<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1998
[ ] 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
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 November 14, 1998
- ----------------------------- ---------------------------------------
Common Stock, $.001 par value 13,303,524
- --------------------------------------------------------------------------------
<PAGE>
VOXWARE, INC.
INDEX
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited) Page No.
-------
Statements of Operations
Three Months Ended September 30, 1998 and 1997.. 3
Balance Sheets
September 30, 1998 and June 30, 1998............ 4
Statements of Cash Flows
Three Months Ended September 30, 1998 and 1997.. 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
- ---------------------------
Item 5. Other Information............................. 13
Item 6. Exhibits and Reports on Form 8-K.............. 13
SIGNATURES............................................................ 14
- ----------
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Voxware, Inc.
Statements of Operations
(unaudited)
Three Months Ended
September 30,
---------------------
1998 1997
-------- --------
(In thousands, except
per share data)
Revenues:
Product revenues:
License fees ...................................... $ 244 $ 1,005
Royalties and recurring revenues .................. 141 651
-------- --------
Total product revenues ....................... 385 1,656
Service revenues .................................... 166 156
-------- --------
Total revenues ................................. 551 1,812
-------- --------
Cost of revenues:
Cost of product revenues ............................ -- 51
Cost of service revenues ............................ 73 54
-------- --------
Total cost of revenues ............................ 73 105
-------- --------
Gross profit ........................... 478 1,707
-------- --------
Operating expenses:
Research and development ............................ 677 1,444
Sales and marketing ................................. 645 1,059
General and administrative .......................... 463 597
-------- --------
Total operating expenses .......................... 1,785 3,100
-------- --------
Operating loss .................................... (1,307) (1,393)
Interest income ........................................ 184 222
-------- --------
Net loss ............................................... $ (1,123) $ (1,171)
======== ========
Basic and diluted net loss per common share ............ $ (0.08) $ (0.09)
======== ========
Weighted average number of common shares outstanding ... 13,302 12,509
======== ========
The accompanying notes are an integral part of these statements.
3
<PAGE>
Voxware, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---------------- ---------------
(unaudited)
(In thousands, except
share and per share data)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 6,718 $ 9,149
Short-term investments ........................................ 6,025 4,388
Accounts receivable, net ...................................... 874 1,254
Prepaid expenses and other current assets ..................... 313 268
-------- --------
Total current assets ..................................... 13,930 15,059
Property and equipment, net ........................................ 398 407
Other assets, net .................................................. 83 91
-------- --------
$ 14,411 $ 15,557
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ......................... $ 1,027 $ 1,097
Deferred revenues ............................................. 256 219
-------- --------
Total current liabilities ................................ 1,283 1,316
-------- --------
Deferred rent ...................................................... 311 328
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
none issued and outstanding ................................ -- --
Common stock, $.001 par value, 30,000,000 shares authorized;
13,303,524 and 13,292,524 shares issued and outstanding at
September 30, 1998 and June 30, 1998, respectively ...... 13 13
Additional paid-in capital .................................... 29,934 29,915
Unrealized gain on available-for-sale securities .............. 10 2
Accumulated deficit ........................................... (17,140) (16,017)
-------- --------
Total stockholders' equity ............................... 12,817 13,913
-------- --------
$ 14,411 $ 15,557
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Voxware, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------------
1998 1997
---------------- ---------------
(in thousands)
<S> <C> <C>
Operating Activities:
Net loss ............................................... $ (1,123) $ (1,171)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .......................... 56 48
Provision for doubtful accounts ........................ 31 75
Changes in assets and liabilities:
Accounts receivable .................................. 349 204
Prepaid expenses and other current assets ............ (45) 62
Other assets ......................................... 8 --
Accounts payable and accrued expenses ................ (70) (313)
Deferred revenues .................................... 37 89
Deferred rent ........................................ (17) 25
-------- --------
Net cash used in operating activities ............. (774) (981)
-------- --------
Investing Activities:
Purchases of short-term investments .................... (5,631) (20,979)
Sales and maturities of short-term investments ......... 4,002 21,505
Purchases of property and equipment .................... (47) (21)
-------- --------
Net cash provided by (used in) investing activities (1,676) 505
-------- --------
Financing Activities:
Proceeds from exercises of common stock options ........ 19 65
-------- --------
Net cash provided by financing activities ......... 19 65
-------- --------
Decrease in cash and cash equivalents ..................... (2,431) (411)
Cash and cash equivalents, beginning of period ............ 9,149 10,627
-------- --------
Cash and cash equivalents, end of period .................. 6,718 10,216
Short-term investments, end of period ..................... 6,025 5,316
-------- --------
Cash, cash equivalents and short-term investments,
end of period .......................................... $ 12,743 $ 15,532
======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Unrealized gain on short-term investments ......... $ 8 $ --
======== ========
</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 September 30, 1998 and for the three month
periods ended September 30, 1998 and 1997 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
Annual Report on Form 10-K which was filed on September 28, 1998, as amended
on Form 10-K/A which was filed on October 28, 1998.
The results of operations for the interim periods ended September 30, 1998
are not necessarily indicative of the results to be expected for the fiscal
year ending June 30, 1999 or any other future periods.
2. NET LOSS PER SHARE
The Company has presented net loss per share for the three months ended
September 30, 1998 and 1997 pursuant to Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings per Share." Net loss per share was
computed by dividing the net loss by the weighted average number of common
shares outstanding during the three months ended September 30, 1998
and 1997. Due to the Company's net losses for the three months ended
September 30, 1998 and 1997, the effect of including outstanding common stock
options in the calculation of net loss per share would be anti-dilutive.
Therefore, outstanding common stock options have not been included in the
calculation of net loss per share, and as a result, basic net loss per share
is the same as diluted net loss per share for all periods presented.
3. REVENUE RECOGNITION
The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product revenues consist of license fees and
royalties and recurring revenues. Product revenues from license fees are
generally recognized upon shipment, provided that there are no significant
post-delivery obligations, persuasive evidence of an arrangement exists,
pricing is fixed or determinable, the payment is due within one year and
collection of the resulting receivable is deemed probable. Royalties and
recurring revenues include royalties, which are generally based on a
percentage of licensees' sales or units shipped, and pre-determined periodic
license fees. 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,
persuasive evidence of an arrangement exists, pricing is fixed or
determinable, the payment is due within one year and collection of the
resulting receivable is deemed probable. Service revenues from customer
maintenance support, including the amounts bundled with initial or recurring
revenues, are recognized over the term of the maintenance 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.
4. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
Comprehensive income is a more inclusive financial repoting methodology that
includes disclosure of certain financial information that historically has
not been recognized in the calculation of net income (loss). SFAS 130
requires that all items defined as comprehensive income, including changes in
the amounts of unrealized gains and losses on available-for-sale securities,
be shown as a component of comprehensive loss. In the Company's annual
financial
6
<PAGE>
statements, comprehensive loss will be required to be presented either in a
separate financial statement or as part of either the statement of operations
or statement of stockholders' equity. The only comprehensive income item the
Company has is unrealized gains and losses on available-for-sale securities.
The following reconciles net loss to comprehensive net loss for the three
month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Net loss........................................ $ (1,123) $ (1,171)
Other comprehensive income:
Unrealized gain on short-term investments.... 8 --
Comprehensive net loss.......................... $ (1,115) $ (1,171)
======= =======
</TABLE>
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 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 as necessary, and
those other risks discussed in the Company's Annual Report on Form 10-K.
Overview
Voxware develops, markets, licenses and supports digital speech and audio
technologies and solutions. MetaVoice, the Company's innovative speech coding
technology, is designed to reproduce high quality speech while requiring very
low communications bandwidth and processing power. MetaSound, the Company's
general audio coding technology built on core technology licensed from Nippon
Telegraph and Telephone Corporation is specifically suitable for high quality
music compression. The Company licenses its technologies to software and
hardware companies for a wide range of applications and services, and
primarily targets the consumer devices and multimedia software markets, with
a secondary emphasis on the wireless communications and Internet Protocol
(IP) telephony markets.
Since Voxware's inception in August 1993, the Company has raised net
proceeds of approximately $29,867,000 as follows: approximately $8,838,000
through private placements; approximately $18,517,000 through the Initial
Public Offering which was declared effective on October 30, 1996; and
approximately $2,512,000 through other sales of equity securities, including
exercises of common stock options and common stock warrants.
7
<PAGE>
The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product revenues consist of two components:
license fees, and royalties and recurring revenues. Voxware's products are
licensed primarily to software and hardware 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 one or more of the following:
initial license fees, quarterly license fees, annual license fees or royalties
based on the licensee's revenue generated or units shipped of products
incorporating the Company's technologies. One of the Company's objectives is to
develop recurring revenue through entering into licensing agreements with third
parties which provide for royalties or other recurring 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, if any, from any licensee product.
A majority of the Company's existing licensees compete in the multimedia
Internet software market, which is a relatively new market, and many of the
companies compete against much more established companies and/or have businesses
that are relatively immature. Many of the licenses entered into in the
multimedia Internet software market have been in existence for a significant
period of time and the Company believes that a significant number of its
licensees which compete in this market have not incorporated, and may never
incorporate, Voxware's technologies into their products. Therefore, the Company
may never derive royalties or other recurring revenues from many of its existing
license agreements in the multimedia Internet software market. While the Company
does not expect the multimedia Internet software market to generate significant
recurring revenues to the Company, the Company expects to continue to pursue
opportunities in that market since that market has the potential to continue to
offer non-recurring revenue opportunities to the Company through initial license
fees and service revenues. With respect to IP telephony, initial deployments in
that market have primarily utilized standardized codec technologies (and not
Voxware's proprietary codec technologies). In addition, initial deployments in
IP telephony have been characterized by bandwidth-rich managed networks
(Intranets), which networks generally do not benefit significantly from low
bandwidth solutions such as Voxware's technologies. As a result of these
factors, demand for Voxware's technologies in the IP telephony market is not
expected to be significant at least for the next two years, if ever. As a result
of the circumstances surrounding development and status of the multimedia and IP
telephony markets, among other things, the Company wrote-off approximately
$688,000 in accounts receivable during the year ended June 30, 1998. The Company
believes that all or a portion of the written-off receivables may have been
recoverable through certain legal enforcement of the underlying contractual
arrangements. However, the Company made a business decision not to sue or
aggressively pursue collection of outstanding payment obligations from these
customers because (1) it believes that the impact on the Company's reputation
for initiating certain lawsuits or other aggressive collection actions against
companies which could potentially be future customers, may be more costly
than the benefit that could be derived from recoveries of accounts receivable
through these means, and (2) the costs of pursuing legal recourse and
effectuating collection efforts would likely offset collections, if any. As a
result of these factors, the Company deemed certain of its accounts in
multimedia and IP telephony uncollectible, and wrote-off those accounts during
fiscal 1998. With respect to the wireless market, the Company continues to
invest resources in efforts to understand the needs of this market, if any, for
its speech compression and related technologies. There can be no assurance as to
the Company's success in the wireless market, and to date the Company has not
generated any significant revenues in this market.
During fiscal 1998, the Company restructured its workforce in connection
with the shift of its strategic focus to markets other than multimedia software,
primarily the consumer devices market, which the Company believes has more
significant potential for recurring revenues over the long term. While the
Company believes the consumer devices and wireless communications markets may
have more significant potential for recurring revenue over the long term, over
at least the next several quarters, the Company's revenues are expected to
continue to be affected by the longer revenue cycles inherent in these hardware-
based deals of this market. Specifically, and in contrast to multimedia which
often may be characterized by acceptance of deliverables up front and corollary
recognition of revenue, recognition of revenue (if any) in hardware-based deals
is in part contingent upon a variety of factors including: preparation of
feasibility studies, development and delivery of customized software, testing
and acceptance of such software, development of the licensee's hardware and
product, successful integration of said software into the licensee's hardware
and product, and shipment of the licensee's product. Each of the foregoing
contingencies applicable to hardware-based transactions takes time, and none of
the foregoing contingencies are certain to occur. Therefore the revenue
recognition cycle in hardware-based transactions is generally much longer than
in software-based transactions. It should also be noted that hardware-based
markets such as voice-enabled consumer devices and wireless communications, are
new markets with new products, which further contributes to the time delay and
the uncertainty with respect to revenue recognition. There can be no assurance
as to the success of the Company's activities in these markets, or in
8
<PAGE>
successfully forming relationships with targeted customers in these markets. It
is the Company's continuing policy to evaluate potential strategic relationships
that could allow the Company to broaden its product offerings and achieve
synergies in the Company's target markets.
Software product revenues are generally recognized upon shipment, provided
that there are no significant post-delivery obligations, persuasive evidence of
an arrangement exists, pricing is fixed or determinable, 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.
Service revenues consist of customer maintenance support and engineering
fees. Customer maintenance support services include providing updates and
technical support to licensees of the Company's products. Engineering services
include providing technical resources and technical assistance to support
customer-specific development efforts, which include porting the Company's
technologies to specific hardware platforms and providing customized speech and
audio solutions to customers. Customer maintenance support revenues are
recognized over the term of the support period, which typically lasts for one
year. Engineering fees are generally recognized upon customer acceptance or upon
delivery if customer acceptance is not required. All research and development
costs are expensed as incurred.
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. Since its inception, the Company
has incurred significant losses and, as of September 30, 1998, the Company had
an accumulated deficit of $17,140,000. In at least the near term quarters, the
Company expects to incur net losses as a result of the long product development
cycles previously described. The limited operating history of the Company makes
the prediction of future results of operations impossible and, therefore, the
Company's historical revenues should not be taken as indicative of future
revenues. In addition, the Company's operating results may fluctuate
significantly in the future as a result of a variety of factors, including, but
not limited to, 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 rate of new licensing activity, as well
as the termination of existing license agreements, the introduction of new
products or services by the Company or its competitors, pricing changes in the
industry, the degree of success of the Company's efforts to penetrate its target
markets, technical difficulties with respect to the use of products developed by
the Company or its licensees, the level of usage of the Internet, and general
economic conditions.
Results of Operations
Revenues
Total revenues decreased $1,261,000 from $1,812,000 in the three months
ended September 30, 1997 to $551,000 in the three months ended September 30,
1998, reflecting a decrease in the amount of license fees recognized and a
decrease in the amount of royalties and recurring revenues recognized from
customers who licensed the Company's products in previous periods, offset by an
increase in service revenues. The Company believes that a variety of factors
contributed to the overall decrease in revenues including, among other things,
the factors and circumstances affecting most of the Company's licensees which
compete in the multimedia Internet software market, and the transition of the
Company's strategic focus to markets other than multimedia software. With
respect to that transition, in targeting customers in the electronic devices
market, and in aiming to provide customized solutions to customers in that
market, the Company has been selective in marketing and licensing to customers
which the Company believes are more likely to provide opportunities for high
quality, prosperous OEM relationships than its existing licensees in the
multimedia Internet software market. Over at least the next several quarters,
the Company expects to continue to sign fewer new licensing agreements on a per-
quarter basis in comparison to the prior year comparable periods. At the same
time, the Company's objective is to form relationships with customers that the
Company believes to have more significant potential for recurring revenue over
the long term than its existing licensees in the multimedia Internet software
market. There can be no assurance,
9
<PAGE>
however, as to the success of the Company's activities in these markets, or in
successfully forming relationships with such customers.
One of the Company's former customers, Netscape Communications Corporation
("Netscape"), accounted for none and 21% of total revenues in the three month
periods ended September 30, 1998 and 1997, respectively. As disclosed in the
Company's report on Form 8-K dated September 30, 1997 and in the Company's
report on Form 10-Q for the three months ended December 31, 1997 dated February
13, 1998, Netscape discontinued certain of its products, including products
which would incorporate the Company's technologies, and consequently Voxware and
Netscape entered into a second amendment of their software license agreement
which terminated certain of Netscape's rights pursuant to their software license
agreement.
Product revenues decreased $1,271,000 from $1,656,000 in the three months
ended September 30, 1997 to $385,000 in the three months ended September 30,
1998. The decrease in product revenues reflects a decrease in the amount of
license fees recognized during the three months ended September 30, 1998
compared to the amount of license fees recognized during the three months ended
September 30, 1997, and a decrease in the amount of royalties and recurring
revenues recognized from customers who licensed the Company's products in
previous periods. The Company believes that the factors discussed in the
preceding paragraphs, among other things, contributed to the overall decrease in
product revenues. For the three month periods ended September 30, 1998 and 1997,
approximately 63% and 61% of the Company's product revenues were attributable to
license fees, respectively, and 37% and 39% were attributable to royalties and
recurring revenues, respectively.
During the three months ended September 30, 1998, the Company recognized
$244,000 in license fees related to three agreements, reflecting a decrease of
$761,000 compared to $1,005,000 in license fees related to eleven agreements for
the three months ended September 30, 1997. For the three months ended September
30, 1998, the Company recognized $141,000 in royalties and recurring revenues,
which were derived from a total of five customers. These amounts compare to
$651,000 in royalties and recurring revenues which were derived from a total of
seven customers during the three months ended September 30, 1997.
Service revenues were primarily attributable to customer maintenance
support and fees for engineering services. For the three months ended September
30, 1998, service revenues totaled $166,000, reflecting an increase of $10,000
over service revenues of $156,000 for the three months ended September 30, 1997.
Cost of Revenues
Cost of product revenues decreased $51,000 in the three months ended
September 30, 1998. The decrease in cost of product revenues was directly
attributable to the decrease in product revenues. In addition, product revenues
earned in the three months ended September 30, 1997 included revenues for a
product which incorporates technologies of a third party vendor to whom the
Company is required to pay royalties. Those royalties are included in costs of
product revenues. The Company derived no such revenues during the three months
ended September 30, 1998, and therefore recorded no associated costs of product
revenues during the three months then ended.
Cost of service revenues consists primarily of the expenses associated with
customer maintenance support and engineering services, including employee
compensation and equipment depreciation. Cost of service revenues increased
$19,000 from $54,000 in the three months ended September 30, 1997 to $73,000 in
the three months ended September 30, 1998, primarily as a result of the increase
in service revenues recognized, and the composition of the underlying service
revenues during those periods. Engineering fees generally require a greater cost
of revenues as a percentage of service revenues than maintenance support
revenues. In the three months ended September 30, 1998, a greater portion of
service revenues was derived from engineering fees than maintenance support
revenues in comparison to the three month period ended September 30, 1997, which
resulted in a greater cost of service revenues as a percentage of service
revenues for the three month period ended September 30, 1998 compared to the
three month period ended September 30, 1997.
10
<PAGE>
Operating Expenses
Total operating expenses decreased by $1,315,000 from $3,100,000 in the
three months ended September 30, 1997 to $1,785,000 in the three months ended
September 30, 1998. The overall decrease in total operating expenses was
comprised of a $767,000 (53%) decrease in research and development expenses, a
$414,000 (39%) decrease in sales and marketing expenses, and a $134,000 (22%)
decrease in general and administrative expenses. The decrease in total operating
expenses primarily reflects headcount reductions in application development and
support and other cost reductions associated with the restructuring of the
Company's business focus from consumer application software toward an OEM
(original equipment manufacturer) model, including reductions in outside
professional services. As of September 30, 1998, the Company's headcount totaled
40, compared to total headcount of 82 as of September 30, 1997.
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 decreased
$767,000 (53%) from $1,444,000 in the three months ended September 30, 1997 to
$677,000 in the three months ended September 30, 1998. The decrease in research
and development expenses primarily resulted from restructuring the Company's
business focus away from consumer application software toward an OEM model,
which requires fewer personnel (including employees and independent contractors)
than a consumer application software business model. As of September 30, 1998
the Company had a research and development staff of 21 compared to 44 at
September 30, 1997.
Sales and marketing expenses primarily consist of employee compensation
(including direct sales commissions), travel expenses and trade shows. Sales and
marketing expenses decreased $414,000 (39%) from $1,059,000 in the three months
ended September 30, 1997 to $645,000 in the three months ended September 30,
1998. The decrease in sales and marketing expenses primarily resulted from
restructuring of the Company's focus to an OEM model, which requires less
promotion and marketing than a consumer application software business model, as
well as a decrease in the size of the Company's sales force and marketing staff
from 19 at September 30, 1997 to 10 at September 30, 1998.
General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and professional
services. General and administrative expenses decreased $134,000 (22%) from
$597,000 in the three months ended September 30, 1997 to $463,000 in the three
months ended September 30, 1998. The decrease in general and administrative
expenses was primarily realized through reductions in personnel, recruitment and
general cost savings achieved through expense management. As of September 30,
1998 the Company had a general and administrative staff of 19 compared to 9 at
September 30, 1997.
Also, during the three months ended June 30, 1998, the Company incurred
approximately $300,000 of non-recurring general and administrative charges,
which consisted primarily of (1) severance and related costs incurred in
connection with the April 30, 1998 resignation of Kenneth Traub, The Company's
former Executive Vice President and Chief Financial Officer, pursuant to Mr.
Traub's employment agreement with the Company, and (2) equipment disposals and
related charges associated with the sublease of certain office space.
Interest Income
Interest income decreased $38,000 to $184,000 for the three months ended
September 30, 1998 from $222,000 for the three months ended September 30, 1997.
This decrease is primarily related to the decrease in the Company's total cash,
cash equivalents and short-term investments portfolio balance. As of September
30, 1998, the Company's cash, cash equivalents and short-term investments
portfolio totaled $12,743,000 compared to $15,532,000 at September 30, 1997.
Income Taxes
As of September 30, 1998, the Company had approximately $15,100,000 of
federal net operating loss carryforwards which will begin to expire in 2009 if
not utilized. As of September 30, 1998, the Company has provided a full
valuation allowance on the net deferred tax asset because of the uncertainty
regarding realizability of the deferred asset, primarily as a result of
considering such factors as the
11
<PAGE>
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.
Liquidity and Capital Resources
As of September 30, 1998, the Company had a total of $12,743,000 in cash,
cash equivalents and short-term investments consisting of $6,718,000 of cash and
cash equivalents and $6,025,000 in short-term investments. The Company's cash,
cash equivalents 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 $774,000 and $981,000 was used to fund operations for the three
months ended September 30, 1998 and 1997, respectively. The decrease in cash
used to fund operations was primarily attributable to the decrease in the net
loss for the three months ended September 30, 1998 compared to the net loss for
the three months ended September 30, 1997, and changes in certain operating
assets. For the three months ended September 30, 1998, cash used in investing
activities was $1,676,000, which consisted of $1,629,000 in net purchases of
short-term investments and $47,000 in purchases of property and equipment. Cash
provided by investing activities totaled $505,000 for the three months ended
September 30, 1997 which reflected $526,000 in net liquidations of short-term
investments and $21,000 in equipment purchases. For the three months ended
September 30, 1998 and 1997, cash provided by financing activities totaled
$19,000 and $65,000, respectively, which represents proceeds from the exercise
of common stock options.
The Company has a $2,000,000 revolving line of credit with Silicon Valley
Bank, as amended (the "Credit Facility"). Borrowings under the Credit Facility
will bear interest at the bank's prime lending rate. The Credit Facility
contains certain restrictive financial covenants including a minimum quick
ratio, a minimum tangible net worth requirement and a maximum debt to tangible
net worth ratio, as defined in the agreement. The Credit Facility requires
payment of all outstanding principal, if any, plus all accrued interest on March
30, 1999. In connection with the lease of the Company's office facility, the
Company has outstanding a $300,000 standby letter of credit at September 30,
1998 naming the lessor of the office facility beneficiary of the standby letter
of credit in the event that the Company defaults on the lease. As this letter of
credit was established under the terms of the Credit Facility, the Company has
$1,700,000 available for borrowing under the Credit Facility. As of and for the
three months ended September 30, 1998 and 1997 there were no amounts outstanding
under the Credit Facility.
In addition to the Credit Facility, the agreement with Silicon Valley Bank
provides a lease component in the amount of $1,500,000 (the "Lease Facility")
for the purpose of providing a facility for the financing of the lease stream of
payments that the Company owes to an equipment lessor.
The Company has no material commitments other than those under normal
building and equipment operating leases. At September 30, 1998, the Company's
working capital totaled approximately $12,647,000. The Company believes that its
current cash, cash equivalents and short-term investments 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 twelve months beyond
September 30, 1998.
Year 2000 Compliance
The efficient operation of the Company's business is dependent in part on
computer software programs and operating systems which it uses internally
(collectively, the "Internal Programs and Systems"). The Company has been
evaluating its Internal Programs and Systems to identify potential Year 2000
compliance problems, and has primarily conducted these evaluations and
assessments using the Company's information technology personnel. These actions
are necessary to ensure that the Internal Programs and Systems will be Year 2000
compliant. It is anticipated that modification or replacement of some of the
12
<PAGE>
Internal Programs and Systems may be necessary to make such Programs and Systems
Year 2000 compliant. The Company is also communicating with its suppliers and
others to coordinate Year 2000 conversion. To date, costs incurred in evaluating
its Internal Programs and Systems have not been material, and anticipated costs
necessary to complete such evaluations, modifications and/or replacements are
not expected to be material. Based on present information, the Company believes
that it will be able to achieve such Year 2000 compliance through a combination
of modification of some existing Internal Programs and Systems and the
replacement of other Internal Programs and Systems with new programs and systems
that are already Year 2000 compliant. However, there can be no assurance that
these efforts will be successful. With respect to software programs which the
Company licenses externally to customers (collectively, the "External
Programs"), these programs are primarily not date-dependent and, as such, the
Company does not expect significant, if any, Year 2000 problems related to its
External Programs.
Costs incurred to date to evaluate and identify potential Year 2000 compliance
problems contained in the Company's Internal Programs and Systems and External
Programs have totaled less than $15,000, and the Company expects that future
expenses and capital expenditures associated with achieving Year 2000 compliance
will be less than $25,000. These amounts do not include payroll and other costs
of internal information technology personnel working to assess and resolve Year
2000 issues, and those costs have not been estimated. While the Company is not
yet aware of any Year 2000 issues that are expected to have a material financial
impact on the Company as a result of its assessments to date, some of the
Company's suppliers continue to assess their programs, and the Company continues
to assess its External Programs. As a result, and due to uncertainty of the
potential impact that Year 2000 issues may have on the Company, there can be no
assurance that Year 2000 issues will not have a material impact on the Company's
future results of operations or financial condition.
PART II - OTHER INFORMATION
- ---------------------------
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
27.1 Financial Data Schedule (FDS) for current reporting
periods ended September 30, 1998.
(b) Reports on Form 8-K. None.
- --------------------------------------------------------------------------------
13
<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: November 14, 1998
VOXWARE, INC.
(Registrant)
By: /s/ Bathsheba Malsheen
-----------------------------------
Bathsheba Malsheen, President and
Chief Executive Officer
By: /s/ Nicholas Narlis
-----------------------------------
Nicholas Narlis, Vice President,
Chief Financial Officer, Treasurer and
Secretary
(Principal Financial Officer and Principal
Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOXWARE,
INC. FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,718
<SECURITIES> 6,025
<RECEIVABLES> 1,414
<ALLOWANCES> 540
<INVENTORY> 0
<CURRENT-ASSETS> 13,930
<PP&E> 1,024
<DEPRECIATION> 626
<TOTAL-ASSETS> 14,411
<CURRENT-LIABILITIES> 1,283
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 12,804
<TOTAL-LIABILITY-AND-EQUITY> 14,411
<SALES> 551
<TOTAL-REVENUES> 551
<CGS> 0
<TOTAL-COSTS> 73
<OTHER-EXPENSES> 1,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,123)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,123)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
