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Item 8. Financial Statements and Supplementary Data

2023-09-14 compared with 2022-09-13 · 140 added, 163 removed, 824 unchanged (27% of the section changed)

8 unchanged sentences

Consolidated Statements of Operations for the years ended June 30, 2023 and 2022

Consolidated Statements of Comprehensive (Loss) Income for the years ended June 30, 2022 and 2021

Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2023 and 2022

6 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of eGain Corporation and subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2022 and the related notes and financial statement schedule listed in the index to this Annual Report on Form 10-K at Part IV Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of eGain Corporation and subsidiaries (the “Company”) as of June 30, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2023 and the related notes and financial statement schedule listed in the index to this Annual Report on Form 10-K at Part IV Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

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Total liabilities

Commitments and contingencies (Note 8)

Commitments and contingencies (Note 7 and 8)

Stockholders’ equity:

Common stock, $ 0.001 par value – authorized:

60,000 shares;

32,268 and 31,930 shares;

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Additional paid-in capital

Treasury stock, at cost:

786 and 0 common shares as of June 30, 2023 and 2022, respectively.

Notes receivable from stockholders

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Total operating expenses

(Loss) Income from operations

Income (loss) from operations

Interest income

Other income (expense), net

(Loss) Income before income tax provision

Income tax (provision) benefit

Net (loss) income

Other (expense) income, net

Income (loss) before income tax provision

Provision for income taxes

Net income (loss)

Per share information:

(Loss) Earnings per share:

Earnings (loss) per share:

Weighted-average shares used in computation:

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EGAIN CORPORATION

C ONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

C ONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Years Ended June 30,

Net (loss) income

Other comprehensive (loss) income, net of taxes:

Net income (loss)

Other comprehensive income (loss), net of taxes:

Foreign currency translation adjustments

Total comprehensive (loss) income

Total comprehensive income (loss)

The accompanying notes are an integral part of these consolidated financial statements.

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(in thousands)

Treasury Stock

Comprehensive

Stockholders’

BALANCES AS OF JUNE 30, 2020

BALANCES AS OF JULY 1, 2021

Interest on stockholders’ notes

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Issuance of common stock in connection with employee stock purchase plan

Repurchase of common stock

Stock-based compensation

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Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Amortization of intangible assets

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of costs capitalized to obtain revenue contracts

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Proceeds from employee stock purchase plan

Net cash provided by financing activities

Repurchases of common stock

Net cash provided by (used in) financing activities

Effect of exchange rate differences on cash and cash equivalents

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Organization and Nature of Business

eGain Corporation (“eGain”, the “Company”, “our”, “we” or “us”) automates customer engagement with an innovative Software as a service (SaaS) platform, powered by deep digital, Artificial intelligence (AI), and knowledge capabilities.

We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities.

That is, organizations seeking to better serve customers at scale while coping with content silos, process complexity, and regulatory compliance.

eGain Corporation (eGain, the Company, our, we or us) automates customer engagement with an innovative knowledge hub, powered by conversational artificial intelligence (AI) and analytics.

We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities seeking to better serve customers at scale while coping with content silos, process complexity, and regulatory compliance.

With our mantra of AX + BX + CX = DX™ , we guide clients to effortless digital experience (DX) by holistically optimizing agent experience (AX), business experience (BX) and customer experience (CX).

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We are headquartered in the United States.

We also operate in United Kingdom and India.

We also operate in the United Kingdom and India.

Principles of Consolidation

The consolidated financial statements include the accounts of eGain and our wholly-owned subsidiaries, eGain Communications Ltd., Exony Limited (Exony), eGain Communications Pvt.

Ltd., eGain Communications (SA), eGain France S.A.R.L, Netherlands (eGain Communications B.V.) and eGain Deutschland GmbH.

Ltd., eGain Communications (SA), and eGain Deutschland GmbH.

All significant intercompany balances and transactions have been eliminated.

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Assets and liabilities of our foreign subsidiaries are translated at month-end exchange rates, and revenue and expenses are translated at the average monthly exchange rates.

The resulting cumulative translation adjustments are recorded as a component of accumulated other comprehensive income.

Foreign currency transaction gains and losses are included in “other income (expense), net” in the consolidated statements of operations, and resulted in a loss of $ 824,000 and a gain of $ 570,000 , in fiscal years ended June 30, 2022 and 2021, respectively.

The resulting cumulative translation adjustments are recorded as a component of accumulated other comprehensive loss.

Foreign currency transaction gains and losses are included in “other (expense) income, net” in the consolidated statements of operations, and resulted in a loss of $ 470,000 and a gain of $ 824,000 , in fiscal years ended June 30, 2023 and 2022, respectively.

Cash and Cash Equivalents, Restricted Cash and Investments

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Cash and cash equivalents are deposited with high credit quality institutions.

We are exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the balance sheet.

We are exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the consolidated balance sheets.

We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.

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Revenue is allocated to individual countries and geographic region by customer, based on where the product is shipped to and location of services performed.

Cisco Systems, Inc.

remained consistent and accounted for 21 % of total revenue for the years ended June 30, 2022 and 2021.

BT PLC accounted for 11 % and 13 % of total revenue for the years ended June 30, 2022 and 2021, respectively.

One customer, who is also a partner, accounted for 20 % and 21 % of total revenue for the years ended June 30, 2023 and 2022, respectively.

We perform ongoing credit evaluations of our customers with outstanding receivables and generally do not require collateral.

In addition, we established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information.

Three partners and customers accounted for 26 %, 20 %, and 13 % of accounts receivable as of June 30, 2022.

A set of different partners and customers accounted for 30 %, 17 %, and 16 % of accounts receivable as of June 30, 2021.

Three partners and customers accounted for a range of 18 % to 22 % of accounts receivable as of June 30, 2023.

A set of different partners and customers accounted for a range of 13 % to 26 % of accounts receivable as of June 30, 2022.

Accounts Receivable and Allowance for Doubtful Accounts

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Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met.

Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $ 770,000 and $ 719,000 as of June 30, 2022 and 2021, respectively, and are included in the accounts receivable balance.

Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $ 1.7 million and $ 770,000 as of June 30, 2023 and 2022, respectively, and are included in the accounts receivable, less allowance for doubtful accounts, balance on the accompanying consolidated balance sheets.

Our accounts receivable, net balance was $ 31.6 million and $ 27.0 million for the year ended June 30, 2023 and 2022, respectively.

Our combined contract liabilities, which consist of both current and non-current deferred revenue for which we have an obligation to transfer services to customers and have received considerations in advance or the amount is due from customers, balance was $ 49.9 million and $ 49.4 million for the year ended June 30, 2023 and 2022, respectively.

There were no contract assets for the years ended June 30, 2023 and 2022.

Property and Equipment, Net

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Leasehold improvements and leased equipment are depreciated on a straight-line basis over the shorter of the lease term or useful life of the asset, which is typically three to five years .

Goodwill and Other Intangible Assets, Net

We review goodwill annually for impairment or sooner whenever events or changes in circumstances indicate that it may be impaired.

These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

In addition, we evaluate purchased intangible assets to determine that all such assets have determinable lives.

We operate under a single reporting unit and accordingly, all of our goodwill is associated with the entire company.

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An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.

During fiscal years 2022 and 2021, we did no t have any such impairment losses.

During fiscal years ended June 30, 2023 and 2022, we did no t have any such impairment losses.

Deferred Revenue

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The capitalized amounts consist primarily of sales commissions paid to our direct sales force.

Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual

compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees, including stock-based compensation.

Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees, including stock-based compensation.

Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years .

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The Company assessed each of its revenue contracts in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component for the years ended June 30, 2023 and 2022.

During the fiscal years ended June 30, 2022 and 2021, we capitalized $ 2.4 million and $ 1.5 million of costs to obtain revenue contracts, respectively, and amortized $ 1.5 million and $ 1.2 million to sales and marketing expense, respectively.

During the fiscal years ended June 30, 2023 and 2022, we capitalized $ 462,000 and $ 2.4 million of costs to obtain revenue contracts, respectively, and amortized $ 1.5 million to sales and marketing expense each period.

Capitalized costs to obtain revenue contracts, net were $ 3.6 million and $ 4.6 million as of June 30, 2023 and 2022, respectively.

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If the rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate at lease commencement.

The operating lease right-of-use assets are calculated as the present value of the remaining lease payments plus unamortized initial direct costs and any prepayments, less unamortized lease incentives received.

The operating lease ROU assets are calculated as the present value of the remaining lease payments plus unamortized initial direct costs and any prepayments, less unamortized lease incentives received.

Operating leases typically include non-lease components such as common-area maintenance costs.

We have elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed.

We have elected to include non-lease components with lease payments for the purpose of calculating lease ROU assets and liabilities, to the extent that they are fixed.

Non-lease component payments that are not fixed are expensed as incurred as variable lease payments.

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Lease expense is recognized on a straight-line basis over the lease term.

The Company has elected not to recognize right-of-use assets and obligations for leases with an initial term of twelve months or less, and has applied a capitalization threshold to recognize a lease on

the balance sheet.

The Company has elected not to recognize ROU assets and obligations for

leases with an initial term of twelve months or less, and has applied a capitalization threshold to recognize a lease on the consolidated balance sheets.

The expense associated with short-term leases and leases that do not meet the Company’s capitalization threshold are recorded to lease expense in the period it is incurred.

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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 assumptions such as stock price volatility and expected option term.

Stock-based compensation expense for employee and non-employee awards is recognized as expense over the requisite service period, which is generally in line with the vesting period.

Stock-based compensation expense for employee and non-employee awards is recognized as expense over the requisite service period, which is generally in line with the vesting period, net of expected forfeitures.

Stock-based compensation expense consists of expenses for stock options granted under our Amended and Restated 2005 Management Stock Option Plan, our Amended and Restated 2005 Stock Incentive Plan, and our 2017 Employee Stock Purchase Plan (ESPP).

Income taxes are accounted for using the asset and liability method in accordance with ASC 740, Income Taxes.

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, based upon the weight of available evidence, which includes our historical operating performance, our future investment plans, and the uncertainty in the current market environment due to COVID-19, we have provided a full valuation allowance against our net deferred tax assets.

For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance, our future investment plans, and the uncertainty in the current market and economic environment, we have provided a full valuation allowance against our net deferred tax assets.

For the legacy eGain business in the United Kingdom, based on the positive evidence, the Company has determined it would be able to utilize the deferred tax assets and does not have a valuation allowance against the deferred tax assets.

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Our tax provision primarily relates to foreign activities as well as state income taxes.

Our income tax rate differs from the statutory tax rates primarily due to the expiration of net operating loss carry-forwards which had previously been valued against as well our change in valuation allowance.

Our income tax rate differs from the statutory tax rates primarily due to the change in valuation allowance, stock-based compensation, GILTI inclusion, research and development tax credits, and our foreign operations.

We account for uncertain tax positions according to the provisions of ASC 740.

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We consider many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

As of June 30, 2022, utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, are subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as built in gain or built in loss, as required.

As of June 30, 2023, utilization of the net operating loss (NOL) or tax credit carryforwards to offset future taxable income and taxes, respectively, are subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as built in gain or

built in loss, as required.

Any limitation may result in expiration of all or a portion of its NOL and or tax credit carryforwards before utilization.

The Company has not identified a change in ownership as of June 30, 2023 that would significantly limit the net operating loss carryovers.

Comprehensive (Loss) Income

Comprehensive Income (Loss)

We report comprehensive income and its components in accordance with ASC 220, Comprehensive Income .

Under the accounting standards, comprehensive (loss) income includes all changes in equity during a period except those resulting from investments by or distributions to owners.

Total comprehensive income for each of the two years in the year ended June 30, 2022 is shown in the accompanying consolidated statements of comprehensive (loss) income.

Under the accounting standards, comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by or distributions to owners.

Total comprehensive income for each of the two years in the year ended June 30, 2023 is shown in the accompanying consolidated statements of comprehensive income (loss).

Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets as of June 30, 2023 and 2022 consists of accumulated foreign currency translation adjustments.

(Loss) Earnings Per Common Share

Basic net (loss) income 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 is increased by stock options in-the-money to calculate diluted net income per common share.

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

Earnings (Loss) Per Share

Basic earnings (loss) per 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 is increased by stock options in-the-money to calculate diluted net income per share.

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

Years Ended June 30,

Net (loss) income applicable to common stockholders

Basic net (loss) income per common share

Weighted average common shares used in computing basic net (loss) income per common share

Effect of dilutive common equivalents outstanding

Weighted average common shares used in computing diluted net (loss) income per common share

Diluted net (loss) income per common share

Weighted average options to purchase 2,935,174 and 293,949 shares of common stock as of June 30, 2022 and 2021, respectively, were not included in the computation of diluted net income per common share due to their anti-dilutive effect.

Net income (loss)

Per share information:

Earnings (loss) per share:

Weighted-average shares used in computation:

Weighted average options to purchase 3,582,284 and 2,935,174 shares of common stock as of June 30, 2023 and 2022, respectively, were not included in the computation of diluted net income per share due to their anti-dilutive effect.

Such securities could have a dilutive effect in future periods.

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Europe, Middle East, & Africa

For the purposes of entity-wide geographic area disclosures, we define long-lived assets as hard assets that cannot be easily removed, such as property and equipment.

For the purposes of entity-wide geographic area disclosures, long-lived assets consist of computers and equipment, furniture and fixtures, and leasehold improvements, net of accumulated depreciation and amortization.

These items are included in property and equipment, net, on the accompanying Company’s consolidated balance sheets.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

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Additionally, ASU No.

2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (SRC) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal year 2024 for the Company if it continues to be classified as a SRC.

In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses.

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While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements or the related disclosure.

Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40).

This update requires a customer in a cloud computing service arrangement to follow the internal-use software guidance to determine which implementation costs to recognize and defer

We adopted this guidance as of our first quarter of fiscal year 2021 with no impact on our consolidated financial statements.

In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This update simplifies the accounting for income taxes.

This update is effective for fiscal years beginning after December 15, 2020 (our fiscal year 2022).

During the current year, the Company has adopted this provision with no material impact to the consolidated financial statements.

Revenue Recognition

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Legacy revenue is associated with license, maintenance, and support contracts on perpetual license arrangements that we no longer sell.

Professional services includes consulting, implementation and training.

Professional services includes consulting, implementation, training, and managed services.

Significant Judgment Applied in the Determination of Revenue Recognition

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● Maintenance and support arrangements;

● Term license subscriptions which incorporate on-premise software licenses and substantial cloud functionality that are not distinct in the context of our arrangements as such are considered highly interrelated and represent a single combined performance obligation.

● Term licenses which incorporate on-premise software licenses and a subscription to a substantial cloud functionalities.

For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer.

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These embedded OEM royalties are included as subscription revenue.

Under Topic 606 revenue guidance, since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs.

However, the Company notes that such sales are reported by the customer with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the customer given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.

Under Topic 606 revenue guidance, since these arrangements are for usage-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company estimate revenue recognized only as the performance obligation of the OEM royalties has been satisfied or partially satisfied.

Differences between actual results and estimated amounts are adjusted in the following period as such sales are reported by the customer with a quarter in arrears.

Professional Services Revenue

Professional services revenue includes system implementation, consulting, training, and managed services.

The transaction price is allocated to various performance obligations based on their stand-alone selling prices.

The transaction price is allocated to various performance obligations based on their SSP.

Revenue allocated to each performance obligation is recognized at the earlier of satisfaction of discrete performance obligations, or as work is performed on a time and material basis.

Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis.

Managed services include a comprehensive set of processes and activities that range from implementation to monitoring the evolution and support of eGain solutions in a company.

Our consulting and implementation service contracts are bid either on a time-and-material basis or on a fixed-fee basis.

Managed services contracts are bid on a time-and-material basis.

Fixed fees are generally paid upon milestone billing or customer acceptance at pre-determined points in the contract.

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Depreciation and amortization expense was $ 490,000 and $ 478,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

Disposed fixed assets, which were substantially fully-depreciated, were $ 71,000 and none for the years ended June 30, 2022, and, 2021, respectively.

Disposed fixed assets, which were substantially fully-depreciated, were $ 516,000 and $ 71,000 for the fiscal years ended June 30, 2023, and June 30, 2022, respectively.

Accrued compensation consists of the following:

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Contract assets, if any, consist of unbilled receivables for completed performance obligations which have not been invoiced, and for which we do not have an unconditional right to consideration.

Unbilled receivables are included in accounts receivable, less allowance for doubtful accounts on our consolidated balance sheets.

Contract liabilities consist of deferred revenue for which we have an obligation to transfer services to customers and have received consideration in advance or the amount is due from customers.

Once the obligations are fulfilled, then deferred revenue is recognized to revenue in the respective period.

There were no contract assets for the years ended June 30, 2022 and 2021.

The following table presents the changes in contract liabilities (in thousands):

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Balance as of

June 30, 2022

Contract liabilities:

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$ 41.4 million of deferred revenue as of June 30, 2021 was recognized as revenue during the fiscal year ended June 30, 2022.

Total deferred revenue includes additions of $ 91.4 million and deductions of $ 91.5 million for the fiscal year ended June 30, 2022.

Deductions consist of revenue recognize from beginning of period and impact of foreign currency translation.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues, invoices that have been issued to customers but were uncollected and have not been recognized as revenues, and amounts that will be invoiced and recognized as revenues in future periods.

The transaction price allocated to the remaining performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency rates.

Remaining performance obligations represent contracted revenue that had not yet been recognized, and include billed deferred revenue, consisting of amounts invoiced to customers whether collected or uncollected which have not been recognized as revenue, as well as unbilled amounts that will be invoiced and recognized as revenue in future periods.

As of June 30, 2023, our remaining performance obligations were $ 97.3 million of which we expect to recognize $ 66.7 million and $ 30.6 million as revenue within one year and beyond one year, respectively.

(Loss) income before income tax (provision) benefit consisted of the following (in thousands):

Income (Loss) before income tax provision consisted of the following (in thousands):

Fiscal Year Ended June 30,

United States

(Loss) Income before income tax (provision) benefit

The fiscal 2021 (provision) benefit for income tax reconciliations have been recast to dollar values versus a percentage of income before taxes for comparability to the fiscal 2022 presentation.

The reconciliation of income tax (expense) benefit at the statutory federal income tax rate and the Company’s effective tax rate is as follows (in thousands):

Income (Loss) before income tax provision

The reconciliation of income tax expense at the statutory federal income tax rate and the Company’s effective tax rate is as follows (in thousands):

Fiscal Year Ended June 30,

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Expiration of tax attributes

Income tax (provision) benefit

The components of the income tax (provision) benefit are as follows (in thousands):

Income tax provision

The components of the income tax provision are as follows (in thousands):

Fiscal Year Ended June 30,

Current (provision) benefit:

Current provision:

Total current:

Total deferred:

Income tax (provision) benefit

Income tax provision

As of June 30, 2023, we had federal and state net operating loss carryforwards of approximately $ 38.9 million and $ 13.0 million, respectively.

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Lease liability

Capitalized research and development

Gross deferred tax assets

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Total deferred tax assets, net *

*included in other assets, net on the consolidated balance sheet

*included in other assets, net, on consolidated balance sheets

ASC 740, Income Taxes , provides for the recognition of deferred tax assets if realization of such assets is more likely than not.

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Our tax provision primarily relates to foreign activities as well as state income taxes.

Our income tax rate differs from the statutory tax rates primarily due to the expiration of net operating loss carryforwards which had previously been valued against, change in valuation allowance, stock-based compensation, research and development credits, and our foreign operations.

The net valuation allowance decreased by $ 3.1 million and $ 13.2 million for the fiscal years ended June 30, 2022 and 2021, respectively.

The net valuation allowance increased by $ 1.7 million and decreased by $ 3.1 million for the fiscal years ended June 30, 2023 and 2022, respectively.

We have not provided for taxes on $ 24.6 million of undistributed earnings of our foreign subsidiaries as of June 30, 2023.

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If we distribute these earnings, in the form of dividends or otherwise, we would be subject to withholding taxes payable to the foreign jurisdiction and potential state taxes.

For the fiscal years ended June 30, 2022 and 2021, we have none and $ 923,000 of Global Intangible Low Tax Income (GILTI) income inclusion and used our net operating losses to offset our taxable income.

For the fiscal years ended June 30, 2023 and 2022, we have $ 3.4 million and none of Global Intangible Low Tax Income (GILTI) inclusion and used our net operating losses to offset our taxable income, respectively.

Uncertain Tax Positions

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On December 8, 2021, our board of directors authorized the amended and restated Certificate of Incorporation which increased the total authorized shares of common stock from 50,000,000 to 60,000,000 shares.

As of June 30, 2022, and June 30, 2021, the Company had 31,930,000 and 31,231,000 shares of common stock issued and outstanding , respectively.

As of June 30, 2023, and 2022, the Company had 32,268,000 and 31,930,000 shares of common stock issued, respectively, and 31,482,000 and 31,930,000 shares of common stock outstanding, respectively.

We have reserved shares of common stock for issuance as of June 30, 2023 as follows:

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Our board of directors has the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof.

These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares

constituting any series or the designation of such series, any or all of which may be greater than the rights of the common stock.

These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of the common stock.

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 requisite service period, which is generally the vesting period, net of expected forfeitures.

Stock-based compensation expense consists of expenses for stock options and our 2017 Employee Stock Purchase Plan (ESPP).

2005 Management Stock Option Plan

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The options generally vest ratably over a period of four years and expire no later than ten years from the date of grant.

During the fiscal year ended June 30, 2022, we have increased our number of authorized shares available for grant by 3,000,000 shares.

The following table represents the activity under the 2005 Stock Incentive Plan:

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Options Granted

( 3,607,661 )

Options Exercised

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Options Granted

( 3,607,661 )

Options Exercised

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Options outstanding

Fully vested and expected to vest options

Options fully vested and expected to vest

Options exercisable

The aggregate intrinsic value in the preceding table represents the total intrinsic value based on stock options with a weighted average exercise price less than our closing stock price of $ 9.75 as of June 30, 2022 that would have been

received by the option holders, had they exercised their options on June 30, 2022.

The total intrinsic value of stock options exercised was $ 4.3 million and $ 2.0 million during fiscal years 2022 and 2021, respectively.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation .

Stock-based compensation expense consists of expenses for stock options and our employee stock purchase plan (ESPP).

The total intrinsic value of stock options exercised was $ 866,000 and $ 4.3 million during fiscal years 2023 and 2022, respectively.

2017 Employee Stock Purchase Plan

In October 2017, our board of directors adopted the 2017 Employee Stock Purchase Plan (ESPP) which provided eligible employees the option purchase the Company’s common stock through payroll deductions at a price equal to 85 % of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchasing period.

In October 2017, our board of directors adopted the ESPP which provided eligible employees the option purchase the Company’s common stock through payroll deductions at a price equal to 85 % of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchasing period.

The offering period, meaning a period with respect to which the right to purchase shares of our common stock may be granted under the ESPP, will not exceed twenty-seven months and consist of a series of six-month purchase periods.

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On December 17, 2021, our board of directors authorized an additional 600,000 shares of common stock to be available for issuance under ESPP.

As of June 30th, 2022 we have 1,097,360 reserved stock available for issuance under ESPP.

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Income tax expense

Net (loss) income effect

Net income effect

The Company recognized $ 117,000 and $ 217,000 of tax expense related to stock-based compensation expense for eGain UK and Exony for the fiscal years ended June 30, 2023 and 2022, respectively.

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Total stock-based compensation includes expense related to non-employee awards of $ 140,000 and $ 232,000 during the fiscal years ended June 30, 2023 and 2022, respectively.

Total stock-based compensation includes expense related to the ESPP of $ 457,000 and $ 473,000 during the fiscal years ended June 30, 2022 and 2021, respectively.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted.

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Expected life (in years)

We used the following weighted-average assumptions as inputs to estimate the fair value of the ESPP stock purchase right:

We used the following assumptions as inputs into the Black-Scholes valuation model to estimate the fair value of the ESPP stock purchase right:

Fiscal Year Ended June 30,

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Expected term (in years)

Fair Value of grants per share

During the fiscal year ended June 30, 2022, employees were granted the right and purchased an aggregate of 145,715 shares pursuant to the 2017 ESPP.

Compensation expense related to those purchase rights was $ 457,000 and $ 473,000 for the fiscal years ended June 30, 2022 and 2021, respectively.

During the fiscal years ended June 30, 2023 and 2022,employees were granted the right and purchased an aggregate of 158,957 and 145,715 shares, respectively, with a weighted average grant date fair value of $ 2.54 and $ 2.96 , per share, respectively, pursuant to the ESPP.

Total stock-based compensation expense related to those purchase rights was $ 399,000 and $ 457,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 unrecognized compensation expense related to purchase rights that will be recognized over a weighted average period of 0.42 years was $ 143,000 .

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Total unamortized compensation cost, net of forfeitures, for all options granted but not yet vested as of June 30, 2023 was $ 4.4 million which is expected to be recognized over the weighted average period of 1.23 years.

INTANGIBLE ASSETS

Intangible assets are amortized over the estimated lives, as follows (in thousands, except expected life):

Statements of Operations

Intangible Asset

June 30, 2022

Customer relationships - maintenance contracts

Cost of recurring

Statements of Operations

Intangible Asset

June 30, 2021

Customer relationships - maintenance contracts

Cost of recurring

Amortization expense related to the above intangible assets were $ 0 and $ 26,000 for fiscal years ended June 30, 2022 and 2021, respectively.

During our fiscal year ended June 30, 2023, we leased our office facilities under non-cancelable operating leases that expire on various dates through the fiscal year 2027.

and we were the sublessor for some office spaces through March 2022.

We also modified one of the existing operating leases by extending it through 2027, which resulted in an increase in operating lease right-of-use assets and operating lease liabilities in the amount of $ 2.8 million during our fiscal year ended June 30.

All of our office leases are classified as operating leases with lease expense recognized on a straight-line basis over the lease term.

Lease right-of-use assets and liabilities are recognized on the commencement date at the present value of lease payments over the lease term.

Lease ROU assets and liabilities are recognized on the commencement date at the present value of lease payments over the lease term.

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at the commencement date to determine the present value of lease payments.

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As of June 30, 2023

As of June 30, 2022

Weighted average remaining lease term (in years)

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The following table presents information about leases on our consolidated statement of operations (in thousands):

Fiscal Year Ended

June 30, 2022

Years ended June 30,

Operating lease expense

Short-term lease expense

Sublease income

The following table presents supplemental cash flow information about our leases (in thousands):

Fiscal Year Ended

June 30, 2022

Years ended June 30,

Operating cash outflows from operating leases

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Imputed interest

Total operating lease liabilities

Current operating lease liabilities

Total operating lease liabilities, net of current portion

COMMITMENTS AND CONTINGENCIES

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The Gratuity Plan benefit cost for the year is calculated on an actuarial basis.

Current service costs and actuarial gains or losses, or prior service cost, for the Gratuity Plan were insignificant for the fiscal years 2022 and 2021.

Current service costs and actuarial gains or losses, or prior service cost, for the Gratuity Plan were $ 144,000 and $ 120,000 , for the fiscal years ended June 30, 2023 and 2022, respectively.

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.

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Contractual Obligations and Commitments

Our principal contractual commitments consist of obligations under leases for office space.

Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases .

Contractual agreements with third parties consist of software licenses, maintenance and support for our operations.

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We have no significant commitments related to co-location services for cloud operations as of June 30, 2023 and 2022.

In the ordinary course of business, we are 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 that are not expected to have a material impact.

We have been, and may in the future be, put on notice and/or sued by third parties for alleged infringement of their proprietary rights, including patent infringement.

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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.

ASC 820, Fair Value Measurement, 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.

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As of June 30, 2023 and 2022, cash equivalents classified as level 1 instruments, including money market account investments, were measured at $ 67.3 million and $ 57.9 million, respectively.

SHARE REPURCHASE PROGRAM

On November 14, 2022, the Company’s Board of Directors authorized a stock repurchase program under which we may purchase up to $ 20.0 million of our outstanding common stock.

As of June 30, 2023, approximately $ 14.2 million remained available for stock repurchases pursuant to our stock repurchase program.

Under the stock repurchase program, we may purchase shares of common stock on a discretionary basis from time to time through open market transactions or privately negotiated transactions at prices deemed appropriate by us.

In addition, at our discretion, open market repurchase of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions.

The timing and number of shares repurchased will be determined based on an evaluation of market conditions and other factors, including stock price, trading volume, general business and market conditions, and the availability of capital.

The stock repurchase program is effective immediately on November 14, 2022, has a term of one year from adoption unless extended, does not obligate us to acquire a specified number of shares and may be modified, suspended, or discontinued at any time at our discretion without notice.

The stock repurchase program will be funded using existing cash or future cash flows.

During the year ended June 30, 2023, 785,913 shares have been repurchased for an average acquisition cost per share of $ 7.33 , totaling $ 5.8 million.

We intend to reissue repurchased shares at a later date and therefore carry the shares as treasury stock at cost.

QUARTERLY FINANCIAL DATA (Unaudited)

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Fiscal Year 2022

Income from operations

Basic net income per share

Diluted net income per share

Income (loss) from operations

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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Management’s Annual Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference from the information under the heading “Election of Directors” contained in eGain’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for eGain’s 2022 Annual Meeting of Stockholders (Proxy Statement).

The information required by this item is incorporated by reference from the information under the headings “Election of Directors” and “Executive Compensation—Compensation Discussion and Analysis” contained in eGain’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for eGain’s 2023 Annual Meeting of Stockholders (Proxy Statement).

Certain information required by this item concerning executive officers is set forth in Part I, Item 1 of this report under the caption “Information About Our Executive Officers” and is incorporated herein by reference.

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EXECUTIVE COMPENSATION

The information contained under the headings “Executive Compensation” and “Compensation Committee Report” and under the captions “2022 Director Compensation” in the Proxy Statement is incorporated herein by reference.

The information contained under the headings “Executive Compensation” and “Compensation Committee Report” and under the captions “Election of Directors—2023 Director Compensation” and “Election of Directors—Compensation Committee Interlocks and Insider Participation” in the Proxy Statement is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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2005 Management Stock Option Plan

Equity Compensation Plans Not Approved By Security Holders

2005 Management Stock Option Plan

In May 2005, our board of directors adopted the 2005 Management Stock Option Plan (2005 Management Plan), pursuant to which the Compensation Committee may grant non-qualified stock options to purchase up to 962,400 shares of eGain common stock, at an exercise price of not less than 100% of the fair market value of such common stock, to directors, officers and key employees of the Company and its subsidiaries.

Options granted under the 2005 Management Plan are subject to vesting as determined by the Compensation Committee.

The options are exercisable for up to ten years from the date of grant.

Our board of directors approved an increase of 500,000 shares of common stock authorized for issuance under the 2005 Management Plan in November 2007 and another increase of 500,000 shares of common stock authorized for issuance under the 2005 Management Plan in September 2011.

In September 2014, our board of directors approved an amendment to the 2005 Management Plan that increased the number of shares of common stock reserved for issuance by 1,000,000 shares from 1,962,400 shares to 2,962,400 shares and extended the expiration date of the of the 2005 Management Plan to September 30, 2024.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information contained under the captions “Related Party Transactions” and “Director Independence” in the Proxy Statement is incorporated herein by reference.

The information contained under the headings “Related Party Transactions,” “Election of Directors—Director Independence,” and “Election of Directors—Board Meetings and Committees” in the Proxy Statement is incorporated herein by reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

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Description of Exhibits

Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to the Registrant’s Current Report on Form 8-K filed on December 10, 2021).

Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3(iii) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012).

Second Amended and Restated Certificate of Incorporation, as amended through N ovember 9, 2012 .

(incorporated by reference to Exhibit 3(i) to the Registrant’s Current Report on Form 8-K filed on December 10, 2021).

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form S-1, File No.

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eGain Corporation 2017 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020).

Credit Agreement dated as of November 21, 2014 among the Registrant, certain subsidiaries of the Registrant.

Wells Fargo Bank N.A.

as agent and the lenders party thereto (incorporated by reference to Exhibit 10.6 the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020).

Amendment Number One to Credit Agreement dated as of September 1, 2015 among the Registrant, certain subsidiaries of the Registrant, Wells Fargo Bank, N.A., as agent and the lenders party thereto (incorporated by reference to Exhibit 10.7 the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020).

Amendment Number Two to Credit Agreement dated as of January 27, 2017 among the Registrant, certain subsidiaries of the Registrant, Wells Fargo Bank, N.A., as agent and the lenders party thereto (incorporated by reference to Exhibit 10.8 the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020).

Standard Industrial/Commercial Multi-Tenant Lease Modified Net dated as of May 9, 2011 between the Registrant and DeGuigne Ventures, LLC (incorporated by reference to Exhibit 10.14 to Amendment No.

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Stephens Industrial Partners, LLC (Successor in Interest to DeGuigne Ventures, LLC) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 19, 2014).

Second Amendment to Standard Industrial/Commercial Multi-Tenant Lease Modified Net dated as of August 1, 2021 between the Registrant and D.R.

Stephens Industrial Partners, LLC d/b/a Stephens & Stephens (Borregas I) (Successor in Interest to DeGuigne Ventures, LLC).

Subsidiaries of eGain.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data