<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
-----------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
------------------------
Commission File Number 333-08393
----------------
Voxware, Inc.
-------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3934824
------------- -------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------------------------------
305 College Road East
Princeton, New Jersey 08540
609-514-4100
----------------------------------------
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. YES ________ NO X *
------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at December 12, 1996
--------------------- ---------------------------------------
Common Stock, $.001 par value 11,990,737
*All forms have been filed as required; the registrant has not been subject to
such filing requirements for the past 90 days.
===============================================================================
<PAGE>
VOXWARE, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements Page No.
--------
<S> <C>
Statements of Operations (unaudited)
Three months ended September 30, 1996 and 1995................................ 3
Balance Sheets
September 30, 1996 (unaudited) and June 30, 1996.............................. 4
Statements of Cash Flows (unaudited)
Three months ended September 30, 1996 and 1995................................ 5
Notes to Unaudited Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 7
PART II - OTHER INFORMATION
- - ---------------------------
Other Information............................................................... 11
Signatures...................................................................... 12
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
Voxware, Inc.
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Revenues:
Product revenues $ 1,151 $ 93
Service revenues 52 --
-------- --------
Total revenues 1,203 93
-------- --------
Cost of revenues:
Cost of product revenues 24 3
Cost of service revenues 26 2
-------- --------
Total cost of revenues 50 5
-------- --------
Gross profit 1,153 88
-------- --------
Operating expenses:
Research and development 1,864 249
Sales and marketing 801 107
General and administrative 857 74
-------- --------
Total operating expenses 3,522 430
-------- --------
Operating loss (2,369) (342)
Interest income 37 17
-------- --------
Net loss $ (2,332) $ (325)
======== ========
Pro forma net loss per share (unaudited) $ (0.25) $ (0.04)
======== ========
Shares used in computing pro forma net
loss per share (unaudited) 9,268 8,501
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Voxware, Inc.
Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
ProForma
Stockholders'
Equity
September 30, June 30, September 30,
1996 1996 1996
------------ ------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,096 $ 3,837
Accounts receivable, net of allowance for doubtful accounts of
$100,000 and $25,000 864 470
Prepaid expenses 20 54
-------- --------
Total current assets 2,980 4,361
Property and equipment, net 697 611
Other assets, net 567 364
-------- --------
$ 4,244 $ 5,336
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 445 $ 194
Accrued compensation and benefits 228 110
Other accrued expenses 652 61
Deferred revenues 186 109
-------- --------
Total current liabilities 1,511 474
-------- --------
Redeemable Series A Convertible Preferred Stock 5,942 5,938 $ --
-------- -------- ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 10,000,000 shares authorized;
6,000,000 Redeemable Series A Convertible shares issued
and outstanding in 1996; no shares issued and outstanding
pro forma -- -- --
Common stock, $.001 par value, 30,000,000 shares authorized;
6,077,496 and 5,947,496 shares issued and outstanding;
9,077,496 shares issued and outstanding pro forma 6 6 9
Additional paid-in capital 3,379 3,177 9,318
Accumulated deficit (6,594) (4,259) (6,594)
-------- -------- ------------
Total stockholders' equity (deficit) (3,209) (1,076) 2,733
-------- -------- ------------
$ 4,244 $ 5,336 $ 4,244
======== ======== ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Voxware, Inc.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
(unaudited)
Operating activities:
Net loss $(2,332) $ (325)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 56 7
Provision for doubtful accounts 100 --
Changes in assets and liabilities:
Accounts receivable (494) (36)
Prepaid expenses 34 (9)
Other assets (203) (1)
Accounts payable 251 8
Accrued compensation and benefits 118 --
Other accrued expenses 591 --
Deferred revenues 77 (85)
------- -------
Net cash used in operating activities (1,802) (441)
------- -------
Investing activities:
Purchases of property and equipment (141) (18)
------- -------
Financing activities:
Proceeds from exercise of common stock warrants 202 --
------- -------
Decrease in cash and cash equivalents (1,741) (459)
Cash and cash equivalents, beginning of period 3,837 1,523
------- -------
Cash and cash equivalents, end of period $ 2,096 $1,064
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Voxware, Inc.
Notes To Unaudited Financial Statements
1. BASIS OF PRESENTATION
The financial statements as of September 30, 1996 and for the three
month periods ended September 30, 1996 and 1995 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of
the financial position and operating results for the interim periods. The
financial statements should be read in conjunction with the financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in
the Company's Registration Statement on Form S-1 which was declared
effective on October 30, 1996 and in this report on Form 10-Q.
2. SALE OF COMMON STOCK
The Company has consummated an Initial Public Offering of Common Stock
which closed on November 4, 1996 and December 4, 1996. The Company offered
and sold an aggregate of 2,823,237 shares of Common Stock at an initial
public offering price of $7.50. The net proceeds to the Company from the
initial public offering, after payment of offering expenses, were
approximately $18,440,000.
3. PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share was calculated by dividing net loss by
the weighted average number of common shares outstanding for the
respective periods adjusted for the dilutive effect of common stock
equivalents, which consist of stock options, using the treasury stock
method. The calculation of shares used in computing pro forma net loss per
share also includes 6,000,000 shares of Redeemable Series A Convertible
Preferred Stock which converted into 3,000,000 shares of Common Stock upon
the consummation of the Initial Public Offering, as if they were converted
to Common Stock on their original date of issuance.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements which involve risks and
uncertainties. Such statements are subject to certain factors which may cause
the Company's plans and results to differ. Factors that may cause such
differences include, but are not limited to, the rate of progress, if any, of
the Company's product development programs and the uncertainty of acceptance of
the Company's products in the marketplace, the uncertain development of the
Internet and its use as a means for voice communications, the highly competitive
nature of the Company's industry and the Company's ability to compete
successfully, the Company's ability to attract and retain qualified personnel,
the Company's ability to successfully enter into and maintain relationships with
third parties (including Netscape Communications Corporation) and the Company's
dependence on such third parties to develop and market products using the
Company's technology and to develop a recurring revenue stream to the Company,
the Company's ability to manage its growth, the costs involved in obtaining and
enforcing patents and any necessary licenses, the Company's ability to obtain
additional funds, and those other risks discussed in the Company's Registration
Statement on Form S-1, File No. 333-08393.
Overview
The Company develops, markets, licenses and supports a comprehensive,
integrated set of digital speech processing technologies which provide the
ability to compress, model and transform speech. From inception (August 20,
1993) to June 30, 1995, the Company's operating activities related primarily to
performing research and development, recruiting personnel, raising capital and
purchasing operating assets. The Company commenced product releases in July 1995
and, for accounting purposes, emerged from development stage commencing in July
1995. Since inception, the Company has raised approximately $8,838,000, net of
offering costs, through private placements and approximately $18,440,000, net of
offering costs, through the Initial Public Offering which was declared effective
on October 30, 1996.
The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product revenues account for a majority of the
Company's revenues. The Company's products are licensed primarily to software,
computing and communications companies who incorporate the Company's products
and technologies into their products. The Company generally negotiates contract
terms with customers on a case by case basis, with arrangements that have
historically included a combination of initial license fees, annual license fees
or royalties. The Company expects a significant portion of its future revenues
to be in the form of royalties or other recurring payments based on the sale by
licensees of products that incorporate the Company's products. There can be no
assurance that any product incorporating the Company's products and technologies
will be marketed successfully by the Company's licensees. As of September 30,
1996, the Company has entered into approximately 20 license agreements which
provide for recurring payments. It is the intention of the Company to continue
to pursue license opportunities that include a recurring revenue component.
Service revenues consist of customer support and engineering fees. Customer
support services include providing updates and technical support to licensees of
the Company's products. Engineering services include providing technical
resources to support customer specific development efforts or porting the
Company's technologies to specific customer platforms.
Software product revenues are generally recognized upon shipment, provided
that there are no significant post-delivery obligations and that payment is due
within one year. If an acceptance period is required, revenues are recognized
upon customer acceptance. Royalty revenues are recognized in the period of
customer shipment. Through September 30, 1996, an immaterial amount of royalty
revenues have been recognized. Customer support revenues, including amounts
bundled with license fees, are
7
<PAGE>
recognized over the term of the support period, which typically range from one
to two years. Engineering fees are recognized upon customer acceptance or over
the period in which services are provided if customer acceptance is not
required. All research and development costs have been expensed as incurred.
The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. As of September 30, 1996, the
Company had an accumulated deficit of $6,594,000. Although the Company has
experienced revenue growth in recent periods, the limited operating history of
the Company makes the prediction of future results of operations impossible and,
therefore, the Company's recent revenue growth should not be taken as indicative
of the rate of revenue growth, if any, that can be expected in the future. In
addition, the Company's operating results may fluctuate significantly in the
future as a result of a variety of factors, including the level of usage of the
Internet, the budgeting cycles of potential customers, the volume of, and
revenues derived from sales of products by the Company's licensees that
incorporate the Company's products, the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or its
competitors, pricing changes in the industry, technical difficulties with
respect to the use of products developed by the Company and general economic
conditions.
Results of Operations
Three Months Ended September 30, 1995 and 1996
Revenues
Total revenues increased $1,110,000 from $93,000 in the three months ended
September 30, 1995 to $1,203,000 in the three months ended September 30, 1996 as
a result of the Company entering into an increasing number of license agreements
providing customers with the right to use the Company's products and related
services. The quarter ended September 30, 1995 was the first full quarter in
which the Company's products and services were made commercially available. The
Company's largest customer accounted for 21% of total revenues in the three
months ended September 30, 1996.
Product revenues increased $1,058,000 from $93,000 in the three months ended
September 30, 1995 to $1,151,000 in the three months ended September 30, 1996.
The dollar increase in product revenues was primarily due to the increased
volume of licenses of the Company's products to new customers. Substantially
all of the Company's product revenues were attributable to initial license fees.
Service revenues were $52,000 for the three months ended September 30, 1996.
There were no service revenues during the quarter ended September 30, 1995.
Service revenues were primarily attributable to customer support and fees for
engineering.
Cost of Revenues
Cost of product revenues increased $21,000 from $3,000 in the three months
ended September 30, 1995 to $24,000 in the three months ended September 30,
1996. The increase in cost of product revenues was primarily due to the cost of
product media and duplication, manuals and packaging materials related to the
increased volume of licenses of the Company's products to new customers.
Cost of service revenues consists primarily of the expenses associated with
the staffing of a customer support group and engineering services, which consist
primarily of employee compensation and equipment depreciation. Cost of service
revenues increased $24,000 from $2,000 in the three months ended September 30,
1995 to $26,000 in the three months ended September 30, 1996. The dollar
increase in cost of service revenues from the three months ended September 30,
1995 to the three
8
<PAGE>
months ended September 30, 1996 was primarily attributable to increased
staffing of the Company's customer support and engineering groups.
Operating Expenses
The Company's operating expenses have continued to increase in each quarter
since inception. This trend reflects the costs associated with the development
of infrastructure, rapid growth and increased efforts to commercialize the
Company's products and services. The Company believes that continued expansion
of its operations is essential to enhance the Company's products and services
and distribute them in targeted markets and expand the Company's installed user
base. As a consequence, the Company intends to continue to increase
expenditures in all operating areas.
Research and development expenses primarily consist of employee compensation
and equipment depreciation. Research and development expenses increased
$1,615,000 from $249,000 in the three months ended September 30, 1995 to
$1,864,000 in the three months ended September 30, 1996. The dollar increase in
research and development expenses was primarily due to increasing the research
and development staff from nine at September 30, 1995 to forty-four at September
30, 1996 and the costs associated with developing and enhancing the
functionality of the Company's family of products. All research and development
costs have been expensed as incurred. The Company believes that significant
investments in research and development are required to establish and maintain
competitive advantage. As a consequence, the Company intends to increase the
absolute dollar level of research and development expenditures in future
periods.
Sales and marketing expenses consist primarily of employee compensation
(including direct sales commissions), travel expenses, trade shows and costs of
promotional materials. Sales and marketing expenses increased $694,000 from
$107,000 in the three months ended September 30, 1995 to $801,000 in the three
months ended September 30, 1996. The dollar increase in sales and marketing
expenses was primarily due to the expansion of the Company's direct sales force
from three at September 30, 1995 to thirteen at September 30, 1996 and increased
expenses associated with the promotion and marketing of the Company's products
and services. The Company intends to continue to intensify and expand its
direct and tele-sales efforts and, as a result, intends to increase the absolute
dollar level of sales and marketing expenses in future periods.
General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and professional
services. General and administrative expenses increased $783,000 from $74,000 in
the three months ended September 30, 1995 to $857,000 in the three months ended
September 30, 1996. The dollar increase in general and administrative expenses
was primarily due to increasing the administrative staff from three at September
30, 1995 to fifteen at September 30, 1996 and increased expenses related to
insurance, rent, office expenses and professional services. The Company intends
to increase the absolute dollar level of general and administrative expenses in
future periods.
Income Taxes
As of September 30, 1996, the Company had approximately $5,700,000 of
federal net operating loss carryforwards which will begin to expire in 2009 if
not utilized. As of September 30, 1996, the Company has provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding realizability of these deferred assets, primarily as a result of
considering such factors as the Company's limited operating history, the
volatility of the market in which it competes, the operating losses incurred to
date and the operating losses anticipated in future periods.
9
<PAGE>
Liquidity and Capital Resources
As of September 30, 1996, the Company had $2,096,000 in cash and cash
equivalents. Since inception, the Company has primarily financed its operations
through the sale of equity securities. Cash of $441,000 and $1,802,000 was used
to fund operations for the three months ended September 30, 1995 and the three
months ended September 30, 1996, respectively. For the three months ended
September 30, 1995 and the three months ended September 30, 1996, cash used in
investing activities was $18,000 and $141,000 respectively, and was primarily
related to purchases of equipment. For the three months ended September 30,
1996, cash provided by financing activities was $202,000 primarily attributable
to the exercise of common stock warrants. All Series A Preferred Stock converted
into Common Stock upon the closing of the Initial Public Offering.
In October, 1996, the Company entered into a $2,000,000 revolving line of
credit and a $500,000 equipment term loan with Silicon Valley Bank. Borrowings
under the revolving line of credit will bear interest at the bank's prime
lending rate and borrowings under the equipment term loan will bear interest at
a rate of 1.0% over the bank's prime lending rate. As of September 30, 1996, no
borrowings were outstanding.
In November, 1996 and December, 1996, the Company closed on an initial
public offering of Common Stock. The Company offered and sold 2,823,237 shares
of Common Stock at an initial public offering price of $7.50. The net proceeds
to the Company from the Initial Public Offering after payment of offering
expenses were approximately $18,440,000.
The Company has no material commitments other than those under normal
building and equipment operating leases. The Company anticipates a substantial
increase in its capital expenditures and operating lease arrangements in the
year ending June 30, 1997 consistent with its anticipated growth. The Company
anticipates continued major capital expenditures in the year ending June 30,
1997 primarily for additions to the Company's internal networking and computing
infrastructure. The Company believes that the net proceeds of $18,440,000
obtained from the initial public offering and current cash balances will be
sufficient to fund its working capital and capital expenditures requirements,
exclusive of cash required for possible acquisitions of or investments in
businesses, products and technologies, for at least eighteen months beyond
October 30, 1996.
10
<PAGE>
PART II - OTHER INFORMATION
- - ---------------------------
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Loan Agreement dated October 31, 1996 between Silicon Valley and
the Company.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 12, 1996
VOXWARE, INC.
(Registrant)
By: /s/ Michael Goldstein
--------------------------------------------
Michael Goldstein, President and
Chief Executive Officer
By: /s/ Kenneth H. Traub
--------------------------------------------
Kenneth H. Traub, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
By: /s/ Nicholas Narlis
--------------------------------------------
Nicholas Narlis, Controller,
Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
12
<PAGE>
October 18, 1996
Voxware, Inc.
Mr. Kenneth H. Traub, CFO
305 College Road East
Princeton, NJ 08540
Dear Mr. Traub:
We are pleased to inform you that Silicon Valley Bank, a California-chartered
bank ("Lender") with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, Massachusetts 02181 doing
business under the name "Silicon Valley East", has approved a revolving line of
credit in the amount of Two Million and 00/100 Dollars ($2,000,000.00) (the
"Revolving Facility"), and an equipment term loan in the amount of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) (the "Equipment Line"), collectively
referred to herein as the "Loans", for use by Voxware, Inc. (the "Borrower"),
subject to the following terms and to the Lender's periodic review.
The Loans shall not become effective unless and until an executed copy of this
letter together with all necessary accompanying documentation as well as the
facility fee described below has been returned to the Lender, which must take
place within 30 days from the date of this letter.
Borrowings under the Revolving Facility will be permitted through October 17,
1997. Borrower shall pay regular monthly payments of all accrued unpaid
interest due as of each payment date, beginning November 17, 1996 and all
subsequent interest payments will be due on the same day of each month
thereafter. The final payment, due October 17, 1997, shall be for all
outstanding principal plus all accrued interest not yet paid.
Borrowings under the Loans shall be secured by a first security interest in the
Borrower's accounts receivable, inventory, general intangibles, fixtures,
contract rights, equipment, and all other assets, all monies, and all other
property in Lender's possession which Lender may use to pay Borrower's
obligations, pursuant to a Commercial Security Agreement and UCC financing
Statements executed concurrently herewith. Upon Borrower's successful
completion of an initial public offering, with net proceeds in the minimum
amount of $20,000,000.00 (the "IPO"), Lender will release its then existing
security interest in Borrower's assets. In consideration of such release,
Borrower shall agree to execute a financing statement, covering all of
Borrower's assets, which Lender shall hold in its possession and not file, until
such time as an Event of Default occurs under the Loans as defined in the
Promissory Note executed concurrently herewith.
1
<PAGE>
An amount not to exceed $500,000.00 (the "Non-formula Portion") shall be
available under the Revolving Facility, through December 31, 1996, without
implementation of the borrowing base formula, contained herein. In the event
Borrower successfully completes an IPO, with net proceeds in the minimum amount
of $20,000,000.00, the line amount of $2,000,000.00 shall be available to
Borrower without implementation of the borrowing base formula.
Funds shall be advanced under the Revolving Facility in excess of the Non-
formula Portion according to a borrowing base formula, defined as follows: the
lesser of (a) $2,000,000.00 minus the face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) minus the Foreign
Exchange Reserve or (b) the Borrowing Base Formula which is the sum of (i) 95%
of cash pledged to Lender plus (ii) 60% of the proceeding 3-month's contractual
payments from Netscape plus (iii) eighty percent (80%) of eligible domestic
accounts receivable minus the (iv) face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) minus (v) the Foreign
Exchange Reserve. Eligible accounts receivable shall include, but not be
limited to, those accounts outstanding less than 90 days from the date of
invoice, excluding, foreign, government, contra, and intercompany accounts; and
exclude accounts wherein 50% or more of the account is outstanding more than 90
days from the date of invoice. Any account which alone exceeds 25% of total
accounts will be ineligible to the extent said account exceeds 25% of total
accounts. Also exclude any credit balances which are aged past 90 days. Also
ineligible are any accounts which Lender in its sole judgment excludes for valid
credit reasons. Notwithstanding the foregoing, following Borrower's successful
completion of the IPO, the Borrowing Base Formula shall not apply.
Borrowings under item (b) (iii) referenced above under the Revolving Facility
shall be subject to an accounts receivable audit, to be performed by Lender or
Lender's agent, with results satisfactory to Lender.
Borrowings under the Revolving Facility shall bear interest at a rate of one
percentage point (1.000%) over Lender's Prime Rate and borrowings under the
Equipment Line shall bear interest at a rate of one percentage point (1.000%)
over Lender's Prime Rate. Prime Rate means the rate from time to time announced
and made effective by Lender as its Prime Rate. Borrower's interest rate shall
change each time the Prime Rate changes. Interest will be charged monthly in
arrears and shall be calculated on a 360-day year. Lender shall be authorized
to debit Borrower's principal account or any other account maintained by
Borrower with Lender for any principal, interest or fees associated with
Borrower's Loans with or without notice to Borrower. Notwithstanding the
foregoing, following completion of the IPO, the interest rate applied to the
Revolving Facility shall decrease to a rate equal to Lender's Prime rate. Such
interest rate adjustment shall be effective the first day of the month following
Borrower's completion of the IPO.
Borrowings under the Equipment Line will be permitted through July 18, 1997 (the
"Draw Period"). Borrower shall pay regular monthly payments of all accrued
unpaid interest due as of each payment date, beginning November 18, 1996 and all
subsequent interest payments will be due on the same day of each month
thereafter. Borrower's initial advance request (the "Initial Advance"), which
may not exceed $500,000.00, shall be payable in thirty-six (36) even payments of
principal plus interest beginning November 18, 1996, and all subsequent payments
of principal plus interest will be due on the same day of each month thereafter.
The final payment, due October 18, 1999, shall be for all outstanding principal
plus all accrued interest not yet paid. Thereafter, Borrower may request
additional advances under the Equipment Line (each an "Additional Advance" and
collectively the "Additional Advances") from Lender in an aggregate amount not
to exceed $500,000.00, through July 18, 1996. The outstanding principal balance
of the Additional Advances, on July 18, 1997, shall be payable in thirty-six
(36) even payments of principal plus interest beginning August 18, 1997, and all
subsequent payments of principal plus interest will be due on the same day of
each month thereafter. The final payment, due July 18, 2000, shall be for all
outstanding principal plus all accrued interest not yet paid.
2
<PAGE>
To evidence the Initial Advance, Borrower shall deliver to Lender, at the time
of the Initial Advance request, an invoice for the equipment purchased during
Borrower's fiscal year ending June 30, 1996. The Initial Advance shall be used
for equipment purchased during Borrower's fiscal year ending June 30, 1996, and
shall not exceed fifty percent (50%) of the invoice amount approved from time to
time by Lender, excluding taxes, shipping and installation expenses.
Furthermore, the Additional Advances shall be used for equipment purchased
during Borrower's fiscal year ending June 30, 1997, and shall not exceed one
hundred percent (100%) of the invoice amount approved from time to time by
Lender, excluding taxes, shipping and installation expenses. Software may,
however, comprise up to 25% of the total advances and tenant improvements, may,
however, comprise up to 30% of the total advances.
Letters of Credit. Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued letters of credit for the account of
Borrower in an aggregate face amount not to exceed (i) the lesser of
$1,000,000.00 or the Borrowing Base Formula minus (ii) the then outstanding
principal balance of the Note provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) shall not
in any case exceed One Million and 00/100 Dollars ($1,000,000.00). Each such
letter of credit shall have an expiry date no later than twelve (12) months
after the maturity date of the Note provided that Borrower's letter of credit
reimbursement obligation shall be secured by cash on terms acceptable to Lender
at any time after the maturity date if the term of the Agreement is not extended
by Lender. All such letters of credit shall be, in form and substance,
acceptable to Bank in its sole descretion and shall be subject to the terms and
conditions of Bank's form of application and letter of credit agreement.
Borrower shall indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any letters of credit.
Letter of Credit Reimbursement; Reserve. Borrower may request that Bank issue a
letter of credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such letter of credit, Bank shall treat
such demand as an advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.
Upon the issuance of any letter of credit payable in a currency other than
United States Dollars, Bank shall create a reserve (the "Letter of Credit
Reserve") under the Revolving Facility for letters of credit against
fluctuations in currency exchange rates, in an amount equal to ten percent (10%)
of the face amount of such letter of credit. The amount of such reserve may be
amended by Bank from time to time to account for fluctuations in the exchange
rate. The availability of funds under the Revolving Facility shall be reduced
by the amount of such reserve for so long as such letter of credit remains
outstanding.
Foreign Exchange Sublimit. Subject to the terms of this Agreement, as amended
from time to time, Borrower may utilize up to $250,000.00 for spot and future
foreign exchange contracts (the "Exchange Contracts"). Borrower shall not
request an Exchange Contract at any time it is not in compliance with any of the
terms of this Agreement. All Exchange Contracts must provide for delivery of
settlement on or before October 17, 1997. The limit available at any time shall
be reduced by the following amounts (the "Foreign Exchange Reserve") on each day
(the "Determination Date"): (i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two business days
from the Determination Date, 10% of the gross amount of the Exchange Contracts;
plus (ii) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed within two business days after the Determination
Date, 100% of the gross amount of the Exchange Contracts. In lieu of the
Foreign Exchange Reserve for 100% of the gross amount of any Exchange Contract,
the
3
<PAGE>
Borrower may request that Lender debit Borrower's bank account with Lender
for such amount, provided Borrower has immediately available funds in such
amounts in its bank account.
Lender may, in its discretion, terminate the Exchange Contracts at any time (a)
that an Event of Default occurs or (b) that there is not sufficient availability
under the Revolving Facility and Borrower does not have available funds in its
bank account to satisfy the Foreign Exchange Reserve. If Lender terminates the
Exchange Contracts, and without limitation of the FX Indemnity Provisions (as
referred to below), Borrower agrees to reimburse Lender for any and all fees,
costs and expenses relating thereto or arising in connection therewith.
Borrower shall not permit the total gross amount of all Exchange Contracts on
which delivery is to be effected and settlement allowed in any two business day
period to be more than $250,000.00 nor shall Borrower permit the total gross
amount of all Exchange Contracts to which Borrower is a party, outstanding at
any one time, to exceed $250,000.00. Borrower shall execute all standard form
applications and agreements of Lender in connection with the Exchange Contracts,
and without limiting any of the terms of such applications and agreements,
Borrower will pay all standard fees and charges of Lender in connection with the
Exchange Contracts.
Without limiting any of the other terms of this Agreement or any such standard
form applications and agreement of Lender, Borrower agrees to indemnify Lender
and hold it harmless, from and against any and all claims, debts, liabilities,
demands, obligations, actions, costs and expenses (including, without limita-
tion, attorneys' fees of counsel of Lender's choice), of every nature and
description which it may sustain or incur, based upon, arising out of, or in any
way relating to any of the Exchange Contracts or any transactions relating
thereto or contemplated thereby (collectively referred to as the "FX Indemnity
Provisions").
Borrower shall pay to Lender a facility fee in the amount of Twelve Thousand
Five Hundred and 00/100 Dollars ($12,500.00), as well as all out-of-pocket
expenses incurred by Lender in connection with the establishment of the Loans,
which must be paid at the time the documents are returned to Lender.
Any advances hereunder or renewal hereof will be made only if in the opinion of
the Lender there exists no default under any loan documentation executed by you
with the Lender. A default is as defined in the accompanying Promissory Notes
of even date.
A. Requirements.
-------------
1. Affirmative Covenants. So long as the Loans remain outstanding,
Borrower agrees to maintain the following covenants:
a. To provide the Lender with duplicate unaudited monthly financial
statements, together with a Compliance Certificate, prepared in
accordance with generally accepted accounting principals and
duplicate audited annual (consolidated and consolidating)
financial statements certified by public accountants with an
unqualified opinion, to be received 30 and 90 days, respectively
after the close of the period. In the event Borrower successfully
completes the IPO, Borrower shall provide Lender with all reports
on Forms 8K, 10K and 10Q within five (5) days of filing with the
Securities Exchange Commission (SEC). Additionally, Borrower
shall provide to Lender, within five (5) days of filing form
10K with the SEC, duplicate audited annual (consolidated and
consolidating) financial statements, and, within (5) days of
filing form 10Q with the SEC, interim financial statements
together with a Compliance Certificate.
4
<PAGE>
b. To provide the Lender with a Borrowing Base Certificate, together
with an aged list of accounts receivable and accounts payable, to
be received within 20 days after the close of each month, when
borrowing. In the event there are no outstandings under the
Revolving Facility, Borrower shall not be required to provide
such certificate and agings. Initial and annual accounts
receivable audits to be performed by Lender's agent. Borrower's
deposit account will be debited for the audit expense and a
notification will be mailed to Borrower.
c. (1) Prior to completion of the IPO, Borrower shall comply with
the following Financial Covenants:
Quick Ratio - (Tested Monthly) Maintain a minimum Quick
-----------
Ratio of 1.50 to 1.00. Quick Ratio is defined as cash and
equivalents plus receivables divided by total current
liabilities.
Tangible Net Worth - (Tested Monthly) Maintain a minimum
------------------
Tangible Net Worth (TNW) of $2,000,000.00. TNW is defined as
net worth plus Subordinated Debt (debt which is formally
subordinated to the Lender) less intangibles (including but
not limited to Goodwill, Capitalized Software and Excess
Purchase Costs).
Debt to Tangible Net Worth Ratio - (Tested Monthly) Maintain
--------------------------------
a ratio of total liabilities to tangible net worth not to
exceed 1.00 to 1.00.
(2) Beginning with the first quarter following the completion of
the IPO, Borrower shall comply with the following Financial
Covenants:
Quick Ratio - (Tested quarterly) Maintain a minimum Quick
-----------
Ratio of 2.00 to 1.00. Quick Ratio is defined as cash and
equivalents plus receivables divided by total current
liabilities.
Tangible Net Worth - (Tested quarterly) Maintain a Tangible
------------------
Net Worth (TNW) equal to or greater than 90% of the proceeds
of the IPO. TNW is defined as net worth plus Subordinated
Debt (debt which is formally subordinated to the Lender) less
intangibles (including but not limited to Goodwill,
Capitalized Software and Excess Purchase Costs).
Debt to Tangible Net Worth Ratio - (Tested quarterly) Main-
--------------------------------
tain a ratio of total liabilities to tangible net worth
not to exceed 1.00 to 1.00.
For purposes of calculation, deferred revenue shall be excluded
from liabilities.
d. File all tax returns and to pay all taxes due.
e. Reimburse the Lender for any reasonable expenses incurred by the
Lender to enforce the terms of this obligation.
f. Maintain adequate fire and liability insurance satisfactory to
the Lender, a copy of which shall be forwarded to the Lender.
2. Negative Covenants. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not, without the
prior written consent of Lender:
5
<PAGE>
a. Participate in any merger or consolidation or to pay any
dividends.
b. Dispose of any material assets other than in the ordinary course
of business.
c. Be in default of any other agreement or loan agreement with any
other bank, including without limitation, that certain agreement
between Borrower and Netscape.
d. File for protection under the Bankruptcy Code.
e. Directly or indirectly pledge, grant, create or permit to exist
any security interest, lien or other encumbrance upon any of
Borrower's assets except in favor of the Lender. Without the
Lender's prior written consent, which will not be unreasonably
withheld.
f. Invest in any securities other than money market instruments
acceptable to the Lender, without the Lender's prior written
consent which will not be unreasonably withheld.
g. Incur indebtedness for borrowed money, except for either a)
indebtedness to Silicon Valley Bank or b) indebtedness incurred
for the purchase or lease of equipment.
If the Lender waives any rights under this Agreement, it will not affect any
future action the Lender may wish to take. This Agreement shall be binding upon
any of the Borrower's successors in interest. The laws of the Commonwealth of
Massachusetts shall apply to this Agreement. THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND,
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS LETTER AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY,
CALIFORNIA. (INITIAL HERE /s/ KT LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO
------
ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER
LENDER OR BORROWER AGAINST THE OTHER.
It is our understanding that the Borrower will consider Silicon Valley Bank to
be one of its banks. Among other things, the Borrower agrees to maintain a
reasonable portion of its excess funds in Silicon Valley Bank.
This Agreement shall become effective only when it shall have been executed by
the Borrower and the Lender (provided, however, in no event shall this Agreement
become effective until signed by an officer of the Lender in California).
6
<PAGE>
We are delighted to expand our relationship with Voxware, Inc. and look forward
to many successful years of working together.
Sincerely,
SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ Philip S. Ernst
- - ----------------------------------------
Name: Philip S. Ernst
- - ----------------------------------------
Title: VP
- - ----------------------------------------
SILICON VALLEY BANK
By: /s/ Christine Ware
- - ----------------------------------------
Name: Christine Ware
- - ----------------------------------------
Title: Vice President
- - ----------------------------------------
(Signed at Santa Clara County, CA)
Agreed and Accepted this 31st day of October, 1996
-----
VOXWARE, INC.
By: /s/ Kenneth Traub
- - ----------------------------------------
Name: Kenneth Traub
- - ----------------------------------------
Title: Executive Vice President & CFO
- - ----------------------------------------
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, STATEMENT OF OPERATIONS, STATEMENT OF CASH FLOW, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,096
<SECURITIES> 0
<RECEIVABLES> 964
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 2,980
<PP&E> 872
<DEPRECIATION> 175
<TOTAL-ASSETS> 4,244
<CURRENT-LIABILITIES> 1,511
<BONDS> 0
5,942
0
<COMMON> 6
<OTHER-SE> (3,215)
<TOTAL-LIABILITY-AND-EQUITY> 4,244
<SALES> 1,203
<TOTAL-REVENUES> 1,203
<CGS> 50
<TOTAL-COSTS> 50
<OTHER-EXPENSES> 3,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,332)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,332)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
