<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 nine months ended March 31, 1999 and
unaudited pro forma condensed combined balance sheet as of March 31, 1999,
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 $223,534
Work-in-process 22,568
Finished goods 259,554
--------
$505,656
Less reserve 243,951
--------
Inventory, net $261,705
========
</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 Verbex transaction has been 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 agreement to
sell the assets with Ascend.
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 after giving effect to the Verbex
transaction and the sale to Ascend, as if the Verbex transaction and the sale
to Ascend had each occurred on July 1, 1997, and the historical balance sheet
of Voxware as if the sale to Ascend had occurred on March 31, 1999.
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 Voxware-Verbex company that would have actually
occurred had the Verbex transaction and the sale to Ascend been consummated as
of July 1, 1997 or of the financial condition of the combined Voxware-Verbex
company had the sale to Ascend been consummated as of March 31, 1999, or of the
future results of operations or financial condition of the combined Voxware-
Verbex company.
The unaudited pro forma condensed combined statements of operations and the
unaudited pro forma condensed combined balance sheet do not reflect:
. any cost savings Voxware expects to achieve as a result of the Verbex
transaction, in particular the elimination of costs associated with
administrative activities and facilities; or
. any cost savings that Voxware expects to achieve as a result of the sale
to Ascend, in particular those expenses associated with Voxware's
digital speech coding business purchased by Ascend, and the costs
associated with the research, development, sales and marketing expenses
associated with Voxware's digital speech coding business purchased by
Ascend.
We will continue to have revenue from existing licensees of our speech coding
technology in the multimedia and consumer devices markets after the sale to
Ascend, in the form of periodic license renewal fees, royalties and service
fees. With the consent of Ascend, we may also license our speech coding
technologies after the sale for uses that are not competitive with Ascend.
Although we do not have any agreements or arrangements with Ascend relating to
any general or specific guidelines for obtaining Ascend's consent, we believe
that Ascend will consent to our licensing the speech coding technologies in the
multimedia and consumer devices markets. We do not believe that we will have
any revenues from new licensees in the IP telephony market. Accordingly, we
have eliminated from the accompanying pro forma financial statements the
revenues and related cost of revenues generated from the IP telephony market.
Voxware historically has not separated or eliminated the operating expenses
associated with the technologies sold to Ascend because Voxware did 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 researched and developed technologies that were used in each
of the multimedia, consumer devices and IP telephony markets; Voxware did not
organize its research, development, sales or marketing teams to specifically
service and support technologies for its individual target markets. Rather,
Voxware's employees and other resources were commingled among its various
target markets. As such, there are no operating expenses whose elimination is
directly attributable to the transaction.
<PAGE>
You should note that our revenue from licensing speech coding technologies
and audio compression technologies has been decreasing over the last two years.
Therefore, we expect that, even if Ascend is willing to give its consent, our
new licensing activity relating to the speech coding technologies will decrease
significantly after completion of the sale. Further, over time, as we focus on
the Verbex business, we expect that revenues from licenses of speech coding
technologies will become a less significant part of our revenues. Therefore,
the following unaudited pro forma condensed combined statements of operations
may not be indicative of our future results of operations.
There can be no assurance that Voxware will realize any cost savings from the
Verbex transaction or the sale to Ascend.
<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........... 583 722 -- 1,305 (14) 4c 1,291
------- ------ ------- ------- ----- -------
Gross profit...... 5,299 1,990 -- 7,289 (703) 6,586
------- ------ ------- ------- ----- -------
Operating expenses:
Research and
development.......... 4,726 1,070 -- 5,796 -- 5,796
Sales and marketing... 3,844 1,003 -- 4,847 -- 4,847
General and
administrative....... 2,467 507 -- 2,974 -- 2,974
Amortization of
purchased
intangibles.......... -- -- 1,322 4b 1,322 -- 1,322
------- ------ ------- ------- ----- -------
Total operating
expenses......... 11,037 2,580 1,322 14,939 -- 14,939
------- ------ ------- ------- ----- -------
Operating loss.... (5,738) (590) (1,322) (7,650) (703) (8,353)
Interest income
(expense), net......... 844 (372) 389 4a 861 -- 861
------- ------ ------- ------- ----- -------
Net loss................ $(4,894) $ (962) $ (933) $(6,789) $(703) $(7,492)
======= ====== ======= ======= ===== =======
Basic and diluted net
loss per common share.. $ (0.38) $ (0.58)
======= =======
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 Nine Months Ended March 31, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical(1) 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........ $ 661 $ -- $ -- $ 661 $(100) 4c $ 561
Royalties and
recurring
revenues........... 457 -- -- 457 (3) 4c 454
Net product sales... 129 1,630 -- 1,759 -- 1,759
------- ------ ----- ------- ----- -------
Total product
revenues......... 1,247 1,630 -- 2,877 (103) 2,774
Service revenues........ 626 214 -- 840 (24) 4c 816
------- ------ ----- ------- ----- -------
Total revenues...... 1,873 1,844 -- 3,717 (127) 3,590
Total cost of
revenues........... 384 602 -- 986 (10) 4c 976
------- ------ ----- ------- ----- -------
Gross profit...... 1,489 1,242 -- 2,731 (117) 2,614
------- ------ ----- ------- ----- -------
Operating expenses:
Research and
development.......... 1,655 641 -- 2,296 -- 2,296
Sales and marketing... 1,884 599 -- 2,483 -- 2,483
General and
administrative....... 1,312 286 -- 1,598 -- 1,598
Amortization of
purchased
intangibles.......... 147 -- 844 4b 991 -- 991
------- ------ ----- ------- ----- -------
Total operating
expenses........... 4,998 1,526 844 7,368 -- 7,368
------- ------ ----- ------- ----- -------
Operating loss...... (3,509) (284) (844) (4,637) (117) (4,754)
Interest income
(expense), net......... 473 (264) 268 4a 477 -- 477
------- ------ ----- ------- ----- -------
Net loss................ $(3,036) $ (548) $(576) $(4,160) $(117) $(4,277)
======= ====== ===== ======= ===== =======
Basic and diluted net
loss per common share.. $ (0.23) $ (0.32)
======= =======
Weighted average number
of common shares
outstanding............ 13,321 13,321
======= =======
</TABLE>
- --------
(1) Verbex historical information is for the period July 1, 1998 through
February 18, 1999, the date of Voxware's acquisition of substantially all
of the assets of Verbex. All activity for the Verbex business after
February 18, 1999 is included in the Voxware column.
<PAGE>
Voxware, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments
---------- -----------
Sale to Pro Forma
Voxware Ascend Combined
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 1,827 $ 4,350 4c $ 6,177
Short-term investments.................... 3,516 -- 3,516
Accounts receivable, net.................. 804 -- 804
Inventory, net............................ 240 -- 240
Prepaid expenses and other current
assets................................... 620 (325) 4c 295
Restricted cash........................... 604 (204) 4c 400
-------- -------- --------
Total current assets.................... 7,611 3,821 11,432
Property and equipment, net................. 344 (25) 4c 319
Intangibles................................. 5,153 -- 5,153
Other assets, net........................... 489 -- 489
-------- -------- --------
$ 13,597 $ 3,796 $ 17,393
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..... $ 2,296 $ 96 4c $ 2,392
Deferred revenues......................... 91 -- 91
-------- -------- --------
Total current liabilities............... 2,387 96 2,483
-------- -------- --------
Deferred rent............................... 282 -- 282
Commitments and contingencies
Stockholders' equity:
Preferred stock........................... -- -- --
Common stock.............................. 13 -- 13
Deferred compensation..................... -- -- --
Additional paid-in capital................ 29,965 -- 29,965
Unrealized gain on available-for-sale
securities............................... 3 -- 3
Accumulated deficit....................... (19,053) 3,700 4c (15,353)
-------- -------- --------
Total stockholders' equity.............. 10,928 3,700 14,628
-------- -------- --------
$ 13,597 $ 3,796 $ 17,393
======== ======== ========
</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 Verbex
transaction. For further information on the Companies' significant accounting
policies, see the notes to the financial statements of the Companies included
elsewhere in this Proxy Statement.
2. PURCHASE PRICE AND SALES PRICE
Under the terms of the sale to Ascend, Voxware agreed to sell substantially
all of the assets relating to its 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 agreement with Ascend. If the sale to Ascend is not
approved by Voxware's stockholders, Ascend has the right, but no obligation, to
license technologies from Voxware which could provide up to $800,000 in license
fees to Voxware. The license fees to be paid to Voxware would vary based on the
technology, if any, elected to be licensed by Ascend. Accordingly, the
"subtotal" columns of the pro forma statements of operations, and the "Voxware"
column of the pro forma balance sheet give effect to the Verbex transaction,
but do not give effect to the sale to Ascend. The "Pro Forma Adjustments--Sale
to Ascend" columns give effect to the sale to Ascend transaction but do not
give effect to the licenses which Ascend may purchase from Voxware at Ascend's
option if the sale is not approved by Voxware's stockholders.
Under the terms of the Verbex transaction, Voxware paid $4,800,000 cash on
the date of the closing (February 18, 1999) 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 Verbex transaction agreement. To the extent there is a
deficiency, if any, Voxware will not pay that portion of the Escrowed Price.
Voxware will use hindsight six months from closing to determine which assets
and liabilities were realized.
3. LOSS PER COMMON SHARE
The combined Voxware-Verbex company has presented its loss per common share
for the year ended June 30, 1998 and for the nine months ended March 31, 1999
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 nine months ended March 31,
1999. 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
Voxware's losses.
4. PRO FORMA ADJUSTMENTS
(a) The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the
elimination of the Verbex assets not acquired, 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 the following operating liabilities: note payable to bank,
accounts payable, accrued expenses excluding accrued interest and other accrued
liabilities primarily related to employees not hired by Voxware, 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, preferred stock, common stock and other equity
related items. The approximate purchase price was $5,500,000, which was
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
<PAGE>
approximate 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. 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 VAR agreements, engineering workforce, and goodwill. Based on a
preliminary analysis performed by Voxware, these intangibles will be amortized
over 4 years. Voxware expects to complete its purchase price allocation before
filing its Annual Report on Form 10-K for the fiscal year ending June 30, 1999
after conducting relevant analyses, including possibly obtaining a valuation
report from an independent third party. The Unaudited Pro Forma Condensed
Combined Financial Statements also reflect a reduction of interest expense
related to Verbex's notes payable to stockholders, which Voxware has not
assumed as a result of the Verbex transaction.
<TABLE>
<S> <C>
Computation of Excess Purchase Price
Payment of cash at closing.................................. $ 4,800,000
Escrowed Price (included in accrued expenses)............... 400,000
Transaction costs (included in accrued expenses)............ 300,000
-----------
Proforma purchase price................................... $ 5,500,000
===========
Net shareholders' deficit of Verbex........................... $(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
===========
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>
(b) The Unaudited Pro Forma Condensed Combined Statements of Operations
reflect the amortization of intangibles totaling $1,322,000 for the year ended
June 30, 1998 and $991,000 for the nine months ended March 31, 1999.
(c) The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to
the sale of substantially all of the assets relating to Voxware's speech coding
business to Ascend. The Unaudited Pro Forma Condensed Combined Balance Sheet
reflects the receipt of $4,146,000 in cash from Ascend and the reclassification
from restricted cash to cash and cash equivalents of $204,000 previously paid
to Voxware by Ascend. The restrictions surrounding the reversal of this amount,
and conditions that must be met for the restrictions to be removed, are
described on page 30 under the caption "Fees and Expenses." The Unaudited Pro
Forma Condensed Combined Balance Sheet also reflects the reversal of $325,000
in deferred costs previously paid in relation to the Ascend transaction,
accrued transaction costs totaling $300,000, partially offset by the reversal
of the $204,000 previously paid by Ascend that is included in accrued
liabilities as of March 31, 1999, property and equipment transferred to Ascend
totaling $25,000, and a gain on the sale to Ascend totaling $3,700,000. The
sale to Ascend does not include our rights and obligations under our existing
license agreements. As part of the sale, we will receive a license from Ascend
to use the speech coding technologies necessary to service those existing
licensees. With the consent of Ascend, we may also license the speech coding
technologies to new licensees for uses that are not competitive with Ascend.
While we will continue to have revenue from existing and possibly new licensees
of our speech coding technology in the multimedia and consumer devices markets
after the sale to Ascend, we will not have any revenues from new licensees in
the IP telephony market. Accordingly, we have eliminated from the accompanying
pro forma financial statements the revenues and related cost of revenues
generated from the IP telephony market.
<PAGE>
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
nine months ended March 31, 1999 and for the year ended June 30, 1998 reflect
the elimination of revenues derived from, and cost of revenues associated with,
the licensing and sale of technology for use in the IP telephony market. No
operating expenses have been eliminated from the pro forma statements of
operations because Voxware does not separate its operating expenses by target
market, nor does Voxware 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 researched and developed technologies
that were used in each of the multimedia, consumer devices and IP telephony
markets; Voxware did not organize its research, development, sales or marketing
teams to specifically service and support technologies for its individual
target markets. Rather, Voxware's employees and other resources were commingled
among employees and other resources. As such, there are no operating expenses
whose elimination is directly attributable to the transaction.
Voxware expects to record a gain on the sale to Ascend of approximately
$3,700,000 in the period the transaction closes, which gain has not been
reflected in the Unaudited Pro Forma Condensed Combined Statements of
Operations presented. Voxware may also record a gain of up to $750,000 upon
receipt of the final payment from Ascend which will be held in escrow until 18
months following the closing to secure our indemnification obligations under
the agreement with Ascend. The gain associated with the final $750,000 payment
has not been reflected in the accompanying Unaudited Pro Forma Condensed
Combined Financial Statements.
If the sale to Ascend is not approved by Voxware's stockholders, Ascend has
the right, but no obligation, to license technologies from Voxware which could
provide up to $800,000 in license fees to Voxware. The "Subtotal" columns of
the pro forma statements of operations and the "Voxware" column of the pro
forma balance sheet reflect the pro forma financial position and results for
the periods presented if the sale is not approved by Voxware's stockholders.
Accordingly, the Subtotal column of the pro forma statements of operations and
the "Voxware" column of the pro forma balance sheet give effect to the Verbex
transaction, but do not give effect to the sale to Ascend or the 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: August 11, 1999 By:/s/ Nicholas Narlis
----------------------------
Nicholas Narlis, Vice President,
Chief Financial Officer, Secretary and
Treasurer
<PAGE>
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.
/s/ ARTHUR ANDERSEN LLP
Princeton, New Jersey
August 11, 1999
