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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 December 31, 2002
-------------------
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
Commission File Number 0-021403
VOXWARE, INC.
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(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___
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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 February 5, 2003
- ----------------------------- --------------------------------------
Common Stock, $.001 par value 24,210,919
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1
VOXWARE, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations
Three and Six Months Ended December 31, 2002 and 2001 (unaudited) ...... 3
Consolidated Balance Sheets
December 31, 2002 (unaudited) and June 30, 2002 ........................ 4
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2002 and 2001 (unaudited) ................ 5
Notes to Consolidated Financial Statements ................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF FINANCIAL CONDITION
AND OPERATIONS ............................................................. 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .................. 20
ITEM 4. CONTROLS AND PROCEDURES .................................................... 20
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS ........................................................... 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .................................. 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................................ 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................................... 22
SIGNATURES .......................................................................... 23
CERTIFICATIONS ...................................................................... 24
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Voxware, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
------ ------ ------ ------
(In thousands, except per share data)
Revenues:
Product revenues:
Product sales ................................................ $ 1,100 $ 728 $ 1,779 $ 973
License fees ................................................. 793 - 1,250 41
Royalties and recurring revenues ............................. 4 82 729 171
-------- -------- -------- --------
Total product revenues .................................... 1,897 810 3,141 1,185
Service revenues ............................................... 401 205 729 368
-------- -------- -------- --------
Total revenues ............................................ 2,298 1,015 3,870 1,553
-------- -------- -------- --------
Cost of revenues:
Cost of product revenues ..................................... 1,056 312 1,481 429
Cost of service revenues ..................................... 168 21 338 110
-------- -------- -------- --------
Total cost of revenues .................................... 1,224 333 1,819 539
-------- -------- -------- --------
Gross profit ............................................ 1,074 682 2,051 1,014
-------- -------- -------- --------
Operating expenses:
Research and development ....................................... 527 327 965 797
Sales and marketing ............................................ 286 337 520 719
General and administrative ..................................... 348 277 745 1,000
Amortization of purchased intangibles .......................... 324 325 649 650
-------- -------- -------- --------
Total operating expenses ..................................... 1,485 1,266 2,879 3,166
-------- -------- -------- --------
Operating loss .................................................... (411) (584) (828) (2,152)
Interest income (expense) ......................................... (5) (2) (2) 3
Adjustment of warrants to fair value .............................. 1 13 - 23
Gain on sale of tax loss carryforwards ............................ 18 27 18 27
Equity in loss of investment ...................................... (65) - (65) -
-------- -------- -------- --------
Net loss .......................................................... $ (462) $ (546) $ (877) $ (2,099)
======== ======== ======== ========
Accretion of preferred stock to redemption value .................. $ (227) $ (190) $ (494) $ (319)
======== ======== ======== ========
Beneficial conversion feature treated as a dividend ............... $ (30) $ (14) $ (64) $ (341)
======== ======== ======== ========
Warrants issued to preferred stockholders treated as a dividend ... $ - $ (341) $ - $ (480)
======== ======== ======== ========
Net loss applicable to common stockholders ........................ $ (719) $ (1,091) $ (1,435) $ (3,239)
======== ======== ======== ========
Basic and diluted net loss per share applicable to common .........
stockholders....................................................... $ (0.03) $ (0.07) $ (0.06) $ (0.21)
======== ======== ======== ========
Weighted average number of common shares--basic and
diluted ........................................................... 22,493 16,457 22,184 15,684
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
-3-
Voxware, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, June 30,
2002 2002
------------ --------
(unaudited)
(In thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents ..................................................... $ 204 $ 6
Equity investment and advances ................................................ 3 -
Accounts receivable, net ...................................................... 1,292 1,315
Inventory, net ................................................................ 535 678
Prepaid expenses and other current assets ..................................... 179 82
-------- --------
Total current assets ........................................................ 2,213 2,081
Property and equipment, net .................................................... 178 297
Intangible assets, net ......................................................... 119 769
Note receivable, net ........................................................... 296 -
Other assets, net .............................................................. 54 44
-------- --------
$ 2,860 $ 3,191
======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses ......................................... $ 2,499 $ 2,080
Deferred revenues ............................................................. 258 387
Subordinated debentures ........................................................ 296 -
-------- --------
Total current liabilities ................................................... 3,053 2,467
-------- --------
Series B mandatorily redeemable convertible preferred stock (liquidation
value $2,827,207 and $2,894,375, respectively) ................................. 2,770 2,900
Series C mandatorily redeemable convertible preferred stock (liquidation
value $1,952,750 and $1,839,904, respectively) ................................. 1,610 1,299
Stockholders' deficit:
Common stock, $.001 par value, 180,000,000 shares authorized;
23,824,984 and 21,573,860 shares issued and outstanding at December 31,
2002 and June 30, 2002, respectively .......................................... 24 21
Additional paid-in capital .................................................... 44,664 44,338
Accumulated deficit ........................................................... (49,261) (47,834)
-------- --------
Total stockholders' deficit ................................................. (4,573) (3,475)
-------- --------
Total liabilities and stockholders' deficit ............................... $ 2,860 $ 3,191
======== ========
The accompanying notes are an integral part of these statements.
-4-
Voxware, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended December 31,
2002 2001
---------------------------------
(in thousands)
Operating activities:
Net loss .............................................................. $ (877) $(2,099)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ....................................... 781 770
Gain on sale of tax loss carryforwards .............................. (18) (27)
Equity in Loss of investment ........................................ 65 -
Recovery of doubtful accounts ....................................... (26) -
Adjustment of warrants to fair value ................................ - (18)
Changes in operating assets and liabilities:
Accounts receivable ................................................. 49 393
Inventory ........................................................... 143 103
Prepaid expenses and other current assets ........................... (97) 238
Other assets, net ................................................... (10) (22)
Accounts payable and accrued expenses ............................... 479 (304)
Deferred revenues ................................................... (129) (86)
------- -------
Net cash provided by (used in) operating activities .............. 360 (1,052)
------- -------
Investing activities:
Sales and maturities of short-term investments ........................ - 17
Purchase of equity investment in and advances to investee ............. (68) -
Purchase of property, plant & equipment ............................... (12) -
Proceeds from sale of tax loss carryforwards .......................... 18 27
------- -------
Net cash provided by (used in) investing activities ................. (62) 44
------- -------
Financing activities:
Issuance of short-term debt ........................................... - 50
Proceeds from exercise of warrants .................................... - 97
Proceeds from issuance of Series C convertible preferred stock and
warrants, net of expenses ............................................. - 1,466
Payment of short-term debt ............................................ - (50)
Retirement of Series B preferred stock ................................ (100) (395)
------- -------
Net cash provided by (used in) financing activities ................. (100) 1,168
------- -------
Increase in cash and cash equivalents .................................... 198 160
Cash and cash equivalents, beginning of period ........................... 6 561
------- -------
Cash and cash equivalents, end of period ................................. $ 204 $ 721
======= =======
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Accretion of preferred stock to redemption value ......................... $ 494 $ 319
======= =======
Warrant issued to preferred stockholder treated as a dividend ............ $ - $ 480
======= =======
Beneficial conversion feature treated as a dividend ...................... $ 64 $ 14
======= =======
Exchange of Series A for Series B preferred stock, including $38,000 of
accretion to redemption value ............................................ $ - $ 3,231
======= =======
Conversion of Series A preferred stock ................................... $ - $ 91
======= =======
Conversion of Series B preferred stock ................................... $ 244 $ 948
======= =======
Warrant to acquire common stock issued for finder's fee .................. $ - $ 36
======= =======
Intrinsic value of beneficial conversion feature ......................... $ - $ 341
======= =======
Reclassification of preferred stock dividend to accrued liabilities ...... $ (57) $ -
======= =======
Issuance of subordinated debenture in exchange for a note receivable ..... $ 296 $ -
======= =======
The accompanying notes are an integral part of these statements.
-5-
Voxware, Inc. and Subsidiary
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 December 31, 2002 and for the three month and six month
periods ended December 31, 2002 and 2001, 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 October 15, 2002.
The results of operations and cash flows for the interim period ended
December 31, 2002 are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 2003 or any other future
periods. The Company has incurred significant operating losses
historically, as well as during the three and six months ended December 31,
2002. Management believes that unless the Company is able to secure
additional financing, obtain replacement financing or extend the mandatory
redemption dates on the preferred stock, its cash and cash equivalents will
not be adequate to meet the Company's cash requirements over the next
twelve months. The Company is currently seeking extensions of the mandatory
redemption dates on its outstanding preferred stock. The report of our
independent certified public accountants included a going concern
modification in their audit report for the year ended June 30, 2002.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result from the outcome of this uncertainty.
2. LOSS PER SHARE
Basic and diluted net loss per share applicable to common stockholders
was computed by dividing the net loss by the weighted average number of
common shares outstanding during the three and six months ended December
31, 2002 and 2001. As of December 31, 2002, stock options and warrants
(9,274,259 outstanding as of December 31, 2002) have not been included in
the diluted loss per common share calculation, since the impact is
anti-dilutive.
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- ------------------------
2002 2001 2002 2001
------------ ------------- -------------- ---------
(in thousands) (in thousands)
Net loss ................................................ $ (462) $ (545) $ (877) $ (2,099)
Accretion of preferred stock to redemption value ........ (227) (190) (494) (319)
Beneficial conversion feature treated as a dividend ..... (30) (14) (64) (341)
Warrants issued to preferred stockholders, treated as a
dividend ................................................ - (341) - (480)
-------- -------- -------- --------
Net loss available to common stockholders ............... $ (719) $ (1,090) $ (1,435) $ (3,239)
======== ======== ======== ========
Shares used in computing basic loss per common share .... 22,493 16,457 22,184 15,684
======== ======== ======== ========
Basic share loss per common share ....................... $ (0.03) $ (0.07) $ (0.06) $ (0.21)
-------- -------- -------- --------
6
3. REVENUE RECOGNITION
The Company generates revenues from products and services. The products
and services are sold separately as well as combined. The Company combines
software, hardware and professional services for installation,
implementation and maintenance as part of its industrial voice-based
solutions. Product revenues consist of product sales, license fees,
royalties and recurring revenues. Product sales represent shipments of
portable and stationary voice-based products and solutions for various
industrial and warehouse markets. Revenues from product sales are generally
recognized upon shipment or completion of the implementation, if
applicable, provided there are no significant post-delivery obligations.
The Company began shipping voice-based products subsequent to its
acquisition of substantially all of the assets of Verbex Voice Systems,
Inc. ("Verbex"), which occurred on February 18, 1999. License fees are
generally derived from licensing new software products developed internally
since the acquisition of Verbex, from licensing the Company's voice-based
software applications acquired in the Verbex transaction, and from
licensing the Company's speech compression technologies to customers in the
multimedia and consumer devices markets. License fees are generally
recognized upon delivery or implementation 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. If an acceptance period is
required, revenues are recognized upon customer acceptance. Royalties and
recurring revenues include royalties, which are generally based on a
percentage of licensees' sales or units shipped. Royalty revenues are
recognized at the time of the customer's shipment of products incorporating
the Company's technology. 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.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standard ("SFAS") No. 143, "Accounting
for Assets Retirement Obligations." ("SFAS 143"). SFAS 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated assets
retirement costs. SFAS 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of
the long-lived asset. SFAS 143 was effective for the quarter ended December
31, 2002 and the adoption of this pronouncement had no effect on
consolidated results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment for the Disposal of Long-lived Assets" ("SFAS 144"). This
Statement addresses financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of. SFAS 144
supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to be Disposed of." However,
SFAS 144 retains the fundamental provisions of Statement No.121 for (a)
recognition and measurement of the impairment of long -lived assets to be
held and used and (b) measurement of long-lived assets to be disposed of by
sale. SFAS 144 was effective for the quarter ended December 31, 2002 and
the adoption of this pronouncement had no effect on the Company's
consolidated results of operations or financial position.
In July 2002, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method. Under SFAS 142,
goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed annually (or more frequently if impairment
indicators are apparent). However, separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their
useful lives. The Company considers its intangible assets to have finite
lives and will continue to amortize such assets over their remaining useful
lives. As such, the adoption of SFAS 141 and 142 did not have a material
effect on the Company's results of operations or financial position.
-7-
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses financial accounting and reporting costs associated with the exit
or disposal activities and nullifies EITF Issue No 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit and Activity (including Certain Costs Incurred in a Restructuring)."
It applies to costs associated with an exit activity that does not involve
an entity newly acquired in a business combination or with a disposal
activity covered by SFAS 144. A liability for costs associated with an exit
or disposal activity shall be recognized and measured initially at its fair
value in the period in which the liability is incurred. SFAS 146 is
effective for exit or disposal activities that are initiated after December
31, 2002 and the adoption of this pronouncement had no effect on the
Company's consolidated results of operations or financial position.
5. COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). Comprehensive income
(loss) 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 Company does not have
comprehensive income items in the quarters ended December 31, 2002 and
2001.
6. EQUITY INVESTMENT
In October 2002, the Company acquired a 33% interest in Voxware nv,
which was established to sell and market the Company's products in Europe.
The Company accounts for it's investment under the equity method. The
Company records its share of such earnings (loss) in the Consolidated
Statements of Operations as a "Loss on Equity Investment" and the carrying
value of the Company's investment is recorded in the Consolidated Balance
Sheet as "Equity Investment." The table below sets forth the carrying
values of the Company's investment and the Company's share of their losses
for the six months ended December 31, 2002:
Equity in net assets ...................... $ 20
Advances .................................. $ 48
Equity in loss investee ................... $ (65)
----------
Total $ 3
==========
Condensed financial information for the six months ended December
31, 2002:
Revenue ................................... $ 193
==========
Net loss .................................. $ (196)
==========
Company's interest in net loss ............ $ (65)
==========
7. SUBORDINATED DEBENTURES
The Subordinated Debenture credit facility was issued on October 2,
2002. The Company issued a series of 10% Convertible Debentures due July 1,
2003 (the "Debentures") in the aggregate principal amount of
(euro)300.699,32 Euro. The proceeds of the Debentures are to be used to
fund the Company's capital investment in Voxware nv, a limited liability
company organized under Belgian law, founded by Creafund nv
-8-
("Creafund") and the Company on July 1, 2002 and to fund the operational
expenses of Voxware nv, excluding expenses or invoices generated by the
Company (other than the acquisition of the Company's voiced based
solutions). A corresponding note receivable in the aggregate amount of
$296,000 has been recorded as of December 31, 2002.
The Debentures are mandatorily convertible into shares of capital stock
of the Company issued upon the closing of a Qualifying Fundraising (as
specifically defined in the Debentures). A Qualifying Fundraising requires
the execution, on or before November 30, 2002, of subscription agreements
providing for the issuance of at least U.S.$2,500,000 of equity of the
Company, and the closing of such financing by February 28, 2003. In the
event the subscription agreements are not executed by November 30, 2002 or
the Qualifying Fundraising is not consummated by February 28, 2003, each of
the holders of the Debentures has the right, at any time prior to the close
of business on July 1, 2003, to convert any or all of the outstanding
principal amount and accrued interest of the Debenture into shares of
preferred stock of the Company, with new rights, preferences and privileges
senior to the Company's existing preferred stock. The conversion price for
such senior preferred stock shall be 33% of the average share price for the
Company's common stock for the 30 trading days prior to the date of the
exercise of the conversion option, or, if the Company's securities are not
listed or traded on a stock exchange, a regulated market or the
Over-the-Counter Bulletin Board ("OTCBB"), 33% of the intrinsic value of
the Company's equity on the date of the exercise of the conversion option,
as determined by an independent expert. The Company has not consummated a
Qualifying Fundraising as of the date of the filing of this Form 10-Q. The
Company is currently seeking additional financing.
The subscription agreements for the Qualifying Fundraising were not
executed by November 30, 2002, and the Qualifying Fundraising was not
consummated by February 28, 2003, therefore the Debentures are redeemable
at the option of the Debenture holders. The redemption price is one hundred
percent (100%) of the principal amount so redeemed, plus accrued and unpaid
interest. The Company has not consummated a Qualifying Fundraising as of
the date of the filing of this Form 10-Q. The Company is currently seeking
additional financing.
Simultaneously with the execution of the Debentures, the Company,
Creafund and the other holders of equity in Voxware nv (which parties are
also the holders of the Debentures) executed a Shareholders Agreement
pursuant to which Creafund and the other equity holders have the option to
convert their shares of Voxware nv into shares of capital stock of the
Company issued upon the closing of a Qualifying Fundraising. In the event
subscription agreements for the Qualifying Fundraising are not executed by
November 30, 2002 or the Qualifying Fundraising is not consummated by
February 28, 2003, the equity holders of Voxware nv (other than the
Company) have the right to convert their shares of Voxware nv into shares
of preferred stock of the Company, with new rights, preferences and
privileges senior to the Company's existing preferred stock. The Company
has not consummated a Qualifying Fundraising as of the date of the filing
of this Form 10-Q. The Company is currently seeking additional financing.
The conversion price for such senior preferred stock shall be 33% of
the average share price for the Company's common stock for the 30 trading
days prior to the date of the exercise of the conversion option, or, if the
Company's securities are not listed or traded on a stock exchange, a
regulated market or the OTCBB, 33% of the intrinsic value of the Company's
equity on the date of the exercise of the conversion option, as determined
by an independent expert. The exchange rights described in this paragraph
expire on December 31, 2004. The value of the shares of Voxware nv for
purposes of determining the exchange ratios is based upon the net sales of
Voxware nv.
The Company has granted Voxware nv a royalty free license to distribute
Voxware's voice-based solutions for the logistics, distribution and package
sorting industries in Europe on mutually acceptable commercially reasonable
terms. In the event that the Qualifying Financing is not consummated, such
license shall convert to a royalty-bearing license on such terms and
conditions as mutually agreed upon by the parties to the Shareholders
Agreement.
8. SERIES A, SERIES B AND SERIES C MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND WARRANTS TO PURCHASE COMMON STOCK
-9-
The Company has authorized 10,000,000 shares of Preferred Stock with a
$0.001 par value per share. As of December 31, 2002, there were 2,406.609 shares
of Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B
Preferred") and 1,840 shares of Series C Mandatorily Redeemable Preferred Stock
("Series C Preferred") designated as issued and outstanding. On August 29, 2001,
all of the outstanding shares of Series A Mandatorily Redeemable Preferred Stock
("Series A Preferred") were exchanged for Series B Preferred. The Preferred
shares have a stated value of $1,000 per share.
On August 15, 2000 the Company completed a $4,000,000 private placement of
Series A Preferred and warrants to Castle Creek Technology Partners, LLC
("Castle Creek"). The Company sold 4,000 shares of Series A Preferred, which
shares are convertible into shares of common stock, resulting in proceeds to the
Company of approximately $3,660,000, 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
allocated the proceeds, net of cash and non-cash transaction costs, to the
Series A Preferred and warrants sold to Castle Creek based on the relative fair
value of each instrument. The fair value of the Series A Preferred 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 $2,774,000 and $807,000 to the Series
A Preferred 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 outstanding warrants are adjusted to the fair value of the
warrants based upon the closing stock price as of that date.
In August of 2001, the Company exchanged all of the Series A Preferred for
shares of Series B Preferred. As the term, rights and preferences of Series B
are substantially similar to those of the Series A, the Company recorded the
exchange based upon the carrying value of the Series A Preferred. The Company is
obligated to redeem the Series B Preferred 30 months from the closing. The
Series B Preferred 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. The
Series B Preferred shareholder also has liquidation rights. The Company has the
right to require conversion of the Series B Preferred, 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 liquidation value is calculated as the stated price plus all
accrued and unpaid dividends. As of December 31, 2002, the liquidation of the
Series B Preferred was $2,827,207.
In addition, Castle Creek has received a warrant to purchase 727,273 ("the
Warrant") shares of Common Stock at an initial exercise price of approximately
$3.44 per share, subject to adjustment, as defined. As of December 31, 2002,
Castle Creek exercised the Warrant to purchase 727,273 shares of common stock at
an exercise price of $0.1369 per share, resulting in proceeds of $100,000. The
Company used such proceeds to retire 99.56367 of Series B Preferred. The
warrants fair market value as of December 31, 2002 was valued at zero, using the
Black-Scholes option-pricing model. The Company recorded an adjustment of
warrants to fair value of $1,000 and $13,000 and zero and $23,000 for the three
and six months ended December, 31, 2002 and 2001.
According to the Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock, the Company is required to redeem the
outstanding Series B Preferred 30 months after August 10, 2000, or February 10,
2003, provided funds are legally available under Delaware law. The Company did
not redeem the Series B Preferred on the redemption date, as the Company
believes that funds currently are not legally available for such redemption.
According to the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock, subsequent to the mandatory redemption date, any
unredeemed Series B Preferred shall be redeemed as soon as additional funds
become legally available. Until the redemption price has been paid to the
holder, the stock continues to be outstanding and governed by the original
terms. The unredeemed Series B Preferred will continue to accrue dividends at 7%
and shall remain fully convertible. On February 13, 2003, Castle Creek filed a
lawsuit against the Company in the United States District Court in Delaware
seeking redemption of the Series B Preferred and payment of the applicable
redemption payment.
Pursuant to the terms of the August 2000 transaction, the Series A
Preferred and the Series B Preferred is convertible into shares of common stock
on the date of issuance. After considering the allocation of the proceeds to the
Series A and B Preferred, the Company determined that the Preferred contained a
beneficial conversion feature ("BCF"). Since the conversion price adjustment was
part of the August 2000 transaction, a contingent beneficial conversion feature
("BCF") existed at the August 15, 2000 commitment date and as of that date. The
BCF was
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measured at zero. Upon resetting the conversion price to $0.34 on April 19,
2001, the Company recorded $1,669,000 dividend charge for the contingent BCF.
The dividend was calculated based on the difference between the reduced
conversion price ($0.34) and the fair value of the common stock issuable upon
conversion of the Series A Preferred as of April 19, 2001. The charge for the
BCF was limited to the carrying value of the Series A Preferred after the
initial allocation of the cash proceeds received to the Series A and the
warrants. In addition, on August 29, 2001, the Series A Preferred was exchanged
for Series B Preferred, resulting in an additional reset of the conversion price
($0.16) and a $1,244,000 dividend charge for the contingent BCF.
On April 19, 2001, the Company consummated a private placement of shares of
common stock and common stock warrants to Castle Creek pursuant to the terms of
a Securities Purchase Agreement (the "Purchase Agreement"). Pursuant to the
private placement, the Company sold 714,000 shares (the "Common Shares") of
common stock and a warrant to purchase an additional 2,142,000 shares of its
common stock (the "Purchase Warrant"). The Common Shares were sold at a price of
$.34 per share. The exercise price of the Purchase Warrant is $1.25 per share in
the case of an optional exercise by Castle Creek, or 80% of the then market
value (as defined in the Purchase Warrant) of the common stock in the case of a
mandatory exercise required by the Company. As of December 31, 2002, pursuant to
the terms of the Purchase Agreement, the Company used $324,200 of such proceeds
to repurchase 305 shares of the Company's Series B Preferred from Castle Creek.
The Company is accreting the Series B Preferred to its redemption value
using the effective interest method through the redemption period of 30 months.
Accordingly, the Company recorded $227,000 and $190,000 and $494,000 and
$319,000 of accretion during the three and six months ended December 31, 2002
and 2001, respectively.
Through December 31, 2002, Castle Creek converted 319 shares of Series A
Preferred into 1,043,003 shares of Common Stock. In addition, Castle Creek
converted shares of Series B Preferred into shares of common stock as follows:
Shares
----------------------------------
Series B
Date Preferred Common Stock
--------------- ----------------
November 8, 2001 40.00 271,826
November 19, 2001 50.00 340,208
November 26, 2001 40.00 272,653
November 29, 2001 75.00 511,497
December 11, 2001 106.00 724,462
June 21, 2002 50.00 312,500
July 8, 2002 50.00 312,500
July 22, 2002 50.00 312,500
August 7, 2002 50.00 312,500
September 13, 2002 50.00 312,500
October 11, 2002 43.82 273,851
---------- -----------
604.82 3,956,997
========== ===========
On December 12, 2001, the Company completed a $1,765,000 private placement
of Series C Preferred and common stock warrants to purchase 5,944,219 shares of
common stock with various accredited investors. On February 1, 2002, the Company
also received $100,000 in cash from an additional accredited investor in
connection with this private placement. In total, the Company issued 1,865
shares of Series C Preferred, which shares are convertible into shares of common
stock, resulting in proceeds to the Company of approximately $1,566,000, net of
transaction costs. In addition to the cash transaction costs, the Company issued
warrants to investment advisors as finder's fees to acquire 458,165 shares of
common stock. The exercise price for the warrants issued as finder's fees is
$0.1255 per share, and the warrants expire in five years. Using the
Black-Scholes option-pricing model, the Company determined the fair value of the
warrants to be $350,000. The Company is obligated to redeem the Series C
Preferred 36 months from the closing. The
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Series C Preferred have a 7% dividend payable in cash or equity, at the
election of Voxware, and are convertible into Voxware common stock at an
initial conversion price of $0.1255 per share, subject to adjustment, as
defined in the transaction documents. In addition, the investors have
received warrants to purchase 5,944,219 shares of common stock at an
exercise price of $0.1255 per share and expire five years from the date of
closing. The Series C Preferred stockholders have certain registration
rights, as defined in the transaction agreements.
The Company allocated the proceeds, net of cash and non-cash
transaction costs, to the Series C Preferred and the additional purchase
warrants sold to investors based on the relative fair value of each
instrument. The fair value of the Series C Preferred was determined based
on a discounted cash flow analysis and the fair value of the additional
purchase warrants was determined based on the Black-Scholes option-pricing
model. As a result, the Company allocated approximately $1,220,000 and
$350,000 to the Series C Preferred and the additional purchase warrants,
respectively. The warrants have been classified as additional paid-in
capital in the accompanying consolidated balance sheet.
The Company is accreting the Series C Preferred to their redemption
value using the effective interest method through the redemption period of
36 months. Accordingly, the Company recorded $119,000 and $50,000 for the
three months ended December 31, 2002 and 2001 and $248,000 and $50,000 for
the six months ended December 31, 2002 and 2001, respectively.
The Series C Preferred are convertible into shares of common stock on
the date of issuance. After considering the allocation of the proceeds to
the Series C Preferred and the additional purchase warrants, the Company
determined that the Series C Preferred contained a BCF. The Company
recorded the BCF as a reduction of the Series C and an increase to
additional paid-in capital in the amount of approximately $350,000. In
accordance with Emerging Issues Task Force 00-27, the BCF is being
amortized over the redemption period of 36 months using the effective
interest method, and is being recorded in a manner similar to a dividend.
As a result, the Company recorded $30,000 and $14,000 for the three months
ended December 31, 2002 and 2001 and $64,000 and $14,000 for the six months
ended December 31, 2002 and 2001, respectively, as a BCF, treated as a
dividend.
9. SEGMENT INFORMATION
Prior to the Company's acquisition of Verbex in February 1999, 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 proactively 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 periods ended December 31, 2002
and 2001 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, and the amortization of those assets, are included in the
industrial voice-based products segment.
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Three months ended December 31:
Speech
Voice-Based Compression
Products Technologies
Segment Segment Total
----------- ------------ ---------
December 31,
------------------------------------
2002 2002 2002
----------- ------------ ---------
Revenues ................................ $ 2,273 $ 25 $ 2,298
Loss from operations .................... $ (196) $ (215) $ (411)
Depreciation and amortization ........... $ 387 $ 11 $ 398
Identifiable assets ..................... $ 1,920 $ 940 $ 2,860
December 31,
------------------------------------
2001 2001 2001
----------- ------------ ---------
Revenues ................................ $ 453 $ 85 $ 538
Loss from operations .................... $(1,277) $ (291) $(1,568)
Depreciation and amortization ........... $ 327 $ 89 $ 416
Identifiable assets ..................... $ 3,142 $ 1,591 $ 4,733
Six months ended December 31:
Speech
Voice-Based Compression
Products Technologies
Segment Segment Total
----------- ------------ ---------
December 31,
------------------------------------
2002 2002 2002
----------- ------------ ---------
Revenues ................................ $ 3,724 $ 146 $ 3,870
Loss from operations .................... $ (505) $ (323) $ (828)
Depreciation and amortization ........... $ 770 $ 11 $ 781
Identifiable assets ..................... $ 1,920 $ 940 $ 2,860
December 31,
------------------------------------
2001 2001 2001
----------- ------------ ---------
Revenues ................................ $ 1,341 $ 212 $ 1,553
Loss from operations .................... $(2,093) $ (6) $(2,099)
Depreciation and amortization ........... $ 705 $ 65 $ 770
Identifiable assets ..................... $ 1,861 $ 2,651 $ 4,512
10. SUBSEQUENT EVENTS:
Pursuant to the terms of the Series C Preferred stock agreement, in
January 2003 Castle Creek elected to convert 25 shares of Series C Preferred
into 214,116 shares of common stock. In addition, 20 shares of Series C
Preferred were converted into 170,911 shares of common stock by another
Series C Preferred holder. A total of 45 Series C Preferred shares converted
into 385,935 common shares at a conversion price of $0.1255 per share, which
includes accrued dividends.
According to the Certificate of Designations, Preferences and Rights
of Series B Convertible Preferred Stock, the Company is required to redeem
the outstanding Series B Preferred 30 months after August 10, 2000, or
February 10, 2003, provided funds are legally available under Delaware law.
The Company did not redeem the Series B Preferred on the redemption date,
as the Company believes that funds currently are not legally available for
such redemption. On February 13, 2003, Castle Creek filed a lawsuit against
the Company in the United States District Court in Delaware seeking
redemption of the Series B Preferred and payment of the applicable
redemption payment.
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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 from those expected, including the risks associated with Voxware's need
to raise additional capital in order to meet the Company's cash requirements
over the next twelve months and continue as a going concern; Voxware's need to
seek an extension of the redemption date of the Series B Preferred, which the
Company currently is obligated to redeem; 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;
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,
Inc. ("Verbex") 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 and 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 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 Company combines software, hardware and professional services for
installation, implementation and maintenance as part of its industrial
voice-based solutions (the "Solution").
The Company entered into and completed Solution arrangements during the
quarters ended December 31, 2002 and 2001. Solution revenue for hardware,
software and professional services has been recorded upon the completion of
installation and customer acceptance.
The sale to Ascend of the assets relating to the speech and audio coding
business did not include Voxware's rights and
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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 has 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 December 31, 2002, revenues related to the
speech coding business accounted for 1% of total revenues for the quarter, while
revenue from our voice-based solutions accounted for 99% of quarterly revenues.
For the quarter ended December 31, 2001, revenues related to the speech coding
business accounted for 14% of total revenues for the quarter, while revenue from
our voice-based solutions accounted for 86% 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.
Results of Operations
Three and Six Months Ended December 31, 2002 Versus Three and Six Months Ended
December 31, 2001
Revenues
Voxware recorded revenues of $2,298,000 for the three months ended December
31, 2002 compared to revenues of $1,015,000 for the three months ended December
31, 2001. The $1,283,000 increase in total revenues reflects a $372,000 increase
in speech recognition product sales, an increase of $793,000 in license fees, a
decrease of $78,000 in royalties and recurring revenues, and a $196,000 increase
in service fees related to the implementation and development fees relating to
our voice logistics product offering. In the six months ended December 31, 2002,
total revenues increased $2,317,000 $3,870,000, or 60%, from $1,553,000 in the
six months ended December 31, 2001. Compared to prior periods, our voice-based
product lines have resulted in increased product revenues as we fulfill orders
for our voice-based solutions.
Total product revenues increased $1,087,000 from $810,000 in the three
months ended December 31, 2001 to $1,897,000 in the three months ended December
31, 2002. This increase is due to an $1,165,000 increase in voice-based product
sales and license fees, offset by a $78,000 decrease in royalties and recurring
revenues. In the six months ended December 31, 2002, product revenues totaled
$3,141,000, reflecting a $1,956,000 increase from product revenues of $1,185,000
for the six months ended December 31, 2001. The increase in product sales
reflects the marketing and sale of our VoiceLogistics(TM), product offering, 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. Royalties and recurring revenues are primarily related to the
Company's speech compression business that was sold to Ascend, as discussed
previously. We anticipate that revenues from the speech coding business will
continue to decline. For the three months ended December 31, 2002 and 2001, 57%
and 89% of the Company's product revenues were attributable to industrial speech
recognition product sales, respectively, 42% and 0% were attributable to license
fees, respectively, and 1% and 11% were attributable to royalties and recurring
revenues, respectively. For the six months ended December 31, 2002 and 2001,
approximately 57% and 82% of the Company's product revenues were attributable to
integrated voice-based solutions, respectively, 40% and 4% were attributable to
license fees, respectively, and 3% and 14% were attributable to royalties and
recurring revenues, respectively.
Service revenues are primarily attributable to professional service and
development fees from our VoiceLogistics(TM) product offering, and to customer
maintenance support relating to our speech coding technologies business and
VoiceLogistics(TM) product offering. For the three months ended December 31,
2002, service revenues totaled $401,000, reflecting a $196,000 increase from
service revenues of $205,000 for the three months ended December 31, 2001. For
the six months ended December 31, 2002, service revenues totaled $729,000,
reflecting a $361,000 increase from service revenues of $368,000 for the six
months ended December 31, 2001.
Cost of Revenues
-15-
For the three months ended December 31, 2002, cost of revenues increased
$891,000 from $333,000 for the three months ended December 31, 2001 to
$1,224,000. The increase in cost of revenues reflects an increase in revenues.
Cost of revenues increased $1,280,000 to $1,819,000 for the six months ended
December 31, 2002 compared to $539,000 for the six months ended December 31,
2001.
Cost of product revenues increased $744,000 to $1,056,000 for the three
months ended December 31, 2002 from $312,000 for the three months ended December
31, 2001. This increase in cost of product revenues is a direct result of the
increase in product sales for the three and six months ended December 31, 2002
as compared to the three and six months ended December 31, 2001. Cost of product
revenues, as a percentage of product sales for the quarters ended December 31,
2002 and 2001 was 56% and 39%, respectively.
Cost of service revenues consists primarily of the expenses associated with
professional service and development fees from our VoiceLogistics(TM) product
offering. Cost of service revenues increased $147,000 from $21,000 in the three
months ended December 31, 2001 to $168,000 in the three months ended December
31, 2002. Cost of service revenues increased $228,000 from $110,000 in the six
months ended December 31, 2001 to $338,000 for the six months ended December 31,
2001. The increase in cost of service revenues is directly attributable to the
increase in service revenues described above.
Operating Expenses
Total operating expenses, excluding amortization of purchased intangibles,
increased by $220,000, or 23%, from $941,000 in the three months ended December
31, 2001 to $1,161,000 in the three months ended December 31, 2002. During the
six months ended December 31, 2002, operating expenses totaled $2,230,000,
reflecting a decrease of $288,000, or 11%, from total operating expenses of
$2,518,000 for the six months ended December 31, 2001, excluding amortization of
purchased intangibles. Non-cash amortization of purchased intangibles totaled
$324,000 for the three months ended December 31, 2002 and $325,000 for the three
months ended December 31, 2001. For the six months ended December 31, 2002,
non-cash amortization of purchased intangibles totaled $649,000 compared to
$650,000 for the six months ended December 31, 2001. For the six months ended
December 31, 2002, the decrease primarily reflects a decrease in headcount
related to the re-organization of our sales force and the redesign of the
Company's business objectives. Compared to the quarter ended December 31, 2002,
our operating expenses increased to support our increase in revenues resulting
from the sale of VoiceLogistics(TM) product offering. As of December 31, 2002,
our headcount remained at 40.
Research and development expenses primarily consist of employee
compensation, equipment and depreciation expenditures related to product
research and development. Research and development expenses increased $200,000,
or 61%, from $327,000 in the three months ended December 31, 2001 to $527,000 in
the three months ended December 31, 2002. During the six months ended December
31, 2002, research and development expenses increased $168,000, or 21%, from
$797,000 in the six months ended December 31, 2001. As of December 31, 2002, we
had a research and development staff of 28 compared to 27 at December 31, 2001.
Sales and marketing expenses primarily consist of employee compensation
(including sales commissions), travel expenses and trade shows. Sales and
marketing expenses decreased $51,000, or 15%, from $337,000 in the three months
ended December 31, 2001 to $286,000 in the three months December 31, 2002. In
the six months ended December 31, 2002, sales and marketing expenses decreased
$199,000, or 28%, from $719,000 in the six months ended December 31, 2001 to
$520,000 in the six months December 31, 2002. As of December 31, 2002, Voxware
had a sales and marketing staff of six compared to seven at December 31, 2001.
General and administrative expenses consist primarily of employee
compensation, insurance, rent, office expenses and professional services.
General and administrative expenses increased $71,000, or 25%, in the three
months ended December 31, 2002 to $348,000 from $277,000 in the three months
ended December 31, 2001. The increase in general and administrative expense is
reflective of the growth of the organization and improvement of our
infrastructure in order to facilitate future expansion. General and
administrative expenses decreased $255,000, or 26%, from $1,000,000 in the six
months ended December 31, 2001 to $745,000 in the six months ended December 31,
2002. As of December 31, 2002, Voxware's general and administrative staff
remained at six full-time employees.
-16-
Amortization of purchased intangibles totaled $324,000 and $325,000 for the
three months ended December 31, 2002 and 2001, respectively. For the six months
ended December 31, 2002 and 2001, amortization totaled $649,000 and $650,000,
respectively.
Interest Income
Interest income decreased $3,000, or 75%, to $1,000 offset by interest
expense of $6,000 for the three months ended December 31, 2002 from $4,000 for
the three months ended December 31, 2001. Interest income decreased from the
quarter ended December 31, 2001 as a result of the reduction in the Company's
total cash, cash equivalents and short-term portfolio balance. As of December
31, 2002, Voxware's cash, cash equivalents and short-term investments portfolio
totaled $204,000 compared to $721,000 at December 31, 2001.
Income Taxes
As of December 31, 2002, we had approximately $28,000,000 of federal net
operating loss carryforwards which will begin to expire in 2009 if not utilized.
As of December 31, 2002, a full valuation allowance has been provided on the net
deferred tax asset because of uncertainties regarding the Company's ability to
realize the deferred asset, primarily as a result of the operating losses
incurred to date.
Adjustment of Warrants to Fair Value
On August 15, 2000, the Company completed a $4,000,000 private placement of
Series A Preferred Stock ("Series A Preferred") and Warrants ("Warrants") to
Castle Creek Technology Partners, LLC ("Castle Creek"). The Company allocated
the proceeds, net of cash and non-cash transaction costs, to the Series A
Preferred and Warrants sold to Castle Creek based on the relative fair value of
each instrument. The fair value of the Warrants was determined based on the
Black-Sholes option-pricing model. As a result, the Company allocated
approximately $807,000 to the Warrants as of September 30, 2000. The Warrants
are classified as a liability in the accompanying consolidated balance sheets
because the Warrants give the holder the choice of net cash settlement at a time
when other stockholders would not have such a choice (upon a merger or change in
control, as defined). As of December 31, 2002, the outstanding Warrants were
adjusted to the fair value of the Warrants based upon the closing stock price as
of that date. As of December 31, 2002 the Warrants were exercised. As of
December 31, 2002, using the Black-Scholes option-pricing model, the Company
recorded an adjustment on the writedown of Warrants to fair value of $1,000 and
$13,000 and zero and $23,000 for the three and six months ended December 31,
2002 and 2001, respectively.
Gain on Sale of Tax Loss Carryforwards and Research and Development Credits
The State of New Jersey passed legislation in 1999, which allows New Jersey
technology companies to apply for 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 obligations. Voxware applied to the State of New Jersey
to sell up to approximately $236,000 and $1,803,014 of its net operating loss
carryforwards for the three and six months ended December 31, 2002 and 2001,
respectively. Voxware received a determination letter from the state of New
Jersey to sell $22,000 and $33,000 of its losses, which upon the sale provided
Voxware $18,000 and $27,000 in cash as of December 31, 2002 and 2001.
Liquidity and Capital Resources
As of December 31, 2002, we had a total of $204,000 in cash and cash
equivalents. Since inception, we have primarily financed our operations through
the sale of preferred stock and equity securities.
For the six months ended December 31, 2002, cash provided by operating
activities totaled $360,000. Cash provided by operating activities was
attributable to a net loss of $877,000, offset by non-cash amortization of
purchased intangibles and depreciation totaling $781,000, and changes in
operating assets and liabilities. For the six months ended December 31, 2001,
cash used in operating activities totaled $1,052,000. Cash used in operating
activities was primarily attributable to a net loss of $2,099,000, which was
comprised of a loss from operations totaling $1,502,000 excluding the non-cash
amortization of purchased intangibles totaling $650,000, and changes in
operating assets and liabilities.
-17-
For the six months ended December 31, 2002, cash used in investing
activities totaled $62,000, which consists of investment in and advances to
subsidiary of $68,000, purchase of property, plant and equipment of $12,000
offset by the proceeds from the sale of tax loss carryforwards of 18,000. For
the six months ended December 31, 2001, cash provided by investing activities
totaled $44,000, which consisted of net sales and maturities of short-term
investments and proceeds of $27,000 from the sale of net operating loss
carryforwards.
For the six months ended December 31, 2001, cash used financing activities
totaled $100,000, which represents the retirement of Series B preferred stock.
On April 19, 2001, the Company consummated a private placement of shares of
common stock and common stock warrants to Castle Creek pursuant to the terms of
a Securities Purchase Agreement (the "Purchase Agreement"). Pursuant to the
Purchase Agreement, the Company sold 714,000 shares of common stock (the "Common
Shares") and a warrant to purchase an additional 2,142,000 shares of its common
stock (the "Purchase Warrant"). The Common Shares were sold at a price of $.34
per share. The exercise price of the Purchase Warrant is $1.25 per share in the
case of an optional exercise by Castle Creek, or 80% of the then market value
(as defined in the Purchase Warrant) of the common stock in the case of a
mandatory exercise required by the Company. Net proceeds to the Company from the
private placement were approximately $276,000. Pursuant to the terms of the
Purchase Agreement, the Company used $48,200 of such proceeds to repurchase 46
shares of the Company's Series A Preferred from Castle Creek. The balance of the
proceeds is to be used by the Company for general working capital purposes.
On August 29, 2001 the Company issued 708,656 remedy warrants to Castle
Creek. These remedy warrants allow Castle Creek to purchase shares of common
stock at $0.01 per share and expire on August 28, 2011. Using the Black-Scholes
option-pricing model, the Company determined the fair value of the remedy
warrants to be $139,000. The Company recorded the issuance of the remedy
warrants as a Preferred Stock dividend during the quarter ended September 30,
2001. On September 26, 2001, Castle Creek exercised 100,000 of the remedy
warrants, resulting in gross proceeds of $1,000.
In August of 2001, the Company exchanged its Series A Preferred for shares
of Series B Preferred with Castle Creek. As the term, rights and preferences of
the Series B are substantially similar to those of the Series A, the Company
recorded the exchange based upon the carrying value of the Series A Preferred.
According to the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock, the Company is required to redeem the outstanding
Series B Preferred 30 months after August 10, 2000, or February 10, 2003,
provided funds are legally available under Delaware law. The Company did not
redeem the Series B Preferred on the redemption date, as the Company believes
that funds currently are not legally available for such redemption. According to
the Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock, subsequent to the mandatory redemption date, any unredeemed
Series B Preferred shall be redeemed as soon as additional funds become legally
available. Until the redemption price has been paid to the holder, the stock
continues to be outstanding and governed by the original terms. The unredeemed
Series B Preferred will continue to accrue dividends at 7% and shall remain
fully convertible. On February 13, 2003, Castle Creek filed a lawsuit against
the Company in the United States District Court in Delaware seeking redemption
of the Series B Preferred and payment of the applicable redemption payment.
In addition, pursuant to the terms of the August 2000 Series A Preferred
transaction, any reset of the conversion price is treated as a dividend to the
holder of the Series A Preferred. Since the conversion price adjustment was part
of the August 2000 transaction, a contingent beneficial conversion feature
("BCF") existed at the August 15, 2000 commitment date. The contingent BCF was
recorded upon resetting the conversion price to $0.34 on April 19, 2001. At this
date, the dividend is recorded as the greater of the contingent BCF measured as
of the commitment date or the actual resulting BCF.
In August 2000, the contingent BCF was measured at zero. As a result, the
dividend was calculated based on the difference between the reduced conversion
price ($0.34) and the fair value of the common stock issuable upon conversion of
the Series A Preferred as of April 19, 2001. The charge for the BCF is limited
to the carrying value of the Series A Preferred after the initial allocation of
the cash proceeds received to the Series A and the warrants. At April 19, 2001,
the Company recorded a $1,669,000 dividend charge for the contingent BCF.
Through June 30, 2002, the Series A Preferred and Series B Preferred holders
converted 361 shares of Series A Preferred and Series B Preferred into 2,433,146
shares of common stock at an exercise price of $0.34. During the quarter ended
December 31, 2002, Castle Creek elected to convert 44 shares of Series B
Preferred into 273,851 shares of common stock.
For all transactions through December 31, 2002, each share of Series B
Preferred converted into a number of common shares at a conversion price ranging
from $0.16 to $0.34 per share. At the August conversion, the conversion price
was re-adjusted to the average of the five lowest closing bid prices during the
last ten days before the conversion ($0.19). Per the August 2000 agreement, any
reset of the conversion price would result in a BCF limited as defined above. As
the limit was reached on the April 2001 BCF, no BCF was booked in conjunction
with the August 2001 reset.
On October 2, 2002, the Company issued a series of 10% Convertible
Debentures due July 1, 2003 (the "Debentures") in the aggregate principal amount
of (euro)300.699,32 Euro. The proceeds of the Debentures are to be used to fund
the
-18-
Company's capital investment in Voxware nv, a limited liability company
organized under Belgian law, founded by Creafund NV ("Creafund") and the Company
on July 1, 2002 and to fund the operational expenses of Voxware nv, excluding
expenses or invoices generated by the Company (other than the acquisition of the
Company's voiced based solutions). Voxware nv was established to market the
Company's products in Europe. The holders of the Debentures own two-thirds of
the equity of Voxware nv and the Company owns the remaining one-third of equity.
The Debentures are mandatorily convertible into shares of capital stock of
the Company issued upon the closing of a Qualifying Fundraising (as specifically
defined in the Debentures). A Qualifying Fundraising requires the execution, on
or before November 30, 2002, of subscription agreements providing for the
issuance of at least U.S.$2,500,000 of equity of the Company, and the closing of
such financing by February 28, 2003. In the event the subscription agreements
are not executed by November 30, 2002 or the Qualifying Fundraising is not
consummated by February 28, 2003, each of the holders of the Debentures has the
right, at any time prior to the close of business on July 1, 2003, to convert
any or all of the outstanding principal amount and accrued interest of the
Debenture into shares of preferred stock of the Company, with new rights,
preferences and privileges senior to the Company's existing preferred stock. The
conversion price for such senior preferred stock shall be 33% of the average
share price for the Company's common stock for the 30 trading days prior to the
date of the exercise of the conversion option, or, if the Company's securities
are not listed or traded on a stock exchange, a regulated market or the Over the
Counter Bulletin Board ("OTCBB"), 33% of the intrinsic value of the Company's
equity on the date of the exercise of the conversion option, as determined by an
independent expert. The Company has not consummated a Qualifying Fundraising as
of the date of filing of this Form 10-Q. The Company is currently seeking
additional financing.
In the event the subscription agreements for the Qualifying Fundraising are
not executed by November 30, 2002 or the Qualifying Fundraising is not
consummated by February 28, 2003, the Debentures are redeemable at the option of
the Debenture holders. The redemption price is one hundred percent (100%) of the
principal amount so redeemed, plus accrued and unpaid interest. The Company has
not consummated a Qualifying Fundraising as of the date of filing of this Form
10-Q. The Company is currently seeking additional financing.
Simultaneously with the execution of the Debentures, the Company, Creafund
and the other holders of equity in Voxware nv (which parties are also the
holders of the Debentures) executed a Shareholders Agreement pursuant to which
Creafund and the other equity holders have the option to convert their shares of
Voxware nv into shares of capital stock of the Company issued upon the closing
of a Qualifying Fundraising. In the event subscription agreements for the
Qualifying Fundraising are not executed by November 30, 2002 or the Qualifying
Fundraising is not consummated by February 28, 2003, the equity holders of
Voxware nv (other than the Company) have the right to convert their shares of
Voxware nv into shares of preferred stock of the Company, with new rights,
preferences and privileges senior to the Company's existing preferred stock. The
Company has not consummated a Qualifying Fundraising as of the date of filing of
this Form 10-Q. The Company is currently seeking additional financing.
The conversion price for such senior preferred stock shall be 33% of the
average share price for the Company's common stock for the 30 trading days prior
to the date of the exercise of the conversion option, or, if the Company's
securities are not listed or traded on a stock exchange, a regulated market or
the OTCBB, 33% of the intrinsic value of the Company's equity on the date of the
exercise of the conversion option, as determined by an independent expert. The
exchange rights described in this paragraph expire on December 31, 2004. The
value of the shares of Voxware nv for purposes of determining the exchange
ratios is based upon the net sales of Voxware nv.
The Company has granted Voxware nv a royalty-free license to distribute
Voxware's voice-based solutions for the logistics, distribution and package
sorting industries in Europe on mutually acceptable commercially reasonable
terms. In the event that the Qualifying Financing is not consummated, such
license shall convert to a royalty-bearing license on such terms and conditions
as mutually agreed upon by the parties to the Shareholders Agreement.
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 December 31, 2002, the Company had an
accumulated deficit of $49,261,000. Management believes that unless the Company
is able to secure additional financing, obtain replacement financing or extend
the mandatory redemption dates on preferred stock in the short-term, its cash
and cash equivalents will not be adequate to meet the Company's cash
requirements over the next twelve months. These factors
-19-
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result from
the outcome of this uncertainty. The Company has minimal cash on hand as of
December 31, 2002, and management is currently seeking approximately $5,000,000
in financing which the company believes that, if obtained, would be sufficient
to meet the cash requirements of its operations for the next twelve months.
There can be no assurance that the negotiations will be successful and result in
financing for the Company. If such financing is not obtained, the Company will
have to curtail a significant portion or all of its operations.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standard ("SFAS") No. 143, "Accounting for
Assets Retirement Obligations." ("SFAS 143"). SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated assets retirement costs. SFAS 143
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 was effective for
the quarter ended December 31, 2002 and the adoption of this pronouncement had
no effect on consolidated results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment for the Disposal of Long-lived Assets" ("SFAS 144"). This Statement
addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. SFAS 144 supersedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-lived Assets to be Disposed of." However, SFAS 144 retains the fundamental
provisions of Statement No.121 for (a) recognition and measurement of the
impairment of long -lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. SFAS 144 was effective for the
quarter ended December 31, 2002 and the adoption of this pronouncement had no
effect on the Company's consolidated results of operations or financial
position.
In July 2002, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS
141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators are apparent). However, separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. The Company considers its intangible assets
to have finite lives and will continue to amortize such assets over their
remaining useful lives. As such, the adoption of SFAS 141 and 142 did not have a
material effect on the Company's results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not usually utilize derivative financial instruments in
our investment portfolio. However, in conjunction with the Castle Creek
transaction, the Company issued derivative financial instruments in the form of
warrants, which are indexed to the Company's own stock. The value of the
warrants fluctuates with the market value of the Company's common stock.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a
date within 90 days of the filing date of this Quarterly Report on Form 10-Q,
the Company's President and Chief Executive Officer (principal executive
officer) and Senior Vice President and Chief Financial Officer (principal
financial officer and principal accounting officer) have concluded that the
Company's disclosure on controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and are
operating in an effective manner.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.
-20-
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 13, 2003, Castle Creek filed a lawsuit against the Company in
the United States District Court in Delaware seeking redemption of the Series B
Preferred and payment of the applicable redemption payment. According to the
Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock, the Company is required to redeem the outstanding Series B
Preferred 30 months after August 10, 2000, or February 10, 2003, provided funds
are legally available under Delaware law. The Company did not redeem the Series
B Preferred on the redemption date, as the Company believes that funds currently
are not legally available for such redemption.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Pursuant to the terms of the Series C Preferred stock agreement, in January
2003 Castle Creek elected to convert 25 shares of Series C Preferred into
214,116 shares of common stock. In addition, 20 shares of Series C Preferred
were converted into 170,911 shares of common stock by another Series C Preferred
holder. A total of 45 Series C Preferred shares converted into 385,935 common
shares at a conversion price of $0.1255 per share, which includes accrued
dividends.
On October 2, 2002, the Company issued a series of 10% Convertible
Debentures due July 1, 2003 (the "Debentures") in the aggregate principal amount
of (euro)300.699,32 Euro. The proceeds of the Debentures are to be used to fund
the Company's capital investment in Voxware nv, a limited liability company
organized under Belgian law, founded by Creafund NV ("Creafund") and the Company
on July 1, 2002 and to fund the operational expenses of Voxware nv, excluding
expenses or invoices generated by the Company (other than the acquisition of the
Company's voiced based solutions). Voxware nv was established to market the
Company's products in Europe. The holders of the Debentures own two-thirds of
the equity of Voxware nv and the Company owns the remaining one-third of equity.
The Debentures are mandatorily convertible into shares of capital stock of
the Company issued upon the closing of a Qualifying Fundraising (as specifically
defined in the debentures). A Qualifying Fundraising requires the execution, on
or before November 30, 2002, of subscription agreements providing for the
issuance of at least U.S.$2,500,000 of equity of the Company, and the closing of
such financing by February 28, 2003. In the event the subscription agreements
are not executed by November 30, 2002 or the Qualifying Fundraising is not
consummated by February 28, 2003, each of the holders of the Debentures has the
right, at any time prior to the close of business on July 1, 2003, to convert
any or all of the outstanding principal amount and accrued interest of the
Debenture into shares of preferred stock of the Company, with new rights,
preferences and privileges senior to the Company's existing preferred stock. The
conversion price for such senior preferred stock shall be 33% of the average
share price for the Company's common stock for the 30 trading days prior to the
date of the exercise of the conversion option, or, if the Company's securities
are not listed or traded on a stock exchange, a regulated market or the OTCBB,
33% of the intrinsic value of the Company's equity on the date of the exercise
of the conversion option, as determined by an independent expert. The Company
has not consummated a Qualifying Fundraising as of the date of filing of this
Form 10-Q. The Company is currently seeking additional financing.
In the event the subscription agreements for the Qualifying Fundraising are
not executed by November 30, 2002 or the Qualifying Fundraising is not
consummated by February 28, 2003, the Debentures are redeemable at the option of
the Debenture holders. The redemption price is one hundred percent (100%) of the
principal amount so redeemed, plus accrued and unpaid interest. The Company has
not consummated a Qualifying Fundraising as of the date of filing of this Form
10-Q. The Company is currently seeking additional financing.
Simultaneously with the execution of the Debentures, the Company, Creafund
and the other holders of equity in Voxware nv (which parties are also the
holders of the Debentures) executed a Shareholders Agreement pursuant to which
Creafund and the other equity holders have the option to convert their shares of
Voxware nv into shares of capital stock of the Company issued upon the closing
of a Qualifying Fundraising. In the event subscription agreements for the
Qualifying Fundraising are not executed by November 30, 2002 or the Qualifying
Fundraising is not consummated by February 28, 2003, the equity holders of
Voxware nv (other than the Company) have the right to convert their shares of
Voxware nv into shares of preferred stock of the Company, with new rights,
preferences and privileges senior to the Company's existing preferred stock. The
Company has not consummated a Qualifying Fundraising as of the date of filing of
this Form 10-Q. The Company is currently seeking additional financing. The
conversion price for such senior preferred stock shall be 33% of the average
share price for the Company's common stock for the 30 trading days prior to the
date of the exercise of the conversion option, or, if the Company's securities
are not listed or traded on a stock exchange, a regulated market or the OTCBB,
33% of the intrinsic value of the Company's equity on the date of the exercise
of the conversion option, as determined by an independent expert. The exchange
rights described in this paragraph expire on December 31, 2004. The value of the
shares of Voxware nv for purposes of determining the exchange ratios is based
upon the net sales of Voxware nv.
-21-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
According to the Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock, the Company is required to redeem the
outstanding Series B Preferred 30 months after August 10, 2000, or February 10,
2003, provided funds are legally available under Delaware law. The Company did
not redeem the Series B Preferred on the redemption date, as the Company
believes that funds currently are not legally available for such redemption.
According to the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock, subsequent to the mandatory redemption date, any
unredeemed Series B Preferred shall be redeemed as soon as additional funds
become legally available. Until the redemption price has been paid to the
holder, the stock continues to be outstanding and governed by the original
terms. The unredeemed Series B Preferred will continue to accrue dividends at 7%
and shall remain fully convertible. On February 13, 2003, Castle Creek filed a
lawsuit against the Company in the United States District Court in Delaware
seeking redemption of the Series B Preferred and payment of the applicable
redemption payment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
99.1 Statement Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K.
Not applicable.
-22-
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: February 14, 2003
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)
-23-
CERTIFICATION
I, Bathsheba Malsheen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Voxware, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Bathsheba J. Malsheen, Ph.D.
-------------------------------------
Dated: February 14, 2003 Bathsheba J. Malsheen, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
-24-
CERTIFICATION
I, Nicholas Narlis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Voxware, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Nicholas Narlis
----------------------------------------------
Dated: February 14, 2003 Nicholas Narlis
Senior Vice President, Chief Financial Officer
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
-25-