<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 2000
------------------
[ ] 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.)
Lawrenceville Office Park
P.O. Box 5363
Princeton, New Jersey 08543
609-514-4100
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days.
YES X NO___
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at October 31, 2000
----------------------------- --------------------------------------
Common Stock, $.001 par value 14,295,777
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<PAGE>
VOXWARE, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
Item 1. Consolidated Financial Statements Page No.
--------
Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999 (unaudited)................ 3
Consolidated Balance Sheets
September 30, 2000 (unaudited) and June 30, 2000.......................... 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 2000 and 1999 (unaudited)................ 5
Notes to Consolidated Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition...................................................... 10
PART II - OTHER INFORMATION
---------------------------
Item 3. Submission of Matters to a Vote of Security Holders.......................... 16
Item 4. Other Information............................................................ 16
Item 5. Exhibits and Reports on Form 8-K............................................. 16
SIGNATURES................................................................................. 17
----------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Voxware, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
-------- --------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Product revenues:
Product sales ................................. $ 223 $ 438
License fees .................................. 238 206
Royalties and recurring revenues .............. 60 190
-------- --------
Total product revenues ................ 521 834
Service revenues ................................... 31 117
-------- --------
Total revenues ................................ 552 951
-------- --------
Cost of revenues:
Cost of product revenues ........................... 137 260
Cost of service revenues ........................... 2 45
-------- --------
Total cost of revenues ........................ 139 305
-------- --------
Gross profit .......................... 413 646
-------- --------
Operating expenses:
Research and development ........................... 672 471
Sales and marketing ................................ 853 570
General and administrative ......................... 845 453
Amortization of purchased intangibles .............. 1,025 332
-------- --------
Total operating expenses ...................... 3,395 1,826
-------- --------
Operating loss ................................ (2,982) (1,180)
Interest income ...................................... 69 63
Gain on sale of assets ............................... -- 3,799
-------- --------
Net income (loss) .................................... $ (2,913) $ 2,682
======== ========
Accretion of preferred stock to
redemption value .................................. (89) --
-------- --------
Beneficial conversion
feature treated as a dividend ..................... (1,244) --
-------- --------
Basic and diluted earnings (loss) applicable per
common share ......................................... $ (0.30) $ 0.20
======== ========
Shares used in computing earnings
(loss) per common share:
Basic ......................................... 14,296 13,395
======== ========
Diluted ....................................... 14,296 13,420
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
VOXWARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
-------- --------
(unaudited)
(In thousands, except share and per share data)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 3,788 $ 502
Short-term investments .............................................. 1,506 2,724
Accounts receivable, net ............................................ 635 982
Inventory, net ...................................................... 1,222 1,089
Prepaid expenses and other current assets ........................... 264 247
-------- --------
Total current assets ............................................. 7,415 5,544
Property and equipment, net ........................................... 574 443
Intangible assets, net ................................................ 10,043 11,068
Other assets .......................................................... 377 385
-------- --------
$ 18,409 $ 17,440
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................... $ 1,325 $ 998
Deferred revenues ................................................... 102 195
-------- --------
Total current liabilities ........................................ 1,427 1,193
-------- --------
Deferred rent ......................................................... -- 194
-------- --------
Warrants to purchase common stock ..................................... 848 --
-------- --------
Series A mandatorily redeemable convertible preferred stock ........... 3,002 --
-------- --------
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
14,295,777 shares issued and outstanding at September 30, 2000 and
June 30, 2000 .................................................... 14 14
Additional paid-in capital .......................................... 39,962 38,730
Deferred compensation ............................................... (46) (141)
Unrealized (loss) on available-for-sale securities .................. (4) (2)
Accumulated deficit ................................................. (26,794) (22,548)
-------- --------
Total stockholders' equity ....................................... 13,132 16,053
-------- --------
$ 18,409 $ 17,440
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
VOXWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Operating Activities:
Net income (loss) ................................................. $(2,913) $ 2,682
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................... 1,076 406
Provision for doubtful accounts ................................. -- 8
Gain on sale of tax loss carryforwards .......................... -- (501)
Gain on sale of assets .......................................... -- (3,799)
Stock based compensation expense ................................ 4 --
Changes in assets and liabilities:
Accounts receivable ............................................. 347 269
Inventory ....................................................... (133) (56)
Prepaid expenses and other current assets ....................... (17) 620
Restricted cash-current ......................................... -- 204
Other assets .................................................... 8 2
Accounts payable and accrued expenses ........................... 327 (311)
Deferred revenues ............................................... (93) (201)
Deferred rent ................................................... (194) (17)
------- -------
Net cash provided by (used in) operating activities ........... (1,588) (694)
------- -------
Investing Activities:
Purchases of short-term investments .............................. (520) (7,658)
Sales and maturities of short-term investments ................... 1,736 7,599
Proceeds from sale of tax loss carryforwards ..................... -- 501
Proceeds from sale of assets ..................................... -- 4,146
Purchases of property and equipment .............................. (182) (39)
Purchase of Verbex Voice Systems ................................. -- (347)
------- -------
Net cash provided by (used in) investing activities ........... 1,034 4,202
------- -------
Financing Activities:
Proceeds from issuance of series A convertible preferred stock
and warrants, net of expenses ...................... 3,840 --
Proceeds from exercises of common stock options .................. -- 12
------- -------
Net cash provided by financing activities ..................... 3,840 12
------- -------
Increase in cash and cash equivalents ............................. 3,286 3,520
Cash and cash equivalents, beginning of period .................... 502 2,438
------- -------
Cash and cash equivalents, end of period .......................... 3,788 5,958
Short-term investments, end of period ............................. 1,506 2,066
------- -------
Cash, cash equivalents and short-term investments, end of period .. $ 5,294 $ 8,024
======= =======
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Unrealized gain (loss) on short-term investments .............. $ (4) $ (1)
======= =======
Accretion of preferred stock to redemption value .............. $ 89 $ --
======= =======
Purchase accounting adjustment related to inventory acquired
from Verbex .................................................. $ -- $ (79)
======= =======
Warrant to acquire common stock issued for finder's fee........ $ 79 --
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
VOXWARE, INC.
Notes To Consolidated Financial Statements
1. BASIS OF PRESENTATION
The consolidated financial statements for Voxware, Inc. and its wholly-
owned subsidiary, Verbex Acquisition Corporation ("Voxware" or the
"Company"), as of September 30, 2000 and for the three month periods ended
September 30, 2000 and 1999 are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the consolidated
financial position and operating results for the interim periods. The
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-K which was filed on
August 31, 2000.
The results of operations for the interim period ended September 30,
2000 are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 2001 or any other future periods.
2. EARNINGS (LOSS) PER SHARE
The Company has presented earnings (loss) per share, for the three
months ended September 30, 2000 and 1999 pursuant to Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings per Share." Basic earnings
(loss) per share was computed by dividing the net income (loss) available to
common stockholders by the weighted average number of common shares
outstanding during the three months ended September 30, 2000 and 1999.
Diluted income per share for the three months ended September 30, 1999 was
computed by dividing net income available to common stockholders for the
period by the weighted average number of shares of common stock and common
stock equivalents outstanding using the treasury stock method. All common
stock equivalents consist of common stock options. For the three months
ended September 30, 1999, common stock options used in computing diluted
income per share totaled 25,000. As of September 30, 2000, stock options and
warrants ($3,641,623 outstanding as of September 30, 2000) have not been
included in the diluted loss per common share calculation, since the impact
is anti-dilutive due to the Company's losses.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------
2000 1999
------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Net income (loss) ..................................... $ (2,913) $ 2,682
Accretion of preferred stock to redemption value ...... (89) --
Beneficial conversion feature treated as a dividend ... (1,244) --
-------- --------
Net income (loss) available to common stockholders $ (4,246) $ 2,682
Shares used in computing basic
earnings (loss) per common share .................. 14,296 13,395
Basic earnings (loss) per common share ................ $ (0.30) $ 0.20
-------- --------
Effect of dilutive securities on shares used in
computing diluted earnings per common share ....... -- 25
Shares used in computing diluted earnings (loss)
per common share .................................. 14,296 13,420
-------- --------
Diluted earning (loss) per common share ............... $ (0.30) $ (0.20)
======== ========
</TABLE>
6
<PAGE>
3. REVENUE RECOGNITION
The Company generates revenues from products and services. Product
revenues consist of product sales, license fees, and royalties and recurring
revenues. Product sales represent shipments of portable and stationary
voice-based products and solutions for various warehouse and industrial
markets. Revenues from product sales are generally recognized upon shipment,
provided there are no significant post-delivery obligations. License fees
are generally derived from licensing the Company's speech compression
technologies to customers in the multimedia and consumer devices markets and
from licensing the Company's voice-based software applications. License fees
are generally recognized upon shipment of the underlying technologies,
provided 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
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
revenue, 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.
4. COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). Comprehensive income is a
more inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in
the calculation of net income (loss). SFAS 130 requires that all items
defined as comprehensive income, including changes in the amounts of
unrealized gains and losses on available-for-sale securities, be shown as a
component of comprehensive income. The only comprehensive income item the
Company has is unrealized loss on available-for-sale securities.
The following reconciles net income (loss) to comprehensive income
(loss) for the three month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
------- ------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)..................... $(2,913) $2,682
Other comprehensive income:
Unrealized (loss) on available-for-sale securities.... (4) (1)
------- ------
Comprehensive income (loss)............................. $(2,917) $2,681
======= ======
</TABLE>
5. PURCHASE OF CERTAIN ASSETS OF INROAD, INC.
On April 4, 2000, the Company purchased certain assets (primarily
intangible) of InRoad, Inc. for 650,000 shares of common stock valued at
$5,375,000, 375,000 warrants to purchase common stock valued (using the
Black-Scholes pricing model) at $2,861,000, $240,000 in cash and $49,000 in
transaction costs. Substantially all of the purchase price was assigned to
intangible assets acquired amounting to $8,404,000 including all industrial
and intellectual property rights including patents, trademarks, licenses,
copyrights and proprietary processes. These intangibles are being amortized
over three years, which represents the estimated economic life of these
assets.
7
<PAGE>
6. ACQUISITION OF ASSETS OF VERBEX VOICE SYSTEMS, INC.
On February 18, 1999, the Company acquired substantially all of the
assets of Verbex for a total of $5,422,000, which consists of $4,800,000 paid
upon closing, a purchase price adjustment of $272,000, which was paid in
October 1999, and transaction costs of $350,000. Upon payment in October
1999, the purchase price adjustment was released from an account which was
established at the closing of the Verbex transaction. As of September 30,
2000, the escrow balance was released from restricted cash. The acquisition
was accounted for under the purchase method of accounting, whereby the
purchase price is allocated to the assets acquired and liabilities assumed of
Verbex based on their fair market values at the acquisition date. The excess
of purchase price over the fair value of net assets acquired was assigned to
identifiable intangibles and goodwill. Intangible assets acquired from
Verbex include capitalized software and underlying intellectual property
rights, value added reseller agreements and relationships, customer lists and
engineering workforce. These intangibles and goodwill are being amortized
over four years, which represents the estimated economic life of these
assets. Verbex's results of operations have been included in the Company's
consolidated financial statements from the date of the acquisition.
7. SALE OF ASSETS TO ASCEND
On September 21, 1999, the Company's stockholders approved an 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 the Company's assets relating to
what has historically been the Company's primary business of developing and
licensing speech compression technologies and products. Upon closing in
September 1999, the Company received $4,146,000 in cash. The Company had
previously received $204,000 of the purchase price. The remaining $750,000
is being held in escrow for 18 months (until March 21, 2001) to secure
Voxware's indemnification provisions under the agreement with Ascend. As a
result of the sale, the Company recorded a gain of $3,799,000 during the
quarter ended September 30, 1999. Such gain does not include the $750,000
held in escrow. The sale to Ascend did not include the Company's rights and
obligations under its existing license agreements and, as part of the sale,
the Company received a license back from Ascend to use the technology
necessary to service the Company's existing licensees in the speech
compression business. 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.
8. SERIES A MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS TO
PURCHASE COMMON STOCK
The Company has authorized 10,000,000 shares of Preferred Stock with a
$0.001 par value per share. As of September 30, 2000, 4,000 shares of Series
A Mandatorily Redeemable Convertible Preferred Shares ("Series A") were
designated as issued and outstanding. The Series A shares have a stated value
of $1,000 per share. No preferred shares were issued and outstanding as of
September 30, 1999.
On August 15, 2000 the Company completed a $4,000,000 private placement
of Series A and warrants to Castle Creek Technology Partners, LLC. The
Company sold 4,000 shares of Series A, which shares are convertible into
shares of common stock, resulting in proceeds to the Company of approximately
$3,840,000, net of cash transaction costs. In addition to the cash
transaction costs, the Company issued a warrant to acquire 50,000 shares of
Common Stock to an investment advisor as a finder's fee. The exercise price
for the warrants issued as a finder's fee is $3.44 per share and the warrant
expires in four years. Using the Black-Sholes option pricing model, the
Company determined the fair value of the warrants to be $79,000. The Company
is obligated to redeem the Series A 30 months from the closing. The Series A
has a 7% dividend payable in cash or equity, at the election of the holder,
and is convertible into Voxware Common Stock at an initial conversion price
of $3.025 per share, subject to adjustment, as defined. In addition, Castle
Creek has received a warrant to purchase 727,273 shares of Common Stock at an
initial exercise price of approximately $3.44 per share, subject to
adjustment, as defined. In fifteen months, the exercise
8
<PAGE>
price will be reset to the lesser of the initial exercise price or the market
price of the Company's common stock as of the reset date. The Company has the
right to require conversion of the Series A, and to redeem the warrants, if
its common stock reaches certain price levels over a specified period of
time. The preferred stockholders have certain registration rights, as
defined.
The Company allocated the proceeds, net of cash and non-cash transaction
costs, to the Series A and warrants sold to Castle Creek based on the
relative fair value of each instrument. The fair value of the Series A was
determined based on a discounted cash flow analysis and the fair value of the
warrants was determined based on the Black-Sholes option pricing model. As a
result the Company allocated approximately $2,913,000 and $848,000 to the
Series A and warrants, respectively. The warrants have been classified as a
liability in the accompanying consolidated balance sheet because the warrants
give the holder the choice of net cash settlement at a time when other
shareholders would not have such a choice (upon a merger or change in
control, as defined).
The Company will accrete the Series A to its redemption value using the
effective interest method over the redemption period of 30 months.
Accordingly, the Company recorded $89,000 of accretion during the three
months ended September 30, 2000.
The Series A is convertible into shares of Common Stock on the date of
issuance. After considering the allocation of the proceeds to the Series A
and warrants, the Company determined that the Series A contained a beneficial
conversion feature in a manner similar to a dividend. During the three months
ended September 30, 2000 the Company recorded a preferred stock dividend for
the beneficial conversion feature, in the amount of approximately
$1,244,000, in a manner similar to a dividend.
9. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in fiscal year 1999. Prior to the
Company's acquisition of Verbex in February 1999 (Note 6), the Company had
been managed in one operating segment. Since the Verbex acquisition, the
Company has been managed in two operating segments: industrial voice-based
solutions and speech compression technologies. The voice-based solutions
business relates to the Company's current business focus since the Verbex
acquisition. The speech compression technologies business relates to the
Company's business focus prior to the Verbex acquisition. In September 1999,
the Company sold substantially all of the assets related to the speech
compression business to Ascend. In connection with the sale to Ascend, the
Company received a license back from Ascend to service the Company's existing
speech compression licensees, and to continue to license the speech
compression technologies for uses that are not competitive with Ascend,
subject to the consent of Ascend. The Company does not expect to pro-
actively market the speech compression technologies in the future, and
expects new licensing activity relating to the speech compression
technologies business to decrease significantly over time.
Business segment information for the three months ended September 30,
2000 is included in the table below. Costs associated with corporate and
administrative overhead expenses are included in the speech compression
technologies segment. Intangible assets and goodwill related to the Verbex
acquisition (Note 6), and the amortization of those assets, are included in
the industrial voice-based products segment.
<TABLE>
<CAPTION>
Voice-Based Speech Compression
Products Segment Technologies Segment Total
---------------- -------------------- -----
<S> <C> <C> <C>
Revenues $ 240 $ 312 $ 552
Loss from operations (2,669) (244) (2,913)
Depreciation and amortization 1,044 32 1,076
Identifiable assets 12,114 6,295 18,409
</TABLE>
9
<PAGE>
Item 2. Management's discussion and analysis of results of operations and
financial condition
This report contains forward-looking statements. Such statements are
subject to certain factors that may cause Voxware's plans to differ or results
to vary form those expected including the risks associated with Voxware's need
to introduce new and enhanced products and services in order to increase market
penetration and the risk of obsolescence of its products and services due to
technological change; Voxware's need to attract and retain key management and
other personnel with experience in providing integrated voice-based solutions
for e-logistics, specializing in the supply chain sector; the potential for
substantial fluctuations in Voxware's results of operations; competition from
others; Voxware's evolving distribution strategy and dependence on its
distribution channels; the potential that voice-based products will not be
widely accepted; Voxware's need for additional capital; and a variety of risks
set forth from time to time in Voxware's filings with the Securities and
Exchange Commission. Voxware undertakes no obligation to publicly release
results of any of these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrences of
unexpected results.
Overview
Voxware designs, develops, markets and sells voice-based products for
the logistics, fulfillment, distribution and package and mail sorting
industries. Until February 1999, our business was developing, marketing and
selling speech compression technologies and products to be used in websites,
Internet telephony and consumer devices. In February 1999, we acquired from
Verbex Voice Systems the assets and technology on which our current voice-based
products are based. Since our acquisition of Verbex, we have significantly
curtailed our speech compression technology business, and, in September 1999 we
sold substantially all of the assets relating to that business. Our solutions
are designed specifically for use in warehouses, distribution centers and other
industrial settings, to enable workers to perform, through an interactive speech
interface, the least automated logistics & fulfillment tasks such as picking,
receiving, returns processing, cycle counting, cross-docking and order entry,
more efficiently and effectively than with alternative technologies or methods.
Voxware solutions are designed to be used in the logistics and fulfillment
operations of most major market industry sectors, including consumer goods
manufacturers, consumer packaged goods, direct to consumer (e-commerce and
catalog), food and grocery, retail, third party logistics providers and
wholesale distribution. Voxware's products are also deployed in package
handling, mail sorting and manufacturing, inspection and military combat
applications. Revenues are generated primarily from product sales, licenses and
development services. Product sales consist of portable devices and software
used for various mobile industrial and warehouse applications; stationary voice-
based devices, primarily used for warehouse receiving and package sorting
applications; and accessories that complement our product offerings, including
microphones, headsets and computer hardware. We still generate some license fees
from licensing our former speech compression products. We also generate some
royalty revenues from our former speech compression business. Professional
services consist of providing technical resources and assistance for customer-
specific applications. Revenues from product sales are generally recognized when
products are deployed for their intended use, or when they are shipped to a
specific third party partner.
Software product revenues are generally recognized upon shipment,
provided 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
10
<PAGE>
deemed probable. If an acceptance period is required, revenues are recognized
upon customer acceptance. Royalty revenues are recognized in the period of
customer shipment. Service revenues consist of customer maintenance support and
engineering fees. Customer maintenance support revenues are recognized over the
term of the support period, which typically lasts for one year. Engineering fees
are generally recognized upon customer acceptance or upon delivery if customer
acceptance is not required. All research and development costs are expensed as
incurred.
The sale of the assets, relating to the speech and audio coding business,
to Ascend did not include Voxware's rights and obligations under its then
existing license agreements. We continue to derive revenue from existing
licensees of our speech coding technology in the multimedia and consumer devices
markets in the form of periodic license renewal fees, royalties and service
fees. With the consent of Ascend, we may also license our speech coding
technologies for uses that are not competitive with Ascend. Although we do not
have any agreements or arrangements with Ascend relating to any general or
specific guidelines for obtaining Ascend's consent, we believe that Ascend will
consent to our licensing the speech coding technologies in the multimedia and
consumer devices markets. Our new licensing activity relating to the speech
coding technologies had been decreasing prior to the sale to Ascend and we
expect this trend to continue. Furthermore, as we focus on voice-based systems
for industrial markets, revenues from licenses of speech coding technologies
will become a less significant portion of our revenues. For the quarter ended
September 30, 2000 revenues related to the speech coding business accounted for
56% of total revenues for the quarter, while revenue from our voice-based
solutions accounted for 44% of quarterly revenues. While we may continue to take
advantage of favorable opportunities to license our speech coding technologies
in the future, we are not dedicating significant resources to the development,
marketing or licensing of our speech coding technologies.
In conjunction with our introduction of new product suite called
VoiceLogistics(TM), Voxware acquired certain assets of InRoad, Inc. on April 4,
2000. This asset purchase includes ownership rights to all intellectual
property, proprietary processes, and production equipment and tools necessary
for us to manufacture a rugged, wireless hardware computer as part of our new
VoiceLogistics product suite. This new platform is an integral component of our
voice-based logistics products.
11
<PAGE>
Results of Operations
Three Months Ended September 30, 2000 Versus Three Months Ended September 30,
1999
Revenues
Voxware recorded revenues of $552,000 for the three months ended
September 30, 2000 compared to revenues of $951,000 for the three months ended
September 30, 1999. The $399,000 decrease in total revenues reflects a $215,000
decrease in speech recognition product sales, a $130,000 decrease in royalties
and recurring revenues, and an $86,000 decrease in service revenues from the
speech compression business. These decreases are partially offset by a $32,000
increase in license fees related to the speech compression business. The
$215,000 decrease in speech recognition product sales is reflective of the
Company's emphasis on development of new products for the logistics,
fulfillment, distribution and package and mail sorting industries. In the course
of focusing on those goals, the Company has not aggressively pursued new
opportunities to sell legacy products. Due to the lengthier sales cycle of our
voice-based product lines, this focus has resulted in reduced product revenues
over the short-term when compared to prior periods. The $130,000 decrease in
royalties and recurring revenues and the $86,000 decrease in service revenues is
reflective of our change in focus from our speech compression business to our
voice-based logistics solutions business.
Total product revenues decreased $313,000 from $834,000 in the three
months ended September 30, 1999 to $521,000 in the three months ended September
30, 2000. This decrease is due to a $215,000 decrease in voice-based product
sales and a $130,000 decrease in royalties and recurring revenues, partially
offset by a $32,000 increase in license fees related to our speech coding
business. The decrease in product sales is reflective of our change in business
focus towards the development, marketing and sale of our VoiceLogistics product
suite, a voice-based solution set of software, hardware and professional
services designed specifically for use in warehouses, distribution centers and
other industrial settings to enable workers to perform typical logistics task
such as picking, receiving, returns processing, cycle counting and order entry
through a speech interface. The Company has focused its efforts on developing
the market for this product, and has not aggressively pursued opportunities with
its speech compression business. Royalties and recurring revenues are primarily
related to the Company's speech compression business that was sold to Ascend, as
discussed previously. The decrease in these revenues represents the decline in
use of our speech coding products. We anticipate that revenues from the speech
coding business will continue to decline. For the three month periods ended
September 30, 2000 and 1999, 43% and 52% of the Company's product revenues were
attributable to industrial speech recognition product sales, respectively, 46%
and 25% were attributable to license fees, respectively, and 11% and 23% were
attributable to royalties and recurring revenues, respectively.
Service revenues are primarily attributable to customer maintenance
support and fees for engineering services relating to our speech coding
technologies business. For the three months ended September 30, 2000, service
revenues totaled $31,000, reflecting a decrease of $86,000 from service revenues
of $117,000 for the three months ended September 30, 1999. The decrease in
service revenues is primarily attributable to the decline in customer
maintenance support revenues related to our speech compression technologies as
we shift our focus from the speech compression technologies and pursue market
opportunities through our voice-based logistics products.
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Cost of Revenues
Cost of revenues decreased $166,000 from $305,000 for the three months
ended September 30, 1999 to $139,000 for the three months ended September 30,
2000.
Cost of product revenues decreased from $260,000 for the three months
ended September 30, 2000 to $137,000 for the three months ended September 30,
2000. This decrease in cost of product revenues is a direct result of the
decrease in product sales for the three months ended September 30, 2000 as
compared to the three months ended September 30, 1999. Cost of product sales, as
a percentage of product sales, remained relatively consistent for the quarters
ended September 30, 2000 and 1999 at 61% and 59%, respectively.
Cost of service revenues consists primarily of the expenses associated
with customer maintenance support and engineering services. Cost of service
revenues decreased $43,000 from $45,000 in the three months ended September 30,
1999 to $2,000 in the three months ended September 30, 2000. The decrease in
cost of service revenues is directly attributable to the decrease in service
revenues described above.
Operating Expenses
Total operating expenses increased by $1,569,000 (86%) from $1,826,000 in
the three months ended September 30, 1999 to $3,395,000 in the three months
ended September 30, 2000. Excluding noncash amortization of purchased
intangibles totaling $1,025,000 for the three months ended September 30, 2000
and $332,000 for the three months ended September 30, 1999, operating expenses
increased by $876,000 (59%). This increase primarily reflects costs associated
with the implementation and development of our VoiceLogistics product suite, as
well as an increase in headcount related to expansion in research and
development, sales and marketing and administration, as well as other costs
associated with the market development for Voxware's voice-based solutions
business. Expenses have been incurred for several VoiceLogistics pilots during
the quarter ended September 30, 2000, while none were taking place in the prior
year quarter. As of September 30, 2000, our headcount totaled 48, compared to a
total headcount of 29 as of September 30, 1999.
Research and development expenses primarily consist of employee
compensation, equipment and depreciation expenditures related to product
research and development. Research and development expenses increased $201,000
(43%) from $471,000 in the three months ended September 30, 1999 to $672,000 in
the three months ended September 30, 2000. As of September 30, 2000, we had a
research and development staff of 19 compared to 10 at September 30, 1999.
Sales and marketing expenses primarily consist of employee compensation
(including sales commissions), travel expenses and trade shows. Sales and
marketing expenses increased $283,000 (50%) from $570,000 in the three months
ended September 30, 1999 to $853,000 in the three months September 30, 2000.
These cost increases are due primarily to the hiring of several new personnel to
better suit our sales and marketing objectives related to the development of the
market for our VoiceLogistics product line. This increase also reflects the
Company's involvement in a number of trade shows during the quarter, also
related to the development of the VoiceLogistics market. As of September 30,
2000, Voxware had a sales and marketing staff of 17 compared to 9 at September
30, 1999.
General and administrative expenses consist primarily of employee
compensation, insurance, rent, office expenses and professional services.
General and administrative expenses increased $392,000 (87%) from $453,000 in
the three months ended September 30, 1999 to $845,000 in the three months ended
September 30, 2000. The increase in general and administrative expense is
reflective of costs associated with the expansion of our Cambridge facility, as
well as other costs related to the growth of the organization and improvement of
our
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infrastructure in order to facilitate future expansion. As of September 30,
2000, we had a general and administrative staff of 8 compared to 6 at September
30, 1999.
Amortization of purchased intangibles totaled $1,025,000 for the three
months ended September 30, 2000 compared to $332,000 for the three months ended
September 30, 1999. The increase is due to the amortization of the intangible
assets related to the InRoad transaction which closed in April 2000. The entire
increase of $693,000 is attributable to the InRoad amortization, which did not
exist in the prior year quarter. The total amount of intangibles capitalized
from the Verbex acquisition approximated $5,191,000 and the total amount of
intangibles capitalized from the InRoad transaction approximated $8,404,000.
The intangibles related to the Verbex and InRoad transactions are being
amortized over four and three years, respectively (the estimated economic life
of the assets).
Interest Income
Interest income increased $6,000 (10%) to $69,000 for the three months
ended September 30, 2000 from $63,000 for the three months ended September 30,
1999. Interest income remained relatively flat from the quarter ended September
30, 2000 compared to the prior year quarter. This is due to the relative
consistency of the cash, cash equivalents and short-term investments balances
from the prior year to the current year quarter. As of September 30, 2000,
Voxware's cash, cash equivalents and short-term investments portfolio totaled
$5,294,000 compared to $8,024,000 at September 30, 1999. The majority of the
balance at September 30, 1999 is related to funds received from the sale of
assets to Ascend which closed on September 21, 1999, while the majority of the
balance at September 30, 2000 is related to funds received from the private
placement of the Company's securities with Castle Creek Technology Partners, LLC
which closed on August 15, 2000.
Income Taxes
As of September 30, 2000, we had approximately $23,300,000 of federal net
operating loss carryforwards which will begin to expire in 2009 if not utilized.
As of September 30, 2000, a full valuation allowance has been provided on the
net deferred tax asset because of the uncertainty regarding realization of the
deferred asset, primarily as a result of the operating losses incurred to date.
Gain on Sale of Tax Loss Carryforwards
During 1999, the State of New Jersey passed legislation which allows New
Jersey technology companies to apply for the transfer or sale of unused New
Jersey state net operating losses and research and development tax credits for
cash. Profitable companies can buy these losses and credits at a discount,
thereby reducing their state tax obligation. Voxware applied to the State of
New Jersey to sell up to approximately $14,900,000 of its New Jersey State net
operating losses carryforwards. Voxware received a determination letter from
the State of New Jersey to sell $7,420,000 of its New Jersey State net operating
losses which, upon the sale, provided Voxware $501,000 in cash as of December
31, 1999. The remaining $7,480,000 has been approved for sale and if sold could
provide Voxware with up to an additional $540,000 in December 2000.
Gain on Sale of Assets
During the quarter ended September 30, 1999, we completed the sale of
substantially all of the assets relating to our speech coding technology
business for $5,100,000, of which $750,000 has been placed in escrow for a
period of 18 months from the closing date to secure our indemnification
obligations under the agreement with Ascend. Upon closing, we received
$4,146,000 from Ascend. We had previously received a payment of $204,000 of the
purchase price. During the quarter ended September 30, 1999, we recorded a gain
on the sale of the speech coding assets totaling $3,799,000, which reflects the
total proceeds received to date totaling $4,350,000, less transaction costs of
$517,000 and equipment transferred to Ascend totaling $34,000.
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Liquidity and Capital Resources
As of September 30, 2000, we had a total of $5,294,000 in cash, cash
equivalents and short-term investments consisting of $3,788,000 of cash and cash
equivalents and $1,506,000 in short-term investments. Included in our cash,
cash equivalents and short-term investments balance is $3,840,000 received upon
the closing of the private placement of 4,000 shares of the Company's series A
convertible preferred stock with Castle Creek Technology Partners, LLC in August
2000. Our cash, cash equivalents and short-term investments portfolio is liquid
and investment grade, consisting of high-grade money-market funds, United States
Government-backed securities and commercial paper and corporate obligations.
Since inception, we have primarily financed our operations through the sale of
equity securities.
For the three months ended September 30, 2000, cash used in operating
activities totaled $1,588,000. Cash used in operating activities was primarily
attributable to a net loss of $2,913,000, which was comprised of a loss from
operations totaling $1,888,000 excluding the non-cash amortization of purchased
intangibles totaling $1,025,000, and changes in operating assets and
liabilities.
For the three months ended September 30, 1999, cash used by operating activities
totaled $694,000. Cash provided by operating activities was primarily
attributable to net income of $2,682,000, which was comprised of the $3,799,000
gain on the sale of substantially all of the assets of our speech coding
business to Ascend, offset by a loss from operations totaling $785,000 excluding
the gain on the sale of assets and non-cash amortization of purchased
intangibles totaling $332,000, and changes in operating assets and liabilities.
For the three months ended September 30, 2000, cash provided by investing
activities totaled $1,034,000, which consisted of $1,216,000 in net sales and
maturities of short-term investments, partially offset by $182,000 in purchases
of property and equipment. For the three months ended September 30, 1999, cash
provided by investing activities totaled $4,202,000, which consisted of
$4,146,000 proceeds from sale of assets, $501,000 from proceeds from sale of tax
loss carryforwards, $59,000 in net purchases of short-term investments and
$39,000 in purchases of property and equipment. For the three months ended
September 30, 2000 cash provided by financing activities totaled $3,840,000,
which represents the net proceeds from a private placement of 4,000 shares of
the Company's series A convertible preferred stock ($1,000 stated value per
share) and warrants with Castle Creek Technology Partners, LLC in August 2000.
For the three months ended September 30, 1999 cash provided by financing
activities totaled $12,000, which represents proceeds from exercises of common
stock options.
We have a $2,000,000 revolving line of credit with Silicon Valley Bank.
Borrowings under the credit facility will bear interest at the bank's prime
lending rate. As amended on May 9, 2000, the credit facility requires Voxware to
secure all indebtedness with cash held at the bank's offices in an amount not
less than 100% of the outstanding amount of all indebtedness we owe to the bank.
The credit facility requires payment of all outstanding principal, if any, plus
all accrued interest on May 8, 2001. In connection with the lease of our former
office facility, 305 College Road East in Princeton, N.J., we have outstanding a
$225,000 standby letter of credit at September 30, 2000 naming the lessor of the
office facility beneficiary of the standby letter of credit in the event that we
default on the lease. As required by the credit facility, we have secured the
$225,000 standby letter of credit with cash that is included in "other assets"
in the September 30, 2000 balance sheet.
We have no material commitments for capital expenditures except for those
under operating leases for our facilities and leased equipment. At September
30, 2000, our working capital totaled approximately $5,988,000. We believe that
our current cash, cash equivalents and short-term investments balances will be
sufficient to fund our working capital and capital expenditures requirements,
exclusive of cash required for possible acquisitions of, or investments in
businesses, products and technologies for at least twelve months beyond
September 30, 2000.
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Item 3. Submission of Matters to a Vote of Security Holders. None
PART II - OTHER INFORMATION
---------------------------
Item 4. Other Information. None.
Item 5. Exhibits and Reports on Form 8-K.
Exhibits: 27.1 Financial Data Schedule (FDS) for current reporting
periods ended September 30, 2000.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed on August 11, 2000 (relating to the
private placement of the Company's securities with Castle Creek
Technology Partners, LLC).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 2000
VOXWARE, INC.
(Registrant)
By: /s/ Bathsheba J. Malsheen
-------------------------
Bathsheba J. Malsheen, President and
Chief Executive Officer
By: /s/ Nicholas Narlis
-------------------
Nicholas Narlis, Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
(Principal Financial Officer and Principal
Accounting Officer)
17
