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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1999
--------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______________
Commission File Number 0-021403
VOXWARE, INC.
-------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-3934824
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
305 College Road East
Princeton, New Jersey 08540
609-514-4100
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT MAY 14, 1999
- ----------------------------- ----------------------------------
Common Stock, $.001 par value 13,343,851
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<CAPTION>
VOXWARE, INC.
INDEX
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Consolidated Financial Statements (unaudited) PAGE NO.
--------
Consolidated Statements of Operations
Three and Nine Months Ended March 31, 1999 and 1998....... 3
Consolidated Balance Sheets
March 31, 1999 and June 30, 1998............................ 4
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998................... 5
Notes to Consolidated Financial Statements.................... 6
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition......................................... 8
PART II - OTHER INFORMATION
Item 5. Other Information...................................... 19
Item 6. Exhibits and Reports on Form 8-K....................... 19
SIGNATURES...................................................................... 20
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VOXWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Product revenues:
Product sales .................. $ 129 $ -- $ 129 $ --
License fees ................... 210 608 661 2,650
Royalties and recurring revenues 135 305 457 1,537
-------- -------- -------- --------
Total product revenues . 474 913 1,247 4,187
Service revenues .................... 136 393 626 788
-------- -------- -------- --------
Total revenues ................. 610 1,306 1,873 4,975
-------- -------- -------- --------
Cost of revenues:
Cost of product revenues ............ 62 10 62 107
Cost of service revenues ............ 85 160 322 306
-------- -------- -------- --------
Total cost of revenues ......... 147 170 384 413
-------- -------- -------- --------
Gross profit ........... 463 1,136 1,489 4,562
-------- -------- -------- --------
Operating expenses:
Research and development ............ 544 1,064 1,655 3,839
Sales and marketing ................. 514 865 1,884 2,919
General and administrative .......... 454 519 1,312 1,669
Amortization of purchased intangibles 147 -- 147 --
-------- -------- -------- --------
Total operating expenses ....... 1,659 2,448 4,998 8,427
-------- -------- -------- --------
Operating loss ................ (1,196) (1,312) (3,509) (3,865)
Interest income ....................... 118 207 473 649
-------- -------- -------- --------
Net loss .............................. $ (1,078) $ (1,105) $ (3,036) $ (3,216)
======== ======== ======== ========
Basic and diluted net loss
per common share .................... $ (0.08) $ (0.08) $ (0.23) $ (0.25)
======== ======== ======== ========
Weighted average number of
common shares outstanding ........... 13,344 13,086 13,321 12,696
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements
3
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<TABLE>
<CAPTION>
VOXWARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
1999 1998
-------- --------
(unaudited)
(In thousands, except share and per share data)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 1,827 $ 9,149
Short-term investments ............................................ 3,516 4,388
Accounts receivable, net ............................................. 804 1,254
Inventory, net ....................................................... 240 --
Prepaid expenses and other current assets ............................ 620 268
Restricted cash ...................................................... 604 --
-------- --------
Total current assets ............................................ 7,611 15,059
Property and equipment, net ............................................... 344 407
Intangible assets, net .................................................... 5,153 --
Other assets, net ......................................................... 489 91
-------- --------
$ 13,597 $ 15,557
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................ $ 2,296 $ 1,097
Deferred revenues .................................................... 91 219
-------- --------
Total current liabilities ....................................... 2,387 1,316
-------- --------
Deferred rent ............................................................. 282 328
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
none issued and outstanding ....................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized;
13,343,851 and 13,292,524 shares issued and outstanding at
March 31, 1999 and June 30, 1998, respectively ..................... 13 13
Additional paid-in capital ........................................... 29,965 29,915
Unrealized gain on available-for-sale securities ..................... 3 2
Accumulated deficit .................................................. (19,053) (16,017)
-------- --------
Total stockholders' equity ...................................... 10,928 13,913
-------- --------
$ 13,597 $ 15,557
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
VOXWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
---------------------------
1999 1998
----------- ----------
(in thousands)
<S> <C> <C>
Operating Activities:
Net loss .................................................................. $ (3,036) $ (3,216)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 302 170
Provision for doubtful accounts ......................................... 105 490
Stock-based directors' compensation ..................................... -- 80
Changes in assets and liabilities:
Accounts receivable ..................................................... 801 763
Inventory ............................................................... (22) --
Prepaid expenses and other current assets ............................... (339) (33)
Restricted cash-current ................................................. (604) --
Other assets ............................................................ (384) (9)
Accounts payable and accrued expenses ................................... 354 (1,060)
Deferred revenues ....................................................... (160) (58)
Deferred rent ........................................................... (49) 75
-------- --------
Net cash used in operating activities ................................ (3,032) (2,798)
-------- --------
Investing Activities:
Purchases of short-term investments ....................................... (16,831) (47,783)
Sales and maturities of short-term investments ............................ 17,704 48,044
Purchases of property and equipment ....................................... (50) (52)
Purchase of Verbex Voice Systems, Inc. .................................... (5,163) --
-------- --------
Net cash used in investing activities ................................ (4,340) 209
-------- --------
Financing Activities:
Proceeds from exercises of common stock options ........................... 19 998
Issuance of common stock pursuant to Employee
Stock Purchase Plan .................................................. 31 111
-------- --------
Net cash provided by financing activities ............................ 50 1,109
-------- --------
Decrease in cash and cash equivalents ........................................ (7,322) (1,480)
Cash and cash equivalents, beginning of period ............................... 9,149 10,627
-------- --------
Cash and cash equivalents, end of period ..................................... 1,827 9,147
Short-term investments, end of period ........................................ 3,516 5,586
-------- --------
Cash, cash equivalents and short-term investments,
end of period ............................................................. $ 5,343 $ 14,733
======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Unrealized gain on short-term investments ............................ $ 1 $ 5
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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VOXWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for Voxware, Inc. and its
wholly-owned subsidiary, Verbex Acquisition Corporation ("Voxware" or the
"Company"), as of March 31, 1999 and for the three and nine month periods
ended March 31, 1999 and 1998 are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in
the Company's Annual Report on Form 10-K which was filed on September 28,
1998, as amended on Form 10-K/A which was filed on October 28, 1998.
The results of operations for the interim periods ended March 31,
1999 are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 1999 or any other future periods.
2. NET LOSS PER SHARE
The Company has presented net loss per share for the three and nine
months ended March 31, 1999 and 1998 pursuant to Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings per Share." Net loss per
share was computed by dividing the net loss by the weighted average
number of common shares outstanding during the three and nine months
ended March 31, 1999 and 1998. Due to the Company's net losses for the
three and nine months ended March 31, 1999 and 1998, the effect of
including outstanding common stock options in the calculation of net loss
per share would be anti-dilutive. Therefore, outstanding common stock
options have not been included in the calculation of net loss per share,
and as a result, basic net loss per share is the same as diluted net loss
per share for all periods presented.
3. REVENUE RECOGNITION
The Company generates revenues from products and services. Product
revenues consist of product sales, license fees, and royalties and
recurring revenues. Product sales represent shipments of portable and
stationary speech recognition-based products for industrial markets.
Revenues from product sales are generally recognized upon shipment. The
Company began shipping speech recognition based products subsequent to
its acquisition of substantially all of the assets of Verbex Voice
Systems, Inc. ("Verbex"), which occurred on February 18, 1999. License
fees are generated from licensing the Company's speech compression
technologies to customers in the multimedia and consumer devices markets
and from licensing the Company's speech recognition-based software
applications acquired in the Verbex transaction. License fees are
generally recognized upon shipment of the underlying technologies,
provided that there are no significant post-delivery obligations,
persuasive evidence of an arrangement exists, pricing is fixed or
determinable, the payment is due within one year and collection of the
resulting receivable is deemed probable. Royalties and recurring revenues
include royalties, which are generally based on a percentage of
licensees' sales or units shipped, and pre-determined periodic license
fees. Royalty revenues are recognized at the time of the customer's
shipment of products incorporating the Company's technology. Recurring
product license fees are generally recognized at the inception of the
renewal period, provided that there are no significant post-delivery
obligations, persuasive evidence of an arrangement exists, pricing is
fixed or determinable, the payment is due within one year and collection
of the resulting receivable is deemed probable. Service revenues from
customer maintenance support, including the amounts bundled with initial
or recurring revenues, are recognized over the term of the maintenance
support period, which is typically one year. Service revenues from
engineering fees are recognized upon customer acceptance or over the
period in which services are provided if customer acceptance is not
required.
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4. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net
income (loss). SFAS 130 requires that all items defined as comprehensive
income, including changes in the amounts of unrealized gains and losses
on available-for-sale securities, be shown as a component of
comprehensive loss. In the Company's annual financial statements,
comprehensive loss will be required to be presented either in a separate
financial statement or as part of either the statement of operations or
statement of stockholders' equity. The only comprehensive income item the
Company has is unrealized gains and losses on available-for-sale
securities.
The following reconciles net loss to comprehensive net loss for the
three and nine month periods ended March 31, 1999 and 1998:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
Net loss ........................... $(1,078) $(1,105) $(3,036) $(3,216)
Other comprehensive income:
Unrealized gain on
available-for-sale securities . 5 2 1 5
------- ------- ------- -------
Comprehensive net loss ............. $(1,073) $(1,103) $(3,035) $(3,211)
======= ======= ======= =======
5. ACQUISITION OF ASSETS OF VERBEX VOICE SYSTEMS, INC.
On February 4, 1999, Voxware entered into a definitive agreement
with Verbex Voice Systems, Inc. ("Verbex") to acquire substantially all
of the assets of Verbex for approximately $5.2 million in cash. The
Verbex transaction was consummated on February 18, 1999. Since that time,
Voxware's primary business focus has been Verbex's business of developing
and selling speech recognition products for the warehousing and
manufacturing markets as well as other industrial markets. This will
include the exploration of strategic alternatives to augment Verbex's
business, including mergers, acquisitions and joint ventures.
6. SALE OF ASSETS TO ASCEND
On February 4, 1999, the Company entered into a definitive agreement
with Ascend Communications, Inc. ("Ascend") to sell to Ascend for
approximately $5.1 million in cash substantially all of its assets
relating to what has historically been the Company's primary business of
developing and licensing speech compression technologies and products.
The Company expects that the Ascend transaction will close in June 1999,
subject to stockholder approval. The sale does not include Voxware's
rights and obligations under its existing license agreements and, as part
of the sale, Voxware will receive a license back from Ascend to use the
Voxware technology necessary to service its existing licensees. With the
consent of Ascend, the Company may also license the speech coding
technologies to new licensees for uses that are not competitive with
Ascend.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. SUCH STATEMENTS ARE SUBJECT TO CERTAIN FACTORS WHICH
MAY CAUSE THE COMPANY'S PLANS AND RESULTS TO DIFFER. FACTORS THAT MAY
CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE APPROVAL OF
THE COMPANY'S SALE OF SUBSTANTIALLY ALL OF THE ASSETS RELATING TO WHAT
HAS HISTORICALLY BEEN ITS PRIMARY BUSINESS OF DEVELOPING AND LICENSING
SPEECH COMPRESSION TECHNOLOGIES AND PRODUCTS TO ASCEND COMMUNICATIONS,
INC. ("ASCEND"), THE COMPANY'S ACQUISITION OF SUBSTANTIALLY ALL OF THE
ASSETS OF VERBEX VOICE SYSTEMS, INC. ("VERBEX") AND THE COMPANY'S ABILITY
TO COMPETE IN VERBEX'S BUSINESS, WHICH IS A NEW LINE OF BUSINESS FOR THE
COMPANY, THE RATE OF PROGRESS, IF ANY, OF THE COMPANY'S PRODUCT
DEVELOPMENT PROGRAMS AND THE UNCERTAINTY OF ACCEPTANCE OF THE COMPANY'S
PRODUCTS IN THE MARKETPLACE, THE HIGHLY COMPETITIVE NATURE OF THE
COMPANY'S INDUSTRY AND THE COMPANY'S ABILITY TO COMPETE SUCCESSFULLY, THE
COMPANY'S ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, THE
COMPANY'S ABILITY TO SUCCESSFULLY ENTER INTO AND MAINTAIN RELATIONSHIPS
WITH THIRD PARTIES AND THE COMPANY'S DEPENDENCE ON SUCH THIRD PARTIES TO
DEVELOP AND MARKET PRODUCTS USING THE COMPANY'S TECHNOLOGY AND TO DEVELOP
A RECURRING REVENUE STREAM TO THE COMPANY, THE COMPANY'S ABILITY TO
MANAGE ITS GROWTH, THE COSTS INVOLVED IN OBTAINING AND ENFORCING PATENTS
AND ANY NECESSARY LICENSES, THE COMPANY'S ABILITY TO OBTAIN ADDITIONAL
FUNDS AS NECESSARY, AND THOSE OTHER RISKS DISCUSSED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K.
OVERVIEW
On February 4, 1999, we entered into the asset purchase agreement
with Ascend to sell to Ascend substantially all of our assets relating to
what has historically been our primary business of developing and selling
speech compression technologies and products. Also on February 4, 1999,
we entered into a definitive agreement with Verbex to acquire
substantially all of the assets of Verbex. The Verbex transaction was
consummated on February 18, 1999. Voxware is now focusing its efforts on
Verbex's business of developing and selling speech recognition products
for the warehousing and manufacturing markets as well as other industrial
markets.
Prior to its acquisition of Verbex, Voxware historically generated
revenues relating to its speech and audio coding business from two
sources: fees from software product licenses and fees for services
provided. Product revenues consist of two components: software license
fees, and royalties and recurring revenues. Voxware licensed its products
primarily to software and hardware companies which incorporated Voxware's
products and technologies into their products. Arrangements with
customers, which were negotiated on a case-by-case basis, historically
included one or more of the following: initial license fees, quarterly
license fees, annual license fees or royalties based on the licensee's
revenue generated or units shipped of products incorporating Voxware's
technologies. As a result, the timing and amount of our revenues have
been substantially dependent on the timing and efforts of our licensees
in developing and marketing products incorporating our products and
technologies. Software product revenues are generally recognized upon
shipment, provided that there are no significant post-delivery
obligations, persuasive evidence of an arrangement exists, pricing is
fixed or determinable, the payment is due within one year and collection
of the resulting receivable is deemed probable. If an acceptance period
is required, revenues are recognized upon customer acceptance. Royalty
revenues are recognized in the period of customer shipment. Service
revenues consist of customer maintenance support and engineering fees.
Customer maintenance support revenues are recognized over the term of the
support period, which typically lasts for one year. Engineering fees are
generally recognized upon customer acceptance or upon delivery if
customer acceptance is not required. All research and development costs
are expensed as incurred.
The sale to Ascend does not include Voxware's rights and obligations
under its existing license agreements. After the sale to Ascend, Voxware
will receive licensing revenue from its
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existing licensees relating to the speech compression technologies sold
to Ascend as well as licensing revenue relating to its audio compression
technologies not sold to Ascend. Voxware will also have the ability, with
the consent of Ascend, to enter into new license agreements relating to
the speech compression technologies. We expect that new licensing
activity relating to the speech compression technology will decrease
significantly after completion of the sale and revenues from licensees of
speech and audio compression technologies will become a less significant
part of our revenues over time. Therefore, we do not expect revenue from
new licensing activity to materially affect our financial position.
Verbex historically generated revenues primarily from product sales,
licenses and development services. Product sales consist of: portable
devices used for mobile industrial speech-recognition applications
(Verbex's MVP product line); stationary speech-recognition devices,
primarily used for warehouse receiving and package sorting applications;
and accessories that complemented its product offerings, including
microphones, headsets and computer hardware. Verbex also licensed its
VCORE speech recognition software application for use in embedded
applications, and provided maintenance services to customers, generally
under one- to three-year agreements. Development services consist of
providing technical resources and assistance to customer-specific
development efforts, which include porting Verbex's technology to
specific customer platforms. Revenues from product sales are generally
recognized when products are shipped.
The majority of our existing licensees of our speech compression
products compete in the multimedia Internet software market, which is a
relatively new market, and many of the companies compete against much
more established companies and/or have businesses that are relatively
immature. We believe that a significant number of our licensees which
compete in this market have not incorporated, and may never incorporate,
Voxware's technologies into their products. Therefore, we may never
derive royalties or other recurring revenues from many of our existing
license agreements in the multimedia Internet software market. With
respect to IP telephony, deployments in that market have primarily
utilized standardized codec technologies (and not Voxware's proprietary
codec technologies). In addition, deployments in IP telephony have been
characterized by bandwidth-rich managed networks (Intranets), which
networks generally do not benefit significantly from low bandwidth
solutions such as Voxware's technologies. As a result of these factors,
demand for Voxware's technologies in the IP telephony market has not been
significant. In connection with the sale to Ascend, we expect to
discontinue our activities in the IP telephony market. As a result of the
circumstances surrounding development and status of the multimedia and IP
telephony markets, among other things, we wrote-off approximately
$688,000 in accounts receivable during the year ended June 30, 1998. We
believe that all or a portion of the written-off receivables may have
been recoverable through certain legal enforcement of the underlying
contractual arrangements. However, we made a business decision not to sue
or aggressively pursue collection of outstanding payment obligations from
these customers because (1) we believe that the impact on our reputation
for initiating certain lawsuits or other aggressive collection actions
against companies which could potentially be future customers may be more
costly than the benefit that could be derived from recoveries of accounts
receivable through these means, and (2) the costs of pursuing legal
recourse and effectuating collection efforts would likely offset
collections, if any. As a result of these factors, we deemed certain of
our accounts in multimedia and IP telephony uncollectible, and wrote-off
those accounts during fiscal 1998.
Based on our assessment regarding the multimedia Internet software
and IP telephony markets, in fiscal 1998 we shifted our business and
marketing emphasis to OEM customers in the electronic devices market.
Voxware has only a limited operating history upon which an evaluation
of Voxware and its prospects can be based. Since its inception, Voxware
has incurred significant losses and, as of March 31, 1999, Voxware had an
accumulated deficit of $19,053,000. In at least the near term quarters,
we expect to incur net losses as we pursue a new line of business. The
limited operating history of Voxware makes the prediction of future
results of operations impossible, particularly in light of the pending
sale of our existing business to Ascend and recent acquisition of the
speech recognition systems business of Verbex. Therefore, Voxware's
historical revenues should not be taken as indicative of future revenues.
In addition, Voxware's operating results may fluctuate significantly in
the future as a result of a variety of factors, including, but not
limited to, the entrance
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into a new line of business, the budgeting cycles of potential customers,
the volume of, and revenues derived from sales of products by our
licensees that incorporate our products, the rate of new licensing
activity, as well as the termination of existing license agreements, the
introduction of new products or services by the Voxware or its
competitors, pricing changes in the industry, the degree of success of
Voxware's efforts to penetrate its target markets, technical difficulties
with respect to the use of products developed by Voxware or its
licensees, the level of usage of the Internet, and general economic
conditions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31,
1998
REVENUES
Total revenues decreased $696,000 from $1,306,000 in the three months
ended March 31, 1998 to $610,000 in the three months ended March 31,
1999, reflecting decreases in the amounts of license fees, royalties and
recurring revenues and service revenues from our speech compression
technology products, partially offset by an increase in Verbex product
sales. During the three months ended March 31, 1998, Voxware derived
$1,142,000 (87% of total revenues) from multimedia customers versus
$263,000 (43% of total revenues) for the three months ended March 31,
1999. The $879,000 decrease in multimedia revenues reflects the
deterioration of the multimedia Internet software market for Voxware's
speech compression products, and also reflects that revenues earned from
major customers during the three months ended March 31, 1998 were not
repeated or replaced during the three months ended March 31, 1999. In
particular, the amendment of Voxware's agreement with Netscape, under
which Voxware derived $400,000 (31% of total revenues) in revenues during
the three months ended March 31, 1998 and none during the three months
ended March 31, 1999, explains a significant portion of the reduction in
Voxware's revenues. We are not currently receiving any revenue from
Netscape and we do not anticipate receiving any revenues from Netscape in
the future. Additionally, another of Voxware's major customers provided
revenues of $100,000 (8% of total revenues) during the three months ended
March 31, 1998 and none during the three months ended March 31, 1999.
In addition, during the three months ended March 31, 1999, Voxware
recognized $129,000 of revenue from the sale of speech recognition
products which Voxware acquired from Verbex in February 1999. These
revenues represent Voxware's first revenues recognized from the sale of
Verbex products. We expect that over time, sales of speech recognition
products will comprise the most significant portion of our revenue.
Product revenues decreased $439,000 from $913,000 in the three months
ended March 31, 1998 to $474,000 in the three months ended March 31,
1999. The decrease in product revenues reflects a decrease in the amount
of license fees recognized during the three months ended March 31, 1999
compared to the amount of license fees recognized during the three months
ended March 31, 1998, and a decrease in the amount of royalties and
recurring revenues recognized during the period from customers who
licensed the Company's products in previous periods. These decreases were
partially offset by $129,000 in product sales attributable to shipments
of speech-recognition based products resulting from the acquisition of
Verbex during the three months ended March 31, 1999. We believe that the
factors discussed in the "Overview" above were primarily responsible for
the overall decrease in product revenues. For the three month periods
ended March 31, 1999 and 1998, 27% and none of the Company's product
revenues were attributable to product sales, respectively, 44% and 67%
were attributable to license fees, respectively, and 29% and 33% were
attributable to royalties and recurring revenues, respectively.
Service revenues were primarily attributable to customer maintenance
support and fees for engineering services. For the three months ended
March 31, 1999, service revenues totaled $136,000, reflecting a decrease
of $257,000 from service revenues of $393,000 for the three months ended
March 31, 1998. The decrease in service revenues is primarily
attributable to (i) a decline in customer maintenance support revenues
because the Company had a much smaller portfolio of customers to which it
provided maintenance support services
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during the three months ended March 31, 1999 than it did for the three
months ended March 31, 1998, and (ii) a decline in development services
revenues because of the shift in focus away from a custom development-
based OEM business to the operation of Verbex's business. Service
revenues for the three months ended March 31, 1999 includes $53,000
earned pursuant to a services agreement between Voxware and Ascend, under
which ten of Voxware's engineers performed services for Ascend at various
times from February 4, 1999 through March 31, 1999. Ascend has made
offers of employment, contingent upon closing of the sale, to those ten
employees. All ten employees have accepted those offers. Upon closing of
the sale, which is contingent upon stockholder approval, those employees
will become employees of Ascend.
COST OF REVENUES
Cost of revenues decreased $23,000 from $170,000 for the three
months ended March 31, 1998 to $147,000 for the three months ended March
31, 1999. The decrease in cost of revenues was attributable to the
decrease in service revenues described above, partially offset by an
increase in cost of product revenues associated with the increase in
product sales. Cost of product revenues increased $52,000 from the three
months ended March 31, 1998 compared to the same period in 1999,
reflecting costs associated with shipments of speech-recognition-based
hardware products related to the Verbex business. As the Verbex
acquisition occurred during the three months ended March 31, 1999, no
such products were sold during the three months ended March 31, 1998. As
of March 31, 1999, Voxware had a manufacturing staff of three compared to
none at March 31, 1998.
Cost of services revenues consists primarily of the expenses
associated with customer maintenance support and engineering services,
including employee compensation and equipment depreciation. Cost of
service revenues decreased $75,000 from $160,000 in the three months
ended March 31, 1998 to $85,000 in the three months ended March 31, 1999.
The decrease in cost of service revenues is directly attributable to the
decrease in service revenues described above.
OPERATING EXPENSES
Total operating expenses decreased by $789,000 (32%) from
$2,448,000 in the three months ended March 31, 1998 to $1,659,000 in the
three months ended March 31, 1999. The decrease primarily reflects
headcount reductions in each of research and development, sales and
marketing and administration, and other cost reductions associated with
the restructuring of Voxware's business focus over the past several
quarters prior to the Ascend and Verbex agreements. As of March 31, 1999,
our headcount totaled 42, compared to total headcount of 58 as of March
31, 1998. Additionally, during the three months ended March 31, 1998
Voxware reversed certain accruals recorded in prior periods that were no
longer deemed necessary. This reversal decreased operating expenses and
cost of revenues by a total of $300,000 during the three months ended
March 31, 1998.
Research and development expenses primarily consist of employee
compensation and equipment depreciation and lease expenditures related to
product research and development. Research and development expenses
decreased $520,000 (49%) from $1,064,000 in the three months ended March
31, 1998 to $544,000 in the three months ended March 31, 1999. As of
March 31, 1999, we had a research and development staff of 18, including
the ten engineers providing services to Ascend pursuant to the services
agreement referred to in "Services Revenues" above, and eight engineers
engaged in the research and development of Verbex's speech recognition-
based products business and in supporting Voxware's speech coding
business. In comparison , Voxware had 29 engineers in research and
development at March 31, 1998. Additionally, during the three months
ended March 31, 1998 Voxware reversed certain accruals recorded in prior
periods related to research and development that were no longer deemed
necessary. This reversal decreased research and development expenses by
$63,000 during the three months ended March 31, 1998.
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Sales and marketing expenses primarily consist of employee
compensation (including direct sales commissions), travel expenses and
trade shows. Sales and marketing expenses decreased $351,000 (41%) from
$865,000 in the three months ended March 31, 1998 to $514,000 in the
three months ended March 31, 1999. As of March 31, 1999, Voxware had a
sales and marketing staff of ten compared to 15 at March 31, 1998.
Additionally, during the three months ended March 31, 1998, Voxware
reversed certain accruals recorded in prior periods related to sales and
marketing that were no longer deemed necessary. This reversal decreased
sales and marketing expenses by $32,000 during the three months ended
March 31, 1998.
General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and
professional services. General and administrative expenses decreased
$65,000 (13%) from $519,000 in the three months ended March 31, 1998 to
$454,000 in the three months ended March 31, 1999. The decrease in
general and administrative expenses was primarily realized through
reductions in personnel, recruitment and general cost savings achieved
through expense management. As of March 31, 1999, Voxware had a general
and administrative staff of nine compared to 13 at March 31, 1998.
Additionally, during the three months ended March 31, 1998, Voxware
reversed certain accruals recorded in prior periods related to general
and administrative that were no longer deemed necessary. This reversal
decreased general and administrative expenses by $175,000 during the
three months ended March 31, 1998.
Amortization of purchased intangibles totaled $147,000 for the
three months ended March 31, 1999. These intangibles were included in the
assets acquired from Verbex in February 1999. The total amount of
intangibles capitalized from the Verbex acquisition approximated
$5,300,000, and those intangibles are being amortized over four years.
INTEREST INCOME
Interest income decreased $89,000 to $118,000 for the three months
ended March 31, 1999 from $207,000 for the three months ended March 31,
1998. The decrease is primarily related to the decrease in Voxware's
total cash, cash equivalents and short-term investments portfolio balance
as a result of cash used for operations and the acquisition of
substantially all of the assets of Verbex for approximately $5,200,000
plus transaction costs in February 1999. As of March 31, 1999, Voxware's
cash, cash equivalents and short-term investments portfolio totaled
$5,343,000 compared to $14,733,000 at March 31, 1998.
INCOME TAXES
As of March 31, 1999, we had approximately $16,900,000 of federal
net operating loss carryforwards which will begin to expire in 2009 if
not utilized. As of March 31, 1999, we have provided a full valuation
allowance on the net deferred tax asset because of the uncertainty
regarding realization of the deferred asset, primarily as a result of
considering such factors as our limited operating history, the volatility
of the market in which we compete, the operating losses incurred to date
and the operating losses anticipated in future periods. We expect to
utilize a total of approximately $4,550,000 of our net operating loss
carryforwards to offset the gain on the sale of assets to Ascend, subject
to stockholder approval of the sale. In the event that the sale is
approved, and our net operating loss carryforwards are utilized to offset
the gain on the transaction, we expect to have available approximately
$12,350,000 of net operating losses to offset future federal taxable
income, if any, after the Ascend transaction is consummated.
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NINE MONTHS ENDED MARCH 31, 1999 VERSUS NINE MONTHS ENDED MARCH 31, 1998
REVENUES
Total revenues decreased $3,102,000 from $4,975,000 in the nine
months ended March 31, 1998 to $1,873,000 in the nine months ended March
31, 1999, reflecting decreases in the amount of license fees, royalties
and recurring revenues and service revenues from our speech compression
technology products, partially offset by an increase in Verbex product
sales. During the nine months ended March 31, 1998, Voxware derived
$3,788,000 (76% of total revenues) from multimedia customers versus
$879,000 (47% of total revenues) for the nine months ended March 31,
1999. The $2,909,000 decrease in multimedia revenues reflects the
deterioration of the multimedia Internet software market for Voxware's
speech compression products, and also reflects that revenues earned from
major customers during the nine months ended March 31, 1998 were not
repeated or replaced during the nine months ended March 31, 1999. In
particular, the amendment of Voxware's agreement with Netscape, under
which Voxware derived $1,250,000 (25% of total revenues) in revenues
during the nine months ended March 31, 1998 and none during the nine
months ended March 31, 1999, explains a significant portion of the
reduction in Voxware's revenues. We are not currently receiving any
revenues from Netscape and we do not anticipate receiving any revenues
from Netscape in the future. Additionally, another of Voxware's major
customers provided revenues of $650,000 (13% of total revenues) during
the nine months ended March 31, 1998 and none during the nine months
ended March 31, 1999.
Voxware also experienced a $548,000 decline in revenues earned from
customers in the IP telephony market, primarily due to the factors
described in the "Overview" above concerning the decrease in demand for
speech compression products such as Voxware's in the IP telephony market.
During the nine months ended March 31, 1998, Voxware derived $679,000
(14% of total revenues) from IP telephony customers versus $131,000 (7%
of total revenues) during the nine months ended March 31, 1999.
The declines in multimedia revenues and IP telephony revenues were
partially offset by an increase in revenues from electronic devices
manufacturers. During the nine months ended March 31, 1998, Voxware
derived $508,000 (10% of total revenues) from consumer devices
manufacturers versus $704,000 (38% of total revenues) during the nine
months ended March 31, 1999. In addition, during the nine months ended
March 31, 1999, Voxware recognized $129,000 of revenues from sales of
speech recognition products which Voxware acquired from Verbex in
February 1999. These revenues represent Voxware's first revenues
recognized from the sale of Verbex products. We expect that over time,
sales of speech recognition products will comprise the most significant
portion of our revenue.
Product revenues decreased $2,940,000 from $4,187,000 in the nine
months ended March 31, 1998 to $1,247,000 in the nine months ended March
31, 1999. The decrease in product revenues reflects a decrease in the
amount of license fees recognized during the nine months ended March 31,
1999 compared to the amount of license fees recognized during the nine
months ended March 31, 1998, and a decrease in the amount of royalties
and recurring revenues recognized during the period from customers who
licensed Voxware's products in previous periods. These decreases were
partially offset by $129,000 in product sales attributable to shipments
of speech-recognition products resulting from the acquisition of Verbex
during February 1999. For the nine month periods ended March 31, 1999 and
1998, 10% and none of our product revenues were attributable to product
sales, respectively, 53% and 63% were attributable to license fees,
respectively, and 37% and 37% were attributable to royalties and
recurring revenues, respectively.
For the nine months ended March 31, 1999, service revenues totaled
$626,000, reflecting a decrease of $162,000 from service revenues of
$788,000 for the nine months ended March 31, 1998. The decrease in
service revenues is primarily attributable to a decline in customer
maintenance support revenues because Voxware had a much smaller portfolio
of customers to which we provided maintenance support services during the
nine months ended March 31, 1999 than we did for the nine months ended
March 31, 1998, due to the changes in business focus described above.
Service revenues for the nine months ended March 31, 1999
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includes $53,000 earned pursuant to a services agreement between Voxware
and Ascend, under which ten of Voxware's engineers performed services for
Ascend at various times from February 4, 1999 through March 31, 1999. If
the Ascend transaction is approved by our stockholders, those ten
employees would immediately become employees of Ascend.
COST OF REVENUES
Cost of revenues decreased $29,000 from $413,000 for the nine
months ended March 31, 1998 to $384,000 for the nine months ended March
31, 1999. The decrease in cost of revenues was attributable to Voxware's
discontinuance of the sale of consumer application software products in
connection with its shift to an OEM model, offset by an increase in cost
of product revenues associated with shipments of the newly acquired
Verbex speech recognition-based hardware products. As of March 31, 1999,
as a result of the Verbex acquisition, Voxware had a manufacturing staff
of three compared to none at March 31, 1998.
Cost of services revenues consists primarily of the expenses
associated with customer maintenance support and engineering services,
including employee compensation and equipment depreciation. Cost of
service revenues increased $16,000 from $306,000 in the nine months ended
March 31, 1998 to $322,000 in the nine months ended March 31, 1999. The
increase in cost of service revenues is attributable to an increase in
development services performed during the nine months ended March 31,
1999 as compared to the nine months ended March 31, 1998. Development
services in the nine months ended March 31, 1999 include services
rendered under Voxware's services agreement with Ascend. The increase was
partially offset by a decrease in maintenance support revenues provided
during the period.
OPERATING EXPENSES
Total operating expenses decreased by $3,429,000 (41%) from
$8,427,000 in the nine months ended March 31, 1998 to $4,998,000 in the
nine months ended March 31, 1999. The decrease primarily reflects
headcount reductions in each of research and development, sales and
marketing and administration, and other cost reductions associated with
the restructuring of Voxware's business focus over the past several
quarters prior to the Ascend and Verbex agreements. As of March 31, 1999,
our headcount totaled 42 compared to total headcount of 58 as of March
31, 1998. Additionally, during the nine months ended March 31, 1998,
Voxware reversed certain accruals recorded in prior periods that were no
longer deemed necessary. This reversal decreased operating expenses and
cost of revenues by a total of $650,000 during the nine months ended
March 31, 1998.
Research and development expenses primarily consist of employee
compensation and equipment depreciation and lease expenditures related to
product research and development. Research and development expenses
decreased $2,184,000 (57%) from $3,839,000 in the nine months ended March
31, 1998 to $1,655,000 in the nine months ended March 31, 1999. As of
March 31, 1999, we had a research and development staff of 18, including
the ten engineers providing services to Ascend pursuant to the services
agreement referred to in "Services Revenues" above, and eight engineers
engaged in the research and development of Verbex's speech recognition-
based products business and in supporting Voxware's speech coding
business. In comparison , Voxware had 29 engineers in research and
development at March 31, 1998. Additionally, during the nine months ended
March 31, 1998, Voxware reversed certain accruals recorded in prior
periods related to research and development that were no longer deemed
necessary. This reversal decreased research and development expenses by
$63,000 during the nine months ended March 31, 1998.
Sales and marketing expenses primarily consist of employee
compensation (including direct sales commissions), travel expenses and
trade shows. Sales and marketing expenses decreased $1,035,000 (35%) from
$2,919,000 in the nine months ended March 31, 1998 to $1,884,000 in the
nine months ended March 31, 1999. As of March 31, 1999, Voxware had a
sales and marketing staff of ten compared to 15 at March 31, 1998.
Additionally, during the nine months ended March 31, 1998, Voxware
reversed certain accruals
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recorded in prior periods related to sales and marketing that were no
longer deemed necessary. This reversal decreased sales and marketing
expenses by $189,000 during the nine months ended March 31, 1998.
General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and
professional services. General and administrative expenses decreased
$357,000 (21%) from $1,669,000 in the nine months ended March 31, 1998 to
$1,312,000 in the nine months ended March 31, 1999. The decrease in
general and administrative expenses was primarily realized through
reductions in personnel, recruitment and general cost savings achieved
through expense management. As of March 31, 1999, Voxware had a general
and administrative staff of nine compared to 13 at March 31, 1998.
Additionally, during the nine months ended March 31, 1998, Voxware
reversed certain accruals recorded in prior periods related to general
and administrative that were no longer deemed necessary. This reversal
decreased general and administrative expenses by $369,000 during the nine
months ended March 31, 1998.
Amortization of purchased intangibles totaled $147,000 for the
nine months ended March 31, 1999. These intangibles were included in the
assets acquired from Verbex in February 1999. The total amount of
intangibles capitalized from the Verbex acquisition approximated
$5,300,000, and those intangibles are being amortized over four years.
INTEREST INCOME
Interest income decreased $176,000 to $473,000 for the nine months
ended March 31, 1999 from $649,000 for the nine months ended March 31,
1998. The decrease is primarily related to the decrease in Voxware's
total cash, cash equivalents and short-term investments portfolio balance
as a result of cash used for operations and the acquisition of
substantially all of the assets of Verbex for approximately $5,200,000
plus transaction costs in February 1999. As of March 31, 1999, Voxware's
cash, cash equivalents and short-term investments portfolio totaled
$5,343,000 compared to $14,733,000 at March 31, 1998.
INCOME TAXES
As of March 31, 1999, we had approximately $16,900,000 of federal
net operating loss carryforwards which will begin to expire in 2009 if
not utilized. As of March 31, 1999, we have provided a full valuation
allowance on the net deferred tax asset because of the uncertainty
regarding realization of the deferred asset, primarily as a result of
considering such factors as our limited operating history, the volatility
of the market in which we compete, the operating losses incurred to date
and the operating losses anticipated in future periods. We expect to
utilize a total of approximately $4,550,000 of our net operating loss
carryforwards to offset the gain on the sale of assets to Ascend, subject
to stockholder approval of the sale. In the event that the sale is
approved, and our net operating loss carryforwards are utilized to offset
the gain on the transaction, we expect to have available approximately
$12,350,000 of net operating losses to offset future federal taxable
income, if any, after the Ascend transaction is consummated.
LIQUIDITY AND CAPITAL RESOURCES
Since Voxware's inception in August 1993, the Company has raised
net proceeds of approximately $29,898,000 as follows: approximately
$8,838,000 through private placements; approximately $18,517,000 through
the Initial Public Offering which was declared effective on October 30,
1996; and approximately $2,543,000 through other sales of equity
securities, including exercises of common stock options and common stock
warrants, and issuances of common stock pursuant to the Company's
Employee Stock Purchase Plan.
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As of March 31, 1999, we had a total of $5,343,000 in cash, cash
equivalents and short-term investments consisting of $1,827,000 of cash
and cash equivalents and $3,516,000 in short-term investments. We expect
the sale of assets to Ascend for $5,100,000 to be consummated in June
1999, subject to stockholder approval. If the transaction is approved by
our stockholders, we will receive $4,146,000 on the date of the closing
of the transaction and $750,000 will be placed in escrow for a period of
18 months to secure our indemnification obligations. Voxware received a
deposit of $204,000 from Ascend in January 1999, which is included in
restricted cash-current in the March 31, 1999 balance sheet because we
will be required to refund that deposit to Ascend in the event the
transaction is not approved by Voxware's stockholders. Our cash, cash
equivalents and short-term investments portfolio is liquid and investment
grade, consisting of high-grade money-market funds, United States
Government-backed securities and commercial paper and corporate
obligations. Since inception, we have primarily financed its operations
through the sale of equity securities.
Cash of $3,032,000 and $2,798,000 was used to fund operations for
the nine months ended March 31, 1999 and 1998, respectively. Cash used to
fund operations was attributable to the net loss plus the effect of non
cash charges for depreciation and amortization and the provision for
doubtful accounts in fiscal 1999 and 1998, a non cash charge for stock-
based directors' compensation in fiscal 1998, plus the effects of changes
in operating assets and liabilities in fiscal 1999 and 1998. For the nine
months ended March 31, 1999, cash used in investing activities was
$4,340,000, which consisted of $5,163,000 in cash paid for the Verbex
business and $50,000 in net purchases of property and equipment, offset
by $873,000 in net sales and maturities of short-term investments. Cash
provided by investing activities totaled $209,000 for the nine months
ended March 31, 1998, which reflected $261,000 in net sales and
maturities of short-term investments, offset by $52,000 in equipment
purchases. For the nine months ended March 31, 1999 and 1998, cash
provided by financing activities totaled $50,000 and $1,109,000,
respectively. These amounts reflect proceeds from exercises of common
stock options of $19,000 and $998,000, respectively, for the nine months
ended March 31, 1999 and 1998, and proceeds from the issuance of common
stock pursuant to the Company's Employee Stock Purchase Plan of $31,000
and $111,000, respectively, for the nine months ended March 31, 1999 and
1998.
We have a $2,000,000 revolving line of credit with Silicon Valley
Bank. Borrowings under the credit facility will bear interest at the
bank's prime lending rate. As amended on February 1, 1999, the credit
facility requires Voxware to secure all indebtedness with cash held at
the bank's offices in an amount not less that 100% of the outstanding
amount of all indebtedness we owe to the bank. The credit facility
requires payment of all outstanding principal, if any, plus all accrued
interest on March 30, 2000. In connection with the lease of our office
facility, we have outstanding a $300,000 standby letter of credit at
March 31, 1999 naming the lessor of the office facility beneficiary of
the standby letter of credit in the event that we default on the lease.
As required by the credit facility, we have secured the $300,000 standby
letter of credit with cash that is included in other assets, net in the
March 31, 1999 balance sheet. In addition to the credit facility, the
agreement with Silicon Valley Bank provides a lease component in the
amount of $1,500,000 for the purpose of providing a facility for the
financing of the lease payments that we owe to an equipment lessor, of
which approximately $48,000 was outstanding as of March 31, 1999.
We have no material commitments for capital expenditures except for
those under operating leases for our facilities and leased equipment. At
March 31, 1999, our working capital totaled approximately $5,224,000. We
believe that our current cash, cash equivalents and short-term
investments balances, together with the approximately $4,896,000 in cash
to be received assuming consummation of the Ascend transaction, will be
sufficient to fund our working capital and capital expenditures
requirements, exclusive of cash required for possible acquisitions of, or
investments in businesses, products and technologies for at least twelve
months beyond March 31, 1999.
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YEAR 2000 COMPLIANCE
The efficient operation of Voxware's business is dependent in part
on computer software programs and operating systems which it uses
internally (collectively, the "Internal Programs and Systems"). Voxware's
Internal Programs and Systems consist of our accounting system, inventory
system, payroll system, electronic mail system, telephone and PBX
systems, and UNIX and Microsoft Windows NT servers. All of these systems
are based in-house, with the exception of the payroll system, which is
based at the vendor's facility.
We have been evaluating our Internal Programs and Systems to
identify potential Year 2000 compliance problems. We have primarily
conducted these evaluations and assessments using Voxware s information
technology personnel, including coordinating evaluations and assessments
with the respective vendors of these computer software programs and
operating systems. These actions are necessary to ensure that the
Internal Programs and Systems will be Year 2000 compliant. Based on
present information, we believe that we will be able to achieve Year 2000
compliance through a combination of modification of some existing
Internal Programs and Systems and the replacement of other Internal
Programs and Systems with new programs and systems that are already Year
2000 compliant.
Our accounting system, which covers Voxware's entire business,
including the former Verbex business, is not yet Year 2000 compliant.
Issues have been identified and Voxware is assessing whether to modify or
replace the accounting system. Voxware estimates the cost to replace the
accounting system at $25,000. Voxware will determine whether to replace
the accounting system with one that is Year 2000 compliant after
completion of the audit for the year ending June 30, 1999. Voxware is
confident that, if necessary, the new accounting system which is Year
2000 compliant will be operational long before December 31, 1999.
We have recently completed the upgrade of our inventory system to
one that is Year 2000 compliant at a cost of approximately $10,000, which
was paid for by Verbex prior to the acquisition of Verbex. Voxware did
not have, and had no need for an inventory system until the acquisition
of Verbex.
We have been informed by ADP, our outside payroll processor, that
our payroll system is Year 2000 compliant.
We have been informed by the vendor of our e-mail system that the
system is Year 2000 compliant. We are conducting our own internal
assessment of the e-mail system and we expect that assessment to be
completed by the third calendar quarter of 1999. We believe that, to the
extent that e-mail system is not Year 2000 compliant, we can receive an
upgrade from the vendor or replace the system on a timely basis at no
cost or at minimal cost.
Our telephone and PBX systems have been upgraded to be Year 2000
compliant.
We have no reason to believe that UNIX and Microsoft Windows NT
servers are not Year 2000 compliant or, to the extent that they are not
compliant, that the vendors will not make appropriate upgrades available
to all of their customers at no cost or at minimal cost.
In addition to our Internal Programs and Systems, the products we
sell and license externally to customers (collectively, the "External
Programs"), have been assessed for Year 2000 compliance. With respect to
the speech compression technologies and products historically sold by
Voxware, we are not aware of any Year 2000 issues. Verbex had assessed
its products, the MVP, Speech Commander and our stationary boards. Verbex
concluded that it could be advisable for the users of those products to
take precautions to mitigate possible Year 2000 issues, such as not
operating the product during the period of time when the calendar changes
from December 31, 1999 to January 1, 2000. We have hired the director of
engineering at Verbex in connection with the Verbex acquisition and we
have commenced our own review of the Year 2000 compliance of Voxware's
External Programs. While Voxware is not yet aware of any Year 2000 issues
with
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our External Programs that are expected to have a material financial
impact on Voxware as a result of our assessments to date, we continue to
assess our External Programs. Should we identify any material Year 2000
problems, we are currently setting up a process that will enable us to
contact our customers promptly so that we can provide instructions to
mitigate or avert Year 2000 issues related to the External Programs. We
cannot assure you however, that in the event that we encounter Year 2000
issues, we will be able to provide adequate instructions, or that our
instructions will mitigate or avert Year 2000 issues related to our
External Programs. We may need to recall products and undertake to
modify, upgrade or replace the products. Any such undertaking could be
expensive and could have a material adverse effect on Voxware and its
financial condition.
To date, costs incurred in evaluating our Internal Programs and
Systems and External Programs have not been material. Anticipated costs
necessary to complete evaluations of our Internal Programs and Systems
and complete modifications and/or replacements are not expected to be
material. We expect that the total cost of these efforts and upgrades
should not exceed $50,000, including the cost of a new accounting system
and the upgraded inventory system described above. Voxware further
estimates that less than than $20,000 of internal labor costs have been
incurred to date for personnel working to resolve Year 2000 issues. We
cannot assure you that our efforts and the efforts of our vendors will be
successful in making all of our systems and products Year 2000 compliant
or that the cost and time required to achieve Year 2000 compliance will
not exceed our current estimates. As a result, and due to uncertainty of
the potential impact that Year 2000 issues may have on Voxware, there can
be no assurance that Year 2000 issues will not have a material impact on
our future results of operations or financial condition.
Voxware expects to identify and resolve all Year 2000 problems
that could materially adversely affect its business operations. However,
Voxware believes that it is not possible to determine with complete
certainty that all Year 2000 problems affecting Voxware or its customers
have been identified or corrected. The number of devices that could be
affected and the interactions among these devices are simply too
numerous. In addition, no one can accurately predict how many Year 2000-
related failures will occur or the severity, duration, or financial
consequences of these perhaps inevitable failures. As a result, Voxware
believes that the following consequences are possible:
o a significant number of operational inconveniences and
inefficiencies for Voxware and its customers that will
divert management's time and attention and financial and
human resources from ordinary business activities;
o a lesser number of serious system failures that will
require significant efforts by Voxware or its customers to
prevent or alleviate material business disruptions;
o several routine business disputes and claims for pricing
adjustments or penalties due to Year 2000 problems by
customers, which will be resolved in the ordinary course
of business; and
o a few serious business disputes alleging that Voxware
failed to comply with the terms of contracts or industry
standards of performance, some of which could result in
litigation or contract termination.
Voxware is currently formulating contingency plans for each of
its material systems. We believe that our accounting and inventory
systems are our most important Internal Systems for which to ensure Year
2000 compliance. We believe that the inventory system is Year 2000
compliant and that the accounting system can be made Year 2000 compliant
or replaced at a reasonable cost as set forth above. We will continue to
work closely with the vendors of these systems to assure Year 2000
compliance.
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PART II - OTHER INFORMATION
Item 5. Other Information.
On February 4, 1999, the Company entered into a definitive
agreement with Ascend Communications, Inc. ("Ascend") to sell to Ascend
for approximately $5.1 million in cash consideration substantially all of
its assets relating to what has historically been its primary business of
developing and commercializing voice processing technologies and
products. Also on February 4, 1999, Voxware entered into a definitive
agreement with Verbex Voice Systems, Inc. ("Verbex") to acquire
substantially all of the assets of Verbex for approximately $5.2 million
in cash. The Verbex transaction closed on February 18, 1999 and the
Company expects that the Ascend transaction will be consummated, subject
to stockholder approval, in June 1999. After consummation of the
transactions, Voxware is now focusing its efforts on the development of
Verbex's business, which is the development and commercialization of
speech recognition systems for the warehousing and manufacturing markets
and other industrial markets. This will include the exploration of
strategic alternatives to augment Verbex's business, including mergers,
acquisitions and joint ventures. In addition, the sale to Ascend does not
include Voxware's rights and obligations under its existing license
agreements and, as part of the transaction, Voxware will receive a
license back from Ascend of the Voxware technologies necessary to service
its existing licensees. The license will also allow Voxware, with the
consent of Ascend, to license those technologies to new licensees for
certain limited uses. Voxware will be precluded from licensing the
technologies licensed back from Ascend to the Internet Protocol telephony
markets, and potentially to other markets, subject to the consent
required from Ascend. After the sale to Ascend, Voxware expects to
continue to have limited licensing revenue and to engage in a limited
amount of additional licensing activity relating to the speech
compression technologies sold to Ascend, primarily from licensing
activities in the multimedia and consumer devices markets.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
2.1 Asset Purchase Agreement dated as of
February 4, 1999 by and between Ascend
Communications, Inc. and Voxware, Inc.*
2.2 Acquisition Agreement by and among Voxware,
Inc., Verbex Acquisition Corporation and
Verbex Voice Systems, Inc. dated as of
February 4, 1999.*
27.1 Financial Data Schedule (FDS) for current
reporting periods ended March 31, 1999.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed on February 9,
1999 (relating to the sale of the Company's
speech coding technology to Ascend
Communications, Inc. and the purchase of certain
assets and liabilities of Verbex Voice Systems,
Inc.). Amendment to previously filed Form 8-K
filed on Form 8-K/A on May 4, 1999.
* previously filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: May 14, 1999
VOXWARE, INC.
(Registrant)
By: /s/ BATHSHEBA J. MALSHEEN
----------------------------------------
Bathsheba J. Malsheen, President and
Chief Executive Officer
By: /s/ NICHOLAS NARLIS
----------------------------------------
Nicholas Narlis, Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOXWARE, IN.
FINANCIAL STATEMETNS FOR THE 3 AND 9 MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JAN-01-1999 JUL-01-1999
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 1,827 1,827
<SECURITIES> 3,516 3,516
<RECEIVABLES> 1,444 1,444
<ALLOWANCES> 640 640
<INVENTORY> 240 240
<CURRENT-ASSETS> 7,611 7,611
<PP&E> 1,640 1,640
<DEPRECIATION> 1,296 1,296
<TOTAL-ASSETS> 13,597 13,597
<CURRENT-LIABILITIES> 2,387 2,387
<BONDS> 0 0
0 0
0 0
<COMMON> 13 13
<OTHER-SE> 10,915 10,915
<TOTAL-LIABILITY-AND-EQUITY> 13,597 13,597
<SALES> 610 1,873
<TOTAL-REVENUES> 610 1,873
<CGS> 62 62
<TOTAL-COSTS> 147 384
<OTHER-EXPENSES> 1,659 4,998
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,078) (3,036)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,078) (3,036)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,078) (3,036)
<EPS-PRIMARY> (0.08) (0.23)
<EPS-DILUTED> (0.08) (0.23)
</TABLE>
