The following discussion of eGain's financial condition and results of
operations should be read together with the consolidated financial statements
and related notes in this Annual Report on Form 10-K. This discussion may
contain forward-looking statements based upon current expectations that involve
risks and uncertainties. These risks and uncertainties may cause actual results
to differ materially from those discussed in the forward-looking statements.

Overview



eGain automates customer engagement with an innovative software as a service
(SaaS) platform, powered by deep digital, artificial intelligence (AI), and
knowledge capabilities. We are headquartered in the United States. We also
operate in United Kingdom and India. We sell mostly to large enterprises across
financial services, telecommunications, retail, government, healthcare, and
utilities. 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). One hundred fifty leading
brands use eGain's cloud software to improve customer satisfaction, empower
agents, reduce service cost and boost sales.



We have transitioned from a hybrid model, where we sold both SaaS and perpetual
license solutions, to a SaaS only business model. Today, we only sell SaaS to
new clients and are actively migrating our remaining perpetual license clients
to SaaS. As we continue to migrate our legacy perpetual license clients to SaaS,
we expect our legacy revenue, primarily comprising annual maintenance and
support fees for legacy perpetual license clients to continue to decline.



We believe our go-forward SaaS business model affords us recurring revenue
visibility and more predictability. Fiscal year 2021 affirmed our view that SaaS
clients adopt our product innovation much faster than the perpetual license
model and get better service levels. We believe SaaS clients enjoy up to 50%
faster time to value from their eGain investment.



COVID-19



Since early 2020, several public health organizations have recommended, and many
local governments have implemented, certain measures to slow and limit the
transmission of COVID-19, including shelter-in-place and social distancing
orders, which has resulted in a significant deterioration of economic conditions
in the countries in which we operate.



The impact of COVID-19 and the related disruptions caused to the global economy
and our business did not have a material adverse impact on our business during
the year ended June 30, 2021. However, the spread of the COVID-19 virus caused
us to modify our business practices, including implementing work-from-home
policies and restricting travel by our employees, among other things.



In response to the COVID-19 outbreak, we have taken the following actions to date:

? Implementing work-from-home and social distancing policies across our

organization;

? Suspension of all employee travel;

? Canceled certain sales and marketing events; and

? Considered the needs of our clients to better support their operations during this

   crisis.




The effect of the COVID-19 pandemic, may not be fully reflective in our results
of operations and overall financial performance until further periods, if at
all. The impact, if any, of operational changes we may implement is uncertain,
but changes we have implemented as of the filing date have not affected and are
not expected to affect our ability to maintain operations. We will continuously
monitor the situation to determine what actions may be necessary or appropriate
to address the impact of the COVID-19 pandemic, which may include actions
mandated or recommended by federal, state or local government authorities. See
our "Risk Factors" for further discussion of the possible impact of the COVID-19
pandemic on or business.



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Main 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.

SaaS revenues

With our transition to a SaaS-only business model, we believe that SaaS revenues better reflect our business dynamics and to analyze progress and therefore, we disaggregate our subscription revenue growth between:

? SaaS revenue, which is defined as revenue from cloud delivery agreements,

Integrated OEM term licenses and royalties and associated support; and

? Legacy revenue, which is defined as license, maintenance and

support contracts on perpetual license agreements that we no longer sell.

The following table shows a breakdown of subscription revenue between SaaS revenue and legacy revenue for each of the following periods:

                                    Fiscal Year Ended June 30
                                     2021               2020            Change

Revenue                                   (in thousands, except percentages)
SaaS revenue                     $      66,929      $      56,793   $  10,136   18 %
Legacy revenue                           5,442              9,336    

(3,894) (42)% Total SaaS and legacy revenue $ 72,371 $ 66,129 $ 6,242

As we continue to migrate our old perpetual license customers to SaaS, we expect our legacy revenues to continue to decline.

SaaS revenue and professional services



As we continue to shift to a SaaS only business model, substantially all of
professional services revenue is now generated from our SaaS customer base. We
believe the combination of SaaS and professional services revenue is a useful
measure to value our business on a forward-looking basis.



The following table presents the total SaaS and professional services revenues for each of the following periods:



                                       Fiscal Year Ended June 30
                                        2021               2020             Change

Revenue                                        (in thousands, except percentages)
SaaS revenue                        $      66,929      $      56,793    $   10,136   18 %
Professional services                       5,916              6,600         (684) (10) %
Total SaaS and professional
services revenue                    $      72,845      $      63,393    $    9,452








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Non-GAAP Operating Income


Non-GAAP operating income is defined as operating income, adjusted for the impact of stock-based compensation expense and amortization of acquired intangible assets.

Management believes that it is useful to exclude certain non-cash charges and
non-core operational charges from non-GAAP operating income because (i) the
amount of such expenses in any specific period may not directly correlate to the
underlying performance of our business operations; and (ii) such expenses can
vary significantly between periods as a result of the timing of new stock-based
awards and acquisitions. 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
generally accepted accounting principles in the United States of America (GAAP).

The following table presents a reconciliation of GAAP operating income and non-GAAP operating income for each of the following periods:

                                       Fiscal Year Ended June 30
                                         2021              2020
Income from operations               $      7,339      $      7,406
Add:
Stock-based compensation                    1,700             1,861
Amortization of intangible assets              26               268

Non-GAAP operating income $ 9,065 $ 9,535

Critical accounting conventions and estimates



Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires 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 expenses
during the reporting period.



We believe that the assumptions and estimates associated with revenue
recognition, stock-based compensation, allowance for doubtful accounts, the
valuation of goodwill and intangible assets, the valuation of deferred tax
allowance, and legal contingencies have the greatest potential impact on our
consolidated financial statements. We evaluate these estimates on an ongoing
basis. 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.



Sources of Revenues



Our revenue is comprised of two categories, subscription and professional
services. Subscription includes SaaS revenue and legacy revenue. SaaS revenue
includes revenue from cloud delivery arrangements, term licenses and embedded
OEM royalties and associated support. Legacy revenue is associated with license,
maintenance and support contracts on perpetual license arrangements that we no
longer sell. Professional services include consulting, implementation and
training.



Subscription Revenue



For our cloud delivery arrangements, our maintenance and support arrangements
and our term license subscriptions that incorporate substantial cloud
functionality, the combined performance obligation is recognized ratably over
the contract term as the obligation is delivered. 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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We typically invoice our customers in advance upon execution of the contract or
subsequent renewals. Invoiced amounts are recorded in accounts receivable,
deferred revenue or revenue, depending on when control is transferred to our
customers based on each arrangement.



We have a royalty revenue agreement with a customer related to our embedded
intellectual property.  Under the terms of the agreement, the customer is to
provide a combined fixed fee, per agent, for each software license sold
containing the embedded software to us. These embedded OEM royalties are
included as subscription revenue. Under Topic 606-10-55-65 revenue guidance
(Topic 606), since these arrangements are for sales-based licenses of
intellectual property, we recognize revenue only as the subsequent sale occurs.
However, since 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.



Professional services revenue



Professional services revenue includes system implementation, consulting and
training. The transaction price is allocated to various performance obligations
based on their stand-alone selling prices. Revenue allocated to each performance
obligation is recognized as work is performed. Our consulting and implementation
service contracts are bid either on a time-and-materials basis or on a fixed-fee
basis. Fixed fees are generally paid on milestone billing at pre-determined
points in the contract. Amounts that have been invoiced are recorded in accounts
receivable and in deferred revenue or revenue, depending on whether transfer of
control to customers has occurred.

Training revenues that meet the criteria for separate recognition are recognized when the training is provided.

Remaining performance obligations



Remaining performance obligations represent contracted revenues that have not
yet been recognized, and include billed deferred revenues, consisting of amounts
invoiced to customers whether collected or uncollected which have not been
recognized as revenues, as well as unbilled amounts that will be invoiced and
recognized as revenues in future periods. The transaction price allocated to the
remaining performance obligations are influenced by a variety of factors,
including seasonality, timing of renewals, average contract terms and foreign
currency rates. As of June 30, 2021, our remaining performance obligations were
$65.4 million of which we expect to recognize $55.2 million and $10.2 million as
revenue within one year and beyond one year, respectively.



We expect our remaining performance obligations to change quarterly for several
reasons including the timing of new contracts and renewals, duration and size of
our subscription and support arrangements, variable billing cycles and foreign
exchange rate fluctuation. We typically issue renewal invoices in advance of the
renewal service period. Depending on timing, the initial invoice and subsequent
renewal invoices may occur in different quarters. This may result in an increase
or decrease to our accounts receivable and deferred revenue.



Capitalized costs to obtain revenue contracts

Under Theme 606, we capitalize incremental costs to obtain non-cancellable subscription, maintenance and support revenue contracts with amortization periods that may extend longer than the terms of the revenue contracts. non-cancellable subscription and maintenance and support.



We capitalize incremental costs of obtaining a non-cancelable subscription and
maintenance and support revenue contract with amortization periods of one year
or more. 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.



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. We determine the period of benefit by taking into consideration
the

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period from initial contract through renewal, which constitutes the length of
our customer relationship or customer life. Amortization of costs capitalized
related to new revenue contracts is included as a component of sales and
marketing expense in our operating results.



Stock-based compensation

We account for stock-based compensation in accordance with Accounting Standards
Codification (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 an
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 assumptions such as stock price
volatility and expected option lives. We determine 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 deems to be
non-recurring and non-indicative of future events. We base our estimate of
expected life on the historical exercise behavior, cancellations of all past
option grants made by us during the time period in which our common stock has
been publicly traded, the contractual term, the vesting period and the expected
remaining term of the option. Based on our historical experience of option
pre-vesting cancellations, we have assumed an annualized 10.79% forfeiture rate
for our options. We record additional expense if the actual forfeiture rate is
lower than we estimated and record a recovery of prior expense if the actual
forfeiture rate is higher than what we estimated.

Good will and other intangible assets

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. We had no impairment for fiscal years ended
June 30, 2021 and 2020.

Accounts receivable and allowance for doubtful accounts

We extend unsecured credit to customers on a regular basis. Our accounts
receivable is 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
collectability 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 make different judgments or utilize different estimates, then
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.

As described in Note 1 of Notes to Consolidated Financial Statements included in
Item 8 Financial Statements and Supplementary Data of this Annual Report,
certain Company contracts have contractual billings which do not coincide with
revenue recognized on the contract. Unbilled accounts receivables are recorded
when revenue recognized on the contract exceeds billings, pursuant to contract
provisions, and become billable at contractually specified dates.

Tax legislation

On December 22, 2017, the U.S. government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act revised
the taxation of U.S. and multinational corporations which significantly reduced
the statutory corporate U.S. federal income tax rate from 35% to 21%, imposed
limitations on the ability of corporations to deduct interest expense and made
taxation changes on U.S. multinational corporation's foreign operations. The
provisions of the Tax Act are complex and likely will be subject to regulatory
and administrative guidance. The Tax Act includes a provision to tax global
intangible low-taxed income (GILTI) of foreign subsidiaries and a base erosion
anti-abuse tax (BEAT) measure that taxes certain payments between a U.S.
corporation and its foreign subsidiaries. For the

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fiscal year ended June 30, 2021, we have $923,000 of GILTI income inclusion and
used our net operating losses to offset our taxable income. For the fiscal year
ended June 30, 2021, we did not incur any BEAT tax.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), P.L. 116-136,was passed into law, amending portions of certain relevant US
tax laws. The CARES Act included a number of federal income tax law changes,
including, but not limited to: (i) permitting net operating loss carrybacks to
offset 100% of taxable income for taxable years beginning before 2021, (ii)
accelerating alternative minimum tax credit refunds, (iii) temporarily
increasing the allowable business interest deduction from 30% to 50% of adjusted
taxable income, and (iv) providing a technical correction for depreciation
related to qualified improvement property. The CARES Act had no impact on our
consolidated financial statements.

On December 27, 2020, President Trump signed the Consolidated Appropriations
Act, 2021 (CAA). The CAA contains numerous individual, business, payroll,
disaster, and energy-related tax provisions, as well as tax extenders. Many of
the provisions, including $600 stimulus payments, and an extension of payroll
credits, relate to the COVID-19 pandemic. The COVID-related Tax Relief Act of
2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020
(TCDTR), both part of the CAA, contains numerous provisions related to
businesses. We continue to examine the elements of the CARES Act and CAA and the
impact they may have on our future business.

Fiscal year 2021 compared to fiscal year 2020

Our effective tax rate for fiscal years 2021 and 2020 was a tax benefit of 2.4%
and a tax provision of 9.7%, respectively. The change in our effective tax rate
for fiscal year 2021 as compared to fiscal year 2020 was primarily due to the
expiration of tax attributes, the change in valuation allowance, foreign rate
differential, GILTI inclusion, stock-based compensation and the research and
development tax credit.

The income before income tax provision between the U.S. and foreign countries
impacted our effective tax rate as a result of the geographic distribution and
customer demand related to our products and services. In fiscal year 2021, our
U.S. and foreign income before our income tax provision was $5.0 million and
$1.8 million, respectively. In fiscal year 2020, our U.S. and foreign income
before our income tax provision was $5.3 million and $2.7 million, respectively.

Deferred tax depreciation

When we prepare our consolidated financial statements, we estimate our income
tax liability for each of the various jurisdictions where we conduct business.
This requires us to estimate our actual current tax exposure and to assess
temporary differences that result from differing treatment of certain items for
tax and accounting purposes. The net deferred tax assets are reduced by a
valuation allowance if, based upon weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. We make significant judgments to determine our provision for income
taxes, our deferred tax assets and liabilities and any valuation allowance to be
recorded against our net deferred tax assets. As of June 30, 2021, we had a
valuation allowance of approximately $35.5 million of which approximately $31.1
million was attributable to U.S. and state net operating losses and domestic
research and development credit carryforwards.

We apply ASC 740, Income Taxes, in determining any uncertain tax positions. The
guidance seeks to reduce the diversity in practice associated with certain
aspects of measurement and recognition in accounting for income taxes and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position that an entity takes or
expects to take in a tax return. Additionally, ASC 740 provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Under ASC 740, an entity may only recognize
or continue to recognize tax positions that meet a "more likely than not"
threshold. In accordance with our accounting policy, we recognize accrued
interest and penalties related to unrecognized tax benefits as a component of
other income (expense), net in the consolidated statements of operations.

We consider the earnings of certain non-U.S. subsidiaries to be indefinitely
invested outside the United States, on the basis of estimates, that future
domestic cash generation will be sufficient to meet future domestic cash needs
and our specific plans for reinvestments of those subsidiary earnings. We have
not recorded a deferred tax liability related to the U.S. state income taxes and
foreign withholding taxes on approximately $18.7 million of undistributed
earnings of foreign

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subsidiaries invested indefinitely outside United States. If we decide to repatriate profits overseas, we will need to adjust our income tax provision during the period in which we have determined that the profits will no longer be invested indefinitely abroad. United States.

Fair value of financial instruments

Our financial instruments consist of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable and accrued liabilities. 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.

Results of Operations


The following table presents certain items reflected in our consolidated statements of earnings expressed as a percentage of total sales for the periods indicated:



                                                  2021       2020
                 Revenue:
                 Subscription                       92 %       91 %
                 Professional services               8          9
                 Total revenue                     100        100
                 Cost of revenue:
                 Cost of subscription               17         20
                 Cost of professional services       8          9
                 Total cost of revenue              25         29
                 Gross profit                       75         71
                 Operating Expenses:
                 Research and development           23         23
                 Sales and marketing                33         27
                 General and administrative         10         11
                 Total operating expenses           66         61
                 Income from operations              9 %       10 %




Revenue


We classify our income into two categories; revenue from subscriptions and professional services. We further break down subscription revenue into SaaS revenue and legacy revenue, with SaaS revenue being a key metric.

The following table presents our subscription and professional services revenues during the fiscal years indicated:



                            Fiscal Year Ended June 30,
                             2021               2020           Change

Revenue                          (in thousands, except percentages)
Subscription             $      72,371      $      66,129   $ 6,242    9 %
Professional services            5,916              6,600     (684) (10) %
Total revenue            $      78,287      $      72,729   $ 5,558




Total Revenue

Total revenue increased $5.6 million during the fiscal year ended June 30, 2021,
from the comparable period in 2020, largely due to increased revenues from SaaS
of $10.1 million in fiscal year 2021. This increase was partially offset by a
decline in our legacy revenue as we continue to migrate legacy perpetual license
customers to our SaaS model and a decline

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in Professional Services revenue as we continue to see a reduction in the time required for an average implementation project, thanks to improvements to our product deployment process.



Our revenue was impacted by foreign exchange rate fluctuation between the U.S.
Dollar, Euro, and British Pound. We recalculate our current period results using
the comparable prior period exchange rates to exclude the impact of foreign
exchange rate fluctuation. Foreign exchange rate fluctuation resulted in an
increase of $2.0 million and a decrease of $722,000 in total revenue during the
fiscal years ended June 30, 2021 and 2020, respectively.



Subscription Revenue



SaaS Revenue




                                  Fiscal Year Ended June 30,
                                   2021               2020           Change

Revenue                                (in thousands, except percentages)
SaaS revenue                   $      66,929      $      56,793    $ 10,136 18 %
Percentage of total revenue               85 %               78 %




SaaS revenue includes revenue from cloud delivery arrangements, term licenses
and embedded OEM royalties and associated support. Revenues from SaaS increased
by $10.1 million during the fiscal year ended June 30, 2021, as compared to the
comparable period in 2020.



SaaS revenue was $66.9 million and $56.8 million during the fiscal years ended
June 30, 2021 and 2020, respectively, which represented an increase of 18% or
$10.1 million. SaaS revenue represents 85% and 78% of total revenue for the
fiscal years ended June 30, 2021 and 2020, respectively.



Excluding an increase of $1.3 million due to foreign exchange rate fluctuation,
SaaS revenue increased by $8.8 million during the fiscal year ended June 30,
2021, as compared to the comparable period in 2020. In connection with our SaaS
transition, we are actively migrating our remaining perpetual license clients to
SaaS and continue to sell SaaS to new customers. We expect our SaaS revenue to
increase in future periods.



Legacy Revenue


                                  Fiscal Year Ended June 30,
                                   2021               2020             Change

Revenue                                 (in thousands, except percentages)
Legacy revenue                 $       5,442      $       9,336    $ (3,894) (42) %
Percentage of total revenue                7 %               13 %




Legacy revenue is associated with license, maintenance and support contracts on
perpetual license arrangements that we no longer sell. We experienced a decrease
of $3.9 million for the fiscal year ended June 30, 2021. This decrease was
primarily due to our focus on migrating our legacy customers to SaaS. We expect
these legacy fees to continue to decline in future periods.



Legacy revenue was $5.4 million and $9.3 million during the fiscal years ended
June 30, 2021 and 2020, respectively, which represented a decrease of 42% or
$3.9 million. Legacy revenue represents 7% and 13% of total revenue for the
fiscal years ended June 30, 2021 and 2020, respectively.



Excluding increase of $ 433,000 due to fluctuating exchange rates, inherited income decreased by $ 4.3 million during the closed financial year June 30, 2021, compared to the comparable period in 2020.




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Professional services revenue

                                   Fiscal Year Ended June 30,
                                    2021               2020            Change

Revenue                                 (in thousands, except percentages)

Professional services revenue $ 5,916 $ 6,600 $ (684) (10)% Percentage of total turnover

                 8 %                9 %




Professional services revenue includes consulting, implementation and training.
Revenues from professional services decreased by $684,000 during the fiscal year
ended June 30, 2021. These decreases were primarily due to continued
improvements in our product deployment process resulting in a reduction in the
time required for an average implementation project. As we continue to onboard
new customers and migrate legacy customers to SaaS, we expect the time required
for product deployment and implementation projects to decrease further.



Professional services revenue was $5.9 million during the fiscal year ended June
30, 2021, which represented a decrease of 10% or $684,000. Professional services
revenue represents 8% and 9% of total revenue for the fiscal years ended June
30, 2021 and 2020, respectively.



Excluding increase of $ 204,000 due to fluctuating exchange rates, revenues from professional services decreased by $ 888,000 during the closed financial year June 30, 2021, compared to the comparable period in 2020.



Revenue by Geography




                    Fiscal Year Ended June 30,
                     2021               2020            Change

Revenue                   (in thousands, except percentages)
Domestic         $      54,380      $      44,813   $   9,568   21 %
International           23,907             27,916     (4,009) (14) %
Total revenue    $      78,287      $      72,729   $   5,558



Domestic sales revenue increased 21% compared to $ 44.8 million during the closed financial year June 30, 2020 To $ 54.4 million during the closed financial year
June 30, 2021 due to increases in (i) $ 8.4 million in SaaS revenue, (ii)
$ 885,000 in inherited income, and (iii) $ 322,000 in revenues from professional services.



Revenue from international sales decreased by 14% from $27.9 million during the
fiscal year ended June 30, 2020 to $23.9 million during the fiscal year ended
June 30, 2021 due to decreases of (i) $4.8 million in legacy revenue and (ii)
$1.0 million in professional services revenue; offset by an increase of $1.8
million in SaaS revenue.



Cost of Revenue


                                 Fiscal Year Ended June 30,
                                  2021               2020             Change

Cost of revenue                        (in thousands, except percentages)
Subscription                  $      13,507      $      14,398    $   (891)  (6) %
Professional services                 5,760              6,683        (923)

(14)% Total cost of sales $ 19,267 $ 21,081 $ (1,814)
Percentage of total turnover

              25 %               29 %
Gross margin                             75 %               71 %










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Subscription



Cost of subscription revenues consist primarily of expenses related to our cloud
services and support provided to customers.  These expenses are comprised of
cloud computing costs, personnel-related costs directly associated with cloud
operations, and customer support, including salaries, benefits, bonuses and
stock-based compensation and allocated overhead.



Cost of subscription revenues decreased by $891,000 during the fiscal year ended
June 30, 2021. The decrease is primarily due to a decrease in (i) personnel
related costs of $609,000, (ii) cloud computing cost of $344,000 and (iii)
intangible asset amortization of $242,000, partially offset with an increase in
outside consulting cost of $173,000 during the fiscal year ended June 30, 2021,
from the comparable period in 2020.



Excluding an increase of $131,000 due to foreign exchange rate fluctuation, cost
of subscription revenues decreased by $1.0 million during the fiscal year ended
June 30, 2021, from the comparable period in 2020. Excluding any future foreign
exchange rate fluctuation, we expect our cost of subscription revenue to
increase in absolute dollar terms as revenues increase but expect subscription
revenue gross margins to improve or remain relatively consistent.



Professional Services


The cost of professional services primarily includes personnel costs directly associated with our professional and training services, including salaries, benefits, bonuses, stock-based compensation and allocated overheads.



Cost of professional services decreased $923,000 during the fiscal year ended
June 30, 2021 from the comparable period in 2020. This decrease is primarily due
to a decrease in personnel-related costs of $902,000 and outside consulting
costs of $158,000 for the fiscal year ended June 30, 2021.



Excluding an increase of $137,000 due to foreign exchange rate fluctuation, cost
of professional services revenue decreased by $1.1 million for the fiscal year
ended June 30, 2021, from the comparable period in 2020.



Operating Expenses



Research and Development


                                  Fiscal Year Ended June 30,
                                   2021               2020          Change

                                      (in thousands, except percentages)
Research and development       $      17,933      $      16,638    $ 1,295 8 %
Percentage of total revenue               23 %               23 %




Research and development expense primarily consists of personnel-related
expenses directly associated with our engineering, product management and
development, and quality assurance staff. Included in these costs are salaries,
benefits, bonuses, stock-based compensation and allocated overhead. Research and
development expense also includes outside consulting services contracted for
research and development, and amortization of intangible assets.



Research and development expense increased 8% to $17.9 million during the fiscal
year ended June 30, 2021, from $16.6 million in the comparable period in 2020.
Excluding an increase of $195,000 due to foreign exchange rate fluctuation
between the U.S. Dollar, Euro, British Pound and Indian Rupee, research and
development expense increased primarily due to an increase of $1.4 million in
personnel-related costs; partially offset by a decrease of $277,000 in outside
consulting costs.


Excluding any future fluctuation in exchange rates, we expect our research and development expenses to increase in future periods based on our product development plans.



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Sales and Marketing




                                  Fiscal Year Ended June 30,
                                   2021               2020           Change

                                      (in thousands, except percentages)
Sales and marketing            $      25,999      $      19,623    $ 6,376 32 %
Percentage of total revenue               33 %               27 %



Selling and marketing costs consist primarily of personnel costs directly associated with our sales, marketing and business development personnel.

 Included in these costs are salaries, benefits, bonuses, and stock-based
compensation and allocated overhead. Sales and marketing expenses also include
amortization of commissions paid to our sales staff, lead generation activities,
advertising, trade show and other promotional costs and, to a lesser extent,
occupancy costs and related overhead.



Sales and marketing expenses increased 32% to $26.0 million during the fiscal
year ended June 30, 2021, from $19.6 million in the comparable period in 2020.
Excluding an increase of $423,000 due to foreign exchange rate fluctuation
between the U.S. Dollar, Euro, British Pound and Indian Rupee, sales and
marketing expense increased primarily due to increases of (i) $6.2 million in
personnel-related costs and (ii) $16,000 outside consulting services; partially
offset by a decrease of $257,000 in marketing program costs.



Excluding any future fluctuation in exchange rates, we expect our sales and marketing expenses to increase as a percentage of total revenue over the next few quarters based on our current business plan.


General and Administrative


                                  Fiscal Year Ended June 30,
                                   2021               2020           Change

                                       (in thousands, except percentages)
General and administrative     $       7,749      $       7,981    $ (232) (3) %
Percentage of total revenue               10 %               11 %




General and administrative expense primarily consists of personnel-related
expenses directly associated with our finance, human resources, administrative
and legal personnel. Included in these costs are salaries, benefits, bonuses,
and stock-based compensation and allocated overhead. General and administrative
expenses also include fees for professional services, provision for doubtful
accounts and, to a lesser extent, occupancy costs and related overhead.



General and administrative expense decreased 3% to $7.7 million during the
fiscal year ended June 30, 2021, from $8.0 million in the comparable period in
2020. Excluding an increase of $131,000 due to foreign exchange rate fluctuation
between the U.S. Dollar, Euro, British Pound and Indian Rupee, general and
administrative expense decreased primarily due to decreases of (i) $349,000 in
personnel-related expenses; (ii) $108,000 in accounting, audit, and
administrative expenses; (iii) $106,000 in legal expenses; partially offset by
increases of (a) $90,000 in outside consulting costs; (b) $69,000 in bad debt
expenses; and (c) $42,000 in investor relations expense.



Excluding any future fluctuation in exchange rates, we expect our general and administrative expenses to increase or remain relatively constant as a percentage of total revenue in future periods, based on our current business plan.



Stock-Based Compensation



Stock-based compensation expense is accounted for in accordance with the
provisions of the accounting guidance which requires the measurement and
recognition of compensation expense for all equity-based payment awards made to
employees, members of our board of directors and consultants, based upon the
grant-date fair value of those awards.  We value our share-based payments under
ASC 718, and record compensation expense for all share-based payments made to
employees based on the fair value at the date of the grant.

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The effect of recording stock-based compensation for fiscal year 2021 and 2020
is as follows:




                                                    Fiscal Year Ended June 30,
                                                     2021               2020

    Stock-based compensation by type of award             (in thousands)
    Stock options                                $       1,227      $      

1,567

    Employee stock purchase plan                           473             

294

    Total stock-based compensation               $       1,700      $      
1,861




Determining the fair value of the equity-based payment awards at the grant date
required significant judgment and the use of estimates, particularly surrounding
the Black-Scholes valuation assumptions such as stock price volatility and
expected option term.



Below is a summary of stock-based compensation included in the cost and
expenses:




                                     Fiscal Year Ended June 30,
                                      2021               2020            Change

                                          (in thousands, except percentages)
Cost of revenue                   $         326      $         205    $   121   59 %
Research and development                    509                706      (198) (28) %
Sales and marketing                         657                551        106   19 %
General and administrative                  208                399     

(191) (48)% Total stock-based compensation $ 1,700 $ 1,861 $ (161) (9)%

The increase in our stock-based compensation expense in fiscal 2021 compared to fiscal 2020 is primarily due to an increase in option grant activity.

We expect our stock-based compensation expense to increase in fiscal 2022.




Income from Operations


                             Fiscal Year Ended June 30,
                              2021               2020         Change

                                (in thousands, except percentages)

Income from operations $ 7,339 $ 7,406 $ (67)
Operating margin

                      9 %               10 %




Results from operations was income of $7.3 million in fiscal year 2021, compared
to $7.4 million in fiscal year 2020. We recorded a positive operating margin of
9% in fiscal year 2021, and 10% in fiscal year 2020.

The increase in operating income in fiscal 2021 is mainly due to the growth of our cloud delivery business and the improvement in our gross margins. During the year ended June 30, 2021, SaaS revenue increased by $ 10.1 million To $ 66.9 million compared to $ 56.8 million during fiscal year 2020.

Excluding a decrease from foreign exchange fluctuation of $1.0 million the
increase in total costs and operating expenses in fiscal year 2021 was primarily
due to increases of (i) $5.7 million in personnel-related expenses; (ii) $69,000
in bad debt expenses; and (iii) $42,000 in investor relations cost; partially
offset by a decrease of (a) $344,000 in cloud computing costs; (b) $258,000 in
marketing costs; (c) $242,000 in intangible asset amortization; (d) $156,000 in
outside consulting costs; (e) $108,000 in accounting, audit and administrative
services and; (f) $106,000 in legal expenses.

Interest income, net



Interest income, net consists primarily of interest earned on money market
funds. Interest income, net was income of $13,000 and $395,000 in the fiscal
years ended June 30, 2021 and 2020, respectively. We expect interest income to
remain relatively constant in future periods.

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Other (Expense) Income, Net



Other (expense) income, net was expense of $559,000 and income of $185,000 for
the fiscal years ended June 30, 2021 and 2020, respectively. Other (expense)
income, net primarily included foreign exchange rate fluctuations on
international trade receivables.



Income Tax Provision



Provision for income taxes consists of federal, state and foreign income taxes.
Due to the current economic state of the U.S. economy, expiring tax attributes
and uncertainty of future profitability, we maintain a valuation allowance
against U.S. deferred tax assets as of June 30, 2021. We consider all available
evidence, both positive and negative, including but not limited to earnings
history, projected future outcomes, industry and market trends and the nature of
each of the deferred tax assets. We recorded an income tax benefit of $166,000
and an income tax provision of $778,000 in the fiscal years ended June 30, 2021
and 2020, respectively.


New accounting statements

For information with respect to recent accounting pronouncements and the impact
of these pronouncements on our consolidated financial statements, see Note 1 of
Notes to Consolidated Financial Statements included in Item 8 Financial
Statements and Supplementary Data of this Annual Report.

Liquidity and capital resources


Overview


TO June 30, 2021, our main sources of liquidity were cash and cash equivalents, and accounts receivable totaling $ 89.5 million. Our cash, cash equivalents and restricted cash were $ 63.2 million and $ 46.6 million from June 30, 2021 and 2020, respectively.

Our working capital was $ 31.1 million from June 30, 2021 compared to $ 21.4 million from June 30, 2020. From June 30, 2021, our deferred revenues were $ 49.5 million compared to $ 41.5 million from June 30, 2020.



Based upon our current business 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. We can make no assurances that such opportunities will be
available to us on economic terms we consider favorable, if at all.



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, our ability to retain existing customers and customer
purchasing and payment patterns, many of which are beyond our control.























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Cash flow

For the fiscal years ended June 30, 2021 and 2020, our cash flows were as
follows (in thousands):




                                             Fiscal Year Ended June 30,
                                              2021               2020

Net cash flow generated by operating activities $ 13,862 $ 14,058
Net cash used in investing activities

             (402)              (514)
Net cash provided by financing activities         2,352              1,410




Cash provided by operating activities mainly consists of net income adjusted for
non-cash expense items such as depreciation and amortization, expense associated
with stock-based awards, the timing of employee related costs including costs
capitalized to obtain revenue contracts, amortization of right-of-use assets,
and changes in operating assets and liabilities during the year.



Cash provided by operating activities decreased by $196,000 during the fiscal
year ended June 30, 2021, driven primarily by the timing of prepayments received
from customers for new cloud arrangements and the renewal of existing cloud and
support arrangements, which is our largest source of operating cash flows, as
well as higher net income.



Net cash used in investing activities increased by $112,000 during the fiscal
year ended June 30, 2021, driven primarily by activities related to the purchase
of equipment for new employees and facility expenditures. Historically, cash
used in investing activities has been used to purchase equipment and software to
support our business and growth.

Net cash flow from financing activities increased by $ 942,000 during the closed financial year June 30, 2021, mainly made up of the proceeds of employee share ownership plans.



Commitments

Our main commitments consist of office lease obligations. Leases are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases.



The following table summarizes our contractual obligations as of June 30, 2021
and the effect such obligations are expected to have on its liquidity and cash
flow in future periods (in thousands):


                                                            Payments Due by Period

                            Total        Less than 1 Year      1 - 3 Years       3 - 5 Years       More than 5 Years
Operating leases               2,353                 1,530              823                  -                      -
Total                     $    2,353    $            1,530    $         823    $             -    $                 -

Off-balance sheet provisions

From June 30, 2021, we did not have any material off-balance sheet arrangements as defined in Section 303 (a) (4) of Regulation SK.








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