<PAGE>
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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 March 31, 1997
----------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
------------------------
Commission File Number 0-021403
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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 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 Shares Outstanding at May 14, 1997
--------------------- ----------------------------------
Common Stock, $.001 par value 12,466,983
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1
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VOXWARE, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements Page No.
-------
<S> <C>
Statements of Operations (unaudited)
Three and Nine Months Ended March 31, 1997 and 1996...................... 3
Balance Sheets
March 31, 1997 (unaudited) and June 30, 1996............................. 4
Statements of Cash Flows (unaudited)
Nine Months Ended March 31, 1997 and 1996................................ 5
Notes to Financial Statements.............................................. 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.................................................... 7
PART II - OTHER INFORMATION
- ---------------------------
Other Information.......................................................... 12
Signatures................................................................. 13
</TABLE>
2
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Voxware, Inc.
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ---------------------------------
1997 1996 1997 1996
------------ ----------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product revenues:
Initial license fees $ 1,647 $ 504 $ 3,619 $ 704
Royalties and recurring license fees 688 - 1,303 -
------------ ----------- ------------- --------------
Total product revenues 2,335 504 4,922 704
Service revenues 77 2 205 3
------------ ----------- ------------- --------------
Total revenues 2,412 506 5,127 707
------------ ----------- ------------- --------------
Cost of revenues:
Cost of product revenues 103 3 148 9
Cost of service revenues 43 5 120 10
------------ ----------- ------------- --------------
Total cost of revenues 146 8 268 19
------------ ----------- ------------- --------------
Gross profit 2,266 498 4,859 688
------------ ----------- ------------- --------------
Operating expenses:
Research and development 2,104 630 6,042 1,203
Sales and marketing 1,165 331 3,052 637
General and administrative 778 298 2,513 538
------------ ----------- ------------- --------------
Total operating expenses 4,047 1,259 11,607 2,378
------------ ----------- ------------- --------------
Operating loss (1,781) (761) (6,748) (1,690)
Interest income 259 51 485 85
------------ ----------- ------------- --------------
Net loss $ (1,522) $ (710) $ (6,263) $ (1,605)
============ =========== ============= ==============
Net loss per share $ (0.12) $ (0.08) $ (0.57) $ (0.19)
============ =========== ============= ==============
Shares used in computing
net loss per share 12,467 8,776 11,008 8,421
============ =========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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Voxware, Inc.
Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,075 $ 3,837
Short-term investments 16,324 -
Accounts receivable, net of allowance for doubtful accounts of
$263,200 and $25,000 2,519 470
Prepaid expenses 259 54
---------- ----------
Total current assets 20,177 4,361
Property and equipment, net 603 611
Other assets, net 360 364
---------- ----------
$ 21,140 $ 5,336
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 2,704 $ 365
Deferred revenues 440 109
---------- ----------
Total current liabilities 3,144 474
---------- ----------
Deferred rent 199 -
---------- ----------
Redeemable Series A Convertible Preferred Stock - 5,938
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 10,000,000 shares authorized;
none and 6,000,000 Redeemable Series A Convertible shares issued
and outstanding - -
Common stock, $.001 par value, 30,000,000 shares authorized;
12,466,983 and 5,947,496 shares issued and outstanding 12 6
Additional paid-in capital 28,317 3,177
Unrealized loss on available-for-sale securities (6) -
Accumulated deficit (10,526) (4,259)
---------- ----------
Total stockholders' equity (deficit) 17,797 (1,076)
---------- ----------
$ 21,140 $ 5,336
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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Voxware, Inc.
Statements of Cash Flows
(In thousands, except share and warrant data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------------
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (6,263) $ (1,605)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 170 133
Provision for doubtful accounts 238 -
Changes in assets and liabilities:
Accounts receivable (2,287) (422)
Prepaid expenses (206) 7
Other assets 4 (101)
Accounts payable and accrued expenses 2,339 327
Deferred revenues 331 (42)
Deferred rent 199 -
----------- ------------
Net cash used in operating activities (5,475) (1,703)
----------- ------------
Investing activities:
Purchases of short-term investments (88,542) -
Maturities of short-term investments 72,212 -
Purchases of property and equipment (161) (240)
----------- ------------
Net cash used in investing activities (16,491) (240)
----------- ------------
Financing activities:
Proceeds from issuance of common stock, net 18,442 -
Proceeds from exercise of common stock warrants 762 -
Proceeds from sale of Redeemable Series A
Convertible Preferred Stock - 5,931
----------- ------------
Net cash provided by financing activities 19,204 5,931
----------- ------------
Increase (decrease) in cash and cash equivalents (2,762) 3,988
Cash and cash equivalents, beginning of period 3,837 1,523
----------- ------------
Cash and cash equivalents, end of period 1,075 5,511
Short-term investments, end of period 16,324 -
----------- ------------
Cash and short-term investments, end of period $ 17,399 $ 5,511
=========== ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Conversion of Redeemable Series A Convertible Preferred Stock
to Common Stock $ 5,938 $ -
Accretion of redemption premium on Redeemable Series A
Convertible Preferred Stock $ 4 $ 3
Cashless exercise of 377,500 warrants, converted at a rate of
one-half share of Common Stock per warrant (converted to 188,750
shares of Common Stock) in December 1996 $ - $ -
=================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Voxware, Inc.
Notes To Financial Statements
1. BASIS OF PRESENTATION
The financial statements as of March 31, 1997 and for the three
and nine month periods ended March 31, 1997 and 1996 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,
the Company's Forms 10-Q for the quarters ended December 31, 1996 and
September 30, 1996, and in this report on Form 10-Q.
The results of operations for the interim periods ended March 31,
1997 are not necessarily indicative of the results to be expected for
the fiscal year ending June 30, 1997 or any other future periods.
2. SALE OF COMMON STOCK
The Company 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 $18,442,000.
3. NET LOSS PER SHARE
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 and warrants, using the treasury stock
method. The calculation of shares used in computing 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.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 128 is effective for fiscal years
ending after December 15, 1997, and, when adopted, will require
restatement of prior years' earnings per share. If the Company had
adopted SFAS No. 128 for the period ending March 31, 1997, there would
have been no effect on earnings per share, on either the basic or
diluted basis.
4. REVENUE RECOGNITION
The Company generates revenues from two sources: fees from
product licenses and fees for services provided. Product revenues
include a combination of initial license fees and recurring payments
such as royalties based on a percentage of licensees' sales or units
shipped, or pre-determined periodic license fees. Product revenues from
initial license fees are generally recognized upon shipment, provided
that there are no significant post-delivery obligations, the payment is
due within one year and collection of the resulting receivable is
deemed probable. Royalty revenues are recognized at the time of the
customer's shipment of products incorporating the Company's technology.
Recurring product license fees are generally recognized at the
inception of the renewal period, provided that there are no significant
post-delivery obligations (if any delivery has been made), the payment
is due within one year and collection of the resulting receivable is
deemed probable. Service revenues from customer support, including the
amounts bundled with initial or recurring license fees, are recognized
over the term of the support period, which is typically one year.
Service revenues from engineering fees are recognized upon customer
acceptance or over the period in which services are provided if
customer acceptance is not required.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 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 digital
speech processing and audio technologies and solutions. Voxware's
MetaVoice(TM) and MetaSound(TM) coding technologies are designed to
reproduce high-quality speech and audio while requiring very low
communications bandwidth and processing power. Voxware's
technologies enable users to create a new generation of
audio-enhanced communications and interactive products for the
Internet and other bandwith-constrained environments. The Company
licenses its technologies, including its codecs and
application-programming interfaces, to software, computing,
communications, and entertainment companies.
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 the
development stage commencing in July 1995. Since inception, the
Company has raised net proceeds of approximately $28,329,000 as
follows: approximately $8,838,000 through private placements;
approximately $18,442,000 through the Initial Public Offering which
was declared effective on October 30, 1996; and approximately
$1,049,000 through other sales of equity securities, including
exercises of all outstanding common stock warrants.
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 which 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 and royalties and other recurring payments. One
of the Company's objectives is to develop recurring revenue through
entering into licensing agreements with third parties which provide
for recurring payments such as royalties based on a percentage of
licensees' sales or an agreed-upon amount per unit shipped, or
pre-determined annual or other periodic payments. As a result, the
timing and amount of the Company's revenues are substantially
dependent on the timing and efforts of the Company's licensees in
developing and marketing products incorporating the Company's
products and technologies. There can be no assurance as to the
timing or success of any licensee implementation or the timing or
amount of recurring revenues from any licensee product. Since
inception, the Company has entered into over 60 license agreements,
the majority of which provide for recurring license or royalty
payments. Service revenues consist of customer support and
engineering fees. Customer support services include providing
updates
7
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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, the payment is due within one year and collection of
the resulting receivable is deemed probable. If an acceptance period
is required, revenues are recognized upon customer acceptance.
Royalty revenues are recognized in the period of customer shipment.
For the three and nine months ended March 31, 1997, respectively,
approximately $688,000 and $1,303,000 of royalties and recurring
license fees have been recognized. Customer support revenues,
including amounts bundled with license fees, are recognized over the
term of the support period, which typically lasts for one year.
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
March 31, 1997, the Company had an accumulated deficit of
$10,526,000. 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
Revenues
Total revenues increased $1,906,000 from $506,000 in the three
months ended March 31, 1996 to $2,412,000 in the three months ended
March 31, 1997 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, and an
increase in the amount of royalties and other recurring revenues
recognized from customers who licensed the Company's products in
previous periods. On a year-to-date basis, total revenues increased
$4,420,000 from $707,000 for the nine months ended March 31, 1996 to
$5,127,000 for the nine months ended March 31, 1997. One of the
Company's largest customers accounted for 16% and 17% of total
revenues in the three and nine month periods ended March 31, 1997,
respectively, and another of the Company's largest customers
accounted for 29% and 14% of total revenues in the three and nine
month periods ended March 31, 1997, respectively.
Product revenues increased $1,831,000 from $504,000 in the
three months ended March 31, 1996 to $2,335,000 in the three months
ended March 31, 1997. For the nine months ended March 31, 1997,
product revenues totaled $4,922,000 compared to $704,000 for the
nine months ended March 31, 1996, reflecting an increase of
$4,218,000. These dollar increases in product revenues were
primarily due to the increased volume of licenses of the Company's
products to new customers, and an increase in the amount of
royalties and other recurring revenues recognized from customers who
licensed the Company's products in previous periods. For the three
and nine month periods ended March 31, 1997, approximately 71% and
74% of the Company's product revenues were attributable to initial
license fees, respectively, and 29% and 26% were attributable to
royalties and annual or other periodic payments,
8
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respectively. For the three and nine month periods ended March 31,
1996, all of the Company's product revenues were attributable to
initial license fees.
During the three months ended March 31, 1997, the Company
recognized $1,647,000 in initial license fees related to sixteen
agreements, compared to $504,000 in initial license fees related to
seven agreements for the three months ended March 31, 1996. For the
nine months ended March 31, 1997, the Company recognized $3,619,000
in initial license fees related to thirty-eight agreements, compared
to $704,000 in initial license fees related to fourteen agreements
for the nine months ended March 31, 1996. Additionally, for the
three months ended March 31, 1997, the Company recognized $688,000
in royalties and recurring product license fees, which were derived
from a total of seven customers. For the nine months ended March 31,
1997, the Company recognized $1,303,000 in royalties and recurring
product license fees, which were derived from a total of seven
customers. Of those seven customers, one customer generated
royalties or recurring product license fees in each of the three
fiscal quarters during the nine months ended March 31, 1997, three
customers generated royalties or recurring product license fees in
the second and third fiscal quarters during the nine months ended
March 31, 1997, and the remaining three customers generated
royalties or recurring product license fees in the third fiscal
quarter during the nine months ended March 31, 1997. No royalties or
recurring product license fees were recognized during the three or
nine months ended March 31, 1996.
Service revenues were $77,000 for the three months ended March
31, 1997 compared to $2,000 for the three months ended March 31,
1996 and $205,000 for the nine months ended March 31, 1997 compared
to $3,000 for the comparable nine month period ended March 31, 1996.
Service revenues were primarily attributable to customer support and
fees for engineering.
Cost of Revenues
Cost of product revenues increased $100,000 from $3,000 in the
three months ended March 31, 1996 to $103,000 in the three months
ended March 31, 1997. For the nine months ended March 31, 1997, cost
of product revenues totaled $148,000 compared to $9,000 for the
comparable nine month period ended March 31, 1996, reflecting an
increase of $139,000. These increases in cost of product revenues
were primarily due to the costs of licensed technology, 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 $38,000 from $5,000 in the three months ended March 31,
1996 to $43,000 in the three months ended March 31, 1997, and
increased $110,000 from $10,000 for the nine months ended March 31,
1996 to $120,000 for the nine months ended March 31, 1997. These
dollar increases in cost of service revenues from the three and nine
months ended March 31, 1996 to the three and nine months ended March
31, 1997 were 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, over the long term, continued
expansion of its operations would enhance the Company's products and
services and ability to distribute them in targeted markets and
expand the Company's installed user base.
Research and development expenses primarily consist of
employee compensation and equipment depreciation and lease
expenditures related to product research and development. Research
and development expenses increased $1,474,000 from $630,000 in the
three months ended March 31, 1996
9
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to $2,104,000 in the three months ended March 31, 1997. For the nine
months ended March 31, 1997, research and development expenses were
$6,042,000 compared to $1,203,000 for the nine months ended March
31, 1996, reflecting an increase of $4,839,000. These dollar
increases in research and development expenses were primarily due to
increasing the research and development staff from eleven at March
31, 1996 to fifty at March 31, 1997 and the costs associated with
developing and enhancing the functionality of the Company's family
of products. The Company believes that significant investments in
research and development are required to establish and maintain
competitive advantage and, as a result, 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 $834,000 from $331,000 in the three months ended
March 31, 1996 to $1,165,000 in the three months ended March 31,
1997. On a year-to-date basis, sales and marketing expenses
increased $2,415,000 from $637,000 for the nine months ended March
31, 1996 to $3,052,000 for the nine months ended March 31, 1997.
These dollar increases in sales and marketing expenses were
primarily due to the expansion of the Company's sales force and
marketing staff from four at March 31, 1996 to seventeen at March
31, 1997, 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 $480,000 from $298,000 in the three months ended March 31,
1996 to $778,000 in the three months ended March 31, 1997. For the
nine months ended March 31, 1997, general and administrative
expenses totaled $2,513,000 compared to $538,000 for the nine months
ended March 31, 1996, reflecting a year-to-date increase of
$1,975,000. These dollar increases in general and administrative
expenses were primarily due to increasing the administrative staff
from seven at March 31, 1996 to twenty-one at March 31, 1997 and
increased expenses related to insurance, rent, office expenses and
professional services. The Company expects that the absolute dollar
level of general and administrative expenses for the three months
ended June 30, 1997 will remain fairly consistent with the absolute
dollar level of general and administrative expenses for the three
months ended March 31, 1997.
Interest Income
Interest income increased $208,000 to $259,000 for the quarter
ended March 31, 1997 from $51,000 for the quarter ended March 31,
1996. On a year-to-date basis, interest income increased $400,000 to
$485,000 for the nine months ended March 31, 1997 compared to
$85,000 for the nine months ended March 31, 1996. These increases in
interest income primarily reflect interest earned on the net
proceeds from the Initial Public Offering closed during November and
December 1996 (see "Liquidity and Capital Resources").
Income Taxes
As of March 31, 1997, the Company had approximately $9,600,000
of federal net operating loss carryforwards which will begin to
expire in 2009 if not utilized. As of March 31, 1997, 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.
10
<PAGE>
Liquidity and Capital Resources
As of March 31, 1997, the Company had $1,075,000 in cash and
cash equivalents and $16,324,000 in short-term investments. The
Company's cash and short-term investments portfolio is liquid and
investment grade, consisting of high-grade money-market funds,
United States Government-backed securities and commercial paper and
corporate obligations. Since inception, the Company has primarily
financed its operations through the sale of equity securities.
Cash of $1,703,000 and $5,475,000 was used to fund operations
for the nine months ended March 31, 1996 and 1997, respectively. For
the nine months ended March 31, 1996, cash used in investing
activities was $240,000 and was related to purchases of equipment.
For the nine months ended March 31, 1997, cash used in investing
activities totaled $16,491,000 which reflects $16,330,000 in net
purchases of short-term investments and $161,000 related to
purchases of equipment. For the nine months ended March 31, 1997,
cash provided by financing activities totaled $19,204,000,
reflecting $18,442,000 in net proceeds from the Initial Public
Offering and $762,000 in proceeds from the exercise of common stock
warrants. For the nine months ended March 31, 1996, cash provided by
financing activities totaled $5,931,000 and was attributable to the
issuance of Series A Preferred Stock. All Series A Preferred Stock
converted into Common Stock upon the closing of the Initial Public
Offering.
The Company maintains a $5,000,000 revolving line of credit
with Silicon Valley Bank. Borrowings under the revolving line of
credit will bear interest at the bank's prime lending rate. As of
March 31, 1997, 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 $18,442,000.
The Company has no material commitments other than those under
normal building and equipment operating leases. The Company
anticipates increases in its capital expenditures and operating
lease arrangements beyond March 31, 1997 consistent with its
anticipated growth. The Company believes that the net proceeds of
$18,442,000 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 the next twelve months.
11
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PART II - OTHER INFORMATION
---------------------------
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Loan Modification Agreement dated May 5,
1997 between Silicon Valley Bank and the
Company.
11.1 Statement re: Computation of Loss Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
12
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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: May 14, 1997
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)
13
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Exhibit 10.1
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of May 5, 1997, by
and between Voxware, Inc. ("Borrower") whose address is 305 College Road East,
Princeton, NJ 08540 and 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, MA 02181, doing business under
the name "Silicon Valley East".
1. Among other indebtedness which may be owing by Borrower to Lender,
Borrower is indebted to Lender pursuant to, among other documents, a Promissory
Note, dated October 18, 1996 in the original principal amount of Two Million and
00/100 Dollars ($2,000,000.00), as may be amended (the "Revolving Facility"),
and a Promissory Note dated October 18, 1996 in the original principal amount of
Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the "Equipment Loan").
The Revolving Facility and the Equipment Loan are sometimes referred to
collectively herein as the "Notes"). The Notes, together with other promissory
notes from Borrower to Lender, are governed by the terms of a Letter Agreement,
dated October 18, 1996, between Borrower and Lender, as such agreement may be
amended from time to time (the "Loan Agreement"). Capitalized terms used but not
otherwise defined herein shall have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
2. Repayment of the Indebtedness is secured by a Commercial Security
Agreement, dated October 18, 1996 (the "Security Agreement"). Concurrently
herewith, Lender shall agree to release its security interest in Borrower's
assets pursuant to the Security Agreement; provided that Borrower shall execute
a new financing statement and security agreement which Lender shall hold and not
perfect until certain events occur as described herein.
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents". Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. With the execution of this Agreement, Borrower shall execute a Master
Note evidencing a leasing facility in an amount up to One Million Five Hundred
Thousand and 00/100 Dollars ($1,500,000.00) (the "Lease Facility"). The purpose
of the Leasing Facility shall be to acquire the lease stream payments which
Borrower owes to Computer Sales International, Inc. ("CSI").
4. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Revolving Facility
-------------------------------------
1. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on April 5, 1998.
In addition, Borrower will pay regular monthly payments of
accrued unpaid interest due as of each payment date, beginning
June 5, 1997, and all subsequent interest payments are due on
the same day of each month thereafter.
2. The interest rate to be applied to the unpaid principal
balance of the Note, effective as of this date, will be at a
rate equal to Lender's current Index (as defined therein).
3. The following is hereby incorporated into the paragraph
entitled "Default":
In addition to the foregoing events of default, an event of
default (as defined in Section 14 of the Master Lease (as
described in the Loan Agreement) under the Equipment Schedule
will also be deemed an Event of Default under the terms of
this Note and the
14
<PAGE>
Related Documents. A default under this Note shall also be
deemed an Event of Default under the Equipment Schedule, which
will allow Lender to exercise its remedies under Section 15 of
the Master Lease Agreement and otherwise under the terms of
this Note and the Related Documents.
B. Modification(s) to the Equipment Loan.
-------------------------------------
1. The Equipment Loan is hereby canceled.
C. Modification to Loan Agreement.
------------------------------
1. The paragraph beginning with the words "Borrowings under
the Loans..." is hereby amended to read in its
entirety, as follows:
Borrower shall execute a UCC Financing Statement covering
all of Borrower's assets which Lender shall hold and not
perfect until the earliest to occur of (i) borrowings
under the Revolving Facility exceed $2,000,000.00, (ii)
Borrower's breach of a Financial Covenant or (iii) a
default under any Related Documents, including, without
limitation, a default under the Master Lease Agreement
between CSI and Borrower, as assigned to Lender. Should
one or more of the foregoing occur, at any time, Borrower
authorizes Lender, in Lender's sole discretion, to perfect
its security interest in Borrower's assets, without notice
to Borrower, by recording the executed UCC Financing
Statement with the appropriate governmental agencies.
2. The paragraph beginning with the words "An amount not to
exceed $500,000.00 (the "Non-Formula Portion")..." is
hereby amended to read in its entirety as follows:
Notwithstanding that the Non-Formula Portion shall be
amended to $2,000,000.00 following Borrower's initial
public offering, the "Non-Formula Portion" shall be
available immediately. Accordingly, the Non-Formula
Portion is hereby amended to mean $2,000,000.00.
3. The paragraph beginning with the words "Funds shall be
advanced..." is hereby amended to read in its entirety as
follows:
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)
$3,000,000.00 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.
Accounts from Netscape (including amounts referenced in
item (ii) hereof) shall be eligible to the extent no
single invoice from Netscape is more than 90 days past
invoice date. 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.
15
<PAGE>
4. The Financial Covenants are hereby amended as follows:
Quick Ratio - (Tested Quarterly) Maintain a minimum Quick
-----------
Ratio of 2.50 to 1.00. Quick Ratio is defined as cash and
equivalents plus accounts receivable divided by total
current liabilities less deferred revenue.
Tangible Net Worth - (Tested Quarterly) Maintain a minimum
------------------
Tangible Net Worth (TNW) of $15,000,000.00. 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 Quarterly)
--------------------------------
Maintain a ratio of total liabilities to tangible net
worth less deferred revenue not to exceed 1.00 to 1.00.
Profitability. - (Tested Quarterly) Maximum losses for
-------------
Borrower's fiscal year ending June 30, 1997 of
$8,000,000.00. Maximum cumulative losses for fiscal year
1997 and fiscal year 1998 not to exceed an aggregate of
$9,500,000.00. Thereafter, Borrower shall achieve a
positive quarterly net income of at least $1.00.
Debt Service Coverage. - (Tested Quarterly, beginning
---------------------
March 31, 1998 and applies to the Lease Facility) Maintain
a minimum Debt Service Coverage of 1.50 to 1.00. Debt
Service Coverage is defined as earnings before interest
and taxes plus depreciation and amortization, less any
increase in capitalized software and development costs
divided by total interest plus current portion long term
debt. For purposes of calculation, the Debt Service
Coverage shall only become applicable in the event
Borrower is utilizing the Lease Facility.
5. Borrower shall provide to Lender 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
excess of $2,000,000.00. Lender shall conduct an audit of
Borrower's books and records at the earlier to occur of
(i) July 31, 1997 or (ii) borrowings under the Revolving
Facility in excess of $2,000,000.00. Thereafter, such
audits shall be conducted on a semi annual basis if
borrowings under the Revolving Facility exceed
$2,000,000.00 for 60 consecutive days. In the event such
borrowings do not occur, the audits will be conducted on
an annual basis.
6. The Letter of Credit Sublimit is hereby increased to Two
Million and 00/100 Dollars ($2,000,000.00).
7. The following paragraphs are hereby incorporated into the
Loan Agreement:
Lease Facility. A Lease Facility in the amount of
--------------
$1,500,000.00 has been provided under the Loan Agreement
for the purpose of providing a facility for the financing
of the lease stream payments that Borrower owes to
Computer Sales International, Inc. ("CSI"). Each lease
stream of payments will be evidenced by a Schedule to that
certain Master Lease Agreement dated April 25, 1996,
between CSI and Borrower which CSI shall assign to Lender.
The term of each lease stream under such Schedule shall
not exceed 30 months. Lender will accept Schedules under
the Lease Facility until December 31, 1997.
D. Release of Security Interest in Borrower's assets.
-------------------------------------------------
16
<PAGE>
As an accommodation to Borrower and for good and valuable
consideration, including Lender's agreement to release its
security interest in all of Borrower's assets, Lender, with
this Loan Modification Agreement, has agreed to release its
security interest granted under the Security Agreement and the
related UCC financing statements. In consideration of such
release of security interest, Borrower shall execute a
Springing Lien covering all of Borrower's assets (the
"Springing Lien"), which Lender shall hold and not perfect
until the certain events occur (as described in the Loan
Agreement).
4. PAYMENT OF LOAN FEE. Borrower shall pay Lender a fee in the amount of
-------------------
Twenty Thousand and 00/100 Dollars ($20,000.00),plus all out-of-pocket expenses
(the "Loan Fee").
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
6. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has
-----------------------
no defenses against the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
-------------------
the existing Indebtedness, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
8. JURISDICTION/VENUE. 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 Loan Modification 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.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become
----------------
effective only when it shall have been executed by Borrower and Lender
(provided, however, in no event shall this Loan Modification Agreement become
effective until signed by an officer of Lender in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
----------
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER:
VOXWARE, INC.
By: /s/ Nicholas Narlis
-------------------
Name: Nicholas Narlis
----------------
Title: Controller, Chief Accounting Officer and Treasurer
--------------------------------------------------
17
<PAGE>
LENDER:
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Phillip S. Ernst
------------------------------------
Name: Phillip S. Ernst
----------------------------------
Title: Vice President
---------------------------------
SILICON VALLEY BANK
By: /s/ Amy Young
------------------------------------
Name: Amy Young
----------------------------------
Title: Assistant Vice President
---------------------------------
(Signed at Santa Clara County, CA)
18
<PAGE>
Exhibit 11.1
Voxware, Inc.
Statements re: Computation of Loss Per Share
Three and Nine Months Ended March 31, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- ---------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Loss $ (1,522) $ (710) $ (6,263) $ (1,605)
--------- --------- --------- ---------
Primary and fully diluted weighted average common
and common equivalent shares outstanding:
Common stock 12,467 7,914 10,973 6,573
Common stock options and warrants (1) - 862 35 1,848
Total primary and fully diluted weighted average
common and common equivalent shares -------- -------- -------- --------
outstanding 12,467 8,776 11,008 8,421
-------- -------- -------- --------
-------- -------- -------- --------
Loss per share $ (0.12) $ (0.08) $ (0.57) $ (0.19)
======== ======== ======== ========
</TABLE>
(1) Pursuant to the requirements of the Securities and Exchange Commission,
stock, stock options and warrants issued by the Company during the twelve
months immediately preceding the initial public offering have been
included in computing loss per share as if they were outstanding for all
prior periods prior to the initial public offering using the treasury
stock method, even though their effect is anti-dilutive.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM - VOXWARE,
INC. FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JAN-01-1997 JUL-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 1,075 1,075
<SECURITIES> 16,324 16,324
<RECEIVABLES> 2,782 2,782
<ALLOWANCES> 263 263
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,177 20,177
<PP&E> 992 992
<DEPRECIATION> 389 389
<TOTAL-ASSETS> 21,140 21,140
<CURRENT-LIABILITIES> 3,144 3,144
<BONDS> 0 0
0 0
0 0
<COMMON> 12 12
<OTHER-SE> 17,785 17,785
<TOTAL-LIABILITY-AND-EQUITY> 21,140 21,140
<SALES> 2,412 5,127
<TOTAL-REVENUES> 2,412 5,127
<CGS> 103 148
<TOTAL-COSTS> 146 268
<OTHER-EXPENSES> 4,047 11,607
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,522) (6,263)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,522) (6,263)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,522) (6,263)
<EPS-PRIMARY> (.12) (.57)
<EPS-DILUTED> (.12) (.57)
</TABLE>
