VOXWARE INC, 10-K/A, 1999-08-12

VOXWARE INC
10-K/A, 1999-08-12
COMPUTER INTEGRATED SYSTEMS DESIGN

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Amendment No. 1

to
FORM 10-K/A

[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended June 30, 1998
---------------

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
------------------

Commission File Number 0-021403
VOXWARE, INC.
-------------
(Exact Name of Registrant as Specified in Its Charter)

Delaware 36-3934824
--------------------------- -------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

305 College Road East
Princeton, New Jersey 08540
609-514-4100
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
par value per share

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 past 90 days: Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $13,860,626 as of July 31, 1999, based upon the
closing sale price of the Common Stock as quoted on the Nasdaq National Market.
This amount excludes an aggregate of 3,075,580 shares of Common Stock held by
executive officers, directors and by each entity that owns 5% or more of the
Common Stock outstanding at July 31, 1999. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrant's Common Stock outstanding as of July
31, 1999 was 13,392,617.
<PAGE>

PART II

ITEM 7. 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 significantly from plans and results
discussed in forward-looking statements.

Overview

Voxware develops, markets, licenses and supports digital speech and audio
technologies and solutions. MetaVoice, the Company's innovative speech coding
technology, is designed to reproduce high quality speech while requiring very
low communications bandwidth and processing power. MetaSound, the Company's
general audio coding technology built on core technology licensed from Nippon
Telegraph and Telephone Corporation is specifically suitable for high quality
music compression. The Company licenses its technologies to software and
hardware companies for a wide range of applications and services, and primarily
targets the following four markets: consumer devices, multimedia software,
wireless communications and Internet Protocol (IP) telephony.

Since Voxware's inception in August 1993, the Company has raised net proceeds
of approximately $29,848,000 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
$2,493,000 through other sales of equity securities, including exercises of
common stock options and all outstanding common stock warrants.

The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product revenues consist of two components:
license fees, and royalties and recurring revenues. Voxware's products are
licensed primarily to software and hardware companies which incorporate the
Company's products and technologies into their products. The Company generally
negotiates contract terms with customers on a case by case basis, with
arrangements that have historically included one or more of the following:
initial license fees, quarterly license fees, annual license fees or royalties
based on the licensee's revenue generated or units shipped of products
incorporating the Company's technologies. One of the Company's objectives is to
develop recurring revenue through entering into licensing agreements with third
parties which provide for royalties or other recurring payments. As a result,
the timing and amount of the Company's revenues are substantially dependent on
the timing and efforts of the Company's licensees in developing and marketing
products incorporating the Company's products and technologies. There can be no
assurance as to the timing or success of any licensee implementation or the
timing or amount of recurring revenues, if any, from any licensee product.

A majority of the Company's existing licensees compete in the multimedia
Internet software market, which is a relatively new market, and many of the
companies in this market are poorly capitalized, compete against much more
established companies and/or have businesses that are relatively immature.
Many of the licenses entered into in the multimedia Internet software market
have been in existence for a significant period of time and the Company believes
that a significant number of its licensees which compete in this market have not
incorporated, and may never incorporate, Voxware's technologies into their
products. Therefore, the Company may never derive royalties or other recurring
revenues from many of its existing license agreements in the multimedia Internet
software market. While the Company does not expect the multimedia Internet
software market to generate significant recurring revenues to the Company, the
Company expects to continue to pursue opportunities in that market since that
market has the potential to continue to offer non-recurring revenue
opportunities to the Company through initial license fees and service revenues.
With respect to IP telephony, initial deployments in that market have primarily
utilized standardized codec technologies (and not Voxware's proprietary codec
technologies). In addition, initial deployments in IP telephony have been
characterized by bandwidth-rich managed networks (Intranets), which networks
generally do not benefit significantly from low bandwidth solutions such as
Voxware's technologies. Principally, in consequence of these factors, the
requirement for Voxware's technologies in the IP telephony market is not
expected to significantly arise at least for the next two years, if ever. With
respect to the wireless market, the Company is investing resources in efforts to
understand the needs of this market, if any, for its speech compression and
related technologies. There can be no assurance as to the Company's success in
the wireless market, and to date the Company has not generated any significant
revenues in this market.

During fiscal 1998, the Company restructured its workforce in connection with
the shift of its strategic focus to markets other than multimedia software,
including consumer devices and wireless communications, which the
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Company believes have more significant potential for recurring revenues over the
long term. While the Company believes the consumer devices and wireless
communications markets may have more significant potential for recurring revenue
over the long term, over at least the next several quarters, the Company's
revenues are expected to continue to be affected by the longer revenue cycles
inherent in these hardware-based deals. Specifically, and in contrast to
multimedia which often may be characterized by acceptance of deliverables up
front and corollary recognition of revenue, recognition of revenue (if any) in
hardware-based deals is in part contingent upon a variety of factors including:
preparation of feasibility studies, development and delivery of customized
software, testing and acceptance of such software, development of the licensee's
hardware and product, successful integration of said software into the
licensee's hardware and product, and shipment of the licensee's product. Each of
the foregoing contingencies applicable to hardware-based transactions takes
time, and none of the foregoing contingencies are certain to occur. Therefore
the revenue recognition cycle in hardware-based transactions is much longer than
in software-based transactions. It should also be noted that hardware-based
markets such as voice-enabled consumer devices and wireless communications, are
new markets with new products, which further contributes to the time delay and
the uncertainty with respect to revenue recognition. There can be no assurance
as to the success of the Company's activities in these markets, or in
successfully forming relationships with targeted customers in these markets. It
is the Company's continuing policy to evaluate potential strategic relationships
that could allow the Company to broaden its product offerings and achieve
synergies in the Company's target markets.

Software product revenues are generally recognized upon shipment, provided
that there are no significant post-delivery obligations, persuasive evidence of
an arrangement exists, pricing is fixed or determinable, the payment is due
within one year and collection of the resulting receivable is deemed probable.
If an acceptance period is required, revenues are recognized upon customer
acceptance. Royalty revenues are recognized in the period of customer shipment.

Service revenues consist of customer maintenance support and engineering fees.
Customer maintenance support services include providing updates and technical
support to licensees of the Company's products. Engineering services include
providing technical resources and technical assistance to support customer-
specific development efforts, which include porting the Company's technologies
to specific hardware platforms and providing customized speech and audio
solutions to customers. Customer maintenance support revenues are recognized
over the term of the support period, which typically lasts for one year.
Engineering fees are generally recognized upon customer acceptance or upon
delivery if customer acceptance is not required. All research and development
costs are expensed as incurred.

The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. Since its inception, the Company
has incurred significant losses and, as of June 30, 1998, the Company had an
accumulated deficit of $16,017,000. In at least the near term quarters, the
Company expects to incur net losses as a result of the long revenue cycles
described. The limited operating history of the Company makes the prediction of
future results of operations impossible and, therefore, the Company's historical
revenues should not be taken as indicative of future revenues. In addition, the
Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, including, but not limited to, the budgeting
cycles of potential customers, the volume of, and revenues derived from sales of
products by the Company's licensees that incorporate the Company's products, the
rate of new licensing activity, as well as the termination of existing license
agreements, the introduction of new products or services by the Company or its
competitors, pricing changes in the industry, the degree of success of the
Company's efforts to penetrate its target markets, technical difficulties with
respect to the use of products developed by the Company or its licensees, the
level of usage of the Internet, and general economic conditions.

Results of Operations

Fiscal 1998 Versus Fiscal 1997

TOTAL REVENUES.

The Company recognized revenues of $5,882,000 for the year ended June 30,
1998 compared to revenues of $7,779,000 for the year ended June 30, 1997. The
decrease in revenues is primarily attributable to the Company's change in
strategic focus from primarily targeting the multimedia software market in
fiscal 1997 to primarily targeting the consumer devices and wireless
communications markets in the latter half of fiscal 1998. As detailed
previously, the consumer devices and wireless communications markets are
characterized by longer selling cycles than the multimedia software market,
which impacted the Company's revenues during fiscal 1998. As a result, the
Company expects to continue to sign fewer new licensing agreements on a per-
quarter basis in comparison with the number of new licensing agreements signed
during fiscal 1997. At the same time, the Company's objective is to form
relationships with customers that the Company believes have more significant
potential for recurring revenue over the long term than do the Company's
existing licensees, particularly those in the multimedia Internet software
market. There can be no assurance, however, as to the success of the Company's
activities in these markets, or in successfully forming relationships with such
customers.

For the year ended June 30, 1998, total revenues included $1,250,000 (21% of
total revenues) from the Company's largest customer, Netscape Communications
Corporation ("Netscape"). Netscape discontinued certain of its products during
fiscal 1998, including products which would incorporate the Company's
technologies, and consequently Voxware and Netscape entered into a second
amendment of their software license agreement which terminated certain of
Netscape's rights pursuant to their software license agreement. License fee
revenues for fiscal 1998 include a final payment of $400,000 from Netscape
pursuant to this amendment. In addition, one other company accounted for 15% of
total revenues for the year ended June 30, 1998.

At June 30, 1998 Netscape was not a stockholder in the Company. At June 30,
1997 Netscape was a 4% stockholder in the Company. For the year ended June 30,
1997, total revenues included $1,250,000 (16% of total revenues) from Netscape.
In addition, two other customers each accounted for 15% of revenues for the year
ended June 30, 1997.

PRODUCT REVENUES.

Product revenues totaled $4,853,000 and accounted for 83% of total revenues
for the year ended June 30, 1998 compared to $7,428,000, which accounted for 95%
of total revenues, for the year ended June 30, 1997. This decrease in product
revenues was mainly attributable to the Company's shift in strategy from
primarily targeting the multimedia software market in fiscal 1997 to primarily
targeting the consumer devices and wireless communications markets, with a
lesser focus on the multimedia software and IP telephony markets, in the latter
half of fiscal 1998. As detailed previously, the consumer devices and wireless
communications markets are characterized by longer selling cycles than the
multimedia software market, which impacted the Company's revenues during fiscal
1998. Additionally, the decrease in product revenues as a percentage of total
revenues from fiscal 1997 to fiscal 1998 is attributable to the Company's
revised strategy which focuses on the consumer devices and wireless
communications markets. The Company seeks to provide customized solutions to
customers in these markets, which entails performing a higher level of
engineering services for customers than did the previous business strategy. As
a result, the Company derived a greater portion of its revenues from providing
services to customers in fiscal 1998 than in fiscal 1997.

In fiscal 1998, product revenues consisted of $2,935,000 in license fees (60%
of product revenues) and $1,918,000 in royalties and recurring revenues (40% of
product revenues). In fiscal 1997, product revenues consisted of $5,432,000 in
initial license fees (73% of product revenues) and $1,996,000 in royalties and
recurring license fees (27% of product revenues). As noted above, this decrease
in license fees revenues was mainly attributable to the Company's shift in
strategy from primarily targeting the multimedia software industry in fiscal
1997 to primarily targeting the consumer devices and wireless communications in
the latter half of fiscal 1998. The consumer devices and wireless
communications markets are characterized by longer selling cycles than the
multimedia software market, which impacted the Company's license fees revenues
during fiscal 1998.
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For the year ended June 30, 1998, product revenues included a total of
$1,250,000 (26% of total product revenues) from the Company's largest customer,
Netscape. This amount was comprised of $400,000 in license fees and $850,000 in
royalties and recurring revenues. Netscape discontinued certain of its products
during fiscal 1998, including products which would incorporate the Company's
technologies, and consequently Voxware and Netscape entered into a second
amendment of their software license agreement which terminated certain of
Netscape's rights pursuant to their software license agreement. License fee
revenues for fiscal 1998 include a final payment of $400,000 from Netscape
pursuant to this amendment. For the year ended June 30, 1997, Netscape
accounted for approximately $1,250,000 of royalties and recurring revenues (17%
of total product revenues).

Included in product revenues for the year ended June 30, 1997 is $480,000 in
fees earned by Voxware for product development efforts.

SERVICE REVENUES.

Service revenues consist of customer support and engineering fees. Customer
support services include providing updates and technical support to licensees of
the Company's products. Engineering services include providing technical
resources and technical assistance to support customer-specific development
efforts, which include porting the Company's technologies to specific hardware
platforms and providing customized speech and audio solutions to customers.

During the year ended June 30, 1998, the Company recognized $1,029,000 in
service revenues (17% of total revenues), compared to service revenues of
$351,000 (5% of total revenues) for the year ended June 30, 1997. This increase
in service revenues was primarily attributable to increases in engineering fees
earned from porting technologies to customers' specific hardware platforms and
in providing customized speech and audio solutions to customers. The increase in
service revenues as a percentage of total revenues from fiscal 1997 to fiscal
1998 is attributable to the decrease in non-service revenues in fiscal 1998
caused largely by the Company's revised strategy which focuses on the consumer
devices and wireless communications markets. The Company seeks to provide
customized solutions to customers in these markets, which entails performing a
higher level of engineering services for customers than did the previous
business strategy. As a result, the Company derived a greater portion of its
revenues from providing services to customers in fiscal 1998 than in fiscal
1997.

GROSS PROFIT

COST OF PRODUCT REVENUES. Cost of product revenues consists primarily of costs
of licensed technology. Cost of product revenues totaled $142,000 or 3% of
product revenues for the year ended June 30, 1998 compared to $178,000 or 2% of
product revenues for the year ended June 30, 1997. The decrease in cost of
product revenues is directly attributable to the decrease in product revenues
recognized during those periods.

COST OF SERVICE REVENUES. Cost of service revenues consists primarily of the
expenses associated with the staffing of a customer support group and providing
engineering services, which consist primarily of employee compensation and
equipment depreciation. Cost of service revenues totaled $441,000 or 43% of
service revenues for the year ended June 30, 1998 compared to $164,000 or 47% of
service revenues for the year ended June 30, 1997. The absolute dollar increase
in cost of services is directly attributable to the increase in service revenues
during those periods, which includes a significant increase in non-recurring
engineering fees in fiscal 1998 compared to fiscal 1997.

OPERATING EXPENSES

Total operating expenses decreased $3,981,000 (27%) from $15,018,000 in
fiscal 1997 to $11,037,000 in fiscal 1998. This decrease in total operating
expenses primarily reflects headcount reductions in application development and
support and other cost reductions associated with the aforementioned strategic
restructuring of the Company's business focus. A significant number of the
Company's personnel were engaged in researching, marketing and selling products
in the consumer application software market during fiscal 1997. During fiscal
1998, the Company restructured its business away from consumer application
software and toward an OEM (original equipment manufacturer) model primarily
targeting the consumer devices and wireless communications markets, which
requires fewer personnel (including employees and independent contractors) than
the consumer application software business focus in fiscal 1997. As of June 30,
1998, the Company's resources were primarily dedicated to an OEM (original
equipment manufacturer) model targeting the consumer devices and wireless
communications markets. As of June 30, 1998, the Company's headcount totaled
46, compared to 91 as of June 30, 1997. In connection with the decrease
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in headcount, in July 1998 the Company entered into a Sublease Agreement under
which the Company subleased approximately 47% of the space in its Princeton
office facility. The initial term of that Sublease Agreement will expire on May
31, 2003.

In comparing fiscal 1998 to fiscal 1997, the overall decrease in total
operating expenses was comprised of a $3,070,000 (39%) decrease in research and
development expenses, a $174,000 (4%) decrease in sales and marketing expenses,
and a $737,000 (23%) decrease in general and administrative expenses. During
fiscal 1998, the Company decreased accrued expenses approximately $465,000
through reducing operating expenses by the same amount. This amount related to
estimates accrued in previous periods for certain liabilities and contingencies
which are no longer deemed necessary. The accrued expenses decrease during
fiscal 1998 related to: a legal contingency reserve of $300,000 (included in
general and administrative); software costs totaling $110,000 ($14,000 included
in research and development, $82,000 included in sales and marketing, and
$14,000 included in general and administrative); and officer bonus accruals of
$55,000 (included general and administrative). In total, as a result of these
reversals of liabilities accrued in prior periods, fiscal 1998 operating
expenses were reduced by the following amounts and in their respective line
items of the statement of operations: research and development ($14,000); sales
and marketing ($82,000); general and administrative ($369,000).

The legal contingency reserve relates to a loss contingency accrual of
$250,000 and estimated legal costs of $50,000 accrued during the quarter ended
September 30, 1996 in accordance with SFAS #5 "Accounting for Contingencies."
As noted under the heading "Uncertainty Regarding Patents and Proprietary
Rights" on page 9 of the Company's Form S-1, which became effective October 30,
1996, Elk Industries, Inc. ("Elk Industries") asserted in two letters to Voxware
during the quarter ended September 30, 1996 that Voxware's "Internet-based
streaming audio systems" infringe U.S. Patent No. 4,124,773 owned by Elk
Industries. At that time, the Company was engaged in marketing to vendors of
Internet-based streaming applications, including the Company's major customer,
Netscape. During the quarter ended September 30, 1996, the Company accrued the
amounts noted above in accordance with its policy of accruing the probable
estimated loss from legal claims upon receiving notice of such claims. The
amount of this accrual represented an estimate of what the Company believed
would be the minimum amount necessary to settle the claim of Elk Industries.
During the quarter ended December 31, 1997, the Company re-evaluated the risk
and considered that, among other things, (1) approximately one year had passed
without receiving any additional letters or other communications in regard to
this issue, and (2) the Company no longer viewed its sales opportunity in the
Internet-based streaming applications market to be substantial. As a result,
the Company determined that the risk of loss under this contingency was now
deemed minimal and reversed the accrual against the general and administrative
line item of the statement of operations.

The software costs accrual relates to an accrual for a software purchase that
was intended to provide a Company-wide solution, primarily for contract and
account management for sales and marketing purposes, and also for product
quality assurance and certain financial purposes. In January 1997, the Company
signed a software license agreement with a vendor for an approximate value of
$110,000. Subsequent to signing the agreement, the Company became aware that
the software package did not have the capabilities to meet the Company's
requirements. The Company returned the software to the vendor, but recorded an
accrual on the books until it appeared probable that the vendor would not
enforce the contract and pursue legal action against the Company. During the
quarter ended March 31, 1998, after approximately one year had passed since the
Company returned the software to the vendor, and since the Company had not been
notified by the vendor of any claim, the Company determined that the accrual was
unnecessary and reversed the accrual to the respective line items of the
statement of operations.

The officer bonus accrual was originally recorded as of June 30, 1997 as an
estimated bonus of (including payroll taxes) for the year then ended for its
then President and Chief Executive Officer, Michael Goldstein. In fiscal 1998
(approximately up until Mr. Goldstein's resignation in October 1997), the Board
of Directors considered whether to pay Mr. Goldstein any bonus for the year
ended June 30, 1997. In fiscal 1998, after Mr. Goldstein resigned (and the
Company decided not to pay him any bonus for the year ended June 30, 1997), the
Company reversed this accrual to the general and administrative line item in the
statement of operations.

RESEARCH AND DEVELOPMENT. 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 $3,070,000 from $7,796,000 in fiscal 1997 to $4,726,000 in fiscal
1998. This decrease in research and development expenses primarily resulted
from restructuring the Company's business focus away from consumer application
software and toward an OEM (original equipment manufacturer) model, which
requires fewer personnel (including employees and independent contractors) than
a consumer application software business model. As of June 30, 1998, the
Company had a research and development staff of 24
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compared to 49 at June 30, 1997. The Company expects to continue to invest in
research and development projects that may provide additional technologies and
products for its targeted markets. As such, the Company expects near term
quarterly research and development expenditures to remain relatively consistent
with the level incurred during the fourth quarter of fiscal 1998. During the
fourth quarter of fiscal 1998, the Company's research and development expenses
totaled approximately $838,000. Refer to the disclosure in Operating Expenses
above for further discussion of reversals of accrued liabilities which reduced
research and development expenses reported for fiscal 1998 by $14,000.

SALES AND MARKETING. Sales and marketing expenses primarily consist of employee
compensation (including direct sales commissions), travel expenses, trade shows
and costs of promotional materials. Sales and marketing expenses decreased
$174,000 from $4,018,000 in fiscal 1997 to $3,844,000 in fiscal 1998. This
decrease in sales and marketing expenses was primarily due to the restructuring
of the Company's focus to an OEM model, which requires less promotion and
marketing than the previous consumer application software business model, as
well as a decrease in the size of the Company's sales force and marketing staff
from 24 at June 30, 1997 to 12 at June 30, 1998. The decreases realized from
the business model transition were partially offset by increases in expenses
related to the Company's sales offices in Europe and Asia which were opened
during the fourth quarter of fiscal 1997, and expenses incurred in connection
with the formation of a product management and marketing function for the
purpose of employing an OEM business model in its target markets. The Company
expects near term quarterly sales and marketing expenditures to remain
relatively consistent with the level incurred during the fourth quarter of
fiscal 1998. During the fourth quarter of fiscal 1998, the Company's sales and
marketing expenses totaled approximately $818,000. If the Company is successful
in significantly increasing its revenues, the Company anticipates increasing the
level of quarterly sales and marketing expenditures in order to expand its sales
force and marketing efforts, as necessary. Refer to the disclosure in Operating
Expenses above for further discussion of reversals of accrued liabilities which
reduced sales and marketing expenses reported for fiscal 1998 by $82,000.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee compensation and fees for insurance, rent, office expenses
and professional services. General and administrative expenses decreased
$737,000 from $3,204,000 in fiscal 1997 to $2,467,000 in fiscal 1998. The
decrease in general and administrative expenses was primarily realized through
reductions in personnel, recruitment and general cost savings achieved through
expense management. As of June 30, 1998, the Company had a general and
administrative staff of 10 compared to 18 at June 30, 1997. The Company
believes that the current size of the general and administrative staff is
appropriate for fiscal 1999, and expects near term quarterly general and
administrative expenditures to remain relatively consistent with the level
incurred during the fourth quarter of fiscal 1998, exclusive of approximately
$300,000 of non-recurring charges incurred during that quarter. These non-
recurring charges consisted of (i) severance and related charges of $161,000 for
the Company's former Executive Vice President and Chief Financial Officer and
(ii) charges of $139,000 for the termination of leases for computers and related
equipment which was no longer needed by the Company as a result of the Company's
downsizing. During the fourth quarter of fiscal 1998, the Company's general and
administrative expenses totaled approximately $798,000. Refer to the disclosure
in Operating Expenses above for further discussion of reversals of accrued
liabilities which reduced general and administrative expenses reported for
fiscal 1998 by $369,000.

INTEREST INCOME. Interest income increased $122,000 from $722,000 in fiscal
1997 to $844,000 in fiscal 1998. This increase in interest income primarily
relates to the timing of the Company's Initial Public Offering ("IPO"), which
closed during November and December 1996 (see "Liquidity and Capital Resources"
below). As the IPO occurred approximately four months after the start of fiscal
1997, the Company earned approximately eight months' interest income on the
remaining net proceeds from the IPO during fiscal 1997, as compared to a full
year's interest income earned on the remaining net proceeds from the IPO during
fiscal 1998. The Company anticipates near term quarterly interest income to
decrease from the level earned during fiscal 1998 in connection with an
anticipated decrease in cash, cash equivalents and short-term investments
associated with the Company's expected net losses in at least the near term
quarters.

INCOME TAXES. As of June 30, 1998, the Company had approximately $14,000,000 of
federal net operating loss carryforwards for tax reporting purposes available to
offset future taxable income; such carryforwards begin to expire in 2009. Under
the Tax Reform Act of 1986, the amounts of and benefits from net operating
losses carried forward may be impaired or limited in certain circumstances.
Events which may cause limitations in the amount of net operating losses that
the Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50% over a three year period. As of
June 30, 1998, the effect of such limitations, if imposed, is not expected to be
material.
<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. As of June 30, 1998, the Company
had deferred tax assets of approximately $6,100,000 relating primarily to net
operating loss carryforwards. The net deferred tax asset has been fully offset
by a valuation allowance.

Fiscal 1997 Versus Fiscal 1996

TOTAL REVENUES.

The Company recognized revenues of $7,779,000 for the year ended June 30, 1997
compared to revenues of $1,607,000 for the year ended June 30, 1996. Revenues
increased from fiscal 1996 to fiscal 1997 as the Company entered into an
increasing number of license agreements providing customers with the right to
use the Company's products and services, and as the Company recognized royalties
and recurring license fees derived from customers which licensed the Company's
products in previous periods. The Company's largest customer, Netscape
Communications Corporation ("Netscape"), was a 4% stockholder as of June 30,
1997 and accounted for 16% and 31% of total revenues, respectively, for the
years ended June 30, 1997 and 1996. In addition, two other customers each
accounted for 15% of revenues for the year ended June 30, 1997.

PRODUCT REVENUES. Product revenues totaled $7,428,000 and accounted for 95% of
total revenues for the year ended June 30, 1997 compared to $1,494,000, which
accounted for 93% of total revenues, for the year ended June 30, 1996. These
dollar increases in product revenues were primarily due to the increased volume
of licenses of the Company's products to new customers, and an increase in the
amount of royalties and recurring license fees recognized from customers which
licensed the Company's products in previous periods. In fiscal 1997, product
revenues consisted of $5,432,000 in initial license fees (73% of product
revenues) and $1,996,000 in royalties and recurring license fees (27% of product
revenues). Included in product revenues for the year ended June 30, 1997 is
$480,000 in fees earned by Voxware for product development efforts. For the
year ended June 30, 1996, product revenues included $1,256,000 in initial
license fees (84% of product revenues) and $238,000 (16% of product revenues) in
royalties and recurring license fees which were derived from one customer,
Netscape.

SERVICE REVENUES. Service revenues consist of customer support and engineering
fees. Customer support services include providing updates and technical support
to licensees of the Company's products. Engineering services include providing
technical resources and technical assistance to support customer-specific
development efforts, which include porting the Company's technologies to
specific hardware platforms and providing customized speech and audio solutions
to customers.

Service revenues were primarily attributable to customer support and fees for
engineering. During the year ended June 30, 1997, the Company recognized
$351,000 in service revenues (5% of total revenues), compared to service
revenues of $113,000 (7% of total revenues) for the year ended June 30, 1996.
The increase in service revenues for the year ended June 30, 1997 compared to
service revenues for the year ended June 30, 1996 was primarily attributable to
an increase in the number of contracts entered into, the majority of which
provide for service revenues which are recognized over the term of the
respective contract.

GROSS PROFIT

COST OF PRODUCT REVENUES. Cost of product revenues consisted primarily of costs
of licensed technology, product media and duplication, manuals and packaging
materials related to licenses of the Company's products to new customers. Cost
of product revenues totaled $178,000 or 2% of product revenues for the year
ended June 30, 1997 compared to $17,000 or 1% of product revenues for the year
ended June 30, 1996. The increase in cost of product revenues for the year
ended June 30, 1997 compared to the year ended June 30, 1996 was directly
attributable to the increase in product revenues recognized during those
periods.

COST OF SERVICE REVENUES. Cost of service revenues consisted primarily of the
expenses associated with the staffing of a customer support group and
engineering services, which consisted primarily of providing employee
compensation and equipment depreciation. Cost of service revenues totaled
$164,000 or 47% of service revenues for the year ended June 30, 1997 compared to
$28,000 or 25% of product revenues for the year ended June 30, 1996. The
absolute dollar increase in cost of services for the year ended June 30, 1997
compared to cost of services for the year ended June 30, 1996 was directly
attributable to the increase in service revenues from fiscal 1996 to fiscal
1997.
<PAGE>

OPERATING EXPENSES. Operating expenses increased $10,457,000 from $4,561,000 in
fiscal 1996 to $15,018,000 in fiscal 1997, reflecting significant increases in
costs associated with the development of infrastructure, rapid growth and
increased efforts to commercialize the Company's products and services.

RESEARCH AND DEVELOPMENT. 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
increased $5,299,000 from $2,497,000 in fiscal 1996 to $7,796,000 in fiscal
1997. This increase in research and development expenses was primarily due to
increasing the research and development staff from 33 at June 30, 1996 to 49 at
June 30, 1997, increases in external consulting costs and costs associated with
developing and enhancing the functionality of the Company's family of products.

SALES AND MARKETING. Sales and marketing expenses consist primarily of employee
compensation (including direct sales commissions), travel expenses, trade shows
and costs of promotional materials. Sales and marketing expenses increased
$2,934,000 from $1,084,000 in fiscal 1996 to $4,018,000 in fiscal 1997. This
increase in sales and marketing expenses was primarily due to the expansion of
the Company's sales force and marketing staff from 8 at June 30, 1996 to 24 at
June 30, 1997, and increased expenses associated with the promotion and
marketing of the Company's products and services.

INTEREST INCOME. Interest income increased $590,000 from $132,000 in fiscal
1996 to $722,000 in fiscal 1997. This increase in interest income from
primarily reflects interest earned on the net proceeds from the Company's
initial public offering closed during November and December 1996 (see "Liquidity
and Capital Resources" below).
<PAGE>

Liquidity and Capital Resources

As of June 30, 1998, the Company had $13,537,000 in cash, cash equivalents and
short-term investments, comprised of $9,149,000 in cash and cash equivalents and
$4,388,000 in short-term investments. The Company's cash and short-term
investments portfolio is liquid and investment grade, consisting of high-grade
money-market funds, United States Government-backed securities and commercial
paper and corporate obligations. Since inception, the Company has primarily
financed its operations through the sale of equity securities.

Cash of $3,274,000, $6,564,000 and $4,218,000 was used to fund operations for
the years ended June 30, 1996, 1997 and 1998, respectively. Cash used in
investing activities was $586,000 and $6,021,000 for the years ended June 30,
1996 and 1997, respectively, and was related to equipment purchases in fiscal
1996. In fiscal 1997, cash used in investing activities was related to
equipment purchases and the purchase of short-term investments. In fiscal 1998,
cash provided by investing activities totaled $1,393,000 due to the liquidation
of short-term investments, offset by equipment purchases.

For the years ended June 30, 1996, 1997 and 1998, cash provided by financing
activities totaled $6,174,000, $19,375,000 and $1,347,000, respectively. In
fiscal 1996, $5,932,000 of cash provided by financing activities was
attributable to the issuance of Series A Preferred Stock and $242,000 related to
exercises of common stock warrants and options. All Series A Preferred Stock
converted into Common Stock upon the closing of the Company's initial public
offering, which was consummated in October and November 1996. In fiscal 1997,
$19,375,000 of cash was provided by financing activities, reflecting $18,517,000
in net proceeds from the initial public offering, $763,000 in proceeds from the
exercise of common stock warrants and options and $95,000 from the issuance of
common stock pursuant to the Employee Stock Purchase Plan. In fiscal 1998,
$1,347,000 of cash was provided by financing activities, reflecting $1,158,000
in proceeds from the exercise of common stock options and $189,000 from the
issuance of common stock pursuant to the Employee Stock Purchase Plan.

The Company has a $2,000,000 revolving line of credit with Silicon Valley
Bank, as amended (the "Credit Facility"). In addition to the revolving line of
credit, the Credit Facility contains a separate lease line component in the
amount of $1,500,000 for the purpose of providing a facility for the financing
of the lease stream of payments that the Company owes to an equipment lessor.
Borrowings under the Credit Facility will bear interest at the bank's prime
lending rate. The Credit Facility contains certain restrictive financial
covenants including a minimum quick ratio, a minimum tangible net worth
requirement and a maximum debt to tangible net worth ratio, as defined in the
agreement. The Credit Facility requires payment of all outstanding principal,
if any, plus all accrued interest on March 30, 1999. In connection with the
lease of the Company's office facility, the Company has outstanding a $300,000
standby letter of credit at June 30, 1998 naming the lessor of the office
facility beneficiary of the standby letter of credit in the event that the
Company defaults on the lease. As this letter of credit was established under
the terms of the Credit Facility, the Company has $1,700,000 available for
borrowing under the Credit Facility. As of and for the years ended June 30,
1998 and 1997 there were no amounts outstanding under the Credit Facility.

In November 1996 and December 1996, the Company closed on an initial public
offering of Common Stock ("IPO"). The Company offered and sold 2,823,237 shares
of Common Stock at an IPO price of $7.50 per share. The net proceeds to the
Company from the IPO after payment of offering expenses were approximately
$18,517,000.

The Company has no material commitments other than those under normal building
and equipment operating leases. At June 30, 1998, the Company's working capital
totaled approximately $13,743,000. The Company believes that its current cash,
cash equivalents and short-term investments balances will be sufficient to fund
its working capital and capital expenditures requirements, exclusive of cash
required for possible acquisitions of, or investments in businesses, products
and technologies at least through June 30, 1999.

Year 2000 Compliance

The efficient operation of the Company's business is dependent in part on
computer software programs and operating systems which it uses internally
(collectively, the "Internal Programs and Systems"). The Company has been
evaluating its Internal Programs and Systems to identify potential Year 2000
compliance problems, and has primarily conducted these evaluations and
assessments using the Company's information technology personnel. These actions
are necessary to ensure that the Internal Programs and Systems will be Year 2000
compliant. It is anticipated that modification or replacement of some of the
Internal Programs and Systems may be necessary to make such Programs and Systems
Year 2000 compliant. The Company is also communicating with its suppliers and
others
<PAGE>

to coordinate Year 2000 conversion. To date, costs incurred in evaluating its
Internal Programs and Systems have not been material, and anticipated costs
necessary to complete such evaluations, modifications and/or replacements are
not expected to be material. Based on present information, the Company believes
that it will be able to achieve such Year 2000 compliance through a combination
of modification of some existing Internal Programs and Systems and the
replacement of other Internal Programs and Systems with new programs and systems
that are already Year 2000 compliant. However, there can be no assurance that
these efforts will be successful.

With respect to software programs which the Company licenses externally to
customers (collectively, the "External Programs"), these programs are primarily
not date-dependent and, as such, the Company does not expect significant, if
any, Year 2000 problems related to its External Programs. Costs incurred to
date to evaluate and identify potential Year 2000 compliance problems contained
in the Company's Internal Programs and Systems and External Programs have not
been material, and the Company expects that future expenses and capital
expenditures associated with achieving Year 2000 compliance will not have a
material effect on its financial results in fiscal 1999 and fiscal 2000.

Recent Accounting Pronouncements

See Note 1 in "Notes to Financial Statements" for recent accounting
pronouncements.
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) List of documents filed as part of this Form 10-K/A:

1. FINANCIAL STATEMENTS. The financial statements listed in the accompanying
Index to Financial Statements appearing on page F-1 are filed as part of this
annual report on Form 10-K/A.

2. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedule
of the Company for each of the years ended June 30, 1996, 1997 and 1998 is filed
as part of this Form 10-K/A and should be read in conjunction with the Financial
Statements, and related notes thereto, of the Company.

VOXWARE, INC.
Schedule IIValuation and Qualifying Accounts
Allowance for Doubtful Accounts
Years Ended June 30, 1996, 1997 and 1998
(in thousands)

Balance at Charged to
Beginning of Costs and Balance at
Period Expenses Deductions End of Period
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996 $ $ 25 $ $ 25
=========== ========= ========== =========
Year ended June 30, 1997 $ 25 $467 $ 92 $400
=========== ========= ========== =========
Year ended June 30, 1998 $400 $795 $688 $507
=========== ========= ========== =========
</TABLE>

Schedules other than those listed above have been omitted since they are
either not required, not applicable, or the information is otherwise included.

3. EXHIBITS. The following is a list of Exhibits filed as part of this
Annual Report on Form 10-K/A. Where so indicated by footnote, Exhibits which
were previously filed are incorporated by reference. For Exhibits incorporated
by reference, the location of the Exhibit in the previous filing is indicated in
parentheses.

Exhibit No. Description
- - ----------- -----------

2.1 Asset Purchase Agreement dated as of February 4, 1999 by and
between Ascend Communications, Inc. and Voxware, Inc.**(1)
2.2 Acquisition Agreement by and among Voxware, Inc., Verbex
Acquisition Corporation and Verbex Voice Systems, Inc. dated as
of February 4, 1999. **(1)
3.1 Certificate of Incorporation, as amended.**(2)
3.2 Bylaws.**(2)
10.1 Voxware, Inc. 1994 Stock Option Plan.**(2)
10.2 Form of Voxware, Inc. Stock Option Agreement.**(2)
10.3 Form of Indemnification Agreement.**(2)
10.9 Technology Transfer Agreement Effective May 19, 1995,
between Suat Yeldener Ph.D.
and Voxware, Inc.**(2)+
10.16 Lease, dated April 10, 1996, between College Road Associates,
Limited Partnership and the Company.**(2)
<PAGE>

10.20 1996 Employee Stock Purchase Plan.**(2)
10.22 Loan Agreement dated October 31, 1996 between Silicon Valley and
the Company.**(3)
10.23 Loan Modification Agreement dated May 5,1997 between Silicon
Valley and the Company.**(4)
10.27 Employment Agreement dated August 13, 1998, with Bathsheba J.
Malsheen.**(5)
10.28 Employment Agreement dated August 13, 1998, with Nicholas
Narlis.** (5)
23.1 Consent of Arthur Andersen LLP.*
27.1 Financial Data Schedule for current reporting periods ended June
30, 1998.**(5)
27.2 Restated Financial Data Schedule for reporting periods ended June
30, 1998 and 1997.*
99 Important Factors Regarding Forward-Looking Statements.**(5)
- - -------------
* Filed herewith.
** Previously filed with the Commission as Exhibits to, and incorporated by
reference from, the following documents:
(1) Filed in connection with the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1999.
(2) Filed in connection with Registration Statement on Form S-1 (File
Number 33-08393).
(3) Filed in connection with the Company's quarterly report on Form 10-Q
for the quarter ended September 30, 1996.
(4) Filed in connection with the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1997.
(5) Filed in connection with the Company's annual report on Form 10-K for
the year ended June 30, 1998.
+ Confidential treatment has been granted for portions of such document.
(b) Reports on Form 8-K:

No Current Report on Form 8-K was filed by the Company in the fourth quarter
ended June 30, 1998.
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

VOXWARE, INC.

By: /s/ Bathsheba Malsheen
------------------------------
Bathsheba Malsheen, President and
Chief Executive Officer
<PAGE>

VOXWARE, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Public Accountants.................................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)............................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7

F-1

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Voxware, Inc.:

We have audited the accompanying balance sheets of Voxware, Inc. (a Delaware
corporation) as of June 30, 1998 and 1997 (as revised, see Note 1) and the
related statements (as revised, see Note 1) of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for each of the three years in the period ended June 30, 1998. 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 audits.

We conducted our audits 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 audits provide 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 Voxware, Inc. as of June 30,
1998 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.

/s/ Arthur Andersen LLP

Roseland, New Jersey
August 2, 1999

F-2
<PAGE>

VOXWARE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
June 30,
----------------
1997 1998
------- -------
(In thousands,
except
share and per
share data)
----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $10,627 $ 9,149
Short-term investments..................................... 5,842 4,388
Accounts receivable, net................................... 2,822 1,254
Prepaid expenses and other current assets.................. 309 268
------- -------
Total current assets..................................... 19,600 15,059
Property and equipment, net.................................. 566 407
Other assets, net............................................ 55 91
------- -------
$20,221 $15,557
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................... $ 2,127 $ 1,097
Deferred revenues.......................................... 477 219
------- -------
Total current liabilities................................ 2,604 1,316
------- -------
Deferred rent................................................ 241 328
------- -------
Commitments and contingencies (Note 9)
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; 12,497,258 and 13,292,524 shares issued and
outstanding at June 30, 1997 and 1998, respectively....... 13 13
Additional paid-in capital................................. 28,488 29,915
Unrealized gain (loss) on available-for-sale securities.... (2) 2
Accumulated deficit........................................ (11,123) (16,017)
------- -------
Total stockholders' equity............................... 17,376 13,913
------- -------
$20,221 $15,557
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>

VOXWARE, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------
1996 1997 1998
------- ------- -------
(In thousands, except
per share data)
-------------------------
<S> <C> <C> <C>
Revenues:
Product revenues:
License fees................................... $ 1,256 $ 5,432 $ 2,935
Royalties and recurring revenues............... 238 1,996 1,918
------- ------- -------
Total product revenues....................... 1,494 7,428 4,853
Service revenues................................. 113 351 1,029
------- ------- -------
Total revenues................................. 1,607 7,779 5,882
------- ------- -------
Cost of revenues:
Cost of product revenues......................... 17 178 142
Cost of service revenues......................... 28 164 441
------- ------- -------
Total cost of revenues......................... 45 342 583
------- ------- -------
Gross profit................................. 1,562 7,437 5,299
------- ------- -------
Operating expenses:
Research and development......................... 2,497 7,796 4,726
Sales and marketing.............................. 1,084 4,018 3,844
General and administrative....................... 980 3,204 2,467
------- ------- -------
Total operating expenses....................... 4,561 15,018 11,037
------- ------- -------
Operating loss................................. (2,999) (7,581) (5,738)
Interest income.................................... 132 722 844
------- ------- -------
Net loss........................................... (2,867) (6,859) (4,894)
Accretion of preferred stock to redemption value... (7) (5) --
------- ------- -------
Net loss applicable to common stockholders......... $(2,874) $(6,864) $(4,894)
======= ======= =======
Basic and diluted net loss per common share........ $ (0.50) $ (0.67) $ (0.38)
======= ======= =======
Weighted average number of common shares
outstanding....................................... 5,784 10,242 12,890
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

VOXWARE, INC.

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
------------------------------------------------------------------------------------- -------
Redeemable
Series A Common Stock Additional Unrealized Gain
Convertible ----------------- Paid-in (Loss) on Available- Accumulated
Preferred Stock Shares Amount Capital for-Sale Securities Deficit Total
--------------- ---------- ------ ---------- -------------------- ----------- -------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995.. $ -- 5,772,496 $ 6 $ 2,935 $-- $ (1,385) $ 1,556
Sale of Redeemable
Series A Convertible
Preferred Stock....... 5,931 -- -- -- -- -- --
Exercise of common
stock warrants........ -- 115,000 -- 172 -- -- 172
Exercise of common
stock options......... -- 60,000 -- 70 -- -- 70
Accretion of redemption
premium on Redeemable
Series A Convertible
Preferred Stock....... 7 -- -- -- -- (7) (7)
Net loss............... -- -- -- -- -- (2,867) (2,867)
------ ---------- --- ------- --- -------- -------
Balance, June 30, 1996.. 5,938 5,947,496 6 3,177 -- (4,259) (1,076)
Exercise of common
stock warrants........ -- 696,250 1 760 -- -- 761
Accretion of redemption
premium on Redeemable
Series A Convertible
Preferred Stock....... 5 -- -- -- -- (5) (5)
Mandatory conversion of
Redeemable Series A
Convertible Preferred
Stock................. (5,943) 3,000,000 3 5,940 -- -- 5,943
Issuance of common
stock upon Initial
Public Offering, net
of offering costs of
$1,175................ -- 2,823,237 3 18,514 -- -- 18,517
Exercise of common
stock options......... -- 5,000 -- 2 -- -- 2
Issuance of common
stock pursuant to
Employee Stock
Purchase Plan......... -- 25,275 -- 95 -- -- 95
Unrealized loss on
available-for-sale
securities............ -- -- -- -- (2) -- (2)
Net loss............... -- -- -- -- -- (6,859) (6,859)
------ ---------- --- ------- --- -------- -------
Balance, June 30, 1997.. -- 12,497,258 13 28,488 (2) (11,123) 17,376
Exercise of common
stock options......... -- 701,746 -- 1,158 -- -- 1,158
Issuance of common
stock pursuant to
Employee Stock
Purchase Plan......... -- 74,109 -- 189 -- -- 189
Unrealized gain on
available-for-sale
securities............ -- -- -- -- 4 -- 4
Issuance of common
stock to pay non-
employee directors
annual retainer....... -- 19,411 -- 80 -- -- 80
Net loss............... -- -- -- -- -- (4,894) (4,894)
------ ---------- --- ------- --- -------- -------
Balance, June 30, 1998.. $ -- 13,292,524 $13 $29,915 $ 2 $(16,017) $13,913
====== ========== === ======= === ======== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>

VOXWARE, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year Ended June 30
--------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net loss......................................... $(2,867) $ (6,859) $(4,894)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................... 104 222 224
Provision for doubtful accounts.................. 25 467 795
Non-cash directors' compensation................. -- -- 80
Changes in assets and liabilities:
Accounts receivable............................ (495) (2,819) 773
Prepaid expenses and other current assets...... (49) (255) 41
Other assets................................... (355) 309 (36)
Accounts payable and accrued expenses.......... 254 1,762 (1,030)
Deferred revenues.............................. 109 368 (258)
Deferred rent.................................. -- 241 87
------- -------- -------
Net cash used in operating activities........ (3,274) (6,564) (4,218)
------- -------- -------
Investing activities:
Purchases of short-term investments.............. -- (105,325) (65,506)
Maturities and sales of short-term investments... -- 99,481 66,964
Purchases of property and equipment.............. (586) (177) (65)
------- -------- -------
Net cash provided by (used in) investing
activities.................................. (586) (6,021) 1,393
------- -------- -------
Financing activities:
Proceeds from issuance of common stock, net...... -- 18,517 --
Proceeds from exercise of common stock warrants.. 172 761 --
Proceeds from exercise of common stock options... 70 2 1,158
Proceeds from sale of Redeemable Series A
Convertible Preferred Stock..................... 5,932 -- --
Issuance of common stock pursuant to Employee
Stock Purchase Plan............................. -- 95 189
------- -------- -------
Net cash provided by financing activities...... 6,174 19,375 1,347
------- -------- -------
Increase (decrease) in cash and cash equivalents... 2,314 6,790 (1,478)
Cash and cash equivalents, beginning of period..... 1,523 3,837 10,627
------- -------- -------
Cash and cash equivalents, end of period........... 3,837 10,627 9,149
Short-term investments, end of period.............. -- 5,842 4,388
------- -------- -------
Cash and short-term investments, end of period..... $ 3,837 $ 16,469 $13,537
======= ======== =======
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Conversion of Redeemable Series A Convertible
Preferred Stock to common stock................. $ -- $ 5,943 $ --
Accretion of redemption premium on Redeemable
Series A Convertible Preferred Stock............ $ 7 $ 5 $ --
Cashless exercise of 378 warrants, converted at a
rate of one-half share of common stock per
warrant (converted to 189 shares of common
stock) in December 1996......................... $ -- $ -- $ --
Unrealized gain (loss) on short-term
investments..................................... $ -- $ (2) $ 4
======= ======== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

Voxware, Inc. (the "Company") develops, markets, licenses and supports
digital speech and audio technologies, solutions and applications. The Company
licenses its products to software and hardware companies for a wide range of
applications and services including consumer devices, multimedia applications,
wireless communications, and Internet Protocol (IP) telephony.

The market for the Company's products is characterized by rapidly changing
technology and evolving industry standards. The introduction of products
incorporating new technology and the emergence of new industry standards could
render the Company's products obsolete and unmarketable and could exert price
pressures on existing products. The Company's ability to anticipate changes in
technology and industry standards and successfully develop and introduce new
and enhanced products, in each case on a timely basis, will be a critical
factor in the Company's ability to grow and to be competitive. The Company has
only a limited operating history upon which an evaluation of the Company and
its prospects can be based. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
the early stage of development, particularly companies in new and rapidly
evolving markets. Since its inception, the Company has incurred significant
losses and, as of June 30, 1998, the Company had an accumulated deficit of
$16,017,000. In addition, the Company's operating results may fluctuate
significantly in the future as a result of a variety of factors, including the
budgeting cycles of potential customers, the volume of, and revenues derived
from sales of products by the Company's licensees that incorporate the
Company's products, the rate of new licensing activity, as well as the
termination of existing license agreements, the introduction of new products or
services by the Company or its competitors, pricing changes in the industry,
the degree of success of the Company's efforts to penetrate its target markets,
technical difficulties with respect to the use of products developed by the
Company or its licensees, the level of usage of the Internet, and general
economic conditions. The Company believes that its capital resources are
adequate to fund the Company's operations for the year ending June 30, 1999.

Restatement of Financial Statements

In fiscal 1997, the Company had accrued certain expenses in its reported
results primarily relating to estimated recruiting and relocation costs in
connection with filling certain management and operational positions. These
accruals totaled $185,000. In fiscal 1998, these accrued expenses were
reversed. To correct for this error, the Company has restated the accompanying
fiscal 1997 and 1998 financial statements to eliminate the unnecessary accruals
in fiscal 1997 and their reversal into income in fiscal 1998. The restatement
had the effect of reducing the fiscal 1997 net loss of $7,049,000 and accrued
expenses as of June 30, 1997 by $185,000, which reduced the fiscal 1997 basic
and diluted net loss per common share by $0.02 from $(0.69) to $(0.67). The
restatement also had the effect of increasing the fiscal 1998 net loss of
$4,709,000 by $185,000, which increased the fiscal 1998 basic and diluted net
loss per common share by $0.01 from $(0.37) to $(0.38).

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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.

Revenue Recognition

The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product revenues consist of license fees and
royalties and recurring revenues. Product revenues from

F-7
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

license fees are generally recognized upon shipment, provided that there are no
significant post-delivery obligations, persuasive evidence of an arrangement
exists, pricing is fixed or determinable, the payment is due within one year
and collection of the resulting receivable is deemed probable. Royalties and
recurring revenues include royalties, which are generally based on a percentage
of licensees' sales or units shipped, and pre-determined periodic license fees.
Royalty revenues are recognized at the time of the customer's shipment of
products incorporating the Company's technology. Recurring product license fees
are generally recognized at the inception of the renewal period, provided that
there are no significant post-delivery obligations, persuasive evidence of an
arrangement exists, pricing is fixed or determinable, the payment is due within
one year and collection of the resulting receivable is deemed probable. Service
revenues from customer maintenance support, including the amounts bundled with
initial or recurring revenues, are recognized over the term of the maintenance
support period, which is typically one year. Service revenues from engineering
fees are recognized upon customer acceptance or over the period in which
services are provided if customer acceptance is not required.

In fiscal 1998, the Company adopted the provisions of Statement of Position
97-2 "Software Revenue Recognition." The adoption had no significant impact on
the accompanying financial statements.

Research and Development

Research and development expenditures are charged to operations as incurred.
Pursuant to Statement of Financial Accounting Standards No. 86, "Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise Marketed",
development costs incurred in connection with the research and development of
software products and enhancements to existing software products are expensed
when incurred unless technological feasibility has been established. Based on
the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant.

Reverse Stock Split

On September 19, 1996 the Company effected a one for two reverse stock split
and decreased its authorized common stock to 30,000,000 shares. All references
in the accompanying financial statements to the number of common shares and per
share amounts have been retroactively restated to reflect the reverse stock
split.

Net Loss Per Share

The Company has presented net loss per common share 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. Diluted loss per common share has not been presented, since the
impact on loss per share using the treasury stock method is anti-dilutive due
to the Company's losses. Outstanding securities that could potentially dilute
basic earnings per share in the future which were not presented in a
computation of diluted earnings per share because to do so would have been
anti-dilutive. All outstanding common stock options are anti-dilutive. See Note
4.

Cash, Cash Equivalents and Short-Term Investments

Cash and cash equivalents consist of investments in highly liquid short-term
instruments, with maturities of 90 days or less from the date of purchase.
Short-term investments consist primarily of high-grade United States
Government-backed securities and corporate obligations with maturities between
90 and 365 days from

F-8
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

the date of purchase. The Company's entire short-term investment portfolio is
classified as available-for-sale and is stated at fair value as determined by
quoted market values. Changes in the net unrealized holding gains and losses
are included as a separate component of stockholders' equity.

The following table details the Company's investments as of June 30, 1997 and
1998:

<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Government Agencies........ $ 1,000 $-- $ (1) $ 999
Corporate obligations........... 13,980 -- (1) 13,979
------- ---- ---- -------
$14,980 $-- $ (2) $14,978
======= ==== ==== =======
Included in cash and cash equiv-
alents......................... $ 9,136 $-- $-- $ 9,136
Included in short-term invest-
ments.......................... 5,844 -- (2) 5,842
------- ---- ---- -------
$14,980 $-- $ (2) $14,978
======= ==== ==== =======
<CAPTION>
June 30, 1997
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Government Agencies........ $ 35 $-- $-- $ 35
Corporate obligations........... 12,852 3 (1) 12,854
------- ---- ---- -------
$12,887 $ 3 $ (1) $12,889
======= ==== ==== =======
Included in cash and cash equiv-
alents......................... $ 8,501 $-- $-- $ 8,501
Included in short-term invest-
ments.......................... 4,386 3 (1) 4,388
------- ---- ---- -------
$12,887 $ 3 $ (1) $12,889
======= ==== ==== =======
</TABLE>

The Company has not experienced any significant realized gains or losses on
its investments during the years ended June 30, 1997 and 1998. For purposes of
determining gross realized gains and losses, the cost of short-term investments
sold is based upon specific identification. As of June 30, 1997 and 1998, all
short-term investments were due within one year.

Accounts Receivable

Accounts receivable as of June 30, 1997 and 1998 consisted of the following:

<TABLE>
<CAPTION>
June 30,
----------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Accounts receivable--billed................................ $ 1,629 $ 1,383
Accounts receivable--unbilled.............................. 1,593 378
------- -------
3,222 1,761
Less--allowance for doubtful accounts...................... (400) (507)
------- -------
$ 2,822 $ 1,254
======= =======
</TABLE>

F-9
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Accounts receivable--unbilled relates to revenues recognized, but which were
not billed as of the end of the reporting period in accordance with payment
schedules pursuant to contractual agreements with customers.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the useful lives of the assets ranging from three to
seven years. Maintenance, repairs and minor replacements are charged to expense
as incurred. In accounting for property and equipment, the Company adopted
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" during the year ended June 30, 1997. The adoption of SFAS 121 had
no impact on the Company's financial statements.

Loss Congtingencies

In accordance with Statement of Financial Accounting Standards No. 5 ("SFAS
5"), the Company's policy is to accrue an estimated loss if it is both probable
that one or more future events will occur confirming the fact of the loss, and
the amount of the loss can be reasonably estimated. In the case of legal
claims, it is the Company's policy to accrue probable estimated losses from
legal claims upon receiving notice of such claims. As of June 30, 1997, the
Company had on its balance sheet an accrual of $300,000 for a legal contingency
reserve. In September 1996, Elk Industries, Inc. ("Elk Industries") asserted in
two letters to Voxware during the quarter ended September 30, 1996 that
Voxware's "Internet-based streaming audio systems" infringe U.S. Patent No.
4,124,773 owned by Elk Industries. At that time, the Company was engaged in
marketing to vendors of Internet-based streaming applications, including the
Company's major customer, Netscape. During fiscal 1997, the Company accrued a
loss contingency in accordance with its policy. The amount of this accrual
represented an estimate of what the Company believed would be the minimum
amount necessary to either (i) purchase a license to Elk Industries' underlying
technology, or (ii) pay Elk Industries for a license as a result of a legal
determination, or (iii) settle the case with Elk Industries outside of court
proceedings. During fiscal 1998, the Company re-evaluated the risk and
considered that, among other things, (1) approximately one year had passed
without receiving any additional letters or other communications in regard to
this issue, and (2) the Company no longer viewed its sales opportunity in the
Internet-based streaming applications market to be substantial. As a result,
the Company determined that the risk of loss under this contingency was now
deemed minimal and reversed the accrual against the general and administrative
line item of the statement of operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash in highly liquid investments (short-term bank
deposits). The Company's customer base principally comprises companies within
the computer software, hardware and telecommunications industries. The Company
does not typically require collateral from its customers.

Major Customers

The Company's largest customer accounted for 21%, 16% and 31% of revenues,
respectively, for the years ended June 30, 1998, 1997 and 1996. Another
customer accounted for 15% of revenues for each of the years ended June 30,
1998 and 1997. Another customer accounted for 15% of revenues for the year
ended June 30, 1997.

F-10
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Income taxes

Deferred income tax assets and liabilities are determined based on
differences between the financial statement reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The measurement of
deferred income tax assets is reduced, if necessary, by a valuation allowance
for any tax benefits which are not expected to be realized. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.

Stock-Based Compensation

The Company accounts for its stock-based compensation in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. Effective July 1,
1996, the Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 permits entities to
provide pro forma disclosures of net income (loss) and net income (loss) per
share for employee stock option grants made in fiscal year 1996 and future
years as if the fair value based method of accounting defined by this standard
had been applied (see Note 4).

Recently Issued Accounting Pronouncements

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 the balance
sheet. SFAS 130 is effective for financial statements issued for fiscal years
beginning after December 15, 1997. Management believes that SFAS 130 will not
have a material effect on the Company's financial statements.

In June 1997, the FASB issued SFAS No, 131, "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating the impact, if any, of the adoption of this pronouncement
on the Company's existing disclosures.

Reclassifications

Certain prior year balances have been reclassified to conform with the
current year presentation.

2. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
June 30,
----------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Equipment.................................................. $ 457 $ 504
Leasehold improvements..................................... 50 56
Furniture and fixtures..................................... 406 418
------- -------
913 978
Less--Accumulated depreciation............................. (347) (571)
------- -------
$ 566 $ 407
======= =======
</TABLE>

Depreciation expense was approximately $104,000, $222,000 and $224,000 for
the years ended June 30, 1996, 1997 and 1998, respectively.

F-11
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

<TABLE>
<CAPTION>
June 30,
---------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Accounts payable............................................ $ 293 $ 376
Accrued compensation and benefits........................... 711 370
Accrued professional fees................................... 253 154
Accrued software costs...................................... 240 47
Accrued legal contingency reserve........................... 300 --
Other accrued expenses...................................... 330 150
------- -------
$ 2,127 $ 1,097
======= =======
</TABLE>

4. STOCKHOLDERS' EQUITY:

Stock Option Plans

Pursuant to the 1994 Stock Option Plan, as amended (the "Plan"), the Company
may grant to eligible individuals incentive stock options (as defined in the
Internal Revenue Code) and nonqualified stock options. An aggregate of
3,200,000 shares of common stock have been reserved for issuance under the Plan
(during fiscal 1998, the Company's stockholders approved an amendment to
increase the number of shares of common stock reserved for issuance under the
Plan from 2,350,000 shares to 3,200,000 shares). The exercise price for
incentive stock options may not be less than 100% (110% for holders of 10% or
more of the combined voting power of all classes of stock of the Company) of
the fair value of the shares on the date of grant and at least par value for
nonqualified stock options. The period during which an option may be exercised
is fixed by the Board of Directors up to a maximum of ten years (five years in
case of incentive stock options granted to holders of 10% or more of the
combined voting power of all classes of stock of the Company) and options
typically vest over a four-year period.

The Company has granted 70,000 options at prices ranging from $1.00 to $2.00
outside of the 1994 Stock Option Plan ("Outside Options").

Additionally, pursuant to the 1998 Stock Option Plan for Outside Directors
(the "Outside Directors Plan") which was approved by the Company's stockholders
in January 1998, the Company has granted a total of 90,000 options at an
exercise price of $3.75 per share. Pursuant to the Outside Directors Plan, each
non-employee director of the Company shall receive an option to purchase 30,000
shares of the Company's common stock (the "Initial Option") on the date of his
or her election or appointment to the Board of Directors at an exercise price
equal to the Company's stock price at the end of the day of his or her election
or appointment to the Board of Directors (the "Initial Grant Date"). In
addition, on the date of his or her re-election to the Board of Directors, if
he or she is still a non-employee director on such date and has met certain
other requirements defined in the Outside Directors Plan, he or she shall
receive an option to purchase 10,000 shares of the Company's common stock (the
"Additional Option") on the date of his or her election or appointment to the
Board of Directors at an exercise price equal to the Company's stock price at
the end of the day of his or her re-election or appointment to the Board of
Directors (the "Additional Grant Date"). All options granted under the Outside
Directors Plan shall be exercisable as to one-twelfth of the shares issued
under each option on the last day of each of the 12 three-month periods
immediately following the applicable grant date.

F-12
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Information relative to the 1994 Stock Option Plan, the Outside Options and
the Outside Directors Plan is as follows:

<TABLE>
<CAPTION>
Price Aggregate
Shares Per Share Proceeds
--------- ------------ -----------
<S> <C> <C> <C>
Outstanding at June 30, 1995............ 961,500 $0.50--$3.00 $ 1,403,250
Granted............................... 421,150 $1.50--$7.88 1,865,300
Exercised............................. (60,000) $0.50--$1.50 (70,000)
Canceled.............................. (61,500) $1.50--$2.40 (92,475)
--------- ------------ -----------
Outstanding at June 30, 1996............ 1,261,150 $0.50--$7.88 3,106,075
Granted............................... 652,450 $3.63--$7.88 3,724,486
Exercised............................. (5,000) $0.50 (2,500)
Canceled.............................. (180,937) $1.50--$7.88 (1,107,613)
--------- ------------ -----------
Outstanding at June 30, 1997............ 1,727,663 $0.50--$7.88 5,720,448
Granted............................... 845,650 $2.00--$5.69 3,164,213
Exercised............................. (701,871) $0.50--$6.00 (1,157,720)
Canceled.............................. (461,767) $1.00--$7.88 (1,945,115)
--------- ------------ -----------
Outstanding at June 30, 1998............ 1,409,675 $0.50--$7.88 $ 5,781,826
========= ============ ===========
</TABLE>

As of June 30, 1998, there were 318,117 options exercisable at an aggregate
exercise price of $1,194,903. As of June 30, 1998, there were 1,158,454
additional options to purchase common stock available for grant under the 1994
Stock Option Plan. As of June 30, 1997, there were 808,327 options exercisable
at an aggregate exercise price of $1,334,081.

The Company adopted the disclosure requirements of SFAS No. 123 effective for
the Company's June 30, 1997 financial statements. The Company applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock-based
compensation. Accordingly, compensation cost has been computed based on the
intrinsic value of the stock option at the date of grant, which represents the
difference between the exercise price and the fair value of the Company's
stock. As the exercise price of the stock options equaled the fair value of the
Company's stock at the date of option issuance, no compensation cost has been
recorded in the accompanying statements of operations. Had compensation been
determined consistent with SFAS No. 123, the Company's net loss and net loss
per share would have been adjusted to the following pro forma amounts:

<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------
1996 1997 1998
------- ------- -------
(in thousands, except
per share data)
-------------------------
<S> <C> <C> <C>
Net loss:As reported............................. $(2,867) $(6,864) $(4,894)
Pro forma........................................ $(2,927) $(7,483) $(5,662)
Net loss per share:As reported................... $ (0.50) $ (0.67) $ (0.38)
Pro forma........................................ $ (0.51) $ (0.73) $ (0.44)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in fiscal years 1996, 1997 and 1998: risk-free interest rates ranging
from 5.7% to 7.1% based on the rate in effect on the date of grant; no expected
dividend yield; expected lives of 8 years for the options; and expected
volatility of 75%.

F-13
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Because the SFAS No. 123 method of accounting is not required to be applied
to options granted prior to the fiscal year ended June 30, 1996, the resulting
pro forma compensation cost may not be representative of that expected in
future years. The weighted average fair value of options granted was $3.47,
$4.48 and $2.93 for the fiscal years ended June 30, 1996, 1997 and 1998,
respectively.

Information with respect to options outstanding at June 30, 1998 is as
follows:

<TABLE>
<CAPTION>
Weighted
Average
Weighted Average Remaining Number of
Exercise Price Per Share Shares Exercise Price Contractual Life Vested Shares
------------------------ --------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
$0.50--$1.50............ 91,500 $1.35 6.6 83,500
$2.00--$3.00............ 268,275 $2.36 9.0 72,438
$3.06--$4.56............ 772,900 $3.98 9.2 78,298
$4.63--$7.88............ 277,000 $6.92 8.4 83,881
--------- ----- --- -------
1,409,675 $4.08 8.8 318,117
========= ===== === =======
</TABLE>

Annual Stock Grant Retainer to Directors

In January 1998 the Company's Board of Directors and stockholders approved a
plan which provides for the granting of shares to non-employee directors. Each
calendar year each non-employee director will receive shares valued at $10,000
based on the market price of the Company's common stock, as defined in the
plan. In fiscal 1998 as part of this plan, the Company also granted shares to
non-employee directors who had served as directors since the Company's initial
public offering in October 1996. For the year ended June 30, 1998, the Company
granted a total of 19,411 shares of common stock pursuant to this plan and
recorded $80,000 associated compensation expense.

Warrants

In March 1994, the Company sold 1,000,000 shares of common stock and warrants
("Warrants") to purchase an aggregate of 1,000,000 shares of common stock for
$1.50 per share, subject to adjustment in certain circumstances. In lieu of
paying cash upon the exercise of the Warrants, the Warrant holders had the
right to have the Company convert all or a portion of the Warrants into shares
of common stock at a rate of two Warrants for each share of common stock via a
"Cashless Exercise". During the year ended June 30, 1996, Warrants to purchase
115,000 shares of common stock were exercised for $1.50 per share. During the
year ended June 30, 1997, of the remaining 885,000 Warrants, 377,500 Warrants
were converted into 188,750 shares of common stock via Cashless Exercises and
Warrants to purchase 507,500 shares of common stock were exercised for $1.50
per share.

Employee Stock Purchase Plan

In December 1996 the Company adopted an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code and reserved 200,000 shares of common
stock for issuance under the plan. Under this plan, employees are entitled to
purchase shares at 85% of the fair market value. During the year ended June 30,
1998, the Company issued 74,109 shares of common stock at an average purchase
price of $2.55 per share pursuant to the Employee Stock Purchase Plan. During
the year ended June 30, 1997, the Company issued 25,275 shares of common stock
at a purchase price of $3.77 per share pursuant to the Employee Stock Purchase
Plan.

F-14
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

5. REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK:

During fiscal 1996, the Company sold to investors 6,000,000 shares of $0.001
par value Redeemable Series A Convertible Preferred Stock ("Series A Preferred
Stock") for $1.00 per share resulting in net proceeds to the Company of
approximately $5,931,000. Upon consummation of the Company's Initial Public
Offering of common stock in October 1996, each share of Series A Preferred
Stock converted into one-half share of the Company's common stock.

6. CREDIT FACILITY:

The Company has a $2,000,000 revolving line of credit with Silicon Valley
Bank, as amended (the "Credit Facility"). In addition to the revolving line of
credit, the Credit Facility contains a separate lease line component in the
amount of $1,500,000 for the purpose of providing a facility for the financing
of the lease stream of payments that the Company owes to an equipment lessor
(see Note 9). Borrowings under the Credit Facility will bear interest at the
bank's prime lending rate. The Credit Facility contains certain restrictive
financial covenants including a minimum quick ratio, a minimum tangible net
worth requirement and a maximum debt to tangible net worth ratio, as defined in
the agreement. The Credit Facility requires payment of all outstanding
principal, if any, plus all accrued interest on March 30, 1999. In connection
with the lease of the Company's office facility, the Company has outstanding a
$300,000 standby letter of credit at June 30, 1998 naming the lessor of the
office facility beneficiary of the standby letter of credit in the event that
the Company defaults on the lease. As this letter of credit was established
under the terms of the Credit Facility, the Company has $1,700,000 available
for borrowing under the Credit Facility. As of and for the years ended June 30,
1998 and 1997 there were no amounts outstanding under the Credit Facility.

7. 401(k) SAVINGS PLAN:

Effective January 1997 the Company adopted a 401(k) Savings Plan (the "401(k)
Plan") available to all employees. The 401(k) Plan permits participants to
contribute up to 10% of their base salary to the 401(k) Plan not to exceed the
limits established by the Internal Revenue Code. In addition, the Company
matches 25% of employee contributions on the initial 6% contributed by
employees. Employees vest immediately in all employee contributions and Company
match contributions. In connection with the 401(k) Plan, the Company recorded
compensation expense of approximately $27,000 and $52,000 for the years ended
June 30, 1997 and 1998, respectively.

8. INCOME TAXES:

As of June 30, 1998, the Company had approximately $14,000,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards begin to expire in 2009. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50% over a three year period. As of
June 30, 1998, the effect of such limitations, if imposed, is not expected to
be material.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and for income tax purposes. As of June 30, 1998, the Company had deferred tax
assets of approximately $6,100,000 relating primarily to net operating loss
carryforwards. The net deferred tax asset has been fully offset by a valuation
allowance.

F-15
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

9. COMMITMENTS AND CONTINGENCIES:

The Company leases its office facility and certain equipment under operating
leases with remaining noncancelable lease terms generally in excess of one
year. Rent expense was approximately $64,000, $756,000 and $810,000 for the
years ended June 30, 1996, 1997 and 1998, respectively. Future minimum rental
payments for the Company's office facility and equipment under operating leases
as of June 30, 1998 are as follows:

<TABLE>
<CAPTION>
Year Ending June 30, (in thousands)
-------------------- --------------
<S> <C>
1999....................................................... $ 771
2000....................................................... 391
2001....................................................... 391
2002....................................................... 387
2003....................................................... 351
Thereafter................................................. --
------
$2,291
======
</TABLE>

In July 1998 the Company entered into a Sublease Agreement under which the
Company subleased approximately 47% of the space in its Princeton, New Jersey
office facility. The initial term of the Sublease Agreement will expire on May
31, 2003. The amounts expected to be received under the Sublease Agreement are
not included in the above schedule.

The Company has outstanding a $300,000 standby letter of credit in connection
with the Company's office facility lease (see Note 6).

The Company is subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's business, operating results or financial
condition.

The Company has employment and severance agreements with three officers, the
terms of which range from three to five years. The agreements provide for
minimum salary levels, adjusted annually at the discretion of the board of
directors.

10. RELATED-PARTY TRANSACTIONS:

The Company derived approximately 31%, 16% and 21% of its revenues for the
years ended June 30, 1996, 1997 and 1998, respectively, from Netscape
Communications Corporation, which owned 500,000 shares of the Company's common
stock as of June 30, 1996 and 1997, and none as of June 30, 1998.

11. SEGMENT INFORMATION:

The Company conducts its business within one industry segment. For the years
ended June 30, 1996, 1997 and 1998, revenues included approximately $184,000,
$141,000 and $543,000, respectively, of sales to customers outside the United
States.

F-16
<PAGE>

VOXWARE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

12. SUBSEQUENT EVENTS:

Sale of Assets to Ascend

On February 4, 1999, Voxware entered into a definitive agreement with Ascend
Communications, Inc. ("Ascend", which is now a wholly owned subsidiary of
Lucent Technologies, Inc.), 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 September 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.

Acquisition of Assets of Verbex Voice Systems, Inc.

On February 18, 1999, Voxware acquired substantially all of the assets of
Verbex Voice Systems, Inc. ("Verbex") for approximately $5.2 million in cash.
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.

F-17

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-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

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOXWARE,
INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C> <C>
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<PERIOD-END> JUN-30-1998 JUN-30-1997
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0 0
0 0
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<NET-INCOME> (4,894) (6,864)
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