<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 18, 1999
Voxware, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-021403 36-3934824
- -------------- -------------- -------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
</TABLE>
305 College Road East, Princeton, New Jersey 08540
- -------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 514-4100
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ---------------------------------------------
On February 18, 1999, Voxware, Inc. (the "Company" or "Voxware"), through
its wholly-owned subsidiary, Verbex Acquisition Corporation ("VAC"), acquired
substantially all of the assets of Verbex Voice Systems, Inc. ("Verbex")
pursuant to an asset purchase agreement, dated February 4, 1999 (the "Verbex
Agreement"). The acquired assets included:
(i) equipment, furniture and fixtures, computers, computer hardware
and software, tools and supplies;
(ii) accounts receivable;
(iii) inventories of raw materials, work-in-process and finished goods
used or useful in the conduct of Verbex's business;
(iv) all of Verbex's rights under (a) the leases relating to Verbex's
facility in Cambridge, Massachusetts and Verbex's office space
located in Centerville, Utah and (b) specified leases and rental
agreements covering machinery, equipment, furniture and fixtures,
computers, computer hardware and software, tools, supplies and
other tangible assets used in Verbex's business;
(v) all of Verbex's rights under its value added reseller ("VAR")
agreements, customer agreements and other specified agreements
relating to the business of Verbex;
(vi) all operating data and records of Verbex relating to the ownership
or the operation of the assets and to the assumed liabilities; and
(vii) all industrial and intellectual property rights owned or
controlled by Verbex, including, patents, patent applications,
patent rights, trademarks, trademark applications, tradenames,
service marks, service mark applications, copyrights and trade
secrets.
VAC assumed Verbex's obligations under the contracts assumed by VAC arising
after the closing date and all outstanding development and support commitments
and warranties extended by Verbex prior to the closing date with respect to its
products in the ordinary course of business and VAC assumed certain other
specified liabilities (the "Specified Liabilities"). The Verbex Agreement
provides that the aggregate amount to be paid by VAC with respect to the
Specified Liabilities is not to exceed $509,034 unless the Adjusted Net Asset
Value (described below) of the assets purchased from Verbex exceeds $400,000. If
the Adjusted Net Asset Value of the assets exceeds $400,000, VAC will pay in
excess of $509,034 with respect to the Specified Liabilities but only to the
extent that the Adjusted Net Asset Value of the assets exceeds $400,000.
The purchase price for the Verbex assets consists of $5,200,000, subject to
adjustment as described below, and the assumption of certain liabilities. On the
closing date, VAC paid to Verbex $4,800,000 in cash and placed $400,000 in an
escrow account pursuant to an escrow agreement. All the cash used to purchase
the assets of Verbex came from the Company's cash on hand.
<PAGE>
The amount of the purchase price is subject to adjustment if and to the
extent that (A) the sum of (i) the amount of cash received by VAC during the
period between February 18, 1999 and September 7, 1999 from the sale of
inventory included in the acquired assets and from the collection of accounts
receivable included in the acquired assets, (ii) $40,000, (iii) prepaid expenses
and revenues in excess of billings, each as of September 7, 1999 and (iv) 50%
of net book value as of December 31, 1998 of equipment, furniture and
improvements acquired by VAC and 100% of net book value as of December 31, 1998
of other non-current assets acquired by VAC, minus (B) the sum of (i) the
-----
aggregate amount of the Specified Liabilities paid by VAC as of September 7,
1999, and (ii) any damage, loss, cost, expense or liability for which VAC has
made or shall (as of September 7, 1999) be entitled to make an indemnification
claim under the Verbex Agreement (the foregoing amount is defined as the
"Adjusted Net Asset Value"), is less than $400,000. Under certain
circumstances, up to $50,000 can remain in escrow for an additional six months
following September 7, 1999, to the extent that the Adjusted Net Asset Value is
less than $400,000 because of unsold inventory.
The business acquired by the Company is to provide noise-robust speech
recognition systems to the industrial, manufacturing and warehousing markets.
Verbex operated within the "Automatic ID" market by selling solutions that
complement bar-code scanning and industrial data terminals in the warehouse,
factory or other industrial setting for applications such as warehouse picking,
logistics receiving, warehouse inventory and cycle counting, manufacturing
inspection, package and letter sorting, remittance processing and lumber
grading. Speech recognition products are designed to provide the ability to
input data that cannot be easily bar-coded, where key entry is impractical or
where productivity or safety are enhanced by having the workers' hands free
while performing their jobs. Verbex distributed and the Company intends to
distribute its products to industrial and commercial customers primarily through
value added resellers, systems integrators and international distributors. In
addition, Verbex made and the Company intends to make direct sales to certain
strategic accounts.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ---------------------------------------------------------------------------
(a) Financial Statements of Business Acquired.
The balance sheet of Verbex as of December 31, 1998 and the related
statement of operations, statement of stockholders' deficit and statement of
cash flows for the year ended December 31, 1998, and the notes thereto, and the
report of Arthur Andersen LLP, are included herein.
(b) Pro Forma Financial Information.
Voxware's unaudited pro forma condensed combined statements of operations
for the year ended June 30, 1998 and the six months ended December 31, 1998 and
unaudited pro forma condensed combined balance sheet as of December 31, 1998,
reflecting Voxware's acquisition of substantially all of the assets of Verbex
and Voxware's proposed sale (the "Sale") of substantially all of its assets to
Ascend Communications, Inc. ("Ascend"), are included herein.
<PAGE>
(c) Exhibits.
--------
2.1 Asset Purchase Agreement, dated February 4, 1999, by and among
Verbex Voice Systems, Inc., Voxware, Inc. and Voxware Acquisition
Corporation.*
23.1 Consent of Arthur Andersen LLP.
_______________
* Filed as an exhibit to the Company's Current Report on Form 8-K dated February
18, 1999 and filed March 5, 1999.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Verbex Voice Systems, Inc.:
We have audited the accompanying balance sheet of Verbex Voice Systems, Inc.
(a New Jersey corporation) as of December 31, 1998, and the related statements
of operations, stockholders' deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Verbex Voice Systems, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations, has a working capital deficit and has a net capital deficiency
that raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Princeton, New Jersey
February 16, 1999 (except with respect to the matter
discussed in note 12, as to which the date is
February 18, 1999)
<PAGE>
VERBEX VOICE SYSTEMS, INC.
BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Assets
----------
<S> <C>
Current assets:
Cash $ 73,747
Accounts receivable, less allowance for doubtful
accounts of $52,196 587,708
Revenues in excess of billings 75,000
Inventory 261,705
Prepaid expenses and other current assets 4,131
----------
Total current assets 1,002,291
Equipment, furniture and improvements, net 81,898
Other assets 14,232
----------
Total assets $1,098,421
==========
Liabilities and Stockholders' Deficit
- ----------------------------------------------
Current liabilities:
Note payable to bank $ 220,000
Convertible notes payable to stockholders 3,999,946
Accounts payable 129,297
Accrued expenses 1,686,867
Deferred revenue 76,135
----------
Total current liabilities 6,112,245
----------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 par value, authorized 9,481,794
shares; issued and outstanding 8,722,072 shares
(liquidation value $20,631,723) 87,221
Common stock, $.01 par value, authorized
12,500,000 shares; issued and outstanding
546,867 shares 5,469
Deferred compensation (17,618)
Additional paid-in capital 16,905,485
Accumulated deficit (21,994,381)
-----------
Total stockholders' deficit (5,013,824)
Total liabilities and stockholders' deficit $1,098,421
==========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Net product sales and development contract
and service revenue $ 2,561,759
Cost of sales 830,718
-----------
Gross profit 1,731,041
-----------
Operating expenses:
Selling expenses 961,428
Research and development expenses 1,018,224
General and administrative expenses 377,994
-----------
Total expenses 2,357,646
-----------
Loss from operations (626,605)
-----------
Other income (expense):
Interest income 9,241
Interest expense (389,071)
Other (123)
-----------
Total other income (expense) (379,953)
-----------
Net loss $(1,006,558)
===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Statement of Stockholders' Deficit
Year ended December 31, 1998
<TABLE>
<CAPTION>
Par value
Number of shares issuance proceeds
------------------ ----------------- Additional
Preferred Common Preferred Common Deferred paid-in Accumulated
stock stock stock stock Compensation capital deficit Total
--------- ------- --------- ------ ------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 8,722,072 546,867 $87,221 $5,469 $ (49,519) $16,905,485 $(20,987,823) $(4,039,167)
(see Note 2)
Net loss - - - - - (1,006,558) (1,006,558)
Compensation expense - - - - 31,901 - - 31,901
--------- ------- --------- ------ ------------ ----------------- ------------ -----------
Balance, December 31, 1998 8,722,072 546,867 $87,221 $5,469 $( 17,618) $16,905,485 $(21,994,381) $(5,013,824)
========= ======= ========= ====== ============ ================= ============ ===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Statement of Cash Flows
Year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $(1,006,558)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 65,617
Benefit for doubtful accounts (62,808)
Inventory reserve (185,203)
Noncash employee compensation 31,901
Changes in operating assets and liabilities:
Increase in accounts receivable (400,253)
Decrease in revenues in excess of billings 105,000
Decrease in inventory 262,302
Decrease in prepaid expenses and other current assets 12,140
Increase in accounts payable 61,788
Increase in accrued expenses 448,032
Decrease in deferred revenue (165,758)
-----------
Net cash used in operating activities (833,800)
-----------
Cash flows from investing activities:
Purchases of equipment, furniture & improvements (22,427)
Refunds of deposits 336
-----------
Net cash used in investing activities (22,091)
-----------
Cash flows from financing activities:
Proceeds from the issuance of convertible notes payable to stockholders 403,300
Proceeds from the issuance of note payable to bank 220,000
-----------
Net cash provided by financing activities 623,300
-----------
Net decrease in cash (232,591)
Cash, beginning of period 306,338
-----------
Cash, end of period $ 73,747
===========
Supplemental disclsoures of cash flow information -
Cash paid during the year for interest $ -0-
===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements
(1) Organization and Operating Matters
----------------------------------
Verbex Voice Systems, Inc. (the Company) was formed in 1985, and is engaged
in the development, manufacture and sale of continuous speech recognition
products that enable people to interact with computers using normal
conversational speech. The Company has developed and installed commercial
products for targeted vertical markets where significant productivity
improvements from the use of speech can be realized. These markets include
financial trading, package sortation, factory automation and laboratory
results reporting.
In 1993, the Company introduced a family of products, Listen/TM/ for
Windows, for the Microsoft Windows/TM/ markets. Listen for Windows is the
first continuous speech recognition interface available for Microsoft
Windows and is intended for use with popular software programs such as
spreadsheets, word processing, personal computer graphics and computer-
aided-design. In March 1994 the Company released the first software-only
version of Listen for Windows.
The Company has incurred operating losses during each year or period since
inception and has funded its operating losses and working capital
requirements from private sales of preferred stock aggregating
approximately $17.0 million and an additional $3.9 million of subordinated
debt through December 31, 1998. However, the Company's current working
capital deficiency, total stockholders' deficit, its lack of a future
commitment for additional equity or debt financing and the uncertainties
associated with its entrance into the markets addressed above create
substantial doubt about the Company's ability to continue as a going
concern. The Company has entered into a definitive agreement for the sale
of substantially all of its assets for approximately $5.2 million in cash.
See Note 12 for further discussion.
(2) Summary of Significant Accounting Policies
------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenues
--------
In general, the Company recognizes revenues on sales when products are
shipped. Revenues under long-term development contracts are recognized
under the percentage-of-completion method in the ratio that costs incurred
to date bear to estimated total costs. Costs and estimated earnings in
excess of billings on long-term development contracts in progress are
recorded as an asset on the Company's balance sheet. A provision is made
for the full amount of anticipated losses, if any, in the period in which
they are first determinable. Maintenance revenues are recognized on a
straight-line basis over the terms of the agreements, which are generally
one-to three-year periods.
The Company permits the return of defective products in accordance with its
limited warranty policy; accordingly, a provision for sales returns is
recorded upon shipment.
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements, Continued
(2) Summary of Significant Account Policies, cont.
----------------------------------------------
Inventory
---------
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Equipment, Furniture and Improvements
-------------------------------------
Equipment, furniture and improvements are stated at cost. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss
is included in operations. The cost of maintenance and repairs is charged
to operations as incurred; significant renewals and betterments are
capitalized. Depreciation is calculated using the straight-line method for
financial reporting purposes (accelerated methods for tax purposes) based
on the estimated lives of the respective assets (5 to 10 years):
Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of the asset.
Stock Options and Other Stock Compensation
------------------------------------------
The Company records stock option expense based on the difference between
the fair market value of the shares underlying the option grant and the
stated exercise price determined at the time of grant. The expense is
recorded ratably over the stated vesting period.
Common stock and preferred stock are issued for certain services rendered
and charged to operations as an expense. Such expenses are computed using
the fair market value of the Company's various stock issues, which are
determined by the Company's Board of Directors.
Research and Development Costs
------------------------------
Costs of research and new product development are charged to operations as
incurred.
Reclassification
----------------
Prior to 1998, the Company included accumulated compensation charges
associated with stock options issued at less than fair value on the grant
date in accrued expenses. At December 31, 1997, accrued expenses included
$294,366 related to these options. During the year ended December 31,
1998, the Company determined that the gross amount of the compensation to
be recorded should be reflected as additional paid-in-capital and as
deferred compensation, with the amount formerly included as accrued expense
reducing the deferred compensation. As a result of this classification,
the stockholders' deficit as of December 31, 1997 has been adjusted by
$294,366 from $4,333,533 to $4,039,167.
Impairment of long-lived assets and long-lived assets to be disposed of
-----------------------------------------------------------------------
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements, Continued
Comprehensive Income
--------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items
of other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company has adopted SFAS 130 in 1998 and has no other comprehensive income
items to report.
(3) Inventory
---------
Inventory, net consists of the following components at December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $104,852
Work-in-process 11,347
Finished goods 130,506
--------
$246,705
========
</TABLE>
(4) Equipment, Furniture and Improvements, Net
------------------------------------------
Equipment, furniture and improvements, net, consist of the following at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Equipment $1,120,305
Office furniture 70,497
Leasehold improvements 26,552
----------
1,217,354
Less accumulated depreciation
and amortization 1,135,456
----------
Equipment, furniture and
improvements, net $ 81,898
==========
</TABLE>
(5) Notes Payable
-------------
Bank
----
In November 1998, the Company entered into a new senior debt arrangement
with a consortium of financial institutions. The Notes Payable outstanding
at December 31,1998 of $220,000 bears interest at 12%, is payable upon
demand and is secured by accounts receivable.
Stockholders
------------
Convertible Notes in the aggregate principal of $3,999,946 are subordinate
to the bank facility. In May 1998, the Company completed a Note Financing
of $403,300. The Notes issued to certain of the Company's existing
investors and employees are payable upon demand after June 30, 1999, and
bear an interest rate of 10% per annum. In the event of a sale or
liquidation, these Notes carry a ten times liquidation preference, but in
both events are subordinated to the bank debt. In conjunction with this
financing, the due dates of substantially all the Notes Payable to
Stockholders outstanding at December 31, 1998 were extended to June 30,
1999. These notes shall convert to equity securities and two warrants for
each one dollar of principal upon the completion of "financing". A
"financing" shall mean the next equity or combined equity/debt financing,
with gross proceeds of at least $2 million, undertaken by the Company in
which at least fifty percent of the funds invested is invested by parties
unaffiliated with the Company.
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements, Continued
In June 1997, the Company completed a Note financing for $419,000. These
notes, issued to certain of the Company's existing investors and employees
are payable upon demand after June 30, 1999 (original due date of June 30,
1998 was extended in conjunction with the issuance of the May 1998 Notes)
and bear interest at a rate of 10% per annum. In the event of a sale or
liquidation, these Notes carry a ten times liquidation preference, but in
both events are subordinated to the bank debt.
In April 1996, the Company completed a Bridge Note financing totaling
$669,000. These notes issued to certain of its existing investors are
payable upon demand after June 30, 1998 (original due date of June 30, 1997
was extended in conjunction with the issuance of additional Notes in June
1997 and May 1998) and bear interest at 10% per annum. These notes shall
convert to equity securities upon the completion of a "financing", as
defined above. In the event of a sale or liquidation, these Notes carry a
four times liquidation preference, but in both events are subordinated to
the bank debt.
In September 1995, the Company completed a Bridge Note financing totaling
$516,000. These notes issued to certain of its existing investors are
payable upon demand after June 30, 1999 (original due date of December 31,
1996 was extended in conjunction with the issuance of additional Notes in
April 1996, June 1997 and May 1998) and bear interest at 10% per annum.
These notes shall convert to equity securities upon the completion of a
"financing", as defined above. In the event of a sale or liquidation, these
Notes carry a four times liquidation preference, but in both events are
subordinated to the bank debt.
In February 1995, the Company completed a Bridge Note financing in the
amount of $709,793. These notes issued to certain of the Company's existing
investors are payable upon demand after June 30, 1999 (original due date of
December 31, 1995 was extended in conjunction with the issuance of
additional Notes in September 1995, April 1996, June 1997 and May 1998) and
bear interest at 10% per annum. These notes shall convert to Series G
Preferred Stock upon the completion of a "financing", as defined above.
In June 1994, the Company completed a Bridge Note financing totaling
$1,282,853. These notes issued to certain of its existing investors are
payable upon demand at June 30, 1999 (original due date of December 31,
1994 was extended in conjunction with the issuance of additional Notes in
February 1995, September 1995, April 1996 and June 1997) and bear interest
at 10% per annum. These notes shall convert to Series G Preferred Stock
upon the completion of a "financing", as defined above. Series G Preferred
Stock will be registered with applicable authorities upon conversion of
these notes.
(6) Capital Stock
-------------
The Company has reserved shares of authorized common stock for: a) the
potential conversion of all authorized preferred stock, and b) employee
stock options. As of December 31, 1998, there were 10,931,794 shares of
common stock reserved for issuance.
Preferred Stock
---------------
The Company has the following six authorized series of preferred stock as
of December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Series A convertible preferred stock ("Preferred A Stock") Series D convertible preferred stock ("Preferred D Stock")
Series B convertible preferred stock ("Preferred B Stock") Series E convertible preferred stock ("Preferred E Stock")
Series C convertible preferred stock ("Preferred C Stock") Series F convertible preferred stock ("Preferred F Stock")
</TABLE>
<TABLE>
<CAPTION>
Shares Date of
Shares issued and original Issuance Par Issuance Conversion Liquidation
Description authorized outstanding issuance price value par value price obligation
- ------------------- ---------- ----------- -------- -------- ----- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred A Stock 333,600 333,600 0/31/86 $10.00 $.01 $ 3,336 $10.00 $10.00
Preferred B Stock 300,000 300,000 01/27/88 1.25 .01 3,000 1.50 2.43
Preferred C Stock 1,208,611 1,208,611 10/21/88 1.35 .01 12,086 1.35 2.07
Preferred D Stock 2,979,378 2,979,378 08/25/89 1.35 .01 29,794 1.35 1.93
Preferred E Stock 1,060,205 1,045,542 07/16/91 1.50 .01 10,456 1.50 1.81
Preferred F Stock 3,600,000 2,854,941 07/12/93 2.25 .01 28,549 2.25 2.25
--------- --------- -------
Totals 9,481,794 8,722,072 $87,221
========= ========= =======
</TABLE>
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements, Continued
On the initial closing of the Series F convertible preferred stock private
placement offering, the terms of the various existing series of preferred stock
were amended to coordinate the rights, limitations, and preferences of the
existing series of preferred stock with those of the Series F preferred stock,
which included the elimination of redemption rights. All preferred stock
dividends ceased accruing on March 31, 1993 and an aggregate of $3,205,000 was
added to the existing liquidation obligation of each series of preferred stock.
For all series of preferred stock, there is an automatic conversion in the event
of a qualified public offering. Each preferred share is convertible into one
share of common stock at the applicable conversion price, which is subject to
adjustment. In addition, the holders of each series of currently outstanding
preferred stock have the first refusal to purchase, with certain exceptions,
their proportionate share of any securities offered by the Company. The
following chart summarizes the liquidation preferences among the different
series of preferred stock:
<TABLE>
<CAPTION>
Liquidation
------------------------------------
Shares
Preference equally Subordinate
Description over with to
- ------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Preferred A Stock Common None Pref. B
Pref. C
Pref. D
Pref. E
Pref. F
Preferred B Stock Common Pref. C Pref. D
Pref. A Pref. E
Pref. F
Preferred C Stock Common Pref. B Pref. D
Pref. A Pref. E
Pref. F
Preferred D Stock Common Pref. E
Pref. A Pref. F
Pref. B
Pref. C
Preferred E Stock Common Pref. D
Pref. A Pref. F
Pref. B
Pref. C
Preferred F Stock Common Pref. D
Pref. A Pref. E
Pref. B
Pref. C
</TABLE>
Stock Option Plans
------------------
The Company has an Incentive Stock Option Plan (the Incentive Plan) and a
Non-Qualified Stock Option Plan (the Non-Qualified Plan). The Company
applies APB Opinion No. 25 and related interpretations in accounting for
its plans. Accordingly no compensation cost has been recognized for the
Incentive Plan. The compensation cost that has been recognized in the
accompanying Statement of Operations for the Non-Qualified Plan for the
year ended December 31, 1998 was $31,901. Had compensation cost for the
Company's stock option plans been determined consistent with FASB Statement
No. 123, the Company's 1998 net loss would have increased by $4,188 for a
total loss of $1,010,746.
The Incentive Plan provides for the grant of options to certain officers
and employees to purchase shares of the Company's common stock at a price
equal to the fair market value of the common stock on the date of grant as
determined by the Company's Board of Directors. All options under the
Incentive Plan must be exercised within ten years of the date of grant. The
total number of shares of common stock for which options can be granted is
24,950. Options granted under this plan become exercisable as determined by
the Board of Directors, but not to exceed ten years from the date of grant.
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements, Continued
The Non-Qualified Plan provides for the grant of options to employees,
directors, and consultants to purchase up to 1,425,050 shares of the
Company's common stock. Options granted under this plan are exercisable
equally over 48 months from the date of grant and expire no later than ten
years from the date of grant.
During 1998 there were no grants, exercises or cancellations of stock
options. As of December 31, 1998, the incentive plan options outstanding
were 11,050, all of which are fully vested and exercisable at $.50 per
share. Non-Qualified Plan options outstanding as of December 31, 1998 are
1,135,233 of which 1,076,058 are vested, all exercisable at $.20 per share.
(7) Stockholders' Agreement
-----------------------
Pursuant to an Amended and Restated Stockholders' Agreement dated August
25, 1989, as amended (the Stockholders' Agreement), between the Company and
the principal holders of preferred stock (the Venture Capital Investors),
the Venture Capital Investors have agreed to vote all shares, including all
shares subsequently acquired, for the election of eight specified
directors. By reason of this provision, the distribution, of the ownership
of the Preferred Stock and the provisions included in the Company's
Restated Certificate of Incorporation, the existing major Venture Capital
Investors will continue to be able to exercise control over the business of
the Company for an indefinite period. Unless otherwise agreed to by holders
of a majority of voting power of the preferred stock, these provisions will
remain in effect for so long as the preferred stock is outstanding or until
the Company consummates a public offering of shares of the common stock at
an initial public offering price of $5.00 per share and resulting in
aggregate gross proceeds to the Company of at least $10,000,000.
Nevertheless, by virtue of their share ownership, the existing Venture
Capital Investors may continue to be able to control the major decisions of
the Company after conversion of all shares of preferred stock and
termination of the Stockholders' Agreement.
(8) Income Taxes
------------
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109) provides for a
liability approach to providing for income taxes under which deferred
income taxes are provided based upon enacted tax laws and rates applicable
to the periods in which the taxes became payable.
At December 31, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $20,000,000 which expire
commencing 2001 through 2013.
The issuances of the various series of convertible preferred stock and
convertible notes on their respective dates may be testing dates as defined
in the Income Tax Regulations for purposes of determining whether a change
in ownership may have occurred which would limit the use of net operating
loss carryovers. Such determination has not been made, however, management
believes that the results of such calculation would not have a material
effect on the financial statements.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting and for income tax purposes. As of December 31, 1998, the Company
had deferred tax assets of approximately $7 million related primarily to
net operating loss carryforwards. The net deferred tax asset has been fully
offset by a valuation allowance.
<PAGE>
VERBEX VOICE SYSTEMS, INC.
Notes to Financial Statements, Continued
(9) Revenue
-------
Revenues for the year-ended December 31, 1998 are comprised of $2,275,144
for product, license, and maintenance and $286,615 of development revenues
which are recognized over the period in which the development is performed
based on a percentage of completion. Costs of development contracts and
service revenues are charged to operations as incurred.
(10) Commitments
-----------
Future minimum lease payments under noncancellable operating leases as of
December 31, 1998 are:
<TABLE>
<CAPTION>
Calendar Year
-------------
<S> <C>
1999 85,963
2000 12,377
-------
Total minimum lease payments $98,340
=======
</TABLE>
Rent expense related to these operating leases totaled $114,193 for the
year ended December 31, 1998.
(11) Major Customers
---------------
The package handling industry continues to be a source of significant
revenue for the Company. In 1998, revenue from this market segment
represented 25% of total revenues. In addition, revenue to certain sectors
of the medical field represented 15.0% in 1998.
During 1998, one customer accounted for 15% of net revenue while another
accounted for 11%. Accounts Receivable from these customers was $221,561
and $140,837, respectively as of December 31, 1998.
(12) Subsequent Events
-----------------
On February 4, 1999 the Company entered into an acquisition agreement with
Voxware, Inc. to sell substantially all the assets of the Company for
approximately $5.2 million. This transfer of assets occurred on February
18, 1999.
Pursuant to this acquisition agreement, Verbex sold both tangible and
intangible net assets of the Company used in connection with the conduct of
the business described in Note 1 hereto. Included in the sale is all rights
to the name Verbex Voice Systems, Inc. and variants thereof. Accordingly,
upon closing of this sale, Verbex Voice Systems, Inc. will be renamed VVS
Holdings, Inc. ("VVS Holdings"). VVS Holdings will continue operations not
purchased by Voxware, Inc.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BASIS OF PRESENTATION
On February 18, 1999, Voxware completed the acquisition of substantially
all of the assets of Verbex for approximately $5,200,000 in cash, of which
$400,000 has been placed in escrow for a period of six months from the closing
date and will not be paid to Verbex to the extent that the purchase price paid
to Verbex is adjusted downward pursuant to a net asset value calculation set
forth in the agreement with Verbex. The transaction (the "Purchase
Transaction") will be accounted for as a purchase by Voxware pursuant to
Accounting Principles Board Opinion No. 16 "Business Combinations" ("APB 16").
The presentation below also reflects the effect of the sale of substantially all
of the assets relating to Voxware's digital speech coding business to Ascend for
aggregate cash consideration of $5,100,000, of which $750,000 will be placed in
escrow for a period of 18 months to secure Voxware's indemnification obligations
under the Asset Purchase Agreement.
The following unaudited pro forma condensed combined financial information
combines the historical statements of operations of Voxware with the historical
statements of operations of Verbex (Voxware and Verbex are collectively referred
to as the "Combined Company") after giving effect to the Purchase Transaction
and the Sale, as if the Purchase Transaction and the Sale had each occurred on
July 1, 1997, and the historical balance sheet of Voxware with the historical
balance sheet of Verbex as if the Purchase Transaction and the Sale had occurred
on December 31, 1998.
The pro forma amounts below are presented for informational purposes only.
These pro forma amounts are not necessarily indicative of the results of
operations of the Combined Company that would have actually occurred had the
Purchase Transaction and the Sale been consummated as of July 1, 1997 or of the
financial condition of the Combined Company had the Purchase Transaction and the
Sale been consummated as of December 31, 1998 or of the future results of
operations or financial condition of the Combined Company.
The unaudited pro forma condensed combined statements of operations and the
unaudited pro forma condensed combined balance sheet do not reflect:
. the operating results of Voxware and Verbex from December 31, 1998
through the closing date of the Purchase Transaction (February 18,
1999),
. any cost savings the Company expects to achieve as a result of the
Purchase Transaction, in particular the elimination of costs
associated with administrative activities and facilities, or
. any cost savings that the Company expects to achieve as a result of
the Sale, in particular those expenses associated with the Company's
digital speech coding business purchased by Ascend, and the costs
associated with the research, development, sales and marketing
expenses associated with the Company's digital speech coding business
purchased by Ascend. The Company has eliminated from the accompanying
pro forma financial statements the revenues and related cost of
revenues generated from the IP telephony business.
Verbex 8-k 050399
<PAGE>
The Company has not separated or eliminated the operating expenses
associated with the technologies sold to Ascend because the Compnay
does not dedicate emoloyees or resources exclusively to the IP
telephony market or its other target markets. For example, each of
Voxware's engineers, at various times, generally researches and
develops technologies that are used in each of the multimedia,
consumer devices and IP telephony markets; the Company does not
organize its research, development, sales or marketing teams to
specifically service and support technologies for its individual
target markets. Rather, the Company's efforts towards each of the
different markets are commingled among employees and other resources.
As such, there are no operating expenses whose elimination is directly
attributable to the transaction.
There can be no assurance that the Company will realize any cost savings from
the Purchase Transaction or the Sale.
Verbex 8-k 050399
<PAGE>
VOXWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments Adjustments
------------------------- ----------- -----------
Purchase Sale to Pro Forma
Voxware Verbex from Verbex Subtotal Ascend Combined
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues:
License fees...................... $ 2,935 $ -- $ -- $ 2,935 $ (637)4c $ 2,298
Royalties and recurring
revenues......................... 1,918 -- -- 1,918 (44)4c 1,874
Net product sales................. -- 1,905 -- 1,905 -- 1,905
---------- ----------- ----------- ----------- ----------- -----------
Total product revenues.... 4,853 1,905 -- 6,758 (681) 6,077
Service revenues...................... 1,029 807 -- 1,836 (36)4c 1,800
---------- ----------- ----------- ----------- ----------- -----------
Total revenues.................... 5,882 2,712 -- 8,594 (717) 7,877
Total cost of revenues............ 553 722 -- 1,275 (14)4c 1,261
---------- ----------- ----------- ----------- ----------- -----------
Gross profit.............. 5,329 1,990 -- 7,319 (703) 6,616
---------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development.............. 4,677 1,070 -- 5,747 -- 5,747
Sales and marketing................... 3,738 1,003 -- 4,741 -- 4,741
General and administrative............ 2,467 507 1,274 4b 4,248 -- 4,248
---------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............ 10,882 2,580 1,274 14,736 -- 14,736
---------- ----------- ----------- ----------- ----------- -----------
Operating loss...................... (5,553) (590) (1,274) (7,417) (703) (8,120)
Interest income (expense), net........... 844 (372) 389 4a 861 -- 861
---------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........................ $(4,709) $ (962) $ (885) $(6,556) $ (703) $(7,259)
========== =========== =========== =========== =========== ===========
Basic and diluted net loss per
common share............................ $ (0.37) $ (0.56)
========== ===========
Weighted average number of common
shares outstanding...................... 12,890 12,890
========== ===========
</TABLE>
<PAGE>
VOXWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments Adjustments
------------------------- ----------- -----------
Purchase Sale to Pro Forma
Voxware Verbex from Verbex Subtotal Ascend Combined
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues:
License fees........................... $ 451 $ -- $ -- $ 451 $(100)4c $ 351
Royalties and recurring revenues....... 322 -- -- 322 (3)4c 319
Net product sales...................... -- 1,253 -- 1,253 -- 1,253
---------- ----------- ----------- ----------- ----------- -----------
Total product revenues.............. 773 1,253 -- 2,026 (103) 1,923
Service revenues........................ 490 169 -- 659 (24)4c 635
---------- ----------- ----------- ----------- ----------- -----------
Total revenues......................... 1,263 1,422 -- 2,685 (127) 2,558
Total cost of revenues................. 237 477 -- 714 (10)4c 704
---------- ----------- ----------- ----------- ----------- -----------
Gross profit........................ 1,026 945 -- 1,971 (117) 1,854
---------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development................ 1,111 498 -- 1,609 -- 1,609
Sales and marketing..................... 1,370 460 -- 1,830 -- 1,830
General and administrative.............. 858 130 637 4b 1,625 -- 1,625
---------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............... 3,339 1,088 637 5,064 -- 5,064
---------- ----------- ----------- ----------- ----------- -----------
Operating loss......................... (2,313) (143) (637) (3,093) (117) (3,210)
Interest income (expense), net........... 355 (203) 206 4a 358 -- 358
---------- ----------- ----------- ----------- ----------- -----------
Net loss................................. $(1,958) $ (346) $ (431) $(2,735) $ (117) $(2,852)
========== =========== =========== =========== =========== ===========
Basic and diluted net loss per
common share............................ $ (0.15) $ (0.21)
========== ===========
Weighted average number of common
shares outstanding...................... 13,310 13,310
========== ===========
</TABLE>
<PAGE>
VOXWARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments Adjustments
------------------------- ----------- -----------
Purchase Sale to Pro Forma
Voxware Verbex from Verbex Subtotal Ascend Combined
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 6,370 $ 74 $ (5,274)4a $ 1,170 $ -- $ 1,170
Short-term investments.................... 5,382 -- -- 5,382 -- 5,382
Accounts receivable, net.................. 828 663 -- 1,491 -- 1,491
Inventory, net............................ -- 262 (40)4a 222 -- 222
Prepaid expenses and other
current assets........................... 387 4 -- 391 (50)4c 341
Restricted cash-escrow.................... -- -- 400 4a 400 -- 400
---------- ----------- ----------- ----------- ----------- -----------
Total current assets................. 12,967 1,003 (4,914) 9,056 (50) 9,006
Property and equipment, net................ 349 82 (41)4a 390 (25)4c 365
Intangibles................................ -- -- 5,097 4a 5,097 -- 5,097
Other assets, net.......................... 126 14 -- 140 -- 140
---------- ----------- ----------- ----------- ----------- -----------
$ 13,442 $ 1,099 $ 142 $ 14,683 $ (75) $ 14,608
========== =========== =========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to bank...................... $ -- $ 220 $ -- $ 220 $ -- $ 220
Convertible notes payable to
stockholders............................. -- 4,000 (4,000)4a -- -- --
Accounts payable and accrued expenses..... 999 1,816 (872)4a 1,943 475 4c 2,418
Deferred revenues......................... 148 77 -- 225 -- 225
---------- ----------- ----------- ----------- ----------- -----------
Total current liabilities................ 1,147 6,113 (4,872) 2,388 475 2,863
---------- ----------- ----------- ----------- ----------- -----------
Deferred rent.............................. 294 -- -- 294 -- 294
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock........................... -- 87 (87)4a -- -- --
Common stock.............................. 13 5 (5)4a 13 -- 13
Deferred compensation..................... -- (18) 18 4a -- -- --
Additional paid-in capital................ 29,965 16,906 (16,906)4a 29,965 -- 29,965
Unrealized loss on available-for-sale
securities............................... (2) -- -- (2) -- (2)
Accumulated deficit....................... (17,975) (21,994) 21,994 4a (17,975) (550)4c (18,525)
---------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity
(deficit)............................... 12,001 (5,014) 5,014 12,001 (550) 11,451
---------- ----------- ----------- ----------- ----------- -----------
$ 13,442 $ 1,099 $ 142 $ 14,683 $ (75) $ 14,608
========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
1. SIGNIFICANT ACCOUNTING POLICIES
There are currently no material differences in the Voxware and Verbex (the
"Companies") significant accounting policies, and therefore, no consideration
has been given to conforming the Companies' significant accounting policies in
this pro forma presentation. The Companies do not expect to have material
changes to current accounting policies in connection with the Purchase
Transaction.
2. PURCHASE PRICE AND SALES PRICE
Under the terms of the Sale, Voxware agreed to sell substantially all of the
assets relating to the Company's digital speech coding business to Ascend for
aggregate cash consideration of $5,100,000, of which $750,000 will be placed in
escrow for a period of 18 months to secure Voxware's indemnification obligations
under the Asset Purchase Agreement. If the Sale to Ascend is not approved by the
Company's stockholders, Ascend has the right, but no obligation, to license
certain technologies from Voxware. The "Subtotal" columns of the Company's pro
forma financial statements reflect the pro forma financial position and results
for the periods presented if the Sale is not approved by the Company's
stockholders (i.e., the subtotal column gives effect to the Verbex Purchase
transaction, but does not give effect to the Ascend Sale transaction).
Under the terms of the Purchase Transaction, Voxware paid $4,800,000 cash on the
date of the closing (February 18, 1998) and placed in escrow $400,000 (the
"Escrowed Price") for a period of six months from the date of the closing.
Voxware will pay the full Escrowed Price six months from closing if the assets
acquired at the date of closing exceed the liabilities assumed by a minimum
amount as defined in the Purchase Transaction agreement. To the extent there is
a deficiency, if any, Voxware will not pay that portion of the Escrowed Price.
The Company will use hindsight six months from closing to determine which assets
and liabilities were realized. Based on the Verbex balance sheet at December
31, 1998, the assets acquired exceed the liabilities assumed by more than the
minimum amount; therefore the accompanying unaudited condensed combined pro
forma financial information assumes that the full Escrowed Price will be paid.
3. LOSS PER COMMON SHARE
The Combined Company has presented its loss per common share for the year ended
June 30, 1998 and for the six months ended December 31, 1998 pursuant to
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share"
and the Securities and Exchange Commission Staff Accounting Bulletin No. 98.
Basic loss per common share was computed by dividing net loss applicable to
common stockholders by the weighted average number of shares of common stock
outstanding during the year ended June 30, 1998 and six months ended December
31, 1998. Diluted loss per common share has not been presented, since the
impact on loss per share using the treasury stock method is anti-dilutive due to
the Company's losses.
<PAGE>
4. PRO FORMA ADJUSTMENTS
(a) The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the
elimination of certain Verbex assets not acquired, certain Verbex
liabilities not assumed, and the application of the purchase method
pursuant to APB 16 for the acquisition of Verbex. Voxware acquired all of
Verbex's assets, excluding its cash, and assumed certain operating
liabilities as follows: note payable to bank, accounts payable, accrued
expenses excluding accrued interest and other accrued liabilities primarily
related to employees not hired by Voxware to work for the Combined Company,
and deferred revenues. Voxware did not assume the convertible notes payable
to Verbex's stockholders, accrued interest, other liabilities primarily
related to employees not hired by Voxware to work for the Combined Company,
preferred stock, common stock and other equity related items. The estimated
purchase price is $5,500,000, which is comprised of the cash payment of
$4,800,000 on the closing date, the estimated payment of the full Escrowed
Price of $400,000 and estimated transaction costs of $300,000. The
application of the purchase method resulted in approximately $5,097,000 in
excess of purchase price over net tangible assets acquired as of December
31, 1998. Based on a preliminary analysis, the purchase price is expected
to be allocated among the following items, although the allocation amounts
have not yet been finalized: capitalized software, customer list and Value-
Added-Reseller ("VAR") agreements, workforce , and goodwill. Based on a
preliminary analysis performed by Voxware, these intangibles will be
amortized over 4 years. The Unaudited Pro Forma Condensed Combined
Financial Statements also reflect a reduction of interest expense related
to Verbex's notes payable to stockholders, which the Company has not
assumed as a result of the Purchase Transaction.
<TABLE>
<CAPTION>
COMPUTATION OF EXCESS PURCHASE PRICE
<S> <C>
Payment of cash at closing $ 4,800,000
Escrowed Price (included in restricted cash-escrow and accrued expenses) 400,000
Transaction costs (included in accrued expenses) 300,000
-------------------
Proforma purchase price $ 5,500,000
===================
Net shareholders' deficit of Verbex at December 31, 1998 $(5,013,715)
Cash not acquired (73,747)
Write-down of inventory to fair market value (40,000)
Write-down of property and equipment to fair market value (40,949)
Convertible notes payable to stockholders not assumed 3,999,946
Accrued expenses not assumed 1,571,568
-------------------
Net tangible assets acquired $ 403,103
===================
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Pro forma purchase price $ 5,500,000
Less: net tangible assets acquired 403,103
-------------------
Excess of pro forma purchase price over net tangible value acquired $ 5,096,897
===================
</TABLE>
Preliminary Allocation of Excess Purchase Price
The excess of pro forma purchase price over net tangible assets acquired
will be allocated among the following items, although the allocation
amounts have not yet been finalized: capitalized software, customer list
and Value-Added-Reseller ("VAR") agreements, workforce , and goodwill.
Based on a preliminary analysis performed by Voxware, these intangibles
will be amortized over 4 years.
(b) The Unaudited Pro Forma Condensed Combined Statements of Operations reflect
the amortization of intangibles totaling $1,274,000 for the year ended June
30, 1998 and $637,000 for the six months ended December 31, 1998.
(c) The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to
the sale of substantially all of the assets relating to Voxware's digital
speech coding business for the IP telephony market to Ascend. The
Unaudited Pro Forma Condensed Combined Balance Sheet reflects accrued
transaction costs totaling $475,000, property and equipment transferred to
Ascend totaling $25,000, and the reversal of certain transaction costs
previously paid totaling $50,000. The Unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended December 31,
1998 and for the year ended June 30, 1998 reflect the elimination of
revenues derived from, and cost of revenues associated with, the
technologies sold to Ascend for use in the IP telephony market. The
Company has not separated or eliminated the operating expenses associated
with the technologies sold to Ascend because the Company does not dedicate
employees or resources exclusively to the IP telephony market or its other
target markets. For example, each of Voxware's engineers, at various
times, generally researches and develops technologies that are used in each
of the multimedia, consumer devices and IP telephony markets; the Company
does not organize its research, development, sales or marketing teams to
specifically service and support technologies for its individual target
markets. Rather, the Company's efforts towards each of the different
markets are commingled among employees and other resources. As such, there
are no operating expenses whose elimination is directly attributable to the
transaction.
Subsequent to the sale to Ascend, Voxware will retain the rights to all
royalties and other fees due from its existing customers prior to the
transaction with Ascend. Voxware will also retain the right to license its
technologies to customers in the multimedia and consumer devices markets,
and not in the IP telephony market, subject to Ascend's approval. Voxware
intends to continue to license its speech technologies to customers in the
multimedia and consumer devices markets on a limited basis, although the
Verbex business will be the focus of the Company's operations. As such,
revenues generated from the multimedia and consumer devices markets have
not been eliminated from the Unaudited Pro Forma Condensed Combined
Statements of Operations presented.
The Company expects to record a gain on the Sale to Ascend of approximately
$3,800,000 upon approval of the transaction by the Company's stockholders.
This gain has not been reflected in the accompanying Unaudited Pro Forma
Condensed Combined Financial Statements. The Company also has a $750,000
gain contingency which will be recorded upon receipt of the final $750,000
due from Ascend 18 months following the closing. That amount is being held
in escrow as a reserve for any amounts that the Company may have to pay
Ascend pursuant to the indemnification provisions in the Asset Purchase
Agreement. The gain contingency has not been reflected in the accompanying
Unaudited Pro Forma Condensed Combined Financial Statements.
If the Sale to Ascend is not approved by the Company's stockholders, Ascend
has the right, but no obligation, to license certain technologies from
Voxware. The "Subtotal" columns of the Company's pro forma financial
statements reflect the pro forma financial position and results for the
periods presented if the Sale is not approved by the Company's stockholders
(i.e., the subtotal column gives effect to the Verbex Purchase transaction,
but does not give effect to the Ascend Sale transaction or the optional
licenses which Ascend may purchase from Voxware at Ascend's option if the
Sale is not approved by Voxware's stockholders).
<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 hereunto duly authorized.
VOXWARE, INC.
Date: May 3, 1999 By:/s/ Nicholas Narlis
----------------------------
Nicholas Narlis, Vice President,
Chief Financial Officer, Secretary and
Treasurer
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
- ------- ----------------------------------------------------------------------
2.1 Asset Purchase Agreement, dated February 4, 1999, by and among Verbex
Voice Systems, Inc., Voxware, Inc. and Voxware Acquisition
Corporation.*
23.1 Consent of Arthur Andersen LLP.
_______________
* Filed as an exhibit to the Company's Current Report on Form 8-K dated February
18, 1999 and filed March 5, 1999.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K/A, into Voxware, Inc.'s previously filed
Registration Statement on Form S-8 File No. 333-27069.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
May 3, 1999
Verbex 8-k 050399
