<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   Form 10-Q

(Mark One)
  [X]              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

                                       OR

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

For the transition period from __________ to ______________

Commission File No. 0-30260

                       eGAIN COMMUNICATIONS CORPORATION
                       --------------------------------
            (Exact name of registrant as specified in its charter)

          Delaware                                     77-0466366
          --------                                     ----------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

                      455 W. Maude Avenue, Sunnyvale, CA
                      ----------------------------------
                   (Address of principal executive offices)

                                     94086
                                     -----
                                  (Zip Code)

                                (408) 212-3400
                                --------------
                        (Registrant's telephone number,
                             including area code)

                                      N/A
                                      ---
                    (Former name, former address and former
                   fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                     YES [X]                     NO [_]

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

           Class                              Outstanding at March 31, 2001
           -----                              -----------------------------
Common Stock $0.001 par value                         36,226,847
<PAGE>

                       eGAIN COMMUNICATIONS CORPORATION

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                         <C>
PART I.  FINANCIAL INFORMATION............................................................................       1

Item 1.  Financial Statements.............................................................................       1

         Condensed Consolidated Balance Sheets at March 31, 2001 and June 30, 2000........................       1

         Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
          March 31, 2001 and 2000.........................................................................       2

         Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
          March 31, 2001 and 2000.........................................................................       3

         Notes to Condensed Consolidated Financial Statements.............................................       4

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations............       8

Item 3.  Quantitative and Qualitative Disclosure About Market Risk........................................      23

PART II. OTHER INFORMATION................................................................................      24

Item 1.  Legal Proceedings................................................................................      24

Item 2.  Changes in Securities............................................................................      24

Item 3.  Defaults upon Senior Securities..................................................................      24

Item 4.  Submission of Matters to a Vote of Security Holders..............................................      24

Item 5.  Other Information................................................................................      24

Item 6.  Exhibits and reports on Form 8-K.................................................................      24

         Signature........................................................................................      25
</TABLE>
<PAGE>

                        Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                       eGAIN COMMUNICATIONS CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                (in thousands)

<TABLE>
<S>                                                                                 <C>                  <C>
                                                                                       March 31,             June 30,
                                                                                         2001                 2000
                                                                                    ------------          -----------
Assets                                                                               (unaudited)
Current Assets:
 Cash and cash equivalents..................................................           $  53,198             $ 27,201
 Short-term investments, held as available for sale.........................                  --                2,991
 Accounts receivable, net...................................................              14,826                8,589
 Prepaid and other current assets...........................................               4,331                4,456
                                                                                    ------------          -----------
  Total current assets......................................................              72,355               43,237
Property and equipment, net.................................................              12,741               11,690
Goodwill and other intangible assets, net...................................              90,943              119,629
Other assets................................................................               1,291                1,344
                                                                                    ============          ===========
  Total assets..............................................................           $ 177,330             $175,900
                                                                                    ============          ===========

Liabilities and Stockholders' Equity
Current Liabilities:
 Bank borrowings-line of credit.............................................           $     980             $  1,000
 Accounts payable...........................................................               5,746                5,305
 Accrued compensation.......................................................               7,363                8,509
 Accrued liabilities........................................................               4,214                7,930
 Deferred revenue...........................................................               5,918                7,286
 Current portion of capital lease obligations...............................               1,119                1,116
 Current portion of notes payable...........................................                 701                  182
                                                                                    ------------          -----------
  Total current liabilities.................................................              26,041               31,328

Capital lease obligations, net of current portion...........................                 514                  729
Notes payable, net of current portion.......................................                 706                  343
Other long-term liabilities.................................................                 494                  129
                                                                                    ------------          -----------
  Total liabilities.........................................................              27,755               32,529

Stockholders' Equity:
 Cumulative convertible preferred stock.....................................              86,403                   --
 Common stock...............................................................                  36                   36
 Additional paid in capital.................................................             228,466              231,475
 Notes receivable from stockholders.........................................                (416)                (475)
 Deferred stock compensation................................................              (2,523)              (6,798)
 Accumulated other comprehensive income (loss)..............................                (130)                (193)
 Accumulated deficit........................................................            (162,261)             (80,674)
                                                                                    ------------          -----------
  Total stockholders' equity................................................             149,575              143,371
                                                                                    ------------          -----------
  Total liabilities and stockholders' equity................................           $ 177,330             $175,900
                                                                                    ============          ===========

</TABLE>
                            See accompanying notes

                                      -1-
<PAGE>

                       eGAIN COMMUNICATIONS CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                     (in thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                   Three Months             Nine Months
                                                                 Ended March 31,          Ended March 31,
                                                              ---------------------   ----------------------
                                                                 2001        2000         2001        2000
                                                              ---------   ---------   ----------  ----------
<S>                                                           <C>         <C>         <C>          <C>
Revenue:
 Hosting....................................................   $  2,539    $    988    $   8,056    $  1,930
 License....................................................      5,930       1,268       16,809       2,487
 Services...................................................      4,951       1,047       14,450       2,657
                                                              ---------   ---------   ----------  ----------
  Total revenue.............................................     13,420       3,303       39,315       7,074
 Cost of revenue - direct...................................      7,580       4,138       24,087       9,447
 Cost of revenue - acquisition related......................        362          --        1,086          --
                                                              ---------   ---------   ----------  ----------
  Gross profit (loss).......................................      5,478        (835)      14,142      (2,373)

Operating costs and expenses:
 Research and development...................................      5,615       3,005       17,560       7,051
 Sales and marketing........................................     11,599       7,013       37,061      15,998
 General and administrative.................................      4,221       1,779       12,739       4,785
 Amortization of goodwill and other intangible assets.......      9,200       2,614       27,600       6,265
 Amortization of deferred compensation......................        750       2,944        2,725       8,851
 Restructuring..............................................        388          --          388          --
                                                              ---------   ---------   ----------  ----------
  Total operating costs and expenses........................     31,773      17,355       98,073      42,950
                                                              ---------   ---------   ----------  ----------
Loss from operations........................................    (26,295)    (18,190)     (83,931)    (45,323)
Non-operating income........................................        745         461        2,344       1,089
                                                              ---------   ---------   ----------  ----------
Net loss....................................................    (25,550)    (17,729)     (81,587)    (44,234)

Dividends on convertible preferred stock....................     (1,513)         --       (3,903)         --
Beneficial conversion feature on convertible preferred stock         --          --      (19,335)         --
                                                              ---------   ---------   ----------  ----------
Net loss applicable to common stockholders..................   $(27,063)   $(17,729)   $(104,825)   $(44,234)
                                                              =========   =========   ==========  ==========
 Basic and diluted net loss per common share................     $(0.77)     $(0.63)      $(3.00)     $(2.03)
                                                              =========   =========   ==========  ==========
 Weighted average shares used in computing basic and
  diluted net loss per common share.........................     35,353      27,986       34,958      21,783
                                                              =========   =========   ==========  ==========

</TABLE>

                            See accompanying notes

                                      -2-
<PAGE>

                        eGAIN COMMUNICATIONS CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                               Nine Months
                                                                                              Ended March 31,
                                                                                      -------------------------------
                                                                                          2001                2000
                                                                                      ----------           ----------
<S>                                                                           <C>                  <C>
Cash flows from operating activities:
 Net loss...................................................................            $(81,587)            $(44,234)
 Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation.............................................................               4,403                1,084
   Amortization of goodwill and other intangible assets.....................              28,686                6,265
   Amortization of deferred compensation....................................               2,725                8,851
   Other....................................................................                  --                   16
   Changes in operating assets and liabilities:
     Accounts receivable....................................................              (6,237)              (1,170)
     Prepaid and other current assets.......................................                 125               (2,346)
     Other assets...........................................................                  53               (1,540)
     Accounts payable.......................................................                 441                2,534
     Accrued compensation...................................................              (1,146)               4,088
     Accrued liabilities....................................................              (3,716)               2,183
     Deferred revenue.......................................................              (1,368)               1,922
     Other long-term liabilities............................................                 365                   37
                                                                                      ----------           ----------
Net cash used in operating activities.......................................             (57,256)             (22,310)

Cash flows from investing activities:
 Purchases of property and equipment........................................              (4,794)              (5,358)
 Net cash paid for acquisition of Big Science Company.......................                  --               (1,320)
 Purchases of short-term securities.........................................                  --              (26,546)
 Proceeds from sale of short-term securities................................               3,140               11,400
                                                                                      ----------           ----------
Net cash used in investing activities.......................................              (1,654)             (21,824)

Cash flows from financing activities:
 Payments on borrowings.....................................................                (118)                (601)
 Payments on capital lease obligations......................................                (872)                  --
 Proceeds from borrowings...................................................                 980                  408
 Net proceeds from issuance of convertible preferred stock..................              82,500                5,152
 Net proceeds from issuance of common stock.................................               2,506               63,367
                                                                                      ----------           ----------
Net cash provided by financing activities...................................              84,996               68,326

Effect of exchange rate differences on cash.................................                 (89)                   2
                                                                                      ----------           ----------
Net increase in cash and cash equivalents...................................              25,997               24,194
Cash and cash equivalents at beginning of year..............................              27,201                1,265
                                                                                      ----------           ----------
Cash and cash equivalents at end of year....................................            $ 53,198             $ 25,459
                                                                                      ==========           ==========
Supplemental disclosure of non-cash activities:
 Equipment acquired under capital leases....................................            $    660                1,306
 Conversion of line of credit to term loan (Note 8).........................               1,000                   --
 Issuance of common stock in connection with
  acquisition of Big Science................................................                  --               31,704
</TABLE>
                            See accompanying notes

                                      -3-
<PAGE>

                        eGAIN COMMUNICATIONS CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Basis of Presentation

         The condensed consolidated financial statements have been prepared by
eGain Communications Corporation pursuant to the rules and regulations of the
Securities and Exchange Commission and include the accounts of eGain
Communications Corporation and its wholly-owned subsidiaries ("eGain"). All
significant intercompany balances and transactions have been eliminated.

         Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. In the opinion of eGain, the unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of eGain's financial
position, results of operations and cash flows for the periods presented.  These
financial statements and notes should  be read in conjunction with eGain's
audited consolidated financial statements and notes thereto for the year ended
June 30, 2000, included in eGain's Annual Report on Form 10-K.  The condensed
consolidated balance sheet at June 30, 2000 has been derived from audited
financial statements as of that date. The results of eGain's operations for the
interim periods presented are not necessarily indicative of results that may be
expected for any other interim period or for the full fiscal year ending June
30, 2001.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.  Actual results could differ from those estimates.

Note 2.  Software Revenue Recognition

         eGain recognizes revenue in accordance with Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), as amended. Under SOP 97-2, revenue
from license fees is recognized when persuasive evidence of an agreement exists,
delivery of the product has occurred, no significant eGain obligations remain,
the fee is fixed or determinable, and collectibility is probable.  License fee
revenue in multiple element contracts is recognized using the residual method
when there is vendor specific objective evidence of the fair value of all
undelivered elements in an arrangement but vendor specific objective evidence of
fair value does not exist for one or more of the delivered elements in an
arrangement. Under the residual method, the total fair value of the undelivered
elements, as indicated by vendor specific objective evidence, is deferred and
the difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements,
regardless of any separate prices stated within the contract for each element.
If sufficient vendor-specific objective evidence does not exist for undelivered
elements in an arrangement, all revenue from the arrangement is deferred until
the earlier of the point at which (a) such sufficient vendor-specific objective
evidence does exist or (b) all elements of the arrangement have been delivered.

         Revenue from hosting services is recognized ratably over the period of
the agreement as services are provided. Hosting agreements are typically for a
period of one year and automatically renew unless either party cancels the
agreement.

         Service revenue is primarily derived from consulting, maintenance
agreements and training. Service revenue from consulting and training billed on
a time and materials basis is recognized as performed. Service revenue on fixed
price service arrangements is recognized upon completion of specific contractual
milestone events, or based on an estimated percentage of completion as work
progresses.  Maintenance agreements include the right to software updates on an
if-and-when-available basis.  Maintenance revenue is deferred and recognized on
a straight-line basis as service revenue over the life of the related agreement,
which is typically one year.

                                      -4-
<PAGE>

                       eGAIN COMMUNICATIONS CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Note 2.  Software Revenue Recognition (continued)

         In all cases, eGain assesses whether the service element of the
arrangement is essential to the functionality of the other elements of the
arrangement. In this determination, eGain focuses on whether the services
include significant alterations to the features and functionality of the
software, whether the services involve the building of complex interfaces, the
timing of payments and the existence of milestones. In making this
determination, eGain considers the following: (1) the relative fair value of the
services compared to the software, (2) the amount of time and effort subsequent
to delivery of the software until the interfaces or other modifications are
completed, (3) the degree of technical difficulty in building the interfaces or
other modifications, and (4) any contractual cancellation, acceptance, or
termination provisions for failure to complete the interfaces. In those
instances where eGain determines that the service elements are essential to the
other elements of the arrangement, eGain accounts for the entire arrangement in
accordance with Accounting Research Bulletin (ARB) No. 45, "Long-Term
Construction-Type Contracts," using the relevant guidance from SOP 97-2 and SOP
81-1, "Accounting for Performance of Construction-Type and Certain Production-
Type Contracts."

Note 3.  Net Loss Per Common Share

         Basic net loss per common share is computed using the weighted-average
number of shares of common stock outstanding, less the weighted-average number
of shares of common stock that are subject to repurchase.  Diluted net loss per
common share is computed by using the weighted average number of shares of
common stock used in the basic net loss per common share calculation and, when
dilutive, common equivalent shares from convertible preferred stock, outstanding
stock options and warrants using the treasury stock method.

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

<TABLE>
<CAPTION>
                                                                   Three Months                        Nine Months
                                                                  Ended March 31,                     Ended March 31,
                                                          -----------------------------      ------------------------------
                                                              2001              2000              2001              2000
                                                          -----------       -----------      ------------       -----------

<S>                                                   <C>               <C>               <C>               <C>
Net loss applicable to common stockholders..........         $(27,063)         $(17,729)        $(104,825)         $(44,234)
                                                          -----------       -----------      ------------       -----------
Basic and diluted:
 Weighted-average shares outstanding................           36,197            28,958            36,028            23,295
 Less weighted-average shares subject to repurchase.             (844)             (972)           (1,043)           (1,512)
                                                          -----------       -----------      ------------       -----------
 Weighted-average shares used in computing basic               35,353            27,986            34,985            21,783
  and diluted net loss per common share.............
                                                          -----------       -----------      ------------       -----------
Basic and diluted net loss per common share.........         $  (0.77)         $  (0.63)        $   (3.00)         $  (2.03)
                                                          -----------       -----------      ------------       -----------
</TABLE>

         Options and warrants to purchase approximately 10,336,000 and 5,104,000
shares of common stock were outstanding at March 31, 2001 and 2000,
respectively, and convertible preferred stock convertible into approximately
9,988,000 shares of common stock were outstanding at March 31, 2001, but were
excluded from the computation of net loss per common share, as their effect is
anti-dilutive.

Note 4.  Comprehensive Loss

         eGain's comprehensive loss is comprised of net loss, foreign currency
translation adjustments and unrealized gains or losses on short-term investments
held as available-for-sale. Comprehensive loss was $25.7 million and $17.8
million for the three months ended March 31, 2001 and 2000, respectively, and
$81.5 million and $44.4 million for the nine months ended March 31, 2001 and
2000, respectively.  These amounts were not materially different from net loss
as reported in the consolidated statements of operations.

                                      -5-
<PAGE>

                       eGAIN COMMUNICATIONS CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Note 5.  Segment Information

         eGain operates in one segment, the development and marketing of
customer service infrastructure solutions. eGain markets and sells its products
throughout North America (principally the United States), Europe and Asia
Pacific. Operations in Europe and Asia Pacific comprise eGain's international
activities. Selected operating data relating to eGain's international operations
is set forth below (in thousands):

<TABLE>
<CAPTION>
                                                    Three Months                         Nine Months
                                                   Ended March 31,                      Ended March 31,
                                            -----------------------------      ------------------------------
                                                2001             2000             2001              2000
                                            -----------       -----------      ------------       -----------

<S>                                  <C>              <C>              <C>              <C>
Revenue............................          $ 3,212          $    --          $ 8,835         $      --

Operating losses...................            2,034              765            4,987             1,764
</TABLE>

         Identifiable assets corresponding to eGain's international operations
were $5.2 million and $310,000 as of March 31, 2001 and 2000, respectively.
During the three months ended March 31, 2001, one customer accounted for 11% of
eGain's total revenue. No single customer accounted for more than 10% of eGain's
total revenue in any other period presented above.

Note 6.  New Accounting Pronouncements

         In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. The SAB states that all registrants are expected to apply
the accounting and disclosures described in it.  The SEC staff, however, will
not object if registrants that have not applied this accounting do not restate
prior financial statements provided they report a change in accounting principle
in accordance with APB Opinion No. 20, Accounting Changes, by cumulative catch-
up adjustment no later than the quarter ended June 30, 2001.  eGain has
evaluated the impact of SAB 101 and believes that it will not have a material
impact on our consolidated financial statements.

Note 7.  Issuance of Preferred Stock

         On August 22, 2000, eGain issued 35.11 shares of non-voting Series A
Cumulative Convertible Preferred Stock ("Series A"), $100,000 stated value per
share, and 849.89 shares of non-voting Series B Cumulative Convertible Preferred
Stock ("Series B"), $100,000 stated value per share in a private placement to
certain investors (the "Investors").  The Series B shares automatically
converted into Series A shares upon stockholder approval on November 20, 2000 at
the annual stockholders meeting. In addition, the Investors received warrants to
purchase 3,826,322 shares of eGain's common stock with a current warrant
exercise price of $9.2517 per share.  The total proceeds of the offering were
$88.5 million. The Series A shares have a liquidation preference of $100,000 per
share which increases on a daily basis at an annual rate of 6.75% from August 8,
2000, compounded on a semi-annual basis.  The Series A stockholders are entitled
cash dividends only when and if declared by the board of directors.

         The Series A shares are convertible at the option of the holder into
common stock at an initial conversion price of $9.2517 per share. The initial
conversion price is subject to adjustment on August 8, 2001 if 122% of the
average closing bid price per share of eGain's common stock on the 20
consecutive trading days immediately preceding and including August 8, 2001 is
less than $9.2517. In such event, the initial conversion price will not be
adjusted below $5.6875. If not sooner converted, eGain has the option to convert
the Series A shares into common stock after August 8, 2003 if the closing bid
price of eGain's common stock on 20 of the 30 consecutive trading days prior to
the date of notice requesting conversion is equal to or greater than 250% of the
initial conversion price (or $23.13). If not sooner converted, on August 8, 2005
eGain must either, at its option, redeem the Series A shares for cash or convert
the Series A shares into common stock at a price per share equal to 95% of the
average closing bid price per share of eGain's common stock on the 20
consecutive trading days immediately prior to the redemption date.

                                      -6-
<PAGE>

                       eGAIN COMMUNICATIONS CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 7.  Issuance of Preferred Stock (continued)

         The net cash proceeds of the offering, after expenses, were
approximately $82.5 million. In order to determine whether a beneficial
conversion feature existed in connection with the offering, the proceeds were
discounted by $25.3 million, representing the valuation of the 3,826,322
warrants issued in connection with the sale of Series A and B shares. After
reducing the proceeds by the value of the warrants, the remaining proceeds were
used to compute a discounted conversion price, which was compared to the fair
market value of eGain's common stock to determine whether a beneficial
conversion feature existed. In the nine months ended March 31, 2001, $19.3
million was allocated to the beneficial conversion feature representing the
difference between the fair market value of eGain's common stock on the date of
conversion and the discounted conversion price. The amount representing the
beneficial conversion feature was included in net loss applicable to common
stockholders. Accrued dividends, representing the increase in liquidation value
at the rate of 6.75% per annum, are charged against additional paid-in capital
and are included in net loss applicable to common stockholders. In the three and
nine months ended March 31, 2001, accrued dividends were $1.5 million and $3.9
million, respectively.

Note 8.  Line of Credit

         On March 29, 2001, eGain entered into an amendment to a previous loan
agreement dated August 7, 1998.  The amendment provides for a $3.5 million
revolving line of credit, reduced by the issuance of standby letters of credit
not to exceed $1.0 million, and a $3.0 million equipment line of credit.  The
revolving line of credit and the equipment line of credit expire on March 28,
2002 and February 27, 2004, respectively.  In addition, eGain's existing $1.0
million line of credit was converted into a 24-month term loan.  Borrowings
under the loan agreement are secured by all of eGain's assets and bear interest
at the bank's prime rate plus 0.50%.  On March 31, 2001,  $980,000 was
outstanding under the revolving line of credit and $1.0 million was outstanding
under the term loan.

Note 9.  Restructuring

         During the quarter ended March 31, 2001, eGain recorded restructuring
charges in the amount of $388,000.  These charges related to a reduction in
workforce in all areas of eGain pursuant to the adoption of eGain's expense
management strategy.  The total charges were primarily comprised of severance
costs totaling $363,000, all of which were paid as of March 31, 2001.

Note 10. Subsequent Events

         In April 2001, eGain obtained final regulatory approval from the
government of India to complete the acquisition of Nitman Software Pvt. Ltd.
("Nitman"), an ecommerce software development company located in Pune, India.
eGain acquired all of the outstanding capital stock of Nitman in exchange for a
$1.0 million cash payment. The acquisition will be accounted for using the
purchase method of accounting.

                                      -7-
<PAGE>

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

         This report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. These statements may be identified by the use
of the words such as "anticipates," "believes," "continue," "could," "would,"
"estimates," "forecasts," "expects," "intends," "may," "might," "plans,"
"potential," "predicts," "should," or "will" and similar expressions or the
negative of those terms. The forward-looking statements include, but are not
limited to, the expansion of our global market penetration and distribution
capabilities, the integration of our software products with databases, the
development of our strategic relationships, the factors influencing competition
in our market, our limited operating history, expected net losses, the adequacy
of capital resources, the continued need for online customer communications, the
continued acceptance of the hosted applications model, competitive threats and
the overall volatility of Internet-related technology companies. These
statements relate to our future plans, product releases, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. Our actual results could differ materially from those
discussed in these statements. Factors that could contribute to such differences
include those discussed in "Additional Factors That May Affect Future Results"
and elsewhere in this document. These forward-looking statements speak only as
of the date hereof. eGain expressly disclaims any obligation or understanding to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in eGain's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.

Overview

         eGain provides customer interaction software designed to help companies
meet the growing demands of Internet-based communications. eGain offers licensed
and hosted applications for email management, interactive Web and voice
collaboration, intelligent self-help agents, knowledge management and online
marketing. Built using a Web-native architecture, the eGain e-Service suite of
products operates on a shared platform that provides for common archiving,
reporting and knowledge management capabilities. In addition, the eGain e-
Service suite of products integrates with leading call center switches, as well
as customer communications, database and ecommerce software applications, to
provide comprehensive information about each customer while permitting companies
to leverage existing investments and installed systems. eGain has more than 750
customers, including Charles Schwab, Charter Communications, FleetBoston
Financial, and GE Power Systems, a division of General Electric Corporation.

         eGain was incorporated in September 1997.  From inception to September
1998, eGain's operating activities related primarily to planning and developing
its proprietary technological solutions, recruiting personnel, raising capital
and purchasing operating assets. In September 1998, eGain commenced commercial
shipment of eGain Mail, and established the eGain Hosted Network.

         On April 30, 1999, eGain acquired Sitebridge Corporation and added its
real-time Web collaboration product to eGain's platform. The product, eGain
Live, is an application that allows ecommerce companies to interact in real-time
with visitors to their Web sites. eGain acquired Sitebridge in exchange for
stock and it accounted for the transaction under the purchase method of
accounting.

         On September 28, 1999, eGain completed its initial public offering of
common stock, in which it sold 5.8 million shares of common stock (including
exercise of an over-allotment option in October 1999), at a price of $12.00 per
share, which generated net proceeds of approximately $63.0 million.

         On March 7, 2000, eGain acquired Big Science Company and added its Web-
native self-service product to eGain's platform.  The resulting product, eGain
Assistant, enables personalized customer assistance on Web sites through virtual
service agents. Customers interact in natural language dialogue with a life-like
character, which answers questions and leads customers through problem
resolution and sales situations. eGain acquired Big Science in exchange for
common stock and cash.  The transaction was accounted for under the purchase
method of accounting.

       On June 29, 2000, eGain acquired Inference Corporation in exchange for
eGain common stock and assumption of outstanding options to purchase Inference
common stock. The acquisition brought together eGain's strength in Web-native,
multi-channel customer communications with Inference's customer profiling and
contact center support

                                      -8-
<PAGE>

capabilities. The acquisition also significantly expanded eGain's European
business and added new product and technology components to the eGain platform.
The acquisition was accounted for as a purchase transaction.

         On August 22, 2000, eGain issued (i) an aggregate of 35.11 shares of
its 6.75% Series A Cumulative Convertible Preferred Stock (the "Series A") at a
price of $100,000 per share (ii) an aggregate of 849.89 shares of its of 6.75%
Series B Cumulative Convertible Preferred Stock (the "Series B") at a price of
$100,000 per share, in a private placement to certain investors (the
"Investors"). The Series B shares automatically converted into Series A shares
as a result of stockholder approval obtained on November 20, 2000 at the annual
stockholders meeting. In addition, the Investors received warrants to purchase
3,826,322 shares of common stock (the "Warrants"). The Warrants expire on August
22, 2005 and have an initial exercise price of $9.2517 per share. The net
proceeds of the offering, after expenses, were approximately $82.5 million.
eGain intends to use such proceeds primarily for general corporate purposes,
including working capital.

         eGain intends to continue to make significant investments in product
development and technology to enhance its current products and services, develop
new products and services and further advance its solution offerings. In
addition, eGain has incurred significant losses since its inception and had an
accumulated deficit of approximately $162.3 million as of March 31, 2001. eGain
has not achieved profitability on a quarterly or annual basis. eGain expects to
continue to incur operating losses for the foreseeable future. In view of the
rapidly evolving nature of its business and limited operating history, eGain
believes that period to period comparisons of its revenue and operating results
are not meaningful and should not be relied upon as indications of future
performance.

         In April 2001, eGain obtained final regulatory approval from the
government of India to complete the acquisition of Nitman Software Pvt. Ltd.
("Nitman"), an ecommerce software development company located in Pune, India.
eGain acquired all of the outstanding capital stock of Nitman in exchange for a
$1.0 million cash payment. The acquisition will be accounted for using the
purchase method of accounting. eGain's acquisition of Nitman will enhance
eGain's product development, licensed customer support, information technology
and hosted business services capabilities.

Results of Operations

         The following table sets forth the results of operations for the
periods presented expressed as a percentage of total revenue:

<TABLE>
<CAPTION>
                                                                   Three Months                      Nine Months
                                                                   Ended March 31,                   Ended March 31,
                                                            --------------------------         -------------------------
                                                               2001             2000             2001             2000
                                                            ---------        ---------         --------         --------
<S>                                                    <C>              <C>              <C>              <C>
Revenue:
 Hosting.............................................             19%              30%              20%              27%
 License.............................................             44%              38%              43%              35%
 Services............................................             37%              32%              37%              38%
                                                            ---------        ---------         --------         --------
  Total revenue......................................            100%             100%             100%             100%
 Cost of revenue - direct............................             56%             125%              61%             134%
 Cost of revenue - acquisition related...............              3%              --                3%              --
                                                            ---------        ---------         --------         --------
  Gross profit (loss)................................             41%             (25%)             36%             (34%)

Operating costs and expenses:
 Research and development............................             42%              91%              45%             100%
 Sales and marketing.................................             86%             212%              94%             226%
 General and administrative..........................             31%              54%              32%              68%
 Amortization of goodwill and other intangible assets             69%              79%              70%              88%
 Amortization of deferred compensation...............              6%              89%               7%             125%
 Restructuring.......................................              3%              --                1%              --
                                                            ---------        ---------         --------         --------
  Total operating costs and expenses.................            237%             525%             249%             607%
                                                            ---------        ---------         --------         --------
Loss from operations.................................           (196%)           (550%)           (213%)           (641%)
                                                            =========        =========         ========         ========

</TABLE>

                                      -9-
<PAGE>

Revenue

     eGain recognizes revenue in accordance with Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), as amended. Under SOP 97-2, revenue
from license fees is recognized when persuasive evidence of an agreement exists,
delivery of the product has occurred, no significant eGain obligations remain,
the fee is fixed or determinable, and collectibility is probable.  License fee
revenue in multiple element contracts is recognized using the residual method
when there is vendor specific objective evidence of the fair value of all
undelivered elements in an arrangement but vendor specific objective evidence of
fair value does not exist for one or more of the delivered elements in an
arrangement. Under the residual method, the total fair value of the undelivered
elements, as indicated by vendor specific objective evidence, is deferred and
the difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements,
regardless of any separate prices stated within the contract for each element.
If sufficient vendor-specific objective evidence does not exist for undelivered
elements in an arrangement, all revenue from the arrangement is deferred until
the earlier of the point at which (a) such sufficient vendor-specific objective
evidence does exist or (b) all elements of the arrangement have been delivered.

     Revenue from hosting services is recognized ratably over the period of the
agreement as services are provided.  Hosting agreements are typically for a
period of one year and automatically renew unless either party cancels the
agreement.

     Service revenue is primarily derived from consulting, maintenance
agreements and training. Service revenue from consulting and training billed on
a time and materials basis is recognized as performed. Service revenue on fixed
price service arrangements is recognized upon completion of specific contractual
milestone events, or based on an estimated percentage of completion as work
progresses.  Maintenance agreements include the right to software updates on an
if-and-when-available basis.  Maintenance revenue is deferred and recognized on
a straight-line basis as service revenue over the life of the related agreement,
which is typically one year.

     In all cases, eGain assesses whether the service element of the arrangement
is essential to the functionality of the other elements of the arrangement.  In
this determination, eGain focuses on whether the services include significant
alterations to the features and functionality of the software, whether the
services involve the building of complex interfaces, the timing of payments and
the existence of milestones.  In making this determination, eGain considers the
following: (1) the relative fair value of the services compared to the software,
(2) the amount of time and effort subsequent to delivery of the software until
the interfaces or other modifications are completed, (3) the degree of technical
difficulty in building the interfaces or other modifications, and (4) any
contractual cancellation, acceptance, or termination provisions for failure to
complete the interfaces.  In those instances where eGain determines that the
service elements are essential to the other elements of the arrangement, eGain
accounts for the entire arrangement in accordance with Accounting Research
Bulletin (ARB) No. 45, "Long-Term Construction-Type Contracts," using the
relevant guidance from SOP 97-2 and SOP 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts."

     Total revenue increased to $13.4 million in the quarter ended March 31,
2001 from $3.3 million in the quarter ended March 31, 2000.  Total revenue for
the nine months ended March 31, 2001 increased to $39.3 million, compared to
$7.1 million in the same period last year.  The increase in each period was
primarily attributable to increased market acceptance of our products, expanded
direct sales and marketing efforts, expanded channel partnerships and the
introduction of new products.  A significant portion of the expansion and
related increases were due to the acquisition of Inference Corporation on June
29, 2000, and the inclusion of its revenue from the effective date of the
merger.  During the quarter ended March 31, 2001, one customer accounted for 11%
of total revenue.  During the quarter ended March 31, 2000 and the nine months
ended March 31, 2001 and 2000, no single customer accounted for more than 10% of
total revenue.  Although total revenue has increased from prior periods, eGain
cannot be certain that it will continue to grow in future periods or that it
will grow at similar rates in the past.

     Hosting revenue increased to $2.5 million in the quarter ended March 31,
2001 from $988,000 in the quarter ended March 31, 2000.  Hosting revenue for the
nine months ended March 31, 2001 increased to $8.1 million, compared to $1.9
million in the same period last year.  The increase in each period was primarily
attributable to an increase in the number of eGain's hosted customers.  Hosting
revenue represented 19% and 30%

                                      -10-
<PAGE>

of total revenue for the quarters ended March 31, 2001 and 2000, respectively,
and 20% and 27% of total revenue for the nine months ended March 31, 2001 and
2000, respectively.

     License revenue increased to $5.9 million in the quarter ended March 31,
2001 from $1.3 million in the quarter ended March 31, 2000.  License revenue for
the nine months ended March 31, 2001 increased to $16.8 million, compared to
$2.5 million in the same period last year.  The increase in each period was
primarily due to higher unit sales volumes combined with higher average sales
price per customer. License revenue represented 44% and 38% of total revenue for
the quarters ended March 31, 2001 and 2000, respectively, and 43% and 35% of
total revenue for the nine months ended March 31, 2001 and 2000, respectively.

     Services revenue increased to $5.0 million in the quarter ended March 31,
2001 from $1.0 million in the quarter ended March 31, 2000.  Services revenue
for the nine months ended March 31, 2001 increased to $14.5 million, compared to
$2.7 million in the same period last year.  The increase in each period was
primarily attributable to an increase in eGain's customer base, resulting in
increased revenue from customer implementations and maintenance contracts.
Services revenue represented 37% and 32% of total revenue for the quarters ended
March 31, 2001 and 2000, respectively, and 37% and 38% of total revenue for the
nine months ended March 31, 2001 and 2000, respectively.

Cost of Revenue - Direct

     Cost of revenue - direct includes personnel costs for eGain's hosting
services, consulting services and customer support.  It also includes
depreciation of capital equipment used in eGain's hosted network, cost of third-
party products and lease costs paid to remote co-location centers.  Cost of
revenue - direct increased to $7.6 million in the quarter ended March 31, 2001
from $4.1 million in the quarter ended March 31, 2000, representing 56% and 125%
of total revenue, respectively.  Cost of revenue - direct for the nine months
ended March 31, 2001 increased to $24.1 million, compared to $9.4 million in the
same period last year, representing 61% and 134% of total revenue, respectively.
The increase in absolute dollars in each period was primarily due to a
significant increase in headcount and the expansion of the eGain Hosted Network.
Cost of revenue - direct as a percentage of total revenue decreased in each
period primarily because significant revenue growth outpaced increases in costs
of revenue.

Cost of Revenue - Acquisition Related

     Cost of revenue - acquisition related expense of $362,000 and $1.1 million
for the three and nine months ended March 31, 2001 consists of amortization of
developed technology resulting from eGain's business combinations in fiscal
2000.

Research and Development

     Research and development expenses primarily consist of compensation and
benefits of engineering and quality assurance personnel and, to a lesser extent,
occupancy costs and related overhead.  Research and development expenses
increased to $5.6 million in the quarter ended March 31, 2001 from $3.0 million
in the quarter ended March 31, 2000, representing 42% and 91% of total revenue,
respectively.  Research and development expenses for the nine months ended March
31, 2001 increased to $17.6 million, compared to $7.1 million in the same period
last year, representing 45% and 100% of total revenue, respectively.  The
increase in absolute dollars in each period was primarily attributable to
significant growth in the research and development organization associated with
the enhancement of existing products and the development of new products.
Research and development expenses as a percentage of total revenue decreased in
each period primarily because significant revenue growth outpaced increases in
research and development expenses.

Sales and Marketing

     Sales and marketing expenses primarily consist of compensation and benefits
of eGain's sales, marketing and business development personnel, advertising,
trade show and other promotional costs and, to a lesser extent, occupancy costs
and related overhead.  Sales and marketing expenses increased to $11.6 million
in the quarter ended March 31, 2001 from $7.0 million in the quarter ended March
31, 2000, representing 86% and 212% of total

                                      -11-
<PAGE>

revenue, respectively. Sales and marketing expenses for the nine months ended
March 31, 2001 increased to $37.1 million, compared to $16.0 million in the same
period last year, representing 94% and 226% of total revenue, respectively. The
increase in absolute dollars in each period was primarily due to increased
spending on marketing programs, a significant increase in headcount to enhance
eGain's sales and marketing efforts, as well as an increase in sales commissions
resulting from increased revenue. Sales and marketing expenses as a percentage
of total revenue decreased in each period primarily because significant revenue
growth outpaced increases in sales and marketing expenses.

General and Administrative

     General and administrative expenses primarily consist of compensation and
benefits for eGain's finance, human resources, administrative and legal services
personnel, fees for outside professional services and, to a lesser extent,
occupancy costs and related overhead.  General and administrative expenses
increased to $4.2 million in the quarter ended March 31, 2001 from $1.8 million
in the quarter ended March 31, 2000, representing 31% and 54% of total revenue,
respectively.  General and administrative expenses for the nine months ended
March 31, 2001 increased to $12.7 million, compared to $4.8 million in the same
period last year, representing 32% and 68% of total revenue, respectively.  The
increase in absolute dollars in each period was primarily attributable to an
increase in headcount to manage and support the growth of eGain's business.
General and administrative expenses as a percentage of total revenue decreased
in each period primarily because significant revenue growth outpaced increases
in general and administrative expenses.

Amortization of Goodwill and Other Intangible Assets

     Goodwill and other intangible assets represents the excess of the purchase
price over the estimated fair market value of tangible net assets acquired in
various business combinations.  Amortization of goodwill and other intangible
assets increased to $9.2 million in the quarter ended March 31, 2001 from $2.6
million in the quarter ended March 31, 2000.  Amortization of goodwill and other
intangible assets for the nine months ended March 31, 2001 increased to $27.6
million, compared to $6.3 million in the same period last year.  The increase in
each period was due to an increase in gross intangible assets resulting from the
acquisitions of Big Science Company on March 7, 2000 and Inference Corporation
on June 29, 2000.

Amortization of Deferred Compensation

     Deferred compensation is recorded in connection with grants of stock
options to employees on the date of grant when the deemed fair value of the
underlying common stock exceeds the exercise price for stock options.  Deferred
compensation is amortized on a graded vesting method over the vesting period of
the individual grants.  In addition, eGain records compensation expense in
connection with grants of stock options to non-employees pursuant to "Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation" ("SFAS 123").  These grants are periodically revalued as they vest
in accordance with SFAS 123 and "EITF 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."  eGain recorded amortization of deferred
compensation of $750,000 and $2.9 million in the quarters ended March 31, 2001
and 2000, respectively, and $2.7 million and $8.9 million in the nine months
ended March 31, 2001 and 2000, respectively.

Restructuring

     During the quarter ended March 31, 2001, eGain recorded restructuring
charges in the amount of $388,000.  These charges related to a reduction in
workforce in all areas of eGain pursuant to the adoption of eGain's expense
management strategy.  The total charges were primarily comprised of severance
costs totaling $363,000, all of which were paid as of March 31, 2001.

Non-operating Income

     Non-operating income increased to $745,000 in the quarter ended March 31,
2001 from $461,000 in the quarter ended March 31, 2000.  Non-operating income
for the nine months ended March 31, 2001 increased to $2.3

                                      -12-
<PAGE>

million, compared to non-operating income of $1.1 million in the nine months
March 31, 2000. The increase in each period was primarily attributable to an
increase in interest income resulting from an increase in cash and cash
equivalents.

Liquidity and Capital Resources

     Prior to eGain's initial public offering, operations were primarily
financed through the private placement of convertible preferred stock, a bank
line of credit, and financing for capital purchases.  On September 28, 1999,
eGain completed an initial public offering of common stock, in which 5.8 million
shares of common stock were sold (including exercise of an over-allotment option
in October 1999), at a price of $12.00 per share. Proceeds to eGain from the
offering, before offering expenses, were approximately $69.0 million.

       In August 2000, eGain raised net proceeds of approximately $82.5 million
through the issuance of Series A and Series B Cumulative Convertible Preferred
Stock and warrants to purchase approximately 3.8 million shares of common stock
at $9.25 per share in a private placement. The convertible preferred stock
liquidation value accretes at 6.75% per annum. eGain intends to use the net
proceeds from this private placement for general corporate purposes.

     On March 29, 2001, eGain entered into an amendment to a previous loan
agreement dated August 7, 1998.  The amendment provides for a $3.5 million
revolving line of credit, reduced by the issuance of standby letters of credit
not to exceed $1.0 million, and a $3.0 million equipment line of credit.  The
revolving line of credit and the equipment line of credit expire on March 28,
2002 and February 27, 2004, respectively.  In addition, eGain's existing $1.0
million line of credit was converted into a 24-month term loan.  Borrowings
under the loan agreement are secured by all of eGain's assets and bear interest
at the bank's prime rate plus 0.50%.  On March 31, 2001,  $980,000 was
outstanding under the revolving line of credit and $1.0 million was outstanding
under the term loan.

       On March 31, 2001, cash and cash equivalents were $53.2 million, an
increase of $26.0 million since June 30, 2000.  Working capital at March 31,
2001 was $46.3 million, an increase of $34.4 million since June 30, 2000.

       Net cash used in operating activities was $57.3 million and $22.3 million
in the nine months ended March 31, 2001 and 2000, respectively.  Cash used in
operating activities in each period was primarily the result of net losses,
partially offset by non-cash charges.

       Net cash used in investing activities of $1.7 million in the nine months
ended March 31, 2001 consisted of property and equipment purchases of $4.8
million, partially offset by proceeds from the sale of short-term securities of
$3.1 million.  Net cash used in investing activities of $21.8 million in the
nine months ended March 31, 2000 primarily consisted of net purchases of short-
term securities of $15.1 million and property and equipment purchases of $5.4
million.

       Net cash provided by financing activities was $85.0 million and $68.3
million in the nine months ended March 31, 2001 and 2000, respectively.  Cash
provided by financing activities in each period was primarily due to the
issuance of preferred stock and common stock, which included net proceeds of
$82.5 million through the private placement in August 2000 and net proceeds of
approximately $63.0 million from the initial public offering in September 1999.

     eGain intends to continue to make significant investments in product
development and technology to enhance its current products and services, develop
new products and services and further advance its solution offerings.  eGain
believes that existing cash balances will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.

                                      -13-
<PAGE>

               Additional Factors That May Affect Future Results

eGain expects continuing losses and may never achieve profitability, which in
turn may harm its future operating performance and may cause the market price of
eGain common stock to decline

     eGain incurred net losses of approximately $25.6 million for the quarter
ended March 31, 2001.  As of March 31, 2001, eGain had an accumulated deficit of
approximately $162.3 million.  eGain does not know when or if it will become
profitable.  However, eGain's management has stated that eGain is firmly on
track to achieve profit breakeven, excluding non-cash charges, in the December
quarter of 2001.  If eGain does not become profitable within the timeframe
expected by financial analysts or investors, the market price of eGain common
stock will likely decline.  If eGain does achieve profitability, it may not
sustain or increase profitability in the future.

eGain's operating expenses may increase as eGain builds its business, and this
increase may harm its operating results and financial condition

     eGain has spent heavily on technology and infrastructure development. eGain
expects to continue to spend substantial financial and other resources on
developing and introducing product and service offerings.  Accordingly, if
eGain's revenue does not correspondingly increase, its business and operating
results could suffer.

     eGain was incorporated in September 1997 and shipped its first product in
September 1998. Because of this limited operating history and other factors,
eGain's quarterly revenue and operating results are difficult to predict. In
addition, due to the emerging nature of the ecommerce customer communications
market and other factors, eGain's quarterly revenue and operating results may
fluctuate from quarter to quarter. It is possible that eGain's operating results
in some quarters will be below the expectations of financial analysts or
investors. In this event, the market price of eGain common stock is likely to
decline.

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

     .  the growth rate of ecommerce;

     .  demand for ecommerce customer communications applications;

     .  eGain's ability to attract and retain customers and maintain customer
        satisfaction;

     .  eGain's ability to upgrade, develop and maintain its systems and
        infrastructure;

     .  eGain's ability to develop new products and services;

     .  the amount and timing of operating costs and capital expenditures
        relating to expansion of eGain's business and infrastructure;

     .  technical difficulties or system outages;

     .  eGain's ability to attract and retain qualified personnel with software
        and Internet industry expertise, particularly sales and marketing
        personnel;

     .  the announcement or introduction of new or enhanced products and
        services by eGain's competitors;

     .  changes in eGain's pricing policies and those of its competitors;

     .  litigation relating to proprietary rights;

     .  seasonal trends in technology purchases;

                                      -14-
<PAGE>

     .  timing of large contracts;

     .  integration of eGain's most recently acquired company, Nitman Software
        Pvt. Ltd.;

     .  changes in market conditions limiting eGain's ability to raise capital;

     .  general business conditions in the industry;

     .  failure to increase eGain's international sales; and

     .  governmental regulation regarding the Internet and ecommerce in
        particular.

     eGain bases its expense levels in part on its expectations regarding future
revenue levels. If eGain's revenue for a particular quarter is lower than it
expects, it may be unable to proportionately reduce its operating expenses for
that quarter. For example, eGain's hosting agreements are typically for a period
of one year and automatically renew unless terminated by either party with 30
days' prior notice. In addition, some of eGain's hosting agreements give the
customer the right to terminate the contract at any time. Period-to-period
comparisons of eGain's operating results are not a good indication of its future
performance.

eGain must compete successfully in the ecommerce customer communications market

     The ecommerce customer communications market is relatively new, growing
rapidly, and intensely competitive.  There are no substantial barriers to entry
in this market, and established or new entities may enter this market in the
near future.  eGain competes with companies that develop and maintain internally
developed customer communications software applications.  eGain also competes
directly with companies that provide licensed software products to assist in
handling customer communications, including AskJeeves, Inc., Broadbase Software,
Inc., E.Piphany, Inc., Kana Communications, Inc., Primus Knowledge Solutions,
Inc., and WebLine Communications Corp., a subsidiary of Cisco Systems, Inc.  In
addition, some of eGain's competitors who currently offer licensed software
products are now beginning to offer hosted approaches.  eGain also faces actual
or potential competition from larger, front office software companies such as
Clarify, Inc., a subsidiary of Nortel Networks Corp., PeopleSoft, Inc. and
Siebel Systems, Inc. Furthermore, established enterprise software companies,
including Hewlett-Packard Company, IBM, Microsoft Corporation and similar
companies, may seek to leverage their existing relationships and capabilities to
offer ecommerce customer communications applications.

eGain's business is premised on a novel business model that is largely untested

     eGain's business is premised on novel business assumptions that are largely
untested. Customer communications historically have been conducted primarily in
person or over the telephone. eGain's business model assumes that companies
engaged in ecommerce will continue to elect to communicate with customers mainly
through the Internet rather than by telephone. eGain's business model also
assumes that many companies recognize the benefits of a hosted delivery model
and will seek to have their customer communications applications hosted by
eGain.  If any of these assumptions is incorrect, eGain's business will be
seriously harmed.

eGain may engage in future acquisitions or investments that could dilute eGain's
existing stockholders, cause eGain to incur significant expenses or harm its
business

     eGain may review acquisition or investment prospects that might complement
its current business or enhance its technological capabilities. Integrating any
newly acquired businesses or their technologies or products may be expensive and
time-consuming. For example, eGain acquired Nitman Software Pvt. Ltd. ("Nitman")
in April 2001. There can be no assurance that eGain can effectively integrate
Nitman's operations with those of eGain's. To finance any acquisitions, it may
be necessary for eGain to raise additional funds through public or private
financings. Additional funds may not be available on terms that are favorable to
eGain, if at all, and, in the case of equity financings, may result in dilution
to eGain's existing stockholders. eGain may not be able to operate acquired
businesses profitably or otherwise implement its growth strategy successfully.
If eGain is unable to integrate newly acquired entities or technologies
effectively, eGain's operating results could suffer. Future acquisitions by
eGain

                                      -15-
<PAGE>

could also result in large and immediate write-offs, incurrence of debt and
contingent liabilities, or amortization of expenses related to goodwill and
other intangibles, any of which could harm eGain's operating results.

eGain could incur additional non-cash charges associated with stock-based
compensation arrangements

     eGain's operating results may be impacted if it incurs significant non-cash
charges associated with stock-based compensation arrangements with employees and
non-employees. eGain has issued options to non-employees which are subject to
various vesting schedules of up to 48 months. For deferred compensation
purposes, non-employee options are required to be remeasured at each vesting
date, which may require eGain to record additional non-cash accounting expenses.
These expenses may result in eGain incurring net losses or increased net losses
for a given period, and this could seriously harm eGain's operating results and
common stock price.

If eGain fails to expand its sales activities, it may be unable to expand its
business

     If eGain does not successfully expand its sales activities, eGain may not
be able to expand its business, and eGain's common stock price could decline.
The complexity of eGain's ecommerce customer communications platform and related
products and services requires it to have highly trained sales personnel to
educate prospective customers regarding the use and benefits of eGain's
services, and provide effective customer support. With eGain's relatively brief
operating history and its plans for continued growth, eGain has considerable
need to recruit, train, and retain qualified sales staff. Any delays or
difficulties eGain encounters in these staffing efforts could impair its ability
to attract new customers and to enhance its relationships with existing
customers. This in turn would adversely affect the timing and extent of eGain's
revenue. Because many of eGain's current sales personnel have recently joined
eGain and have limited experience working together, eGain's sales organization
may not be able to compete successfully against bigger and more experienced
organizations of its competitors.

eGain must recruit and retain its key employees to expand its business

     eGain's success will depend on the skills, experience and performance of
eGain's senior management, engineering, sales, marketing and other key
personnel, many of whom have worked together for only a short period of time.
The loss of the services of any of eGain's senior management or other key
personnel, including eGain's Chief Executive Officer and co-founder, Ashutosh
Roy, and eGain's President and co-founder, Gunjan Sinha, could harm its
business.  eGain does not have employment agreements with, or life insurance
policies on, most of its key employees.  Most of these employees may terminate
their employment with eGain at any time. eGain's success also will depend on its
ability to recruit, retain and motivate other highly skilled engineering, sales,
marketing and other personnel. Competition for these personnel is intense,
especially in the San Francisco Bay Area, and eGain has had difficulty hiring
employees in its desired timeframes.  In particular, eGain may be unable to hire
a sufficient number of qualified software engineers. If eGain fails to retain
and recruit necessary engineering, sales and marketing, customer support or
other personnel, eGain's business and its ability to develop new products and
services and to provide acceptable levels of customer service could suffer. In
addition, companies in the software industry whose employees accept positions
with competitors frequently claim that competitors have engaged in unfair hiring
practices. eGain could incur substantial costs in defending itself against any
of these claims, regardless of the merits of such claims.

eGain's failure to expand third-party distribution channels would impede its
revenue growth

     To increase its revenue, eGain must increase the number of its marketing
and distribution partners, including software and hardware vendors and
resellers. eGain's existing or future marketing and distribution partners may
choose to devote greater resources to marketing and supporting the products of
competitors which could also harm eGain.  eGain's failure to expand third-party
distribution channels would impede its revenue growth.

     Similarly, to increase its revenue and implementation capabilities, eGain
must develop and expand relationships with systems integrators. eGain relies on
systems integrators to recommend eGain's products to their customers and to
install and support eGain's products for their customers. Systems integrators
may develop, market or recommend software applications that compete with eGain's
products. Moreover, if these firms fail to implement eGain's products
successfully for their customers, eGain may not have the resources to implement
its products on the schedule required by its customers.

                                      -16-
<PAGE>

Unknown software defects could disrupt eGain's products and services, which
could harm eGain's business and reputation

     eGain's product and service offerings depend on complex software, both
internally developed and licensed from third parties. Complex software often
contains defects, particularly when first introduced or when new versions are
released.  eGain may not discover software defects that affect its new or
current services or enhancements until after they are deployed.  It is possible
that, despite testing by eGain, defects may occur in the software. These defects
could result in damage to eGain's reputation, lost sales, product liability
claims, delays in or loss of market acceptance of eGain's products, product
returns and unexpected expenses and diversion of resources to remedy errors.

eGain may face liability associated with its management of sensitive customer
information

     eGain's applications manage sensitive customer information, and eGain may
be subject to claims associated with invasion of privacy or inappropriate
disclosure, use or loss of this information. Any imposition of liability,
particularly liability that is not covered by insurance or is in excess of
insurance coverage, could harm eGain's reputation and its business and operating
results.

If eGain's system security is breached, eGain's business and reputation could
suffer

     A fundamental requirement for online communications and transactions is the
secure transmission of confidential information over public networks. Third
parties may attempt to breach eGain's security or that of eGain's customers.
eGain may be liable to its customers for any breach in its security and any
breach could harm its business and reputation. Although eGain has implemented
network security measures, eGain's servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data.  eGain may be required to expend
significant capital and other resources to license encryption technology and
additional technologies to protect against security breaches or to alleviate
problems caused by any breach.

Due to the lengthy sales cycles of some of eGain's products, the timing of its
sales is difficult to predict and may cause eGain to miss its revenue
expectations

     eGain's sales cycle for its ecommerce communications applications can be
six months or more, and varies substantially from customer to customer. While
eGain's potential customers are evaluating eGain's products before executing
definitive agreements, eGain may incur substantial expenses and spend
significant management effort in connection with the potential customer. eGain's
multi-product offering and the increasingly complex needs of its customers may
make it more difficult for eGain to forecast when eGain may recognize the
corresponding revenue. In addition, the recent economic slowdown in North
America may cause potential customers to delay or cancel major information
technology purchasing decisions.  If this slowdown continues, eGain's average
sales cycle could increase and, in some cases, prevent deals from closing that
eGain has been forecasting as likely to close. Consequently eGain may not meet
its revenue forecast and may incur significant expenses that are not offset by
corresponding revenue.

If eGain does not successfully address the risks inherent in the expansion of
its international operations, its business could suffer

     eGain intends to continue to expand into international markets and to spend
significant financial and managerial resources to do so.  For example, eGain has
established subsidiaries in the Europe, Asia Pacific and Japan. In addition,
eGain completed its acquisition of Nitman Pvt. Ltd. in April 2001, an ecommerce
software development company in India.  If eGain's revenue from international
operations does not exceed the expense associated with establishing and
maintaining these operations, eGain's business and operating results will
suffer. eGain has limited experience in international operations and may not be
able to compete effectively in international markets. eGain faces various risks
inherent in conducting business internationally, such as the following:

     .  unexpected changes in international regulatory requirements;

                                      -17-
<PAGE>

     .  difficulties and costs of staffing and managing international
        operations;

     .  differing technology standards;

     .  difficulties in collecting accounts receivable and longer collection
        periods;

     .  political and economic instability;

     .  fluctuations in currency exchange rates;

     .  imposition of currency exchange controls;

     .  potentially adverse tax consequences;

     .  reduced protection for intellectual property rights in foreign
        countries; and

     .  general business conditions.

eGain's recent growth has placed a strain on its resources and if eGain fails to
manage its future growth, its business could suffer

     eGain has expanded its operations rapidly. The completed acquisitions of
Inference, Big Science and Nitman are three examples of this expansion.  This
rapid expansion has placed, and is expected to continue to place, a significant
strain on eGain's managerial, operational and financial resources. To manage
further growth, eGain will need to improve or replace its existing operational,
customer support and financial systems, procedures and controls. Any failure by
eGain to properly manage these system and procedural transitions could impair
its ability to attract and service customers, and could cause it to incur higher
operating costs and delays in the execution of its business plan. eGain's
management may not be able to hire, train, retain, motivate and manage required
personnel. In addition, eGain's management may not be able to successfully
identify, manage and exploit existing and potential market opportunities.

eGain may not be able to upgrade its systems and the eGain Hosted Network to
accommodate growth in ecommerce

     eGain faces risks related to the ability of the eGain Hosted Network to
operate with higher activity levels while maintaining expected performance. As
the volume and complexity of ecommerce customer communications increase, eGain
will need to expand its systems and hosted network infrastructure. The expansion
and adaptation of eGain's network infrastructure will require substantial
financial, operational and management resources. Customer demand for eGain's
products and services could be greatly reduced if eGain fails to maintain high
capacity data transmission. In addition, as eGain upgrades its network, eGain is
likely to encounter equipment or software incompatibility.  eGain may not be
able to expand or adapt the eGain Hosted Network to meet additional demand or
eGain's customers' changing requirements in a timely manner or at all.

Unplanned system interruptions and capacity constraints could reduce eGain's
ability to provide hosting services and could harm its business and reputation

     eGain's customers have in the past experienced some interruptions with
the eGain Hosted Network. eGain believes that these interruptions will continue
to occur from time to time. These interruptions could be due to hardware and
operating system failures. eGain expects a substantial portion of its revenue to
be derived from customers who use the eGain Hosted Network.  As a result,
eGain's business will suffer if it experiences frequent or long system
interruptions that result in the unavailability or reduced performance of the
eGain Hosted Network or reduce eGain's ability to provide remote management
services. eGain expects to experience occasional temporary capacity constraints
due to sharply increased traffic, which may cause unanticipated system
disruptions, slower response times, impaired quality and degradation in levels
of customer service. If this were to continue to happen, eGain's business and
reputation could be seriously harmed.

                                      -18-
<PAGE>

     eGain's success largely depends on the efficient and uninterrupted
operation of its computer and communications hardware and network systems.  Most
of eGain's computer and communications systems are located in Sunnyvale,
California. eGain's systems and operations are vulnerable to damage or
interruption from fire, earthquake, power loss, telecommunications failure and
similar events.  In addition, eGain may experience temporary system disruptions
due to the loss of electrical power as a result of California's energy shortages
and related customer blackouts.

     eGain has entered into service agreements with some of its customers that
require minimum performance standards, including standards regarding the
availability and response time of eGain's remote management services.  If eGain
fails to meet these standards, eGain's customers could terminate their
relationships with eGain, and eGain could be subject to contractual monetary
penalties. Any unplanned interruption of services may harm eGain's ability to
attract and retain customers.

eGain relies on relationships with, and the system integrity of, hosting
partners for the eGain Hosted Network

     The eGain Hosted Network consists of virtual data centers co-located in the
physical data centers of eGain's hosting partners including AboveNet
Communications, a subsidiary of Metromedia Fiber Network, Inc., and Exodus
Communications. Accordingly, eGain relies on the speed and reliability of the
systems and networks of these hosting partners. If eGain's hosting partners
experience system interruptions or delays, or if eGain does not maintain or
develop relationships with reliable hosting partners, eGain's business could
suffer.

Problems arising from use of eGain's products with other vendors' products could
cause eGain to incur significant costs, divert attention from eGain's product
development efforts and cause customer relations problems

     eGain's customers generally use eGain products together with products from
other companies. As a result, when problems occur in the network, it may be
difficult to identify the source of the problem. Even when eGain's products do
not cause these problems, these problems may cause eGain to incur significant
warranty and repair costs, divert the attention of eGain's engineering personnel
from product development efforts and cause significant customer relations
problems.

eGain may be unable to protect its intellectual property and proprietary rights

     eGain regards its patents, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as critical to its success, and relies
on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with eGain employees, customers and partners to
protect its proprietary rights. eGain has numerous registered trademarks and
trademark applications pending in the United States and internationally, as well
as common law trademark rights. In addition, eGain owns several patents in the
area of case-based reasoning, and has patents pending relating to various
technologies. eGain will seek additional trademark and patent protection in the
future. eGain does not know if its trademark and patent applications will be
granted, or whether they will provide the protection eGain desires, or whether
they will subsequently be challenged or invalidated. It is difficult to monitor
unauthorized use of technology, particularly in foreign countries, where the
laws may not protect eGain's proprietary rights as fully as in the United
States. Furthermore, eGain's competitors may independently develop technology
similar to eGain's technology.

     Despite eGain's efforts to protect its proprietary rights through
confidentiality and license agreements, unauthorized parties may attempt to copy
or otherwise obtain and use eGain's products or technology. These precautions
may not prevent misappropriation or infringement of eGain's intellectual
property. In addition, eGain routinely requires its employees, customers, and
potential business partners to enter into confidentiality and nondisclosure
agreements before eGain will disclose any sensitive aspects of its products,
technology, or business plans. In addition, eGain requires employees to agree to
surrender to eGain any proprietary information, inventions or other intellectual
property they generate or come to possess while employed by eGain. Despite
eGain's efforts to protect its proprietary rights through confidentiality and
license agreements, unauthorized parties may attempt to copy or otherwise obtain
and use its products or technology.  These precautions may not prevent
misappropriation or infringement of eGain's intellectual property. In addition,
some of eGain's license agreements with certain customers and partners require
eGain to place the source code for its products into escrow.  These agreements
typically provide

                                      -19-
<PAGE>

that some party will have a limited, non-exclusive right to access and use this
code as authorized by the license agreement if there is a bankruptcy proceeding
instituted by or against eGain, or if eGain materially breaches a contractual
commitment to provide support and maintenance to the party.

eGain may face intellectual property infringement claims that could be costly to
defend

     Third parties may infringe or misappropriate eGain's copyrights, trademarks
and similar proprietary rights. In addition, other parties may assert
infringement claims against eGain. Although eGain has received no notice of any
alleged infringement, eGain's products may infringe issued patents that may
relate to its products. In addition, because the contents of patent applications
in the United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to eGain's software products.
eGain may be subject to legal proceedings and claims from time to time in the
ordinary course of its business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. Intellectual
property litigation is expensive and time-consuming and could divert
management's attention away from running eGain's business. This litigation could
also require eGain to develop non-infringing technology or enter into royalty or
license agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all, in the event of a successful claim of
infringement. eGain's failure or inability to develop non-infringing technology
or license the proprietary rights on a timely basis would harm its business.

eGain may need to license third-party technologies and may be unable to do so

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

The conversion of our preferred shares and the exercise of the related warrants
could result in substantial numbers of additional shares being issued if our
market price declines.

     On August 22, 2000, eGain issued 35.11 shares of non-voting Series A
Cumulative Convertible Preferred Stock ("Series A"), $100,000 stated value per
share, and 849.89 shares of non-voting Series B Cumulative Convertible Preferred
Stock ("Series B"), $100,000 stated value per share in a private placement to
certain investors (the "Investors").  The Series B shares automatically
converted into Series A shares upon stockholder approval on November 20, 2000 at
the annual stockholders meeting. In addition, the Investors received warrants to
purchase 3.8 million shares of eGain's common stock with a current warrant
exercise price of $9.2517 per share.  The Series A shares have a liquidation
preference of $100,000 per share which increases on a daily basis at an annual
rate of 6.75% from August 8, 2000, compounded on a semi-annual basis.  The
Series A shares are convertible into common stock (including all amounts
accreted from August 8, 2000) at a conversion price of $9.2517 per share. By way
of illustration, at the current conversion price of $9.2517 per share, as of
March 31, 2001 the Series A shares would be convertible into 10.0 million shares
of common stock.

     The conversion price will be adjusted to a price equal to 122% of the
average market price of eGain common stock for the 20 trading days preceding
August 8, 2001 in the event that such adjusted price would be less than $9.2517.
However, the Series A Certificate of Designation provides that the conversion
price will not be adjusted to less than $5.6875 per share. Accordingly, a
decrease in the price of eGain common stock in August 2001 will increase the
number of shares of common stock issuable upon conversion of the preferred
stock.

     To the extent the preferred shares are converted into common stock
(including all amounts accreted from August 8, 2000), a significant number of
shares of common stock may be sold into the market, such sales could decrease
the price of our common stock and encourage short sales by selling
securityholders (subject to the price floor described above) or others.  Any
such short sales could place further downward pressure on the price of eGain

                                      -20-
<PAGE>

common stock, requiring the issuance of a greater number of shares of eGain
common stock upon future conversions of the preferred shares.

eGain's stock price may be volatile

     The price at which eGain common stock will trade has been and will likely
continue to be highly volatile and fluctuate substantially due to factors such
as the following:

     .  actual or anticipated fluctuations in eGain's operating results;

     .  changes in or failure to meet securities analysts' expectations;

     .  announcements of technological innovations;

     .  introduction of new services by eGain or its competitors;

     .  developments with respect to intellectual property rights;

     .  conditions and trends in the Internet and other technology industries;
        and

     .  general market conditions.

eGain may become involved in securities class action litigation which could
divert management's attention and harm its business

     The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the common stocks
of technology companies, particularly Internet companies. These broad market
fluctuations may cause the market price of eGain common stock to decline. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. eGain may become involved in this type of litigation in
the future. Litigation is often expensive and diverts management's attention and
resources, which could harm eGain business and operating results.

eGain may need additional capital, and raising additional capital may dilute
existing stockholders

     eGain believes that its existing capital resources will enable it to
maintain its current and planned operations for the next 12 months.  However,
eGain may choose to, or be required to, raise additional funds due to unforeseen
circumstances. If eGain's capital requirements vary materially from those
currently planned, it may require additional financing sooner than anticipated.
This financing may not be available in sufficient amounts or on terms acceptable
to eGain and may be dilutive to existing stockholders.

     eGain believes competition will increase as its current competitors
increase the sophistication of their offerings and as new participants enter the
market.  Many of eGain's current and potential competitors have:

     .  longer operating histories;

     .  larger customer bases;

     .  greater brand recognition;

     .  more diversified lines of products and services; and

     .  significantly greater financial, marketing and other resources.

                                      -21-
<PAGE>

     These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may be
able to:

     .  undertake more extensive marketing campaigns;

     .  adopt more aggressive pricing policies; and

     .  make more attractive offers to businesses to induce them to use their
        products or services.

     Further, any delays in the general market acceptance of eGain's ecommerce
customer communications applications would likely harm its competitive position.
Any delay would allow eGain's competitors additional time to improve their
service or product offerings, and also provide time for new competitors to
develop ecommerce customer communications applications and solicit prospective
customers within eGain's target markets.  Increased competition could result in
pricing pressures, reduced operating margins and loss of market share.

eGain depends on broad market acceptance of Web-based ecommerce customer
communications applications

     eGain depends on the widespread acceptance and use of Web-based customer
communications applications as an effective solution for businesses seeking to
manage high volumes of customer communication over the Internet. eGain cannot
estimate the size or growth rate of the potential market for its product and
service offerings, and does not know whether its products and services will
achieve broad market acceptance. The market for Web-based ecommerce customer
communications is new and rapidly evolving, and concerns over the security and
reliability of online transactions, the privacy of users and quality of service
or other issues may inhibit the growth of the Internet and commercial online
services. If the market for ecommerce customer communications applications fails
to grow or grows more slowly than eGain currently anticipates, its business will
be seriously harmed.

eGain may be unable to develop or enhance products or services that address the
changing needs of the ecommerce customer communications market

     To be competitive in the ecommerce customer communications market, eGain
must continually improve the performance, features and reliability of eGain
products and services, including eGain's existing ecommerce customer
communications applications, and develop new products, services, functionality
and technology that address changing industry standards and customer needs.  If
eGain cannot bring new or enhanced products to market in a timely and effective
way, its business and operating results will suffer. More generally, if eGain
cannot adapt or respond in a cost-effective and timely manner to changing
industry standards, market conditions or customer requirements, eGain's business
and operating results will suffer.

eGain will only be able to execute its business plan if Internet usage continues
to grow

     eGain's business will be seriously harmed if Internet usage does not
continue to grow or grows at significantly lower rates compared to current
trends. The continued growth of the Internet depends on various factors, most of
which are outside eGain's control. These factors include the following:

     .  the Internet infrastructure may be unable to support the demands placed
        on it;

     .  the performance and reliability of the Internet may decline as usage
        grows;

     .  security and authentication concerns with respect to transmission over
        the Internet of confidential information, such as credit card numbers,
        and attempts by unauthorized computer users, so-called hackers, to
        penetrate online security systems; and

     .  privacy concerns, including those related to the ability of Web sites to
        gather user information without the user's knowledge or consent.

                                      -22-
<PAGE>

Because eGain provides its customer communications applications to companies
conducting business over the Internet, eGain's business could suffer if
efficient transmission of data over the Internet is interrupted

         The recent growth in the use of the Internet has caused frequent
interruptions and delays in accessing the Internet and transmitting data over
the Internet. Because eGain provides Internet-based ecommerce customer
communications applications, interruptions or delays in Internet transmissions
will harm eGain customers' ability to receive and respond to email messages.
Therefore, eGain's market depends on improvements being made to the entire
Internet infrastructure to alleviate overloading and congestion.

Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for eGain's services or increase eGain's cost of
doing business

         Governmental regulation may impair the growth of the Internet or
commercial online services. This could decrease the demand for eGain's products
and services, increase its cost of doing business or otherwise harm its business
and operating results. Although there are currently few laws and regulations
directly applicable to the Internet and the use of the Internet as a commercial
medium, a number of laws have been proposed involving the Internet. These
proposed laws include laws addressing user privacy, pricing, content,
copyrights, distribution, antitrust, and characteristics and quality of products
and services. Further, the growth and development of the market for commercial
online transactions may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies engaged in ecommerce.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.

eGain may be liable for activities of its customers or others using the eGain
Hosted Network

         As a provider of ecommerce customer communications applications, eGain
faces potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the actions of eGain customers
or others using the eGain Hosted Network. This liability could result from the
nature and content of the communications transmitted by eGain customers through
the eGain Hosted Network. eGain does not and cannot screen all of the
communications generated by its customers, and eGain could be exposed to
liability with respect to this content. Furthermore, some foreign governments
have enforced laws and regulations related to content distributed over the
Internet that are more strict than those currently in place in the United
States.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

         eGain develops products in the United States and India and sells these
products internationally. Generally, sales are made in local currency.  As a
result, eGain's financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets.  To date, the effect of changes in foreign currency exchange rates on
revenues and operating expenses has not been material. eGain does not currently
use derivative instruments to hedge against foreign exchange risk.

         eGain's exposure to market rate risk for changes in interest rates
relates primarily to its investment portfolio. eGain's investments consist
primarily of commercial paper and money market funds, which have an average
fixed rate of 5.5% to 6.0%, and have maturities of three months or less. eGain
does not consider its cash equivalents to be subject to interest rate risk due
to their short maturities.

                                      -23-
<PAGE>

                          Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities

Changes in Securities

         During the quarter ended March 31, 2001, eGain granted options to
purchase 521,000 shares of common stock to employees and consultants under
eGain's 1998 and 2000 Stock Plans.

         During the quarter ended March 31, 2001, employees and consultants of
the eGain exercised options for 76,000 shares of common stock. Also during the
period, eGain repurchased 66,000 shares of common stock from employees.

         The sale of the above securities was deemed to be exempt from
registration under the Securities Act of 1933 ("the Act") in reliance upon
Section 4(2) of the Act or Rule 701 promulgated under Section 3(b) of the Act.

Item 3.  Defaults upon Senior Securities

         None.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits required by Item 601 of Regulation S-K.

            Exhibit                        Exhibit
            Number
           --------        -----------------------------------------------------
             10.1          Amended and Restated Starter Kit Loan and Security
                           Agreement dated as of March 29, 2001

         (b)  Reports on Form 8-K.

              None.

                                      -24-
<PAGE>

                                   SIGNATURE


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


Dated:  May 14, 2001                        eGAIN COMMUNICATIONS CORPORATION



                                            By   /s/ Harpreet Grewal
                                              ---------------------------------
                                                    Harpreet Grewal
                                                Chief Financial Officer
                                             (Duly Authorized Officer and
                                     Principal Financial and Accounting Officer)

                                      -25-
<PAGE>

                               INDEX TO EXHIBITS


       Exhibit
       Number                                  Exhibit
      --------       -----------------------------------------------------------
        10.1         Amended and Restated Starter Kit Loan and Security
                     Agreement dated as of March 29, 2001

                                      -26-