total revenue for the periods indicated:

|  | Three Months Ended |  |  | Six Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2014 |  | 2013 |  |  | 2014 |  | 2013 |
Revenue: |  |  |  |  |  |  |  |  |  |
Subscription and support |  | 58 | % | 58 | % |  | 54 | % | 59 | %
License |  | 19 | % | 17 | % |  | 26 | % | 21 | %
Professional services |  | 23 | % | 25 | % |  | 20 | % | 20 | %
Total revenue |  | 100 | % | 100 | % |  | 100 | % | 100 | %
Cost of subscription and support |  | 18 | % | 11 | % |  | 15 | % | 12 | %
Cost of license |  | — | % | — | % |  | — | % | — | %
Cost of professional services |  | 26 | % | 22 | % |  | 23 | % | 22 | %
Total cost of revenue |  | 44 | % | 33 | % |  | 38 | % | 34 | %
Gross profit |  | 56 | % | 67 | % |  | 62 | % | 66 | %
Operating expenses: |  |  |  |  |  |  |  |  |  |
Research and development |  | 22 | % | 14 | % |  | 20 | % | 14 | %
Sales and marketing |  | 51 | % | 48 | % |  | 46 | % | 48 | %
General and administrative |  | 14 | % | 11 | % |  | 14 | % | 12 | %
Total operating expenses |  | 87 | % | 73 | % |  | 80 | % | 74 | %
Loss from operations |  | (31) | % | (6) | % |  | (18) | % | (8) | %

Revenue

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | Change |  | % |  | 2014 |  | 2013 |  | Change |  | % |
Subscription and support |  | $ | 10,956 |  | $ | 10,246 |  | $ | 710 |  | 7 | % | $ | 21,401 |  | $ | 19,712 |  | $ | 1,689 |  | 9 | %
License |  |  | 3,583 |  |  | 3,065 |  |  | 518 |  | 17 | % |  | 10,311 |  |  | 6,903 |  |  | 3,408 |  | 49 | %
Professional services |  |  | 4,364 |  |  | 4,354 |  |  | 10 |  | 0 | % |  | 7,895 |  |  | 6,732 |  |  | 1,163 |  | 17 | %
Total revenue |  | $ | 18,903 |  | $ | 17,665 |  | $ | 1,238 |  | 7 | % | $ | 39,607 |  | $ | 33,347 |  | $ | 6,260 |  | 19 | %

Total revenue increased 7% to $18.9 million in the quarter ended December 31, 2014 from $1 7.7 million in the comparable year-ago quarter. Subscription and support revenue, which is comprised of cloud, term license and software maintenance and support reve nue increased 7% to $11.0 million in the quarter ended December 31, 2014 from $10.2 million in the comparable year-ago quarter. The increase in subscription and support revenue was primarily due to $1.1 million of revenue generated from Exony and an increase in support from our license business over the last four quarters. License revenue increased 1 7% to $3.6 million in the quarter ended December 31, 2014 from $3.1 million in the comparable year-ago quarter. The increase in license revenue was primarily due to new customers and additional licenses from existing customers. Professional services revenue was flat at $4.4 million in the quarter ended December 31, 2014 compared to the year-ago quarter.

Total revenue for the six months ended December 31, 2014 increased 19% to $39.6 million, compared to $33.3 million in the same period last year. Subscription and support revenue, which is comprised of cloud, term license and software maintenance and support revenue increased 9% to $21.4 million for the six months ended December 31, 2014, compared to $19.7 million in the same period last year. The increase in subscription and support revenue was primarily due to $1.7 million of revenue generated from Exony. License revenue increased 49% to $10.3 million for the six months

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ended December 31, 2014, compared to $6.9 million in the same period last year. The increase in license revenue was primarily due to new customers and additional licenses from existing customers and $800,000 of revenue generated from Exony. Professional services revenue increased 17% to $7.9 million for the six months ended December 31, 2014, compared to $6.7 million in the same period last year. The increase in professional services revenue was primarily due to approximately $1.3 million of revenue generated from Exony.

Revenue in Euro pe and Asia Pacific increased 22% to $10.5 million in the quarter ended December 31, 2014 from $8.6 million in the comparable year-ago quarter. Total r evenue for the six months ended December 31, 2014 increased 23% to $19.0 million in Euro pe and Asia Pacific, compared to $15.5 million in the same period last year. The increase in revenue outside of North America demonstrates increased acceptance of our product world-wide. The impact of the foreign exchange fluctuation between the U.S. Dollar and the Euro and British Pound resulted in a net de crease of $91,000 in total revenue in the quarter ended December 31, 2014 and an increase of $106,000 for the six months ended December 31, 2014. To measure the impact of foreign exchange rate fluctuation, we recalculate current period results using the comparable prior period exchange rate.

Cost of Revenue

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | Change |  | % |  | 2014 |  | 2013 |  | Change |  | % |
Subscription and support |  | $ | 3,264 |  | $ | 1,951 |  | $ | 1,313 |  | 67 | % | $ | 6,143 |  | $ | 3,922 |  | $ | 2,221 |  | 57 | %
License |  |  | 26 |  |  | 26 |  |  | — |  | — | % |  | 54 |  |  | 52 |  |  | 2 |  | 4 | %
Professional services |  |  | 4,951 |  |  | 3,859 |  |  | 1,092 |  | 28 | % |  | 9,031 |  |  | 7,395 |  |  | 1,636 |  | 22 | %
Total cost of revenue |  | $ | 8,241 |  | $ | 5,836 |  | $ | 2,405 |  | 41 | % | $ | 15,228 |  | $ | 11,369 |  | $ | 3,859 |  | 34 | %
Percentage of total revenue |  |  | 44 | % |  | 33 | % |  |  |  |  |  |  | 38 | % |  | 34 | % |  |  |  |  |
Gross margin |  |  | 56 | % |  | 67 | % |  |  |  |  |  |  | 62 | % |  | 66 | % |  |  |  |  |

Cost of revenue primarily consists of compensation and benefits for our personnel who provide customer service to our customers and network support staff who support our server and network infrastructure, fees for outside consultants and, to a lesser extent, occupancy costs and related overhead. To tal cost of revenue increased 41% to $8.2 million in the quarter ended December 31, 2014 from $5.8 million in the comparable year-ago quarter. Tot al cost of revenue represented 44% and 33% of total revenue in the quarters ended December 31, 2014 and 2013, respectively. The change was primarily due to increases of (i) $2.0 million in personnel and personnel-related expenses; (ii) $276,000 in cloud related expense such as hosted network and lease cost paid to remote co-location centers; (iii) $7 5,000 in outside consulting and (iv) $67,000 in intangible amortization of customer relationships related to acquired maintenance licenses partially offset by $67,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee. Gross margin for the quarter ended December 31, 2014 was 5 6% compared to 6 7% in the comparable year-ago quarter.

Total cost of revenue for the six month ended December 31, 2014 increased 34% to $15.2 million, compared to $11.4 million in the same period last year. Total cost of revenue represented 3 8% and 3 4% of total revenue in the six month period ended December 31, 2014 and 2013, respectively. The change was primarily due to increases of (i) $3.3 million in personnel and personnel-related expenses; (ii) $268,000 in cloud related expense such as hosted network and lease cost paid to remote co-location centers; (iii) $164,000 in outside consulting; and (iv) $108,000 in intangible amortization of customer relationships related to acquired maintenance licenses partially offset by $33,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee. Gross margin for the six month ended December 31, 2014 was 6 2% compared to 6 6% in the same period last year.

Excluding any fluctuations of foreign exchange rates in European and Indian currencies against the U.S. dollar, we anticipate cost of subscription and support and cost of license to remain relatively constant while the cost of professional services to decrease in future quarters based upon our current business plan.

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Operating Expenses

Research and Development

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | Change |  | % |  | 2014 |  | 2013 |  | Change |  | % |
Research and development |  | $ | 4,160 |  | $ | 2,390 |  | $ | 1,770 |  | 74 | % | $ | 7,901 |  | $ | 4,496 |  | $ | 3,405 |  | 76 | %
Percentage of total revenue |  |  | 22 | % |  | 14 | % |  |  |  |  |  |  | 20 | % |  | 14 | % |  |  |  |  |

Research and development expense primarily consists of compensation and benefits for our engineering, product management and development, and quality assurance personnel, fees for outside consultants and, to a lesser extent, occupancy costs and related overhead. Total costs for research and development increased 74% to $4.2 million in the quarter ended December 31, 2014 from $2.4 million in the comparable year-ago quarter. The change was primar ily due to increases of (i) $1.4 million in personnel and personnel-related expenses; (ii) $437,000 in intangible amortization of acquired developed software technology; partially offset by a decrease of $85,000 in outside consulting services. Total research and development revenue as a percentage of total revenue was 22% and 14% for the quarters ended December 31, 2014 and 2013, respectively.

Total costs for research and development for the six months ended December 31, 2014 increased 7 6% to $7.9 million, compared to $4.5 million in the same period last year. The change was primarily due to increases of (i) $2.8 million in personnel and personnel-related expenses; (ii) $704,000 in intangible amortization of acquired developed software technology; partially offset by decreases of (i) $80,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee and (i i) $61,000 in outside consulting services. Total research and development revenue as a pe rcentage of total revenue for the six month ended December 31, 2014 was 20% compared to 14% in the same period last year.

Excluding any fluctuations of foreign exchange rates in European and Indian currencies against the U.S. dollar, we anticipate research and development expense to decrease in future quarters based upon our current business plan.

Sales and Marketing

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | Change |  | % |  | 2014 |  | 2013 |  | Change |  | % |
Sales and marketing |  | $ | 9,599 |  | $ | 8,617 |  | $ | 982 |  | 11 | % | $ | 18,104 |  | $ | 16,012 |  | $ | 2,092 |  | 13 | %
Percentage of total revenue |  |  | 51 | % |  | 48 | % |  |  |  |  |  |  | 46 | % |  | 48 | % |  |  |  |  |

Sales and marketing expense primarily consist of compensation and benefits for our sales, marketing and business development personnel, lead generation activities, advertising, trade show and other promotional costs and, to a lesser extent, occupancy costs and related overhead. Sales an d marketing expense increased 11% to $9.6 million in the quarter ended December 31, 2014 from $8.6 million in the comparable year-ago quarter. The change was primar ily due to increases of (i) $1.3 million in personnel and personnel-related expenses of which $468,000 relates to severance and related charges and $420,000 relates to sales commissions; and (ii) $173,000 in intangible amortization of customer relationships related to acquired software licenses; partially offset by decreases of (i) $343,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee; and (ii) $189,000 in outside consulting services. Total sales and marketing expense as a p ercentage of total revenue was 51% and 4 8% for the quarters ended December 31, 2014 and 2013, respectively.

Total s ales and marketing expense for the six months ended December 31, 2014 increased 1 3% to $18.1 million, compared to $16.0 million in the same period last year. The change was primarily due to increases of (i) $2.6 million in

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personnel and personnel-related expenses of which $1.4 million relates to sales commissions and $528,000 relates to severance and related charges; (ii) $278,000 in intangible amortization of customer relationships related to acquired software licenses; and (iii) $148,000 in third party partner fees; partially offset by decreases of (i) $435,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee; (ii) $260,000 from outside consulting services; and (ii i) $2 42,000 in marketing programs and public relations services. Total sales and marketing expense as a percentage of total revenue for the six month ended December 31, 2014 was 4 6% compared to 4 8% in the same period last year.

Excluding any fluctuations of foreign exchange rates in European and Indian currencies against the U.S. dollar, we anticipate s ales and marketing expense to decrease in future quarters based upon our current business plan.

General and Administrative

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | Change |  | % |  | 2014 |  | 2013 |  | Change |  | % |
General and administrative |  | $ | 2,573 |  | $ | 1,930 |  | $ | 643 |  | 33 | % | $ | 5,515 |  | $ | 4,136 |  | $ | 1,379 |  | 33 | %
Percentage of total revenue |  |  | 14 | % |  | 11 | % |  |  |  |  |  |  | 14 | % |  | 12 | % |  |  |  |  |

General and administrative expense primarily consist of compensation and benefits for our finance, human resources, administrative and legal personnel, fees for outside professional services, provision for doubtful accounts and, to a lesser extent, occupancy costs and related overhead. Total general and administrative expense increased 33% to $2.6 million in the quarter ended December 31, 2014 from $1.9 million in the comparable year-ago quarter. The change was primarily due to increases of (i) $589,000 in personnel and personnel-related expense of which $141,000 relates to severance and related charges; (ii) $229,000 in one-time acquisition transaction costs; (iii) $103,000 from outside consulting services, including accounting and audit services; (iv) $1 9,000 in intangible amortization of trade name; partially offset by decreases of (i) $284,000 in legal expenses; (ii) $1 73,000 in bad debt; and (iii) $1 2,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee. Total general and administrative expense as a percentage of total revenue was 14% and 11% for the quarters ended December 31, 2014 and 2013, respectively.

Total general and administrative expense for the six months ended December 31, 2014 increased 33% to $5.5 million, compared to $4.1 million in the same period last year. The change was primarily due to increases of (i) $1.1 million in personnel and personnel-related expense of which $141,000 relates to severance and related charges; (ii) $844,000 million in one-time acquisition transaction costs; (iii) $107,000 from outside consulting services, including accounting and audit services; (iv) $30,000 in intangible amortization of trade name partially offset by decreases of (i) $45 5,000 in legal expenses; (ii) $347,000 in bad debt; and (iii) $41,000 from the foreign exchange fluctuation between the U.S. Dollar, the Euro, British Pound and India Rupee. Total general and administrative expense as a percentage of total revenue for the six month ended December 31, 2014 was 14% compared to 12% in the same period last year.

Excluding any fluctuations of foreign exchange rates in European and Indian currencies against the U.S. dollar, we anticipate g eneral and administrative expense to decrease in future quarters based upon our current business plan.

Loss from Operations

|  | Three Months Ended |  | Six Months Ended |
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | Change |  | % |  | 2014 |  | 2013 |  | Change |  | % |
Loss from operations |  | $ | (5,670) |  | $ | (1,108) |  | $ | (4,562) |  | 412 | % | $ | (7,141) |  | $ | (2,666) |  | $ | (4,475) |  | 168 | %
Operating margin |  |  | (31) | % |  | (6) | % |  |  |  |  |  |  | (18) | % |  | (8) | % |  |  |  |  |

Loss from operations in the quarter ended December 31, 2014 was $5.7 million which included $750,000 of stock-based compensation expenses, compared to loss from operations of $1.1 million which included $394,000 of stock-based

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compensation expenses in the comparable y ear-ago quarter. We recorded a 31% negative operating margin in the quarter ended December 31, 2014, compared to a 6% negative operating margin in the comparable year-ago quarter.

Loss from operations for the six months ended December 31, 2014 was $7.1 million which included $1.3 million of stock-based compensation expenses, compared to loss from operations of $2.7 million in the same period last year which included $740,000 of stock-based compensation expenses in the same period last year. We recorded a 18% negative operating margin for the six month ended December 31, 2014, compared to 8% negative operating margin in the same period last year.

Interest Expense, Net

Interest expense consists of interest on bank borrowings, capital leases and our related party notes payable. Interest expense, net was $1 45,000 and $268,000 in the three and six months ended December 31, 2014 compared to $37,000 and $129,000 in the three and six months ended December 31, 2013. The increase in interest expense primarily relates to interest paid on bank borrowing repayments and capital leasing agreements.

Other Income (Expense), Net

Other income was $1 63,000 and $153,000 for the three and six months ended December 31, 2014 compared to other expense of $18,000 and $278,000 the three and six months ended December 31, 2013. Other income primarily consists of an unclaimed property refund. Other expense primarily consists of exchange rate gain/loss on foreign currency transactions.

Income Tax Benefit (Provision)

We recorded an income tax benefit of $191,000 and $159,000 for the three and six months ended December 31, 2014 compared to an income tax provision of $5 4,000 and $148,000 for the three and six months ended December 31, 2013. The tax benefit primarily relates to the reversal of the intangible amortization generated and benefited by Exony Limited which was acquired in the current fiscal year. The income tax expenses primarily relate to foreign and state income tax expense.

Liquidity and Capital Resources

Overview

As of December 31, 2014 our cash and cash equivalents and restricted cash were $9.3 million and our negative working capital was $2.6 million compared to cash and cash equivalents and restricted cash of $8.8 million and negative working capital of $1.9 million as of June 30, 2014. As of December 31, 2014, our deferred revenue was $12.6 million compared to $13.7 million on June 30, 2014.

On November 21, 2014, we entered into a new $20 million credit facility with Wells Fargo Bank to be used for working capital and support our strategic growth plans. The new facility, which includes a $10 million, five-year term loan and a $10 million revolver, replaces our prior credit facility with Comerica Bank. For the term loan, we must make quarterly installments of principal at varying amount s, plus all accrued interest, at specified dates through the maturity date of November 21, 2019, at which time remaining amounts shall be immediately due and payable.

Based upon our fiscal year 2015 plan, we believe that existing capital resources will enable us to maintain current and planned operations for at least the next 12 months. From time to time, however, we may consider opportunities for raising additional capital and/or exchanging all or a portion of our existing debt for equity. We can make no assurances that such opportunities will be available to us on economic terms we consider favorable, if at all.

If adequate funds are 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

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enhance products or services, or otherwise respond to competitive pressures would be significantly limited. Our expectations as to our future cash flows and our future cash balances are subject to a number of assumptions, including assumptions regarding anticipated increases in our revenue, the mix of new cloud and license business, our ability to retain existing customers and customer purchasing and payment patterns, many of which are beyond our control.

Cash Flows

Net cash used in operating activities was $7.9 million for the six months ended December 31, 2014 compared to cash provided by operating activities of $1.2 million in the comparable year-ago period. The decrease was primarily due to a net loss of $7.1 million for the six months ended December 31, 2014 compared to a net loss of $3.2 million in the comparable year-ago period after adjusting for depreciation, amortization of deferred commissions, deferred financing costs, and intangible assets, stock-based compensation, and changes in working capital accounts specifically, decreases in deferred revenue, accrued compensation, accrued liabilities, accounts payable, and increases in prepaid and other current assets.

Net cash used in investing activities was $3.5 million during the six months ended December 31, 2014 and $1.2 million during the comparable year-ago period. The net cash used in investing activities during the six months ended December 31, 2014 primarily related to $1.9 million of net cash paid for the acquisition of Exony, net of cash acquired and an increase in restricted cash of $1.2 million related to escrow funds reserved for the payment of Exony management incentive bonuses. Net cash used in investing activities for the six months ended December 31, 2013 related to $1.2 million of computer equipment purchases for new employees and computer hardware to support the growth in our cloud business.

Net cash provided by financing activities was $11.3 million during the six months ended December 31, 2014 compared to cash used in financing activities of $3.9 million during the comparable year-ago period. Net cash provided by financing activities for the six months ended December 31, 2014 primarily related to $24.0 million in borrowings from our bank facilities used to finance the majority of the acquisition of Exony on August 6, 2014 and to support our strategic growth plans partially offset by the repayment of $12.0 million of existing bank borrowings, $538,000 payments made for debt issue costs, and $2 96,000 principal payments on capital lease obligations. Net cash used in financing activities for the six months ended December 31, 2013 included the repayment of $2.9 million on related party notes, repayment of $1.3 million of existing bank borrowings and $119,000 principal payment s on a capital lease obligation partially offset by $457,000 from the exercise of stock options.

Commitments

The acquisition of Exony included operating lease commitments to lease approximately 10,435 square feet and 3,655 square feet of an office building located in Newbury, England. The leases commenced on January 24, 2014 with annual lease payments of approximately $260,000 for a 5 year term lease and $91,000 for a 2 year term lease.

Off-Balance Sheet Arrangements

As of December 31, 2014 we had no off-balance-sheet arrangements, as defined in Item 303(a)(4) of SEC Regulation S-K, other than operating leases and co-location agreement that were included in our commitment schedule as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014. There was no significant change since June 30, 2014.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We develop products in the United States and India and sell these products internationally. Generally, sales are made in local currency. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Identifiable assets denominated in foreign currency as of December 31, 2014 totaled approximately $17.4 million. We do not currently use derivative instruments to hedge against foreign exchange risk. As such we are exposed to market risk from fluctuations in foreign currency exchange rates, principally from the exchange rate between the U.S Dollar and the Euro, British Pound and the India Rupee. We

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are a net receiver of foreign currencies and therefore benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar relative to the foreign currency.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2014, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal controls. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(d) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART I I. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, we are from time to time involved in various legal proceedings and claims related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour, and other claims.

Item 1 A. Risk Factors

The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.

Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting. These include:

| · |  | general economic and business conditions;

| · |  | currency exchange rate fluctuations;

| · |  | the overall demand for enterprise software and services;

| · |  | customer acceptance of cloud-based solutions;

| · |  | governmental budgetary constraints or shifts in government spending priorities; and

| · |  | general political developments.

The continued global economic crisis caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These macroeconomic developments negatively affected, and could continue to negatively affect, our business, operating results or financial condition which, in turn, could adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their technology budgets or be unable to fund software or services purchases, which could cause customers to delay, decrease or cancel purchases of our products and services or cause customers not to pay us or to delay paying us for previously purchased products and services.

Our hybrid revenue model may affect our operating results.

We have a hybrid delivery model meaning that we offer our solutions on a cloud or license basis to our customers. For license transactions, the license revenue amount is generally recognized in the quarter delivery and acceptance of our software takes place. Whereas, for cloud transactions, cloud revenue is recognized ratably over the term of the cloud contract, which is typically one to two years. As a result, our total revenue may increase or decrease in future quarters as a result of the timing and mix of license and cloud transactions. This could be exacerbated as more customers employ our cloud solution over our licensed solution; causing us to increase the amount of revenue recognized ratably over the life of the contract therefore resulting in a decrease in our total revenue in the short-term.

Because we recognize revenue from subscriptions for our service over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.

We generally recognize revenue from customers ratably over the terms of their subscription agreements, which are typically 12 to 36 months. As a result, most of the revenue we report in each quarter is the result of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one

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quarter may not be reflected in our revenue results for that quarter. Any such decline, however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our service, and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

We cannot accurately predict subscription renewal or upgrade rates and the impact these rates may have on our future revenue and operating results.

Our customers have no obligation to renew their subscriptions for our service after the expiration of their initial subscription period, which is typically 12 to 36 months, and in fact, some customers have elected not to renew. In addition, our customers may renew for fewer subscriptions, renew for shorter contract lengths, or renew for lower cost editions of our service. We cannot accurately predict renewal rates given our varied customer base of enterprise and small and medium size business customers and the number of multiyear subscription contracts. Our renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our service, customers’ spending levels, decreases in the number of users at our customers, pricing changes and deteriorating general economic conditions. If our customers do not renew their subscriptions for our service or reduce the number of paying subscriptions at the time of renewal, our revenue will decline and our business will suffer.

Our future success also depends in part on our ability to sell additional features and services, more subscriptions or enhanced editions of our service to our current customers. This may also require increasingly sophisticated and costly sales efforts that are targeted at senior management. Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions and that our customers do not react negatively to any price changes related to these additional features and services. If our efforts to upsell to our customers are not successful and negative reaction occurs, our business may suffer.

Failure to comply with covenants in our loan facility may restrict our access to credit which could negatively impact our operations.

If we fail to comply with our covenants, Wells Fargo can declare any outstanding amounts immediately due and payable and stop extending credit to us. If our access to credit were restricted in this way, our operations would suffer and negatively impact our business.

Our lengthy sales cycles and the difficulty in predicting timing of sales or delays may impair our operating results.

The long sales cycle for our products may cause license revenue and operating results to vary significantly from period to period. The sales cycle for our products can be six months or more and varies substantially from customer to customer. Because we sell complex and deeply integrated solutions, it can take many months of customer education to secure sales. Because our potential customers may evaluate our products before, if ever, executing definitive agreements, we may incur substantial expenses and spend significant management effort in connection with the potential customer. Our multi-product offering and the increasingly complex needs of our customers contribute to a longer and unpredictable sales cycle. Consequently, we often face difficulty predicting the quarter in which expected sales will actually occur. This contributes to the uncertainty and fluctuations in our future operating results. In particular, the corporate decision-making and approval process of our customers and potential customers has become more complicated. This has caused our average sales cycle to further increase and, in some cases, has prevented the closure of sales that we believed were likely to close. In addition, historically our license sales have comprised a relatively small number of high value transactions; consequently, we may miss our revenue forecasts and may incur expenses that are not offset by corresponding revenue from the delay in even one transaction.

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Because we depend on a relatively small number of customers for a substantial portion of our revenue, the loss of any of these customers or our failure to attract new significant customers could adversely impact our revenue and harm our business.

We have in the past and expect in the future to derive a substantial portion of our revenue from sales to a relatively small number of customers. The composition of these customers has varied in the past, and we expect that it will continue to vary over time. As a result, the loss of any significant customer or a decline in business with any significant customer would materially and adversely affect our financial condition and results of operations.

Our revenue and operating expenses are unpredictable and may fluctuate, which may harm our operating results and financial condition.

Due to the emerging nature of the multichannel contact center market and other similar factors, our revenue and operating results may fluctuate from quarter to quarter. Our revenue could fall short of expectations if we experience delays or cancellations of even a small number of orders. It is possible that our operating results in some quarters will be below the expectations of financial analysts or investors. In this event, the market price of our common stock is also likely to decline.

A number of factors are likely to cause fluctuations in our operating results, including, but not limited to, the following:

| · |  | demand for our software and budget and spending decisions by information technology departments of our customers;

| · |  | the mix of subscription and perpetual license transactions;

| · |  | seasonal trends in technology purchases;

| · |  | our ability to attract and retain customers;

| · |  | product offerings and pricing of our competitors; and

| · |  | litigation relating to our intellectual proprietary rights.

In addition, we base our expense levels in part on expectations regarding future revenue levels. In the short term, expenses, such as employee compensation and rent, are relatively fixed. If revenue for a particular quarter is below expectations, we may be unable to reduce our operating expenses proportionately for that quarter. Accordingly, such a revenue shortfall would have a disproportionate effect on expected operating results for that quarter. For this reason, period-to-period comparisons of our operating results may also not be a good indication of our future performance.

As we acquire companies or technologies, we may not realize the expected business benefits, the acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operations.

As part of our business strategy, we periodically make investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies and intellectual property rights, and we expect that we will continue to make such investments and acquisitions in the future. Acquisitions and investments involve numerous risks, including:

| · |  | the potential failure to achieve the expected benefits of the combination or acquisition;

| · |  | difficulties in and the cost of integrating operations, technologies, services and personnel;

| · |  | diversion of financial and managerial resources from existing operations;

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| · |  | risk of entering new markets in which we have little or no experience or where competitors may have stronger market positions;

| · |  | potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers;

| · |  | potential loss of key employees;

| · |  | inability to generate sufficient revenue to offset acquisition or investment costs;

| · |  | the inability to maintain relationships with customers and partners of the acquired business;

| · |  | the difficulty of transitioning the acquired technology onto our existing platforms and maintaining the security standards consistent with our other services for such technology;

| · |  | potential unknown liabilities associated with the acquired businesses;

| · |  | unanticipated expenses related to acquired technology and its integration into existing technology;

| · |  | negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and

| · |  | deferred revenue;

| · |  | delays in customer purchases due to uncertainty related to any acquisition;

| · |  | the need to implement controls, procedures and policies at the acquired company;

| · |  | challenges caused by distance, language and cultural differences;

| · |  | in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and languages and any currency and regulatory risks associated with specific countries; and

| · |  | the tax effects of any such acquisitions.

In addition, if we finance acquisitions by issuing equity or convertible or other debt securities or loans, our existing stockholders may be diluted, or we could face constraints related to the terms of repayment obligations related to the incurrence of indebtedness which could affect the market price of our common stock. Further, if we fail to properly evaluate and execute acquisitions or investments, our business operations and prospects may be seriously harmed.

We must compete successfully in our market segment.

The market for customer engagement software is intensely competitive. Other than product innovation and existing customer relationships, there are no substantial barriers to entry in this market, and established or new entities may enter this market in the future. While software internally developed by enterprises represents indirect competition, we also compete directly with packaged application software vendors, including Avaya, Inc., Genesys Telecommunications, LivePerson, Inc., and Moxie Software, Inc. In addition, we face actual or potential competition from larger software companies such as Microsoft Corporation, Oracle Corporation, Salesforce.com, Inc. and similar companies that may attempt to sell customer engagement software to their installed base.

We believe competition will continue to be fierce as current competitors increase the sophistication of their offerings and as new participants enter the market. Many of our current and potential competitors have longer operating

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histories, larger customer bases, broader brand recognition, and significantly greater financial, marketing and other resources. With more established and better-financed competitors, these companies may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies, and make more attractive offers to businesses to induce them to use their products or services.

We have experienced growth in recent periods and expect to continue to grow. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

To achieve our business objectives, we will need to continue to expand our business. This expansion has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We anticipate that expansion will require substantial management effort and additional investment in our infrastructure and headcount. If we are unable to successfully manage our growth, our business, financial condition and results of operations will be adversely affected.

Part of the challenge that we expect to face in the course of our expansion is the need to increase staffing, primarily to develop new sales strategies and to expand into different markets. We have considerable need to recruit, train, and retain qualified staff and any delays or difficulties we encounter in these staffing efforts could impair our ability to execute our business plan.

We intend to continue to expand our distribution channels into international markets and to spend significant financial and managerial resources to do so. If we are successful in our expansion or are unable to provide adequate service to this expansion, our business and operating results will suffer.

If we fail to improve our sales performance and marketing activities, we may be unable to grow our business, negatively impacting our operating results and financial condition.

G rowth of our business is dependent on our ability to improve our sales force and on the ability of our sales force to increase sales. If we are not able to effectively develop and maintain awareness of our products in a cost-effective manner, we may not achieve widespread acceptance of our existing and future products. This may result in a failure to expand and attract new customers and enhance relationships with existing customers. This may impede our efforts to improve operations in other areas of the Company and may result in declines in the market price of our common stock.

Due to the complexity of our customer engagement hub platform and related products and services, we must utilize highly trained sales personnel to educate prospective customers regarding the use and benefits of our products and services as well as provide effective customer support. If we have turnover in our sales and marketing teams, we may not be able to successfully compete with those of our competitors.

Our failure to develop and expand strategic and third party distribution channels would impede our revenue growth.

Our success and future growth depends in part upon the skills, experience, performance and continued service of our distribution partners, including software and hardware vendors and resellers. We engage with distribution partners in a number of ways, including assisting us to identify prospective customers, to distribute our products in geographies where we do not have a physical presence and to distribute our products where they are considered complementary to other third party products distributed by the partner. We believe that our future success depends in part upon our ability to develop and expand strategic, long term and profitable partnerships and reseller relationships. If we are unable to do so, or if any existing or future distribution partners fail to successfully market, resell, implement or support our products for their customers, or if distribution partners represent multiple providers and devote greater resources to market, resell, implement and support competing products and services, our future revenue growth could be impeded. Our failure to develop and expand relationships with systems integrators could harm our business.

We sometimes rely on system integrators to recommend our products to their customers and to install and support our products for their customers. We likewise depend on broad market acceptance by these system integrators of our

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product and service offerings. Our agreements generally do not prohibit competitive offerings and system integrators may develop market or recommend software applications that compete with our products. Moreover, if these firms fail to implement our products successfully for their customers, we may not have the resources to implement our products on the schedule required by their customers. To the extent we devote resources to these relationships and the partnerships do not proceed as anticipated or provide revenue or other results as anticipated, our business may be harmed. Once partnerships are forged, there can be no guarantee that such relationships will be renewed in the future or available on acceptable terms. If we lose strategic third party relationships, fail to renew or develop new relationships, or fail to fully exploit revenue opportunities within such relationships, our results of operations and future growth may suffer.

Our international operations involve various risks.

We derived 56% and 49% of our revenue from international sales for the quarters ended December 31, 2014 and 2013, respectively. For the six months ended December 31, 2014 and 2013, we derived 48% and 46% of our revenue from international sales, respectively. Including those discussed above, our international sales operations are subject to a number of specific risks, such as:

| · |  | general economic conditions in each country or region in which we do or plan to do business;

| · |  | foreign currency fluctuations and imposition of exchange controls;

| · |  | expenses associated with complying with differing technology standards and language translation issues;

| · |  | difficulty and costs in staffing and managing our international operations;

| · |  | difficulties in collecting accounts receivable and longer collection periods;

| · |  | health or similar issues, such as a pandemic or epidemic;

| · |  | various trade restrictions and tax consequences;

| · |  | hostilities in various parts of the world; and

| · |  | reduced intellectual property protections in some countries.

As of December 31, 2014, approximately 4 1% of our workforce was employed in India. Of these employees, 3 5% are allocated to research and development. Although the movement of certain operations internationally was principally motivated by cost cutting, the continued management of these remote operations requires significant management attention and financial resources that could adversely affect our operating performance. In addition, with the significant increase in the numbers of foreign businesses that have established operations in India, the competition to attract and retain employees there has increased significantly. As a result of the increased competition for skilled workers, we experienced increased compensation costs and expect these costs to increase in the future. Our reliance on our workforce in India makes us particularly susceptible to disruptions in the business environment in that region. In particular, sophisticated telecommunications links, high-speed data communications with other eGain offices and customers, and overall consistency and stability of our business infrastructure are vital to our day-to-day operations, and any impairment of such infrastructure will cause our financial condition and results to suffer. The maintenance of stable political relations between the United States, European Union and India are also of great importance to our operations.

Any of these risks could have a significant impact on our product development, customer support, or professional services. To the extent the benefit of maintaining these operations abroad does not exceed the expense of establishing and maintaining such activities, our operating results and financial condition will suffer.

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We may need additional capital, and raising such additional capital may be difficult or impossible and will likely significantly dilute existing stockholders.

We believe that existing capital resources will enable us to maintain current and planned operations for the next 12 months. However, our working capital requirements in the foreseeable future are subject to numerous risks and will depend on a variety of factors, in particular, whether we maintain or exceed the level of revenue achieved as of December 31, 2014 and that customers continue to pay on a timely basis. We may need to secure additional financing due to unforeseen or unanticipated market conditions. We may try to raise additional funds through public or private financings, strategic relationships, or other arrangements. Such financing may be difficult to obtain on terms acceptable to us, if at all. If we succeed in raising additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial dilution to existing stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these new securities would have rights, preferences, and privileges senior to those of the holders of our common stock. The terms of these securities could impose restrictions on our operations.

Difficulties in implementing our products could harm our revenue and margins.

We generally recognize license revenue from a customer sale when persuasive evidence of an arrangement exists, the product has been delivered, the arrangement does not involve significant customization of the software, the license fee is fixed or determinable and collection of the fee is probable. If an arrangement requires significant customization or implementation services from us, recognition of the associated license and service revenue could be delayed. The timing of the commencement and completion of these services is subject to factors that may be beyond our control, as this process requires access to the customer’s facilities and coordination with the customer’s personnel after delivery of the software. In addition, customers could cancel or delay product implementations. Implementation typically involves working with sophisticated software, computing and communications systems. If we experience difficulties with implementation or do not meet project milestones in a timely manner, we could be obligated to devote more customer support, engineering and other resources to a particular project. Some customers may also require us to develop customized features or capabilities. If new or existing customers cancel or have difficulty deploying our products or require significant amounts of our professional services, support, or customized features, revenue recognition could be cancelled or further delayed and our costs could increase, causing increased variability in our operating results.

Our reserves may be insufficient to cover receivables we are unable to collect.

We assume a certain level of credit risk with our customers in order to do business. Conditions affecting any of our customers could cause them to become unable or unwilling to pay us in a timely manner, or at all, for products or services we have already provided them. In the past, we have experienced collection delays from certain customers, and we cannot predict whether we will continue to experience similar or more severe delays in the future. Although we have established reserves to cover losses due to delays or inability to pay, there can be no assurance that such reserves will be sufficient to cover our losses. If losses due to delays or inability to pay are greater than our reserves, it could harm our business, operating results and financial condition.

We may be subject to legal liability and/or negative publicity for the services provided to consumers via our technology platforms.

Our technology platforms enable representatives of our customers as well as individual service providers to communicate with consumers and other persons seeking information or advice on the Internet. The law relating to the liability of online platform providers such as us for the activities of users of their online platforms is often challenged in the U.S. and internationally. We may be unable to prevent users of our technology platforms from providing negligent, unlawful or inappropriate advice, information or content via our technology platforms, or from behaving in an unlawful manner, and we may be subject to allegations of civil or criminal liability for negligent, fraudulent, unlawful or inappropriate activities carried out by users of our technology platforms.

Claims could be made against online services companies under both U.S. and foreign law such as fraud, defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the nature and content of the materials disseminated by users of our technology platforms. In addition, domestic and foreign

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legislation has been proposed that could prohibit or impose liability for the transmission over the Internet of certain types of information. Our defense of any of these actions could be costly and involve significant time and attention of our management and other resources.

The Digital Millennium Copyright Act, or DMCA, is intended, among other things, to reduce the liability of online service providers for listing or linking to third party web properties that include materials that infringe copyrights or rights of others. Additionally, portions of The Communications Decency Act, or CDA, are intended to provide statutory protections to online service providers who distribute third party content. A safe harbor for copyright infringement is also available under the DMCA to certain online service providers that provide specific services, if the providers take certain affirmative steps as set forth in the DMCA. Important questions regarding the safe harbor under the DMCA and the CDA have yet to be litigated, and we cannot guarantee that we will meet the safe harbor requirements of the DMCA or of the CDA. If we are not covered by a safe harbor, for any reason, we could be exposed to claims, which could be costly and time-consuming to defend.

Unplanned system interruptions and capacity constraints and failure to effect efficient transmission of customer communications and data over the Internet could harm our business and reputation.

Our customers have in the past experienced some interruptions with eGain-cloud operations. We believe that these interruptions will continue to occur from time to time. These interruptions could be due to hardware and operating system failures. As a result, our business will suffer if we experience frequent or long system interruptions that result in the unavailability or reduced performance of our cloud operations or reduce our ability to provide remote management services. We expect to experience occasional temporary capacity constraints due to sharply increased traffic or other Internet-wide disruptions, which may cause unanticipated system disruptions, slower response times, impaired quality, and degradation in levels of customer service. If this were to continue to happen, our business and reputation could be seriously harmed.

The growth in the use of the Internet has caused interruptions and delays in accessing the Internet and transmitting data over the Internet. Interruptions also occur due to systems burdens brought on by unsolicited bulk email or “Spam,” malicious service attacks and hacking into operating systems, viruses, worms and a “Trojan” horse, the proliferation of which is beyond our control and may seriously impact our and our customers’ businesses.

Because we provide Cloud-based software, interruptions or delays in Internet transmissions will harm our customers’ ability to receive and respond to online interactions. Therefore, our market depends on ongoing improvements being made to the entire Internet infrastructure to alleviate overloading and congestion.

Our success largely depends on the efficient and uninterrupted operation of our computer and communications hardware and network systems. A significant amount of our computer and communications systems are located in Sunnyvale, California. Due to our location, our systems and operations are vulnerable to damage or interruption from fire, earthquake, power loss, telecommunications failure and similar events.

We do maintain a business continuity plan for our customers in the event of an outage. We maintain other co-locations for the purposes of disaster recovery as well as maintaining back up’s of our customer’s information.

We have entered into service agreements with some of our customers that require minimum performance standards, including standards regarding the availability and response time of our remote management services. If we fail to meet these standards, our customers could terminate their relationships with us, and we could be subject to contractual refunds and service credits to customers. Any unplanned interruption of services may harm our ability to attract and retain customers.

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The terms we agree to in our Service Level Agreements or other contracts may result in increased costs or liabilities, which would in turn affect our results of operations.

Our Service Level Agreement (SLA) includes indemnification provisions and provides for service credits for system unavailability, and loss, damage or costs resulting from use of our system. If we were required to provide any of these in a material way, our results of operations would suffer.

We have been and may in the future be sued by third parties for various claims including alleged infringement of proprietary rights.

We are involved in various legal matters arising from the normal course of business activities. These may include claims, suits, and other proceedings involving alleged infringement of third-party patents and other intellectual property rights, and commercial, labor and employment, and other matters.

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. We have received in the past and may receive in the future communications from third parties claiming that we or our customers have infringed the intellectual property rights of others. In addition we have been, and may in the future be, sued by third parties for alleged infringement of their claimed proprietary rights. Our technologies and those of our customers may be subject to injunction if they are found to infringe the rights of a third party or we may be required to pay damages, or both. Many of our agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim.

The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention from executing our business plan, lead to attempts on the part of other parties to pursue similar claims and, in the case of intellectual property claims, require us to change our technology, change our business practices or pay monetary damages, or enter into short- or long-term royalty or licensing agreements.

Any adverse determination related to intellectual property claims or other litigation could prevent us from offering our service to others, could be material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter could materially affect our future results of operation or cash flows or both.

We rely on trademark, copyright, trade secret laws, contractual restrictions and patent rights to protect our intellectual property and proprietary rights and if these rights are impaired, then our ability to generate revenue will be harmed.

If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology, and our business might be harmed. In addition, defending our intellectual property rights might entail significant expense. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we have some U.S. patents and pending U.S. patent applications, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, our existing patents and any patents issued in the future may not provide us with competitive advantages, or may be successfully 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 service is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of

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our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel.

Our failure or inability to develop non-infringing technology or license the proprietary rights on a timely basis would harm our business.

Third parties may infringe or misappropriate our intellectual property and similar proprietary rights. In addition, other parties may assert infringement claims against us. Our products may infringe issued patents that may relate to our products. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our software products. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the patents and other intellectual property rights of third parties. Intellectual property litigation is expensive, time consuming, and could divert management’s attention away from running our business. This litigation could also require us to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement.

Our stock price has demonstrated volatility and continued market conditions may cause declines or fluctuations.

The price at which our common stock trades has been and will likely continue to be highly volatile and show wide fluctuations due to factors such as the following:

| · |  | concerns related to liquidity of our stock;

| · |  | actual or anticipated fluctuations in our operating results, our ability to meet announced or anticipated revenue and profitability goals and changes in or failure to meet securities analysts’ expectations;

| · |  | announcements of technological innovations and/or the introduction of new services by us or our competitors;

| · |  | developments with respect to intellectual property rights and litigation, regulatory scrutiny and new legislation;

| · |  | conditions and trends in the Internet and other technology industries; and

| · |  | general market and economic conditions.

Furthermore, the stock market has recently and in the past experienced significant price and volume fluctuations that have affected the market prices for the common stock of technology companies, regardless of the specific operating performance of the affected company. These broad market fluctuations may cause the market price of our common stock to decline.

Our insiders who are significant stockholders may control the election of our board and may have interests that conflict with those of other stockholders.

Our directors and executive officers, together with their affiliates and members of their immediate families, beneficially owned, in t he aggregate, approximately 38.7% of our outstanding capital stock as of December 31, 2014. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our stockholders’ approval, including the election and removal of directors and significant corporate transactions.

If we are unable to hire and retain key personnel, our business and results of operations would be negatively affected.

Our success will also depend in large part on the skills, experience and performance of our senior management, engineering, sales, marketing and other key personnel. The loss of the services of any of our senior management or other key personnel, including our Chief Executive Officer and co-founder, Ashutosh Roy, could harm our business. Additionally, an increase in attrition in the Indian workforce on which we rely for research and development would have

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significant negative effects on us and our results of operations. If we cannot hire and retain qualified personnel, our ability to expand our business would be impaired and our results of operations would suffer.

Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.

Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign governments continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information. In some cases foreign data privacy laws and regulations, such as the European Union’s Data Protection Directive, and the country-specific regulations that implement that directive, also govern the processing of personal information. Further, laws are increasingly aimed at the use of personal information for marketing purposes, such as the European Union’s e-Privacy Directive, and the country-specific regulations that implement that directive. Such laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain locations.

In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on us. Our customers expect us to meet voluntary certification or other standards established by third parties, such as TRUSTe. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain customers and could harm our business.

The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our service and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance.

Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data necessary to allow our customers to use our service effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services, and could limit adoption of our subscription solution.

Industry-specific regulation is evolving and unfavorable industry-specific laws, regulations or interpretive positions could harm our business.

Our customers and potential customers do business in a variety of industries, including financial services, the public sector, healthcare and telecommunications. Regulators in certain industries have adopted and may in the future adopt regulations or interpretive positions regarding the use of cloud computing and other outsourced services. The costs of compliance with, and other burdens imposed by, industry-specific laws, regulations and interpretive positions may limit customers’ use and adoption of our services and reduce overall demand for our services. For example, some financial services regulators have imposed guidelines for use of cloud computing services that mandate specific controls or require financial services enterprises to obtain regulatory approval prior to outsourcing certain functions. If we are unable to comply with these guidelines or controls, or if our customers are unable to obtain regulatory approval to use our service where required, our business may be harmed. In addition, an inability to satisfy the standards of certain voluntary third-party certification bodies that our customers may expect, such as an attestation of compliance with the Payment Card Industry (PCI) Data Security Standards, may have an adverse impact on our business. If in the future we are unable to achieve or maintain these industry-specific certifications or other requirements or standards relevant to our customers, it may harm our business.

In some cases, industry-specific laws, regulations or interpretive positions may also apply directly to us as a service provider. Any failure or perceived failure by us to comply with such requirements could have an adverse impact on our business.

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If our security measures are breached and unauthorized access is obtained to a customer’s data or our data or our IT systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.

Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our IT systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data or IT systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party access to their customer data located in our cloud environment. Because we do not control the transmissions between customer authorized third parties, or the processing of such data by customer authorized third parties, we cannot ensure the integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.

We may need to license third-party technologies and may be unable to do so on commercially reasonable terms.

To the extent we need to license third-party technologies, we may be unable to do so on commercially reasonable terms or at all. In addition, we may fail to successfully integrate any licensed technology into our products or services. Third-party licenses may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary technology, and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs. Our inability to obtain and successfully integrate any of these licenses could delay product and service development until equivalent technology can be identified, licensed and integrated. This in turn would harm our business and operating results.

Changes to current accounting policies could have a significant effect on our reported financial results or the way in which we conduct our business.

Generally accepted accounting principles and the related accounting pronouncements, implementation guidelines and interpretations for some of our significant accounting policies are highly complex and require subjective judgments and assumptions. Some of our more significant accounting policies that could be affected by changes in the accounting rules and the related implementation guidelines and interpretations include:

| · |  | recognition of revenue;

| · |  | contingencies and litigation; and

| · |  | accounting for income taxes.

Changes in these or other rules, or scrutiny of our current accounting practices, or a determination that our judgments or assumptions in the application of these accounting principles were incorrect, could have a significant adverse effect on our reported operating results or the way in which we conduct our business.

We depend on broad market acceptance of our applications and of our business model.

We depend on the widespread acceptance and use of our applications as an effective solution for businesses seeking to manage high volumes of customer interactions across multiple channels, including Web, phone, email, print and in-person. While we believe the potential to be very large, we cannot accurately estimate the size or growth rate of the potential market for such product and service offerings generally, and we do not know whether our products and services in particular will achieve broad market acceptance. The market for customer engagement software is relatively new and

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rapidly evolving, and concerns over the security and reliability of online transactions, the privacy of users and quality of service or other issues may inhibit the growth of the Internet and commercial online services. If the market for our applications fails to grow or grows more slowly than we currently anticipate, our business will be seriously harmed.

Furthermore, our business model is premised on business assumptions that are still evolving. Our business model assumes that both customers and companies will increasingly elect to communicate via multiple channels, as well as demand integration of the online channels into the traditional telephone-based call center. Our business model also assumes that many companies recognize the benefits of a cloud delivery model and will seek to have their customer engagement software applications hosted by us. If any of these assumptions is incorrect or if customers and companies do not adopt digital technology in a timely manner, our business will be seriously harmed and our stock price will decline.

We may not be able to respond to the rapid technological change of the customer engagement software industry.

The customer engagement software industry is characterized by rapid technological change, changes in customer requirements and preferences, and the emergence of new industry standards and practices that could render our existing services, proprietary technology and systems obsolete. We must continually develop or introduce and improve the performance, features and reliability of our products and services, particularly in response to competitive offerings. Our success depends, in part, on our ability to enhance our existing services and to develop new services, functionality and technology that address the increasingly sophisticated and varied needs of prospective customers. If we do not properly identify the feature preferences of prospective customers, or if we fail to deliver product features that meet the standards of these customers, our ability to market our service and compete successfully and to increase revenue could be impaired. The development of proprietary technology and necessary service enhancements entails significant technical and business risks and requires substantial expenditures and lead-time. We may not be able to keep pace with the latest technological developments. We may also be unable to use new technologies effectively or adapt services to customer requirements or emerging industry standards or regulatory or legal requirements. More generally, if we cannot adapt or respond in a cost-effective and timely manner to changing industry standards, market conditions or customer requirements, our business and operating results will suffer.

Item 2. Unregistered Sales of Equity Securities and Use of Proceed s

On September 14, 2009, we announced that our board of directors has approved a stock repurchase program under which we may purchase up to 1,000,000 shares of our common stock. The duration of the repurchase program is open-ended. Under the program, we can purchase shares of common stock from time to time through the open market and privately negotiated transactions at prices deemed appropriate by our management. Repurchases pursuant to our stock repurchase program could affect our stock price and increase its volatility. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, repurchases under our stock repurchase program will diminish our cash reserves, which could impact our ability to pursue possible future strategic opportunities and acquisitions and could result in lower overall returns on our cash balances. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares of stock. Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness.

There were no repurchased shares of stock in the quarter ended December 31, 2014.

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Item 6. Exhibits

Exhibits No. |  | Description of Exhibits
31.1 |  | Rule 13a-15(e)/15d-15(e) Certificat ion of Chief Executive Officer.
31.2 |  | Rule 13a-15(e)/15d-15(e) Certificat ion of Chief Financial Officer.
32.1(1) |  | Certification pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 of Ashutos h Roy, Chief Executive Officer.
32.2(1) |  | Certification pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 of Eric Smit, Chief Financial Officer.
101 |  | Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 201 4, (ii) Condensed Consolidated Statements of Operations for the six months ended December 31, 2014 and 2013, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2014 and 2013, (iv) Condensed Consolidated Statements of Comprehensive Income (Loss) for the six months ended December 31, 2014 and 2013 and (v) Notes to Condensed Co nsolidated Financial Statements
101.INS |  | XBRL Instance Document
101.SCH |  | XBRL Taxonomy Extension Schem a Document
101.CAL |  | XBRL Taxonomy Extensio n Calculation Linkbase Document
101.DEF |  | XBRL Taxonomy Extensi on Definition Linkbase Document
101.LAB |  | XBRL Taxonomy Ex tension Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document

| (1) |  | The material contained in this exhibit is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after date hereof and irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: February 9, 2015 | eGAIN CORPORATION
| By |  | /s/ Eric N. Smit
|  |  | Eric N. Smit
|  |  | Chief Financial Officer
|  |  | (Duly Authorized Officer and Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibits No. |  | Description of Exhibits
31.1 |  | Rule 13a-15(e)/15d-15(e) Certification of Chief Executive Officer.
31.2 |  | Rule 13a-15(e)/15d-15(e) Certification of Chief Financial Officer.
32.1(1) |  | Certification pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 of Ashutosh Roy, Chief Executive Officer.
32.2(1) |  | Certification pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 of Eric Smit, Chief Financial Officer.
101 |  | Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2014, (ii) Condensed Consolidated Statements of Operations for the six months ended December 31, 2014 and 2013, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2014 and 2013, (iv) Condensed Consolidated Statements of Comprehensive Income (Loss) for the six months ended December 31, 2014 and 2013 and (v) Notes to Condensed Consolidated Financial Statements
101.INS |  | XBRL Instance Document
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document

| (1) |  | The material contained in this exhibit is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after date hereof and irrespective of any general incorporation language contained in such filing.

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