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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 December 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
VOXWARE, INC.
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(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.)
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305 College Road East
Princeton, New Jersey 08540
609-514-4100
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(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 February 13, 1998
--------- ---------------------------------------
Common Stock, $.001 par value 13,062,441
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VOXWARE, INC.
INDEX
PART I - FINANCIAL INFORMATION
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<TABLE>
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Item 1. Financial Statements (unaudited) Page No.
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Statements of Operations
Three and Six Months Ended December 31, 1997 and 1996.................. 3
Balance Sheets
December 31, 1997 and June 30, 1997...................................... 4
Statements of Cash Flows
Six Months Ended December 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
<CAPTION>
PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders................. 13
Item 5. Other Information................................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................... 13
SIGNATURES................................................................................... 14
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</TABLE>
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
Voxware, Inc.
Statements of Operations
(In thousands, except per share data)
Three Months ended Six Months Ended
December 31, December 31,
---------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
Revenues:
Product revenues:
Initial license fees $ 1,037 $ 1,059 $ 2,042 $ 1,972
Royalties and recurring
license fees 581 377 1,232 615
---------- ---------- ---------- ----------
Total product revenues 1,618 1,436 3,274 2,587
Service revenues 239 76 395 128
---------- ---------- ---------- ----------
Total revenues 1,857 1,512 3,669 2,715
---------- ---------- ---------- ----------
Cost of revenues:
Cost of product revenues 46 21 97 45
Cost of service revenues 92 51 146 77
---------- ---------- ---------- ----------
Total cost of revenues 138 72 243 122
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Gross profit 1,719 1,440 3,426 2,593
---------- ---------- ---------- ----------
Operating expenses:
Research and development 1,331 2,074 2,775 3,938
Sales and marketing 995 1,086 2,054 1,887
General and administrative 553 878 1,150 1,735
---------- ---------- ---------- ----------
Total operating expenses 2,879 4,038 5,979 7,560
---------- ---------- ---------- ----------
Operating loss (1,160) (2,598) (2,553) (4,967)
Interest income 220 189 442 226
---------- ---------- ---------- ----------
Net loss $ (940) $ (2,409) $ (2,111) $ (4,741)
========== ========== ========== ==========
Net loss per share $ (0.07) $ (0.21) $ (0.17) $ (0.46)
========== ========== ========== ==========
Shares used in computing
net loss per share 12,780 11,269 12,664 10,270
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
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Voxware, Inc.
Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
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(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,424 $ 10,627
Short-term investments 9,461 5,842
Accounts receivable, net of allowance for doubtful accounts of
$610 and $400 2,548 2,822
Prepaid expenses and other current assets 414 309
-------------- --------------
Total current assets 17,847 19,600
Property and equipment, net 501 566
Other assets, net 57 55
-------------- --------------
$ 18,405 $ 20,221
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,739 $ 2,312
Deferred revenues 537 477
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Total current liabilities 2,276 2,789
-------------- --------------
Deferred rent 291 241
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized:
no shares issued and outstanding -- --
Common stork, $.001 par value, 30,000,000 shares authorized;
12,884,066 and 12,497,258 shares issued and outstanding 13 13
Additional paid-in capital 29,243 26,488
Unrealized gain (loss) on available-for-sale securities 1 (2)
Accumulated deficit (13,419) (11,308)
-------------- --------------
Total stockholders' equity 15,838 17,191
-------------- --------------
$ 18,405 $ 20,221
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
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Voxware, Inc.
Statements of Cash Flows
(In thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------------
1997 1996
---------------- -----------------
(unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (2,111) $ (4,741)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 114 113
Provision for doubtful accounts 210 175
Changes in assets and liabilities:
Accounts receivable 64 (859)
Prepaid expenses (105) (26)
Other assets (2) (104)
Accounts payable and accrued expenses (573) 1,918
Deferred revenues 60 135
Deferred rent 50 146
---------------- -----------------
Net cash used in operating activities (2,293) (3,243)
---------------- -----------------
Investing activities:
Purchases of short-term investments (37,612) (61,146)
Sales and maturities of short-term investments 33,996 42,543
Purchases of property and equipment (49) (157)
---------------- -----------------
Net cash used in investing activities (3,665) (18,760)
---------------- -----------------
Financing activities:
Proceeds from issuance of commons stock, net -- 18,442
Proceeds from exercise of stock options 644 762
Issuance of common stock pursuant to Employee Stock Purchase Plan 111 --
---------------- -----------------
Net cash provided by financing activities 755 19,204
---------------- -----------------
Decrease in cash and cash equivalents (5,203) (2,799)
Cash and cash equivalents, beginning of period 10,627 3,837
---------------- -----------------
Cash and cash equivalents, end of period 5,424 1,038
Short-term investments, end of period 9,461 18,603
---------------- -----------------
Cash and short-term investments, end of period $ 14,885 $ 19,641
================ =================
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
Unrealized gain on available-for-sale securities $ 3 $ --
================ =================
</TABLE>
The accompanying notes are and integral part of these statements.
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Voxware, Inc.
Notes To Financial Statements
1. BASIS OF PRESENTATION
The financial statements as of December 31, 1997 and for the three
and six month periods ended December 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 Annual Report on Form 10-K
which was filed on September 29, 1997, as amended on Form 10-K which was
filed on Form 10-K/A on October 28, 1997, the Company's Form 10-Q for the
three months ended September 30, 1997, and in this report on Form 10-Q.
The results of operations for the interim periods ended December 31,
1997 are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 1998 or any other future periods.
2. NET LOSS PER SHARE
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"). The Company has adopted SFAS No. 128 and
there is no difference between the Company's historical net loss per
share calculation and the net loss calculation under SFAS No. 128 on
either the basic or diluted basis, as stock options and warrants are
anti-dilutive.
For periods subsequent to the Company's initial public offering in
October 1996 ("IPO"), 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. Pursuant to the requirements of the Securities and
Exchange Commission, common stock issued by the Company during the twelve
months immediately preceding the IPO, plus the number of common
equivalent shares which became issuable during the same period pursuant
to the grant of common stock options, have been included in the
calculation of the shares used in computing net loss per share as if they
were outstanding for all periods prior to the IPO (using the treasury
stock method and the IPO price of $7.50 per share), even though their
effect is anti-dilutive. Pursuant to the policy of the Securities and
Exchange Commission the calculation of shares used in computing net loss
per share also includes the Redeemable Series A Convertible Preferred
Stock which converted into 3,000,000 shares of Common Stock effective
upon the closing of the IPO, as if they were converted to Common Stock on
their original date of issuance.
3. REVENUE RECOGNITION
The Company generates revenues from two sources: fees from product
licenses and fees for services provided. Product revenues consist of
initial license fees and royalties and recurring 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. Royalties and recurring license
fees 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, the payment is due within one year and collection of the
resulting receivable is deemed probable. Service revenues from customer
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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.
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,
primarily in the following four markets: Internet Protocol (IP)
telephony, multimedia software, electronic devices and wireless
communications.
Since Voxware's inception in August 1993, the Company has raised
net proceeds of approximately $29,256,000 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 $1,901,000 through other sales of
equity securities, including exercises of common stock options and 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 and consist of two components:
initial license fees and royalties and recurring license fees.
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
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licensees compete in the multimedia Internet software market, which is
a relatively new market, and many of the companies in this market are
poorly capitalized, compete against much more established companies
and/or have businesses that are relatively immature. The Company
believes that a significant number of its licensees which compete in
the multimedia software market have not incorporated, and may never
incorporate, Voxware's technologies into their respective products, and
therefore, the Company may never derive royalties or other recurring
revenues from many of its existing license agreements. The Company has
been shifting its focus to other markets such as Internet Protocol (IP)
Telephony, electronic devices and wireless communications, which the
Company believes have more significant potential for royalty revenue
over the long term. However, there can be no assurance as to the
success of the Company's marketing activities in these markets.
Service revenues consist of customer support and engineering fees.
Customer support services include providing updates and technical
support to licensees of the Company's products. Engineering services
include providing technical resources and technical assistance to
support customer-specific development efforts, which include porting
the Company's technologies to specific hardware 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 six
month periods ended December 31, 1997, approximately $581,000 and
$1,232,000, respectively, of royalties and recurring license fees were
recognized. For the three and six month periods ended December 31,
1996, approximately $377,000 and $615,000, respectively, of royalties
and recurring license fees were 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 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. As of
December 31, 1997, the Company had an accumulated deficit of
$13,419,000. 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 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 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 the Internet Protocol (IP) telephony, multimedia software,
electronic devices and wireless communications markets, technical
difficulties with respect to the use of products developed by the
Company or its licensees, and general economic conditions.
Results of Operations
Revenues
Total revenues increased $345,000 from $1,512,000 in the three
months ended December 31, 1996 to $1,857,000 in the three months ended
December 31, 1997 primarily as a result of an increase in the amount of
royalties and recurring revenues recognized from customers who licensed
the Company's products in previous periods, and an increase in service
revenues. On a year-to-date basis, total revenues increased $954,000
from $2,715,000 for the six months ended December 31, 1996 to
$3,669,000 for the six months ended December 31, 1997. One of the
Company's customers accounted for 30% and 15% of
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total revenues in the three and six month periods ended December 31,
1997, respectively, and no revenues in the three and six month periods
ended December 31, 1996. Another of the Company's customers, Netscape
Communications Corporation ("Netscape"), accounted for 26% and 23% of
total revenues in the three and six month periods ended December 31,
1997, respectively, and 17% and 18% of total revenues in the three and
six month periods ended December 31, 1996, respectively. In the
Company's Report on Form 8-K dated September 30, 1997, the Company
reported that on September 30, 1997 Netscape notified the Company of
its desire to renegotiate the terms of the Company's license agreement
with Netscape and that the outcome of a renegotiation could lead to a
significant reduction in payments from Netscape. In December 1997, the
Company completed the renegotiation with Netscape such that the terms
of the amended agreement provide for a significantly reduced amount of
revenue to the Company subsequent to December 31, 1997. Subsequently,
in January 1998, in conjunction with Netscape's recently announced
restructuring, Netscape notified the Company of its intention to
discontinue certain of its products, including products which would
incorporate the Company's technologies. As a result, the Company and
Netscape are currently in discussions which the Company expects will
lead to the termination of the amended agreement in the near term and
the elimination of any future payments from Netscape.
Product revenues increased $182,000 from $1,436,000 in the three
months ended December 31, 1996 to $1,618,000 in the three months ended
December 31, 1997. In the six month period ended December 31, 1997,
product revenues totaled $3,274,000, representing a $687,000 increase
from product revenues of $2,587,000 for the six month period ended
December 31, 1996. The increase in product revenues was primarily due
to an increase in the amount of royalties and recurring revenues
recognized from customers who licensed the Company's products in
previous periods. For the three month periods ended December 31, 1997
and 1996, approximately 64% and 74% of the Company's product revenues
were attributable to initial license fees, respectively, and 36% and
26% were attributable to royalties and recurring license fees,
respectively. For the six month periods ended December 31, 1997 and
1996, approximately 62% and 76% of the Company's product revenues were
attributable to initial license fees, respectively, and 38% and 24%
were attributable to royalties and recurring license fees,
respectively.
During the three months ended December 31, 1997, the Company
recognized $1,037,000 in initial license fees related to ten
agreements, compared to $1,059,000 in initial license fees related to
eleven agreements for the three months ended December 31, 1996. In the
six month period ended December 31, 1997, the Company recognized
initial licensee fee revenues of $2,042,000, reflecting an increase of
$70,000 from initial licensee fee revenues of $1,972,000 for the six
month period ended December 31, 1996. Additionally, for the three
months ended December 31, 1997, the Company recognized $581,000 in
royalties and recurring product license fees, which were derived from a
total of seven customers. These amounts compare to $377,000 in
royalties and recurring product license fees which were derived from
seven customers during the three months ended December 31, 1996. In the
six month period ended December 31, 1997, the Company recognized
royalties and recurring product license fee revenues of $1,232,000,
reflecting an increase of $617,000 from royalties and recurring product
license fee revenues of $615,000 for the six month period ended
December 31, 1996.
Service revenues were primarily attributable to customer support
and fees for engineering services. For the three months ended December
31, 1997, service revenues totaled $239,000 compared to $76,000 for the
three months ended December 31, 1996. In the six month period ended
December 31, 1997, service revenues totaled $395,000, reflecting an
increase of $267,000 over service revenues of $128,000 for the six
month period ended December 31, 1996. These increases in service
revenues for the three and six month periods ended December 31, 1997
over the prior year comparable periods were attributable to increases
in engineering fees earned from porting technologies to customers'
specific hardware platforms, as well as increases in customer support
revenues.
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Cost of Revenues
Cost of product revenues increased $25,000 from $21,000 in the
three months ended December 31, 1996 to $46,000 in the three months
ended December 31, 1997. In the six month period ended December 31,
1997, cost of product revenues were $97,000, reflecting an increase of
$52,000 from cost of product revenues of $45,000 for the six month
period ended December 31, 1996. The increases in cost of product
revenues were directly attributable to the increases in product
revenues recognized during those periods.
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 $41,000
from $51,000 in the three months ended December 31, 1996 to $92,000 in
the three months ended December 31, 1997. In the six month period ended
December 31, 1997, cost of service revenues were $146,000, reflecting
an increase of $69,000 from cost of service revenues of $77,000 for the
six month period ended December 31, 1996. These increases in cost of
service revenues were directly attributable to the increase in service
revenues recognized during those periods.
Operating Expenses
Total operating expenses decreased by $1,159,000 from $4,038,000
in the three months ended December 31, 1996 to $2,879,000 in the three
months ended December 31, 1997. In the six month period ended December
31, 1997, operating expenses were $5,979,000, reflecting a decrease of
$1,581,000 from total operating expenses of $7,560,000 for the six
month period ended December 31, 1996. These decreases in total
operating expenses primarily reflect headcount reductions in
application development and support, other cost reductions associated
with transitioning the Company's business focus away from consumer
application software and toward an OEM (original equipment
manufacturer) model, and reductions in outside professional services.
In comparing the three months ended December 31, 1997 with the three
months ended December 31, 1996, the overall decrease in total operating
expenses was comprised of a $743,000 decrease in research and
development expenses, a $91,000 decrease in sales and marketing
expenses, and a $325,000 decrease in general and administrative
expenses. In comparing the six months ended December 31, 1997 with the
six months ended December 31, 1996, the decrease in total operating
expenses consisted of a $1,163,000 decrease in research and development
expenses and a $585,000 decrease in general and administrative
expenses, offset by a $167,000 increase in sales and marketing
expenses.
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 $743,000 from $2,074,000 in the three months ended December
31, 1996 to $1,331,000 in the three months ended December 31, 1997. In
the six month period ended December 31, 1997, research and development
expenses were $2,775,000, reflecting a decrease of $1,163,000 from
$3,938,000 incurred during the six month period ended December 31,
1996. The decreases in research and development expenses primarily
resulted from transitioning the Company's business focus away from
consumer application software and toward an OEM (original equipment
manufacturer) model, which requires fewer personnel (including
employees and independent contractors) than a consumer application
software business model.
Sales and marketing expenses primarily consist of employee
compensation (including direct sales commissions), travel expenses,
trade shows and costs of promotional materials. Sales and marketing
expenses decreased $91,000 from $1,086,000 in the three months ended
December 31, 1996 to $995,000 in the three months ended December 31,
1997. This decrease in sales and marketing expenses was primarily due
to the transition of the Company's focus to an OEM model, which
requires less promotion and marketing than the previous consumer
application software business model. The decreases realized
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from the business model transition were partially offset by increases
in expenses related to the expansion of the Company's sales force and
marketing staff, expenses related to the Company's sales offices in
Europe and Asia which were opened during the fourth quarter of fiscal
1997, and expenses incurred in connection with the formation of a
product marketing and management function for the purpose of employing
an OEM business model in its four target markets: Internet Protocol
(IP) telephony, multimedia software, electronic devices and wireless
communications.
In the six month period ended December 31, 1997, sales and
marketing expenses were $2,054,000, reflecting an increase of $167,000
from $1,887,000 incurred during the six month period ended December 31,
1996. This increase in sales and marketing expenses was primarily due
to an increase in expenses related to the expansion of the Company's
sales force and marketing staff, expenses related to the Company's
sales offices in Europe and Asia which were opened during the fourth
quarter of fiscal 1997, and expenses incurred in connection with the
formation of a product marketing and management function for the
purpose of employing an OEM business model in the four target markets
noted above. These increases in sales and marketing expenses were
offset by decreases in promotion and marketing of the Company's
products pursuant to the aforementioned transition from a consumer
application software business model to an OEM model.
General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and
professional services. General and administrative expenses decreased
$325,000 from $878,000 in the three months ended December 31, 1996 to
$553,000 in the three months ended December 31, 1997. In the six month
period ended December 31, 1997, general and administrative expenses
were $1,150,000, reflecting a decrease of $585,000 from $1,735,000
incurred during the six month period ended December 31, 1996. The
decreases in general and administrative expenses were primarily
realized by reductions in legal costs, recruitment, and general cost
savings achieved through expense management.
Interest Income
Interest income increased $31,000 to $220,000 for the three months
ended December 31, 1997 from $189,000 for the three months ended
December 31, 1996. In the six month period ended December 31, 1997,
interest income was $442,000, reflecting an increase of $216,000 from
$226,000 earned during the six month period ended December 31, 1996.
The increases in interest income primarily reflect interest earned on
the remaining net proceeds from the Initial Public Offering closed
during November and December 1996 (see "Liquidity and Capital
Resources").
Income Taxes
As of December 31, 1997, the Company had approximately $10,400,000
of federal net operating loss carryforwards which will begin to expire
in 2009 if not utilized. As of December 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.
Liquidity and Capital Resources
As of December 31, 1997, the Company had a total of $14,885,000 in
cash, cash equivalents and short-term investments consisting of
$5,424,000 of cash and cash equivalents and $9,461,000 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.
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Cash of $2,293,000 and $3,243,000 was used to fund operations for
the six months ended December 31, 1997 and 1996, respectively. The
decrease in cash used to fund operations was primarily attributable to
the decrease in the net loss for the six months ended December 31, 1997
compared to the net loss for the six months ended December 31, 1996,
offset by changes in certain operating assets. For the six months ended
December 31, 1997, cash used in investing activities was $3,665,000,
which consisted of $3,616,000 in net purchases of short-term
investments and $49,000 in equipment purchases. Cash used in investing
activities totaled $18,760,000 for the six months ended December 31,
1996 which reflected $18,603,000 in net purchases of short-term
investments and $157,000 in equipment purchases. For the six months
ended December 31, 1997, cash provided by financing activities totaled
$755,000, which represents $644,000 in proceeds from the exercise of
common stock options and $111,000 relating to the issuance of common
stock pursuant to the Company's Employee Stock Purchase Plan. Cash
provided by financing activities totaled $19,204,000 for the six months
ended December 31, 1996, reflecting $18,442,000 in net proceeds from
the Initial Public Offering and $762,000 in proceeds from the exercise
of common stock warrants.
The Company maintains a $5,000,000 revolving line of credit with
Silicon Valley Bank (the "Credit Facility"). Borrowings under the
Credit Facility will bear interest at the bank's prime lending rate,
which approximates the prime rate. The Credit Facility contains certain
restrictive financial covenants including a minimum quick ratio, a
minimum tangible net worth requirement, a maximum debt to tangible net
worth ratio and certain other covenants, as defined in the agreement.
In connection with the lease of the Company's office facility, the
Company has outstanding a $300,000 standby letter of credit as of
December 31, 1997 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 $4,700,000 available for
borrowing under the Credit Facility. As of and for the three and six
months ending December 31, 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.
In November 1996 and December 1996, the Company closed on an
initial public offering of Common Stock ("Initial Public Offering").
The Company offered and sold 2,823,237 shares of Common Stock at an
initial public offering price of $7.50 per share. The net proceeds to
the Company from the Initial Public Offering after payment of offering
expenses were approximately $18,517,000.
The Company has no material commitments other than those under
normal building and equipment operating leases. 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 December 31, 1997.
12
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on January 22, 1998,
the Stockholders voted to (i) amend the Company's 1994 Stock Option Plan to
increase the number of shares reserved for issuance thereunder by 850,000 shares
of Common Stock to an aggregate of 3,200,000 shares, (5,574,513 votes for,
497,404 votes against, 88,666 votes withheld/abstained) (ii) approved and
adopted the 1998 Stock Option Plan for outside directors, (5,943,854 votes for,
364,652 votes against, 97,030 votes withheld/abstained) and (iii) approved and
adopted a plan to pay non-employee directors of the Company an annual retainer
of the Company's Common Stock (10,574,046 votes for, 213,178 votes against,
60,271 votes withheld/abstained).
In addition, at the Annual Meeting of Stockholders the Company had
submitted an Amendment to the Company's Certificate of Incorporation to
eliminate Article Twelfth thereof which provides for a "classified board of
directors". The Company did not receive the requisite 66.66 percent vote of its
shareholders (5,855,811 votes for, 234,551 votes against, 70,221 votes
withheld/abstained) and therefore the Amendment was not approved.
Further, at the Annual Meeting of Stockholders held on January 22, 1998,
the following directors were nominated and elected by the votes indicated:
<TABLE>
<CAPTION>
Name Votes For Votes Against Withheld/Abstained
<S> <C> <C> <C>
Andrew I. Fillat 10,918,756 0 53,215
Bathsheba J. Malsheen, Ph.D. 10,917,356 0 54,615
J. Gerard Aguilar 10,917,656 0 54,315
Richard M. Schell, Ph.D. 10,918,756 0 53,215
David B. Levi 10,918,556 0 53,415
</TABLE>
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Amendment One to the Software License Agreement by and
between the Company and Netscape Communications
Corporation. +
11.1 Statement re: Computation of Loss Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
===============================================================================
+ A request for confidential treatment has been made for portions of such
document.
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: February 13, 1998
VOXWARE, INC.
(Registrant)
By: /s/ Bathsheba Malsheen
-------------------------------------------
Bathsheba Malsheen, 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, Vice President,
Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
14
<PAGE>
Exhibit 10.1
Confidential treatment has been requested for portions of this Exhibit.
The Confidential Portions have been redacted and are denoted by [ * * *
]. The Confidential Portions have been separately filed with the
Commission.
AMENDMENT ONE
to the
SOFTWARE LICENSE AGREEMENT
between
NETSCAPE COMMUNICATIONS CORPORATION
and
VOXWARE, INC.
THIS AMENDMENT ("Amendment One") is made and entered into as of
December 16, 1997 ("Effective Date"), by and between Netscape
Communications Corporation, a California corporation located at 501
East Middlefield Road, Mountain View, CA 94043 ("Netscape"), and
Voxware, Inc., a Delaware corporation located at 305 College Road East,
Princeton, NJ 08540 ("Voxware").
Recitals
The parties entered into a Software License Agreement dated January 31,
1996, as amended by the Letter Agreement dated September 30, 1997,
pursuant to which Netscape licensed the Voxware Products for use in
Netscape's products (collectively, the "Agreement"), which Agreement
remains in effect;
Netscape now desires to license certain other programs of Voxware as
specified in this Amendment, for use in certain specified Netscape
products, in replacement of the license to the Voxware Products in the
Agreement;
The parties now wish to modify the Agreement in order to grant to
Netscape the license to the said other programs in accordance with the
terms of this Amendment One.
NOW, THEREFORE, the parties hereby agree to modify the Agreement as
follows:
Amendment
1. Capitalized terms defined in the Agreement shall have the same
meaning in this Amendment One as in the Agreement.
2. Except as explicitly modified, all terms, conditions and provisions
of the Agreement shall continue in full force and effect.
3. Appendix A of the Agreement is deleted in its entirety and replaced
with Appendix A-1 attached hereto, and the Licensed Programs defined
and listed in Appendix A-1 shall be deemed the Voxware Products for
purposes of the Agreement. All terms, conditions and restrictions
applicable to the Voxware Products in the Agreement shall apply to the
Licensed Programs in Appendix A-1 unless otherwise specified herein.
17
<PAGE>
4. The third sentence of Paragraph (1)(c) of Section I is deleted and
replaced with the payment schedule set forth in Section 1of Appendix
A-2 attached hereto.
5. The last sentence of Paragraph 2 of Section I of the Agreement is
deleted and replaced with the following:
"Bug fixes or enhancements, modifications, and computer software
platforms of the Voxware Products, all of the foregoing which are
offered without additional charge to all other customers under
normal maintenance agreements are free to Netscape."
6. Voxware shall deliver the Licensed Programs listed in Appendix A-1
to this Amendment One according to the schedule specified in Appendix
A-2. Netscape's acceptance or rejection of the Licensed Programs shall
be in accordance with the terms and conditions set forth in the
Agreement unless otherwise set forth in this Amendment One.
7. Notwithstanding anything in the Agreement to the contrary,
Netscape shall be entitled to use the Licensed Programs as contemplated
hereunder and under the Agreement, solely as integrated in, bundled
with, or for use in connection with Netscape product(s) and any
components thereof.
8. The following provisions in the Agreement are no longer in effect
and are deleted in their entirety: Paragraph (1)(d) of Section I; the
third to last and second to last sentences of Paragraph 2 of Section I;
Paragraph 5 of Section I; and Appendix B.
9. The first and third sentences of Paragraph 7 of Section I of the
Agreement (as amended), are deleted and replaced with the following:
"The term of this Agreement as amended by Amendment One shall
continue for a period of three (3) years from the Effective Date of
Amendment One. Thereafter, the Agreement will automatically renew
for successive terms of one (1) year each unless Netscape provides
written notice of non-renewal to Licensor at least ninety (90) days
prior to the expiration of the then current term. Commencing one (1)
year after the first commercial shipment of the first Netscape
product released after the Effective Date of Amendment One
incorporating the Licensed Programs hereunder, Netscape shall be
entitled to terminate this Agreement at any time upon ninety (90)
days advance written notice to Licensor.
10. Provided Netscape accepts the Voxware Products pursuant to the
acceptance criteria in the Agreement, the parties shall issue a joint
press release announcing that Netscape is planning to incorporate the
Voxware Products in a Netscape product within thirty (30) days after
Netscape's first release after the Effective Date of this Amendment One
of a Netscape product containing Voxware Products. Netscape will
provide a brief quote (no more than twenty five (25) words in length )
for the purposes of such press release. Such press release shall be
subject to both parties prior review and approval.
Except as expressly specified herein, all terms and conditions of the
Agreement shall remain in full force and effect and shall apply to the
subject matter of this Amendment.
IN WITNESS WHEREOF, the parties indicate their agreement with and
acceptance of the terms and conditions contained in this Amendment, and
this Amendment is hereby made a part of the Agreement, as of the date
first provided above.
18
<PAGE>
NETSCAPE COMMUNICATIONS VOXWARE, INC.
CORPORATION
/s/ John M. Paul /s/ Kenneth H. Traub
-------------------------- ------------------------------------------
Signature Signature
John M. Paul Kenneth H. Traub
-------------------------- ------------------------------------------
Print Name Print Name
Senior Vice President Executive V.P. and Chief Financial Officer
-------------------------- ------------------------------------------
Title Title
19
<PAGE>
APPENDIX A-1
DESCRIPTION OF SOFTWARE DELIVERABLES
Functional Specifications of the software programs to be delivered to Netscape
A. Overview
Voxware will deliver the software programs described in this Appendix ("Licensed
Programs"). Below is the table describing general requirements of each platform.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Platform(s) Encoder Decoder
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Win32 (Intel) Wrapper: ACM & QuickTime Wrapper: ACM & QuickTime
Keyed for use with Netscape Minimum CPU: 486/100MHz or
Windows 95 products and components thereof Pentium 75
Windows NT 3.51 w/ Minimum CPU: Pentium 133
Service Pack 5
Windows NT 4.0 & higher
- ---------------------------------------------------------------------------------------------------
Solaris 2.51 & higher Wrapper: Standard Voxware APIs Wrapper: Standard Voxware APIs
- ---------------------------------------------------------------------------------------------------
Digital Unix 4.0b & higher Wrapper: Standard Voxware APIs Wrapper: Standard Voxware APIs
- ---------------------------------------------------------------------------------------------------
IBM AIX 4.21 & higher Wrapper: Standard Voxware APIs Wrapper: Standard Voxware APIs
- ---------------------------------------------------------------------------------------------------
Irix 6.2 & higher Wrapper: Standard Voxware APIs Wrapper: Standard Voxware APIs
- ---------------------------------------------------------------------------------------------------
HP UX 10.02 & higher Wrapper: Standard Voxware APIs Wrapper: Standard Voxware APIs
- ---------------------------------------------------------------------------------------------------
</TABLE>
Licensor will either (a) provide backwards compatibility for decoders of the
Licensed Programs, with versions of the Licensed Programs previously licensed to
streaming media companies; or (b) provide the previous version(s) of the
applicable Licensed Program(s) to Netscape.
Notwithstanding anything in this Amendment to the contrary, Netscape shall be
authorized to use internally subject to the terms and condition of the Agreement
as amended herein, the encode portion of the Licensed Programs on the Unix
platforms specified above only, in order to internally develop Netscape's Unix-
based content creation tools and directly license such tools to end user
customers of Netscape which lack a Win 32 environment.
20
<PAGE>
B. General Description of Codecs - Encoder/Decoder Functionality
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Codec Bandwidth Sampling Rate Frame Size Samples per Encoded
Frame Bits per
Frame
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Voice Codes
- ----------------------------------------------------------------------------------------------
RT24 2400 bps 8 kHz 22.5 ms 180 54
- ----------------------------------------------------------------------------------------------
RT29 2978 bps 8 kHz 22.5 ms 180 67
- ----------------------------------------------------------------------------------------------
Mono Codes
- ----------------------------------------------------------------------------------------------
AC8 8000 bps 8 kHz 64 ms 512 512
- ----------------------------------------------------------------------------------------------
AC10 10000 bps 11 kHz 46.44 ms 512 464
- ----------------------------------------------------------------------------------------------
AC16 16000 bps 16 kHz 64 ms 1024 1024
- ----------------------------------------------------------------------------------------------
AC24 24031bps 22 kHz 46.44 ms 1024 1116
- ----------------------------------------------------------------------------------------------
AC32 32041 bps 44.1 kHz 46.44 ms 2048 1488
- ----------------------------------------------------------------------------------------------
Stereo
- ----------------------------------------------------------------------------------------------
ACS16 16000 bps 8 kHz 64 ms 512 1024
- ----------------------------------------------------------------------------------------------
ACS20 20000 bps 11 kHz 46.44 ms 512 928
- ----------------------------------------------------------------------------------------------
ACS32 32000 bps 16 kHz 64 ms 1024 2048
- ----------------------------------------------------------------------------------------------
ACS48 48062 bps 22 kHz 46.44 ms 1024 2232
- ----------------------------------------------------------------------------------------------
ACS64 64083 bps 44.1 kHz 46.44 ms 2048 2976
- ----------------------------------------------------------------------------------------------
</TABLE>
Decoders will include frame loss concealment ("FLC") functionality.
D. Key Mechanism
Voxware's Encoder will be protected by a key locking mechanism. This
key will be specific to the Netscape Communications Corporation and must be used
to enable the MetaSound AC Codecs. Voxware will provide a tool to Netscape to
unlock this key, source code for the key unlocking mechanism, and written
documentation describing how the key works and how to use it.
21
<PAGE>
APPENDIX A-2
Delivery And Payment Schedule
1. Provided Netscape has not earlier terminated the Agreement in accordance
with the terms of the Agreement as amended in this Amendment One, Netscape will
pay to Licensor nonrefundable license fees as follows:
For the one-year period commencing on the Effective Date of this Amendment One
and ending on December 30, 1998, Netscape will pay to Licensor four (4)
quarterly nonrefundable installments of [ * * * ] Dollars ($[ * * * ]) each,
payable as follows: $ [ * * * ] due on or before January 31, 1998; $ [ * * * ]
due on or before April 30, 1998; $ [ * * * ] due on or before July 31, 1998; and
$ [ * * * ] due on or before October 31, 1998.
For the two-year period commencing on December 31, 1998 and ending on December
30, 2000, Netscape will pay to Licensor eight (8) quarterly nonrefundable
license fee installments of [ * * * ] Dollars ($[ * * * ]) each, payable as
follows: $ [ * * * ] due on or before January 31, 1999; $ [ * * * ] due on or
before April 30, 1999; $ [ * * * ] due on or before July 31, 1999; $ [ * * * ]
due on or before October 31, 1999; $ [ * * * ] due on or before January 31,
2000; $ [ * * * ] due on or before April 30, 2000; $ [ * * * ] due on or before
July 31, 2000; and $ [ * * * ] due on or before October 31, 2000.
Quarterly license fees after the three-year term hereof (if renewed) shall be
subject to written agreement in advance between the parties hereto, but shall
not be less than $ [ * * * ] per quarter.
2. Netscape acknowledges delivery by Licensor and acceptance by Netscape of
the Licensed Programs on the Beta Win 32 platform with ACM as of the date of
this Amendment.
3. Licensor will provide two (2) Updates for each of the Licensed Programs, on
or before the following dates:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Platform Processor First Update GCA Version
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Win32 with ACM Intel 12/19/97 3/9/98
- -------------------------------------------------------------------------------------------
Win32 with QuickTime Intel 4/6/98 4/13/98
- -------------------------------------------------------------------------------------------
Solaris 2.51 & higher SPARC 2/9/98 3/2/98
- -------------------------------------------------------------------------------------------
Digital Unix 4.0b & higher Alpha 2/16/98 3/9/98
- -------------------------------------------------------------------------------------------
IBM AIX 4.21 & higher RS6000 3/2/98 3/23/98
- -------------------------------------------------------------------------------------------
Irix 6.2 & higher MIPS 3/2/98 3/23/98
- -------------------------------------------------------------------------------------------
HP UX 10.02& higher PA RISC 3/30/98 4/6/98
- -------------------------------------------------------------------------------------------
</TABLE>
"First Update" means functionally complete code; and "GCA Version" means the
generally commercially available version. The GCA Version shall be the version
of the Licensed Program which Netscape tests under the acceptance procedures set
forth in the Agreement.
4. As part of Licensor's support obligations, Licensor shall use reasonable
efforts to cooperate with Netscape to evaluate and assist in the operability
between the Licensed Programs and third party content creation tools, in a
manner and at terms to be mutually agreed upon.
22
<PAGE>
Exhibit 11.1
Voxware, Inc.
Statements re: Computation of Loss Per Share
Three Months Ended December 31, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss $ (940) $ (2,409) $ (2,111) $ (4,741)
-------- -------- --------- ---------
Basic and diluted weighted average common
and common equivalent shares outstanding:
Common stock 12,780 11,228 12,664 10,185
Common stock options and warrants(1) -- 41 -- 85
Total basic and diluted weighted average
common and common equivalent shares
-------- -------- --------- ---------
outstanding 12,780 11,269 12,664 10,270
-------- -------- --------- ---------
-------- -------- --------- ---------
Loss per share $ (0.07) $ (0.21) $ (0.17) $ (0.46)
======== ======== ========= =========
</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 periods
prior to the initial public offering using the treasury stock method, even
though their effect is anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOXWARE,
INC. FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 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 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> OCT-01-1997 JUL-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 5,424 5,424
<SECURITIES> 9,461 9,461
<RECEIVABLES> 3,158 3,158
<ALLOWANCES> 610 610
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,847 17,847
<PP&E> 962 962
<DEPRECIATION> 461 461
<TOTAL-ASSETS> 18,405 18,405
<CURRENT-LIABILITIES> 2,276 2,276
<BONDS> 0 0
0 0
0 0
<COMMON> 13 13
<OTHER-SE> 15,825 15,825
<TOTAL-LIABILITY-AND-EQUITY> 18,405 18,405
<SALES> 1,857 3,669
<TOTAL-REVENUES> 1,857 3,669
<CGS> 46 97
<TOTAL-COSTS> 138 243
<OTHER-EXPENSES> 2,879 5,979
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (940) (2,111)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (940) (2,111)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (940) (2,111)
<EPS-PRIMARY> (0.07) (0.17)
<EPS-DILUTED> (0.07) (0.17)
</TABLE>
