UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
x
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
For the quarterly period
ended December 31, 2009
|
OR
|
o
|
|
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
.
|
(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.)
|
|
300 American Metro Blvd., Suite
155
|
Hamilton, NJ 08619
|
609-514-4100
|
(Address, including zip code and telephone number (including area code)
of principal executive offices)
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 past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days: Yes
x
No
o
Indicate by checkmark
whether the registrant has submitted electronically and posted on its corporate
website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files): Yes
o
No
o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated file” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check
one):
|
o
Large accelerated filer
|
o
Accelerated filer
|
o
Non-accelerated filer (Do not check if smaller reporting
company)
|
x
Smaller reporting
company
|
Indicate by check mark
whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act): Yes
o
No
x
Indicate the number of
shares outstanding of each of the issuer’s classes of common stock, as of
January 31, 2010.
Class
|
|
Number of
Shares
|
Common Stock, $0.001 par value
|
|
8,044,393
|
VOXWARE, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM
10-Q
For Quarter Ended December 31, 2009
TABLE OF CONTENTS
PART I.
|
FINANCIAL INFORMATION
|
1
|
Item 1.
|
Financial
Statements
|
2
|
|
Consolidated
Balance Sheets as of December 31, 2009 (unaudited) and June 30,
2009
|
2
|
|
Consolidated
Statements of Operations for the three and six months ended December 31,
2009 and
2008
(unaudited)
|
3
|
|
Consolidated
Statements of Cash Flows for the six months ended December 31, 2009 and
2008 (unaudited)
|
4
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5
|
Item 2.
|
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
|
16
|
Item 3.
|
Quantitative and
Qualitative Disclosures About Market Risk
|
31
|
Item 4(T).
|
Controls and
Procedures
|
31
|
|
PART II.
|
OTHER INFORMATION
|
32
|
Item 1.
|
Legal Proceedings
|
32
|
Item 1A.
|
Risk Factors
|
32
|
Item 2.
|
Unregistered Sales of
Equity Securities and Use of Proceeds
|
36
|
Item 3.
|
Defaults Upon Senior
Securities
|
36
|
Item 4.
|
Submission of Matters to
a Vote of Security Holders
|
36
|
Item 5.
|
Other Information
|
38
|
Item 6.
|
Exhibits
|
38
|
|
SIGNATURES
|
39
|
PART I. FINANCIAL INFORMATION
This Quarterly Report on
Form 10-Q contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 and information relating to us that are
based on the beliefs of our management, as well as assumptions made by, and the
information currently available to, our management. When used in this Quarterly
Report, the words “estimate,” “project,” “believe,” “anticipate,” “intend,”
“expect” and similar expressions are intended to identify forward-looking
statements. These statements reflect our current views with respect to future
events, and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in these forward-looking
statements, including those risks discussed in this Quarterly Report. You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Quarterly Report. Except for special
circumstances in which a duty to update arises when prior disclosure becomes
materially misleading in light of subsequent circumstances, we do not intend to
update any of these forward-looking statements to reflect events or
circumstances after the date of this Quarterly Report, or to reflect the
occurrence of unanticipated events. You should carefully review the risk factors
set forth in other reports or documents we file from time to time with the
Securities and Exchange Commission, or the SEC, including our Annual Report on
Form 10-K for the fiscal year ended June 30, 2009.
-1-
Item 1. Financial
Statements
Voxware, Inc. and Subsidiaries
Consolidated Balance Sheets
(in
thousands, except share data)
|
|
December 31, 2009
|
|
June 30, 2009
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
2,828
|
|
|
$
|
4,342
|
|
Accounts receivable, net
of allowance for doubtful accounts of $167 and
|
|
|
|
|
|
|
|
|
$158
at December 31, 2009 and June 30, 2009, respectively
|
|
|
2,873
|
|
|
|
3,350
|
|
Inventory, net
|
|
|
569
|
|
|
|
564
|
|
Deferred project
costs
|
|
|
14
|
|
|
|
33
|
|
Prepaid expenses and
other current assets
|
|
|
361
|
|
|
|
337
|
|
Total current
assets
|
|
|
6,645
|
|
|
|
8,626
|
|
|
Property and equipment,
net
|
|
|
415
|
|
|
|
454
|
|
Capitalized software
development costs
|
|
|
51
|
|
|
|
-
|
|
Other assets
|
|
|
141
|
|
|
|
184
|
|
TOTAL ASSETS
|
|
$
|
7,252
|
|
|
$
|
9,264
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
275
|
|
|
$
|
525
|
|
Accounts payable and
accrued expenses
|
|
|
1,917
|
|
|
|
2,541
|
|
Current portion of
deferred revenues
|
|
|
2,335
|
|
|
|
2,365
|
|
Total current
liabilities
|
|
|
4,527
|
|
|
|
5,431
|
|
Long-term portion of
deferred revenues
|
|
|
97
|
|
|
|
85
|
|
Long-term debt, net of
current maturities
|
|
|
88
|
|
|
|
163
|
|
Total
liabilities
|
|
|
4,712
|
|
|
|
5,679
|
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
|
|
|
|
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STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
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Common Stock, $0.001 par
value, 15,000,000 shares authorized as of
|
|
|
|
|
|
|
|
|
December
31, 2009 and 12,000,000 shares authorized at June 30, 2009;
|
|
|
|
|
|
|
|
|
8,041,893
and 8,007,766 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2009 and June 30, 2009, respectively
|
|
|
8
|
|
|
|
8
|
|
Additional paid-in
capital
|
|
|
83,841
|
|
|
|
83,143
|
|
Accumulated
deficit
|
|
|
(81,309
|
)
|
|
|
(79,566
|
)
|
Total stockholders'
equity
|
|
|
2,540
|
|
|
|
3,585
|
|
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
$
|
7,252
|
|
|
$
|
9,264
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
- 2
-
Voxware, Inc. and Subsidiaries
Consolidated Statements of
Operations
(in thousands, except per share data)
|
|
Three Months Ended December
31,
|
|
Six Months Ended December
31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
1,749
|
|
|
$
|
1,985
|
|
|
$
|
3,101
|
|
|
$
|
3,805
|
|
Services revenues
|
|
|
1,615
|
|
|
|
1,464
|
|
|
|
3,010
|
|
|
|
2,898
|
|
Total revenues
|
|
|
3,364
|
|
|
|
3,449
|
|
|
|
6,111
|
|
|
|
6,703
|
|
|
COST OF REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
revenues
|
|
|
743
|
|
|
|
772
|
|
|
|
1,223
|
|
|
|
1,622
|
|
Cost of services
revenues
|
|
|
531
|
|
|
|
876
|
|
|
|
1,116
|
|
|
|
1,701
|
|
Total cost of
revenues
|
|
|
1,274
|
|
|
|
1,648
|
|
|
|
2,339
|
|
|
|
3,323
|
|
|
GROSS PROFIT
|
|
|
2,090
|
|
|
|
1,801
|
|
|
|
3,772
|
|
|
|
3,380
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
748
|
|
|
|
1,013
|
|
|
|
1,504
|
|
|
|
2,025
|
|
Sales and
marketing
|
|
|
976
|
|
|
|
1,451
|
|
|
|
2,226
|
|
|
|
2,931
|
|
General and
administrative
|
|
|
864
|
|
|
|
1,025
|
|
|
|
1,745
|
|
|
|
2,079
|
|
Total operating
expenses
|
|
|
2,588
|
|
|
|
3,489
|
|
|
|
5,475
|
|
|
|
7,035
|
|
|
OPERATING LOSS
|
|
|
(498
|
)
|
|
|
(1,688
|
)
|
|
|
(1,703
|
)
|
|
|
(3,655
|
)
|
|
INTEREST EXPENSE, NET
|
|
|
(30
|
)
|
|
|
(3
|
)
|
|
|
(40
|
)
|
|
|
(6
|
)
|
|
LOSS BEFORE INCOME
TAXES
|
|
|
(528
|
)
|
|
|
(1,691
|
)
|
|
|
(1,743
|
)
|
|
|
(3,661
|
)
|
|
PROVISION FOR INCOME
TAXES
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
NET LOSS
|
|
$
|
(528
|
)
|
|
$
|
(1,693
|
)
|
|
$
|
(1,743
|
)
|
|
$
|
(3,663
|
)
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.07
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.56
|
)
|
Diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.56
|
)
|
|
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPUTING NET LOSS PER
SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,029
|
|
|
|
6,517
|
|
|
|
8,021
|
|
|
|
6,505
|
|
Diluted
|
|
|
8,029
|
|
|
|
6,517
|
|
|
|
8,021
|
|
|
|
6,505
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
- 3
-
Voxware, Inc. and Subsidiaries
Consolidated Statements of Cash
Flows
(in thousands)
|
|
Six Months Ended December
31,
|
|
|
2009
|
|
2008
|
|
|
(unaudited)
|
|
(unaudited)
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,743
|
)
|
|
$
|
(3,663
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
135
|
|
|
|
162
|
|
Provision for doubtful
accounts
|
|
|
12
|
|
|
|
47
|
|
Share-based compensation
charges
|
|
|
723
|
|
|
|
610
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in
assets:
|
|
|
|
|
|
|
|
|
A
ccounts
receivable
|
|
|
465
|
|
|
|
3,732
|
|
Inventory
|
|
|
(5
|
)
|
|
|
(70
|
)
|
D
eferred project costs
|
|
|
19
|
|
|
|
109
|
|
Pr
epaid
expenses and other current assets
|
|
|
(24
|
)
|
|
|
(8
|
)
|
Other
assets
|
|
|
43
|
|
|
|
81
|
|
Increase (decrease) in
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(624
|
)
|
|
|
(803
|
)
|
Deferred
revenues
|
|
|
(18
|
)
|
|
|
(709
|
)
|
Net cash used in operating
activities
|
|
|
(1,017
|
)
|
|
|
(512
|
)
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and
equipment
|
|
|
(96
|
)
|
|
|
(69
|
)
|
Capitalized software
development costs
|
|
|
(51
|
)
|
|
|
-
|
|
Net cash used in investing
activities
|
|
|
(147
|
)
|
|
|
(69
|
)
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from long-term
debt
|
|
|
-
|
|
|
|
451
|
|
Repayment of long-term
debt
|
|
|
(325
|
)
|
|
|
(379
|
)
|
Repurchase of restricted
stock for income tax withholdings
|
|
|
(30
|
)
|
|
|
-
|
|
Proceeds from exercise of
stock options and warrants
|
|
|
5
|
|
|
|
2
|
|
Net cash (used in) provided by
financing activities
|
|
|
(350
|
)
|
|
|
74
|
|
|
NET DECREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
(1,514
|
)
|
|
|
(507
|
)
|
CASH AND CASH
EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
4,342
|
|
|
|
3,503
|
|
CASH AND CASH EQUIVALENTS, END
OF PERIOD
|
|
$
|
2,828
|
|
|
$
|
2,996
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
31
|
|
|
$
|
40
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
- 4
-
Voxware, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The unaudited interim
financial statements of Voxware, Inc. and Subsidiaries (“Voxware” or the
“Company”) for the three and six months ended December 31, 2009 and 2008
included herein, have been prepared in accordance with the instructions for Form
10-Q under the Securities Exchange Act of 1934, as amended, and Article 8-03 of
Regulation S-X under the Securities Act of 1933, as amended. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Certain information and
footnote disclosures normally included in financial statements prepared in
conformity with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations
relating to interim financial statements. The Accounting Standards Codification
(“ASC”) issued by the Financial Accounting Standards Board (“FASB”) has become
the source of authoritative U.S. generally accepted accounting principles (“U.S.
GAAP”). The ASC only changes the referencing of financial accounting standards
and does not change or alter existing U.S. GAAP. In preparing the financial
statements, we have evaluated subsequent events, as defined by ASC 855 for
subsequent event accounting through February 12, 2010, which is the date that
the financial statements were issued.
The consolidated balance
sheet at June 30, 2009 has been derived from the audited financial statements at
that date, but does not include all the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. These statements should be read in conjunction with the
consolidated financial statements and related notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.
The consolidated
statements of operations for the three and six months ended December 31, 2009
are not necessarily indicative of the results that may be expected for the full
fiscal year ended June 30, 2010, or any other future period.
The Company’s operating
results may fluctuate significantly in the future as a result of a variety of
factors, including the Company’s ability to compete in the voice-based logistics
market, the budgeting cycles of existing and potential customers, the lengthy
sales cycle of the Company’s solution, the volume of and revenues derived from
sales of products utilizing its third-party partners network, the introduction
of new products or services by the Company or its competitors, pricing changes
in the industry, the degree of success of the Company’s efforts to penetrate its
target markets, technical difficulties with respect to the use of products
developed by the Company or its licensees, and general economic conditions.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements and related disclosures in
conformity with U.S. GAAP requires management to make judgments, assumptions and
estimates that affect the amounts reported in the Company’s consolidated
financial statements and accompanying notes. The Company bases its estimates and
judgments on historical experience and on various other assumptions that it
believes are reasonable under the circumstances. However, future events are
subject to change, and the best estimates and judgments routinely require
adjustment. The amounts of assets and liabilities reported in the Company’s
balance sheets, and the amounts of revenues and expenses reported for each of
its fiscal periods, are affected by estimates and assumptions which are used
for, but not limited to, the accounting for allowance for doubtful accounts,
warranty costs, impairments, reserve for obsolete inventory, share-based
compensation and income taxes. Actual results could differ from these estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the financial
statements of Voxware, Inc. and its wholly-owned subsidiaries, Verbex
Acquisition Corporation and Voxware (UK) Limited. All significant inter-company
balances and transactions have been eliminated in consolidation. Voxware (UK)
Limited was established during fiscal year 2008 in conjunction with the
Company’s decision to invest additional resources to sell to and service
customers in Europe.
Revenue Recognition
Revenues are generated from licensing application software, selling
related computer hardware and accessories and providing services, including
professional deployment, configuration, customized application development,
training services, software maintenance, extended hardware warranty and
technical support services.
Product revenues consist
of software license fees, sales of related computer hardware and accessories and
extended hardware warranties. Revenues from the licensing of software are
recognized when (i) a signed contract or other persuasive evidence of an
arrangement exists; (ii) the product has been shipped or electronically
delivered; (iii) the license fee is fixed and determinable; and (iv) collection
of the resulting receivable is probable. This generally occurs upon shipment of
software or completion of the implementation, if applicable, provided collection
is determined to be probable and there are no significant post-delivery
obligations. If an acceptance period is required to ensure satisfactory delivery
of the application software solution, as may occur for the initial site
implementation for new direct-sales customers, revenues are recognized upon
customer acceptance. Revenues from the sale of hardware and accessories are
generally recognized upon shipment, with no revenue being recognized until
shipment of software. Agreements with most direct customers do not include an
acceptance period, so revenues from the sale of hardware and accessories and
licensing of software in these transactions are recognized upon shipment.
Extended hardware warranty revenues are recognized ratably over the life of the
contract, which is generally either one year or three years. Channel partner
revenue is recognized when the four criteria set forth above are met. For the
collectibility criteria, revenue from each channel partner is deferred until
cash is collected unless a pattern of collectibility is established through
actual transactions with each specific channel partner.
- 5
-
Services revenues
consist of professional deployment, configuration, customized application
development, training services, software maintenance and technical support
services. Professional services revenues are generally recognized as the
services are performed. For arrangements in which professional services are
provided in conjunction with software, professional services revenues generated
by services provided prior to delivery of software are deferred until delivery
of all software. Revenues from maintenance and technical support, which
typically consist of unspecified when-and-if-available product updates and
customer telephone support services, are recognized ratably over the term of the
service period, which is generally one year.
The Company recognizes
revenue in accordance with the Software Revenue Recognition guidance of ASC 985,
which requires that revenue recognized from multiple element arrangements that
include software licenses be allocated to the various elements of the
arrangement based on the fair values of the elements, such as hardware,
deployment services and maintenance and technical support services. The Company
follows the residual method of accounting as provided in ASC 985. Under the
residual method, the aggregate arrangement fee is allocated to each of the
undelivered elements in an amount equal to their fair values, with the residual
arrangement fee allocated to the delivered elements. The fair value of the
undelivered elements included in the Company’s multi-element sales arrangements
is based on vendor specific objective evidence (“VSOE”).
The fair value of
elements not essential to the functioning of the software, including hardware
units and related accessories, are calculated in accordance with the Multiple
Element Arrangements guidance of ASC 605. Under the ASC 605 guidance, the fair
value of a hardware element is determined based on the price when it is sold
separately by either the Company or a competitor.
The Company determines
VSOE of the fair values of maintenance and technical support based on annual
renewal rates provided to customers and for professional services based on
standard hourly rates when such services are provided on a stand-alone basis. As
of December 31, 2009, the Company believes that it has realized VSOE of the fair
values for maintenance and professional services.
Deferred revenues
consist of unearned customer deposits, extended hardware warranties and post
contract support (“PCS”) arrangements. Customer deposits are recognized as
revenue upon customer acceptance of the underlying product and services in
conjunction with the recognition of deferred project costs. PCS arrangements
include software maintenance revenues. These arrangements, which sometimes
include amounts bundled with initial revenues, are deferred upon invoicing and
recognized as revenues over the term of the service period, which is typically
one year. Revenues from extended hardware warranties are recognized over the
term of the warranty, which is typically one year. Certain extended hardware
warranty arrangements have a three year term.
The Company continues to
generate royalty revenues from our legacy speech compression technology
business, which was sold in 1999. Royalties are earned on technologies our
customers incorporate into their products for resale pursuant to contracts that
are renewable year to year. Revenues are recognized at the time of the
customers’ shipment of those products, as estimated based upon reports received
periodically from our customers.
Travel costs associated
with professional services and billed to customers are recorded as services
revenues at the time they are incurred by Voxware.
Accounts Receivable
Accounts receivable are uncollateralized customer obligations due under
normal trade terms generally requiring payment within 30 days, depending on
contractual terms. Unpaid accounts do not bear interest. Accounts receivable are
stated at the amount billed to the customer. Payments of accounts receivable are
allocated to the specific invoices identified on the customer’s remittance
advice or, if unspecified, are applied to the earliest unpaid
invoice.
The carrying amount of
accounts receivable is reduced by a valuation allowance that reflects
management’s best estimate of the amounts that will not be collected. Management
reviews certain specific accounts receivable balances and, based on an
assessment of the collectibility of specific customer accounts and an assessment
of international and economic risk, estimates the portion, if any, of the
balance that will not be collected. All other accounts have a general reserve
percentage applied to their balance based on the age of the
receivable.
- 6
-
Research and
Development
Research
and development expenditures are charged to operations as incurred. In
accordance with ASC 985, development costs incurred in connection with the
research and development of software products and enhancements to existing
software products are charged to expense as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. Technological
feasibility
is
evidenced by a detailed program design or
the point at which there is a
completed working model of the software product, the completeness of which is to
be confirmed by testing. According to ASC 985, the working model is generally
deemed to exist with commencement of beta testing. The Company capitalized
$51,000 of costs during the three and six months ended December 31, 2009. No
costs associated with the development of software products were capitalized
during the three and six months ended December 31, 2008.
Warranty Costs
The Company warrants all manufacturer defects on its voice-based
solutions, generally commencing upon shipment, and extending for 12 months. The
Company accrues warranty costs based on its estimate of expected repair cost per
unit, service policies and specific known issues. Certain extended hardware
warranty services are outsourced to a third-party in accordance with contracts
that generally span three years. The costs associated with these contracts are
prepaid and recognized ratably over the life of the contract. If the Company
experiences claims or significant changes in costs of services, such as
third-party vendor charges, materials or freight, which could be higher or lower
than our historical experience, its cost of revenues could be
affected.
Concentration of Credit
Risk
Financial
instruments that potentially subject the Company to concentration of credit risk
consist principally of cash balances and trade receivables. The Company invests
its excess cash in highly liquid investments (short-term bank deposits and
commercial paper). The Company’s customer base principally comprises
distribution and logistics companies in food service, grocery, retail, consumer
packaged goods, third-party logistics providers, wholesale distributors, as well
as value-added resellers. The Company does not typically require collateral from
its customers.
One customer accounted
for 15% and 17% of total revenues for the six months ended December 31, 2009 and
2008, respectively. One customer accounted for 28% of accounts receivable as of
December 31, 2009. As of June 30, 2009, two separate customers accounted for 15%
and 11% of accounts receivable.
Inventory
Inventory purchases and purchase commitments are based upon forecasts of
future demand. Voxware values its inventory at the lower of average cost or net
realizable value. If the Company believes that demand no longer allows it to
sell inventory above cost, or at all, then the Company values its inventory at
its net realizable value or writes-off excess inventory levels. If customer
demand subsequently differs from the Company’s forecasts, requirements for
inventory write-offs could differ from its estimates.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC
718, which requires all companies to measure compensation cost for all
share-based payments, including employee stock options, at fair value. The
values of the portions of the awards that are ultimately expected to vest are
recognized as expense over the requisite service periods. Compensation expense
associated with equity awards is determined based on the estimated fair value of
the award itself, measured using either current market data or an established
option pricing model. The Company uses the Black-Scholes option pricing model to
determine the fair value of option awards and the market value on the date of
the grant to determine the fair value of other equity awards. The measurement
date for option and other equity awards is the date of grant.
Income Taxes
There are significant differences in calculating income or loss for
accounting and tax purposes, primarily relating to charges that are recorded in
the current period for accounting purposes, but are deferred for tax purposes.
Furthermore, tax laws differ in each jurisdiction, yielding differing amounts of
taxable income or loss in each jurisdiction. While Voxware has substantial net
operating losses to offset taxable income in some taxing jurisdictions, certain
restrictions preclude it from fully utilizing the benefit of these net operating
losses. In addition, the expansion of the Company’s business requires it to file
taxes in jurisdictions where it did not previously operate, and thus does not
have established net operating losses to offset the tax liability.
Deferred income tax
assets and liabilities are determined based on differences between the financial
statement reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The measurement of deferred income tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits that are
not expected to be realized. The effect of a change in tax rates on deferred
income tax assets and liabilities is recognized in the period that such tax rate
changes are enacted.
- 7
-
The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense.
As of December 31, 2009 and June 30, 2009, there was no accrued interest related
to uncertain tax positions.
Net Loss Per Share
The Company computes net loss per share in accordance with ASC 260. Basic
net loss per share is calculated by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Diluted net loss
per share is calculated by dividing net loss by the weighted average number of
shares of common stock outstanding for the period, adjusted to reflect the
dilutive impact of potential shares of common stock outstanding during the
period. As the Company had a net loss during the three and six months ended
December 31, 2009 and 2008, the impact of the assumed exercise of in-the-money
stock options and warrants in the aggregate amount of approximately 400,000 and
156,000 shares at December 31, 2009 and 2008, respectively, is anti-dilutive and
as such, have been excluded from the calculation of diluted net loss per
share.
Fair Value of Financial
Instruments
Fair value is defined
under ASC 820, as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair
value under ASC 820 must maximize the use of observable inputs and minimize the
use of unobservable inputs. The guidance describes a fair value hierarchy based
on three levels of inputs, of which the first two are considered observable and
the third unobservable, that may be used to measure fair value which are the
following:
-
Level 1 – Quoted prices in active
markets for identical assets or liabilities.
-
Level 2 – Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
-
Level 3 – Unobservable inputs that
are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
At December 31, 2009,
the Company held $1,424,000 in money market funds which are valued in accordance
with Level 1 and are included in cash and cash equivalents. The Company has
outstanding debt as of December 31, 2009 aggregating $363,000, which is at
variable interest rates. The Company believes that the carrying value
approximates fair value of the debt as of December 31, 2009.
Recently Issued Accounting
Pronouncements
In June
2008, the FASB issued guidance now codified in ASC 815 which clarifies the
determination of whether an instrument (or an embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under ASC 815. We
adopted the guidance effective July 1, 2009, and it did not have a material
impact on our consolidated financial statements.
In May 2009, the FASB
issued guidance now codified as ASC 855 related to subsequent events, which
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. ASC 855 is
effective for interim and annual periods ending after June 15, 2009.
Accordingly, the Company has adopted ASC 855 and the adoption has not had a
material impact on our consolidated financial statements. In accordance with ASC
855, the Company has evaluated subsequent events through February 12, 2010,
which is the date these consolidated financial statements were
issued.
In July 2009, the FASB
issued guidance now codified as ASC 105 with regard to U.S. GAAP. With the
issuance of ASC 105, the ASC becomes the single source of authoritative U.S.
accounting and reporting standards applicable for all nongovernmental entities,
with the exception of guidance issued by the SEC. The ASC does not change
current U.S. GAAP, but changes the referencing of financial standards, and is
intended to simplify user access to authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one place. The ASC is
effective for interim and annual periods ending after September 15, 2009, and is
effective for the Company’s first quarter of fiscal year 2010.
In October 2009, the
FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB
Emerging Issue Task Force (“ASU No. 2009-13”). ASU No. 2009-13 replaces and
significantly changes certain guidance in ASC 605. ASU No. 2009-13 modifies the
separation criteria of ASC 605, by eliminating the criterion for objective and
reliable evidence of fair value for the undelivered products or services.
Instead, revenue arrangements with multiple deliverables should be divided into
separate units of accounting if the deliverables meet both of the following
criteria:
-
The delivered items have value to
the customer on a standalone basis
-
If the arrangement includes a
general right of return relative to the delivered items, delivery or
performance of the
undelivered
items is considered probable and substantially in the control of the
vendor.
- 8
-
ASU No. 2009-13
eliminates the use of the residual method of allocation and requires, instead,
that arrangement consideration be allocated, at the inception of the
arrangement, to all deliverables based on their relative selling price (i.e.,
the relative selling price method). When applying the relative selling price
method, a hierarchy is used for estimating the selling price for each of the
deliverables, as follows:
-
Vendor-specific objective evidence
(“VSOE”) of the selling price ─ verifiable specific objective
evidence
-
Third-party evidence (“TPE”) of
the selling price
─
prices of the vendor’s or any competitor’s largely
interchangeable
products or
services, in standalone sales to similarly situated customers
-
Best estimate of the selling
price.
The Company will adopt
ASU No. 2009-13 effective July 1, 2010. The Company is currently evaluating the
impact to the Company’s consolidated financial statements.
In October 2009, the
FASB issued ASU No. 2009-14, Software (“Topic 985”): Certain Revenue
Arrangements That Include Software Elements - a consensus of the FASB Emerging
Issue Task Force (“ASU No. 2009-14”). Per ASU No. 2009-14, all tangible products
containing both software and non-software components, that function together to
deliver the product’s essential functionality, will no longer be within the
scope of ASC 985. In other words, entities that sell joint hardware and software
products that meet the scope exception (i.e., essential functionality) will be
required to follow the guidance in ASU No. 2009-14. ASU No. 2009-14 provides a
list of items to consider when determining whether the software and non-software
components function together to deliver a product’s essential
functionality.
The Company will adopt
ASU No. 2009-14 effective July 1, 2010. The Company is currently evaluating the
impact to the Company’s consolidated financial statements.
- 9
-
3. Gross Profit
The components of gross
profit for the three and six months ended December 31, 2009 and 2008 are as
follows:
|
Three Months Ended
|
|
Six Months Ended
|
|
December 31,
|
|
December 31,
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
(in thousands)
|
|
(in thousands)
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
$
|
426
|
|
$
|
541
|
|
$
|
872
|
|
$
|
779
|
Hardware units and accessories
|
|
1,047
|
|
|
1,137
|
|
|
1,680
|
|
|
2,398
|
Extended hardware warranties
|
|
226
|
|
|
239
|
|
|
484
|
|
|
493
|
Royalties
|
|
50
|
|
|
68
|
|
|
65
|
|
|
135
|
|
|
1,749
|
|
|
1,985
|
|
|
3,101
|
|
|
3,805
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
revenues
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
4
|
|
|
18
|
|
|
8
|
|
|
20
|
Hardware units and accessories
|
|
647
|
|
|
685
|
|
|
1,055
|
|
|
1,474
|
Extended hardware warranties
|
|
92
|
|
|
69
|
|
|
160
|
|
|
128
|
|
|
743
|
|
|
772
|
|
|
1,223
|
|
|
1,622
|
Gross Profit from product
revenues
|
|
1,006
|
|
|
1,213
|
|
|
1,878
|
|
|
2,183
|
|
Services revenues
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
439
|
|
|
413
|
|
|
768
|
|
|
810
|
Software maintenance services
|
|
1,131
|
|
|
1,006
|
|
|
2,166
|
|
|
1,986
|
Billable travel
|
|
45
|
|
|
45
|
|
|
76
|
|
|
102
|
|
|
1,615
|
|
|
1,464
|
|
|
3,010
|
|
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
revenues
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
313
|
|
|
614
|
|
|
644
|
|
|
1,180
|
Software maintenance services
|
|
187
|
|
|
212
|
|
|
411
|
|
|
419
|
Billable travel
|
|
31
|
|
|
50
|
|
|
61
|
|
|
102
|
|
|
531
|
|
|
876
|
|
|
1,116
|
|
|
1,701
|
Gross Profit from services
revenues
|
|
1,084
|
|
|
588
|
|
|
1,894
|
|
|
1,197
|
|
Gross Profit
|
$
|
2,090
|
|
$
|
1,801
|
|
$
|
3,772
|
|
$
|
3,380
|
|
4. Inventory
The components of our
inventory as of December 31 and June 30, 2009 are:
|
December 31, 2009
|
|
June 30, 2009
|
|
(in thousands)
|
Raw materials
|
$
|
17
|
|
|
$
|
6
|
|
Work in process
|
|
14
|
|
|
|
15
|
|
Finished goods
|
|
558
|
|
|
|
558
|
|
Less: inventory reserve
|
|
(20
|
)
|
|
|
(15
|
)
|
Inventory - net
|
$
|
569
|
|
|
$
|
564
|
|
|
- 10 -
5. Debt
The Company initially
entered into a credit facility with Silicon Valley Bank (“SVB”) on December 30,
2003. The following facilities were outstanding during fiscal years 2009 and
2010:
On May 24, 2006, the
Company entered into a Loan and Security Agreement with SVB (“2006 Facility”),
providing an additional $3,000,000 credit facility comprised of a $1,500,000
revolving line of credit ("Revolver") and a $1,500,000 Non-Formula Term Loan
("2006 Term Loan") to fund the Company's anticipated working capital needs. The
Revolver created by the 2006 Facility was initially available until October 31,
2007. It was extended to February 11, 2009 by the Second Loan
Modification Agreement (“SLMA”). The Revolver
provides for a line of credit up to $1,500,000, with a $1,000,000 sub-limit to
be established for cash management and foreign exchange requirements. As of
December 31, 2009, amounts outstanding under the Revolver bear interest at prime
plus 2.25%. In addition, a fee of 0.25% is charged against the unused portion of
the Revolver. No funds were borrowed against the Revolver at December 31, 2009
or June 30, 2009. The 2006 Term Loan is to be repaid in 36 equal monthly
payments of principle and interest, commencing on April 1, 2007, and had an
outstanding balance of $125,000 at December 31, 2009 and $375,000 at June 30,
2009. Monthly principle payments total approximately $42,000. Amounts
outstanding under the 2006 Term Loan bear interest at December 31, 2009 at a
rate of 7%, calculated as the greater of 7% or prime plus 3%, as established by
the Waiver and Third Loan Modification Agreement (“TLMA”) with SVB executed on
November 17, 2008.
On February 13, 2008,
with an effective date of December 27, 2007, the Company entered into the SLMA
with SVB, providing for a new $600,000 revolving equipment line of credit
(“Equipment Revolver”). The availability under the Equipment Revolver was
limited to a borrowing base advance rate that is equal to 100% against the
invoice value of new Eligible Equipment (as defined in the SLMA). The draw down
period for the Equipment Revolver expired May 31, 2008, but was extended by SVB
to July 31, 2008. Originally, amounts advanced under the Equipment Revolver bore
interest at a rate equal to the greater of (a) 6.75% and (b) the amount equal to
the prime rate plus 1.0%. This rate was revised to the greater of 7% or prime
plus 3% by the TLMA. The repayment of the funds drawn against the Equipment
Revolver are to be made in 36 equal monthly payments of principal and interest
beginning August 1, 2008. Amounts outstanding under the Equipment Revolver bear
interest at December 31, 2009 at a rate of 7%. The outstanding balance on the
Equipment Revolver was $238,000 at December 31, 2009 and $313,000 at June 30,
2009.
On February 17, 2009,
the Company entered into a Waiver and Fourth Loan Modification Agreement that,
among other things, waived a loan covenant violation that existed at December
31, 2008, and extended the maturity of the Revolver until March 31, 2009. In
addition, the Waiver and Fourth Loan Modification Agreement revised certain
outstanding financial covenants under the Revolver, including minimum net loss
thresholds. On May 12, 2009, with an effective date of March 31, 2009, the
Company entered into a Fifth Loan Modification Agreement which extended the
maturity of the Revolver until May 31, 2009, and set financial covenants for the
period ended May 31, 2009.
On June 26, 2009, with
an effective date of June 1, 2009, the Company entered into a Sixth Loan
Modification Agreement which extended the Revolver until July 31, 2009. On
September 9, 2009, the Company entered into a Seventh Loan Modification
Agreement which extends the maturity, lowers the interest rate to prime plus
2.25% and provides covenants of the Revolver until July 30, 2010. The financial
covenant is a minimum cash balance, as defined in the Revolver. The Company is
in compliance with the covenant as of December 31, 2009.
Future minimum payments
under the credit facility are as follows as of December 31, 2009 (in thousands):
|
Silicon Valley
Bank
|
|
|
|
|
2006 Term
|
|
Equipment
|
|
|
|
|
Loan
|
|
Revolver
|
|
Total
|
Short Term
|
$
|
125
|
|
$
|
150
|
|
$
|
275
|
Long Term
|
|
-
|
|
|
88
|
|
|
88
|
Total Debt
|
$
|
125
|
|
$
|
238
|
|
$
|
363
|
|
6. Common Stock and Common Stock Warrants
The Company has
15,000,000 authorized shares (increased from 12,000,000 as approved by the
Company’s stockholders in December 2009) of Common Stock, of which 8,041,893 and
8,007,766 were outstanding as of December 31, 2009 and June 30, 2009,
respectively.
- 11 -
As of December 31, 2009,
the Company had warrants outstanding to purchase 1,298,331 shares of the
Company’s Common Stock at exercise prices ranging from $0.15 per share to $5.76
per share. All of the warrants outstanding as of December 31, 2009 were granted
in conjunction with private equity transactions occurring between 2003 and 2009.
A summary of the Company’s outstanding warrants as of December 31, 2009 is
presented below:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Number of
|
|
Exercise Price
|
Expiration Date
|
|
Shares
|
|
Per Share
|
August 2010
|
|
43,527
|
|
$
|
5.432
|
June 2012
|
|
142,857
|
|
|
2.500
|
June 2013
|
|
67,223
|
|
|
2.250
|
December 2013
|
|
888,890
|
|
|
2.250
|
April 2014
|
|
155,834
|
|
|
0.150
|
Total Warrants Outstanding
|
|
1,298,331
|
|
$
|
2.132
|
|
7. Stock Options and Share-Based Compensation
Stock Option Plans
As of December 31, 2009,
options to purchase 1,113,392 shares of Common Stock were outstanding under
plans approved by the Company’s stockholders in 1994 and 2003 and amended by the
Company’s stockholders in December 2007 and December 2009 (the “Option Plans”).
In addition, 265,599 options are available for grant under the Option Plans.
Information regarding
option activity for the six months ended December 31, 2009 under the Option
Plans is summarized below:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
Options
|
|
Exercise Price
|
|
Contractual
|
|
Instrinsic
|
|
Outstanding
|
|
Per Share
|
|
Term in Years
|
|
Value
|
Expired
|
(1,170
|
)
|
|
|
178.200
|
|
|
|
|
|
Options outstanding as of June 30, 2009
|
1,108,216
|
|
|
|
4.839
|
|
|
|
|
|
Granted
|
10,000
|
|
|
|
1.660
|
|
|
|
|
|
Exercised
|
(3,325
|
)
|
|
|
1.288
|
|
|
|
|
|
Forfeited
|
(1,499
|
)
|
|
|
2.851
|
|
|
|
|
|
Expired
|
-
|
|
|
|
-
|
|
|
|
|
|
Options outstanding as of December 31,
2009
|
1,113,392
|
|
|
$
|
4.824
|
|
6.85
|
|
$
|
-
|
|
Options exercisable as of December 31,
2009
|
720,387
|
|
|
$
|
5.737
|
|
6.31
|
|
$
|
-
|
|
Options exercisable as of December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
and options expected to become
exercisable
|
1,086,156
|
|
|
$
|
4.592
|
|
7.02
|
|
$
|
-
|
|
Aggregate intrinsic
value of $0 was calculated based on the Company’s closing Common Stock price as
of December 31, 2009 of $1.64 per share. Options exercisable as of December 31,
2009 and options expected to become exercisable includes vested options and
nonvested options less expected forfeitures.
- 12 -
A summary of the status
of the Company’s nonvested options and restricted stock units as of December 31,
2009 and changes during the six months then ended is presented below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Restricted
|
|
Average
|
|
Options
|
|
Grant-Date
|
|
Stock Units
|
|
Grant-Date
|
|
Outstanding
|
|
Fair Value
|
|
Outstanding
|
|
Fair Value
|
Outstanding as of June 30,
2009
|
$
|
479,113
|
|
|
$
|
1,547,812
|
|
|
$
|
150,714
|
|
|
$
|
861,990
|
|
Granted
|
|
10,000
|
|
|
|
16,527
|
|
|
|
30,000
|
|
|
|
46,800
|
|
Vested
|
|
(95,608
|
)
|
|
|
(426,688
|
)
|
|
|
(30,803
|
)
|
|
|
(193,715
|
)
|
Forfeited
|
|
(500
|
)
|
|
|
(607
|
)
|
|
|
(16,237
|
)
|
|
|
(102,972
|
)
|
Outstanding as of December 31,
2009
|
$
|
393,005
|
|
|
$
|
1,137,044
|
|
|
$
|
133,674
|
|
|
$
|
612,103
|
|
|
Share-Based Compensation
The Company awarded a
total of 305,586 restricted stock units (“RSUs”) to certain officers during the
year ended June 30, 2008. In addition 30,000 RSUs were granted in December 2009.
The RSUs were granted pursuant to the 2003 Plan and vest on a monthly basis. The
vesting periods on the RSU grants range from three to four years. The fair value
of the RSUs range from $1.56 to $6.95 per share, for a total fair value of
$1,936,000. Share-based compensation charges associated with the RSUs were
recorded in the amount of $149,000 and $297,000 for the three and six months
ended December 31, 2009 and $148,000 and $296,000 for the three and six months
ended December 31, 2008.
The Company records the
issuance of shares of Common Stock as RSUs vest. During the three and six months
ended December 31, 2009, 15,026 and 30,803 shares of Common Stock, respectively,
were issued as a result of the vesting of RSUs. During the three and six months
ended December 31, 2008, 23,520 and 47,040 shares of Common Stock, respectively,
were issued as a result of the vesting of RSUs.
The consolidated
statements of operations include total share-based employee compensation charges
resulting from stock option and RSU awards in the amount of $376,000 and
$723,000, respectively, for the three and six months ended December 31, 2009 and
$301,000 and $610,000, respectively, for the three and six months ended December
31 2008, respectively. Amounts charged to operations are as follows:
|
Three Months Ended
|
|
Six Months Ended
|
|
December 31,
|
|
December 31,
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
(in thousands)
|
|
(in thousands)
|
Research and development
|
$
|
38
|
|
$
|
32
|
|
$
|
73
|
|
$
|
63
|
Sales and marketing
|
|
81
|
|
|
63
|
|
|
157
|
|
|
126
|
General and administrative
|
|
257
|
|
|
206
|
|
|
493
|
|
|
421
|
|
$
|
376
|
|
$
|
301
|
|
$
|
723
|
|
$
|
610
|
|
8. Commitments and Contingencies
The Company leases its
office facilities and certain equipment under operating leases with remaining
non-cancelable lease terms generally in excess of one year. Rent expense,
including escalations, was approximately $115,000 and $250,000 for the three and
six months ended December 31, 2009 and was approximately $132,000 and $266,000
for the three and six months ended December 31, 2008, respectively. Future
minimum rental payments for the Company’s office facilities and equipment under
operating leases as of December 31, 2009 are as follows:
Year ending June
30,
|
(in
thousands)
|
2010
|
$
|
217
|
2011
|
|
442
|
2012
|
|
423
|
2013
|
|
256
|
2014
|
|
3
|
|
$
|
1,341
|
|
- 13 -
The Company is subject
to various legal proceedings and claims, either asserted or unasserted, which
arise in the ordinary course of business. While the outcome of these claims
cannot be predicted with certainty, management does not believe that the outcome
of any of these legal matters will have a material adverse effect on the
Company’s business, operating results or financial condition.
The Company has a
one-year employment agreement with one of its officers. The agreement extends
annually unless terminated by either the employee or Company at least 90 days
prior to the scheduled renewal date. The agreement provides for a minimum salary
level, adjusted annually at the discretion of the Company’s Board of Directors,
and a bonus based upon the Company’s performance as measured against a business
plan approved by the Company’s Board of Directors.
9. Segment Information
Voxware’s international
operations team headquartered in England serves all customers outside of North
America but historically focuses primarily on the United Kingdom. As of December
31, 2009, Voxware’s international operations team consisted of 9 employees, all
of which are located in England and France. Long-lived assets supporting the
international operations, consisting of computer hardware, furniture and
fixtures were not a material component of total long-lived assets as of December
31, 2009.
The distribution of
revenues between North American and International operations is as follows:
|
Three Months Ended
|
|
Six Months Ended
|
|
December 31,
|
|
December 31,
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
($ in thousands)
|
|
($ in thousands)
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American
operations
|
$
|
2,517
|
|
75%
|
|
$
|
2,237
|
|
65%
|
|
$
|
4,577
|
|
75%
|
|
$
|
4,474
|
|
67%
|
International operations
|
|
847
|
|
25%
|
|
|
1,212
|
|
35%
|
|
|
1,534
|
|
25%
|
|
|
2,229
|
|
33%
|
|
$
|
3,364
|
|
100%
|
|
$
|
3,449
|
|
100%
|
|
$
|
6,111
|
|
100%
|
|
$
|
6,703
|
|
100%
|
|
10. Cost Restructuring
In December 2008, the
Company reduced its staff to bring costs more in line with anticipated revenues.
In conjunction with the staff reduction, 13 positions were eliminated in
December (including one part-time position) and one position was scheduled for
elimination during the three months ending March 31, 2009. Employment
termination charges totaling $81,000 were accrued during the three months ended
December 31, 2008, of which $41,000 was paid during the period. $71,000 of the
termination charges related to North American operations and $10,000 of the
termination charges related to International operations.
The following charges
associated with the December 2008 staff reduction are included in the
Consolidated Statements of Operations:
|
Three Months Ended
|
|
Six Months Ended
|
|
December 31,
|
|
December 31,
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
(in thousands)
|
|
(in thousands)
|
Cost of service revenues
|
$
|
-
|
|
$
|
35
|
|
$
|
-
|
|
$
|
35
|
Research and development
|
|
-
|
|
|
27
|
|
|
-
|
|
|
27
|
Sales and marketing
|
|
-
|
|
|
18
|
|
|
-
|
|
|
18
|
General and administrative
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
|
$
|
-
|
|
$
|
81
|
|
$
|
-
|
|
$
|
81
|
|
- 14 -
11. Subsequent Events
On January 20, 2010, the
Company commenced a formal tender offer which allows its employees to exchange
certain outstanding options to purchase shares of the Company’s common stock for
new nonqualified options to purchase fewer shares of common stock with an
exercise price per share equal to the closing price per share of the Company’s
common stock on the new grant date. An option will be eligible for exchange in
the tender offer if it (i) was granted under the Company’s 2003 Stock Incentive
Plan, as amended and restated, (ii) has an exercise price per share equal to or
greater than $2.25, (iii) is held by an active employee of the Company or its
subsidiaries, including its executive officers and non-employee members of its
Board of Directors, but excluding those who have resigned or given or received a
written notice of their termination at any time before the expiration of the
tender offer and (iv) is outstanding on the expiration date of the tender offer.
Each option that is eligible for exchange in the tender offer will be canceled
and a replacement option to purchase that number of shares of the Company's
common stock determined by dividing the number of shares of common stock
underlying the canceled eligible option by 1.15 and rounding down to the next
whole share. The replacement options will vest in accordance with the vesting
schedule currently in place for the eligible option it replaces. All eligible
options that are tendered for exchange will be canceled on the date on which the
tender offer expires, and the replacement options will be granted on the first
business day thereafter. Subject to satisfaction of the conditions to the offer,
the Company currently anticipates that the tender offer will expire on February
25, 2010, unless it decides to extend the tender offer. If an eligible option is
not tendered for exchange in the tender offer, such eligible option will remain
outstanding in accordance with its terms currently in effect. As of January 19,
2010 (the day prior to commencement of the tender offer), options to purchase
822,591 shares of the Company’s common stock were outstanding that were eligible
for exchange in the tender offer.
- 15 -
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
This report contains
forward-looking statements. Such statements are subject to certain factors that
may cause our plans to differ, or results to vary from those expected,
including:
-
our evolving distribution strategy
and increasing dependence on third-party distribution channels and hardware
manufacturers;
-
the risks associated with our need
to introduce new and enhanced products and services in order to increase
market penetration;
-
the risk of obsolescence of our
products and services due to technological change;
-
our need to attract and retain key
management and other personnel with experience in providing integrated
voice-based solutions for logistics, specializing in the supply chain sector;
-
the potential for substantial
fluctuations in our results of operations;
-
the continuing negative impact of
the current global economy on our target customer markets, including retail
and food distribution;
-
competition from others;
-
the potential that voice-based
products will not be widely accepted; and
-
a variety of risks set forth from
time to time in our filings with the Securities and Exchange Commission, or
SEC, including our Annual Report on Form 10-K for the fiscal year ended June
30, 2009.
We undertake 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 is a leading
provider of software for voice recognition solutions that direct the work of the
warehouse workforce. Warehouse workers, wearing headsets with microphones, speak
back and forth to our voice applications. Since these workers can now work
“hands and eyes free” when performing a wide array of tasks such as picking,
putaway and receiving, worker productivity typically increases while errors can
be reduced. Our customers typically increase productivity from 10 to 30% and
reduce error rates by 30 to 50%. Our primary software product, Voxware 3, offers
multiple languages so companies can leverage non-native speaking workers.
Voxware 3 is a unique
product in the supply chain market as it combines (1) a studio for designing and
configuring voice solutions, (2) an open, standards-based environment and (3) a
patented software technology for managing speech recognition within a web
browser architecture. By using technology that leverages open, web-centric
standards to integrate voice solutions within their overall information
technology infrastructures with a system that is configurable and adaptable, our
customers can respond to change rapidly. Thus, we find our customers achieve
benefits faster with less cost since they can implement our systems more rapidly
with less resources.
A complete voice
recognition solution combines software, hardware and professional services. The
primary focus and the core of our business is the software component of the
solution. Customers may choose from a variety of certified hardware devices,
which may or may not be supplied by us. Customers may also choose to have
solutions delivered by receiving services from us or from our certified partners
that also resell the Voxware solution. Therefore, the software that both enables
voice recognition and also facilitates the creation of voice applications or
workflows is the foundation of our business.
We sell Voxware 3
primarily to large companies that operate warehouses and distribution centers.
Our customers come from a variety of industry sectors, including food service,
grocery, retail, consumer packaged goods, automotive parts, third-party
logistics, publishing and wholesale distribution. Our technology has the ability
to integrate easily with an external warehouse management system, or
WMS.
Our revenues are
generated primarily from software license fees, maintenance fees, professional
services and hardware products sales to both our end customers and Value Added
Resellers (“VARs”).
Our sales are generated
primarily by our own sales force working directly with the end users of the
VoiceLogistics solution. Since our 2005 fiscal year, we have been transitioning
from direct selling of custom solutions that included proprietary hardware and
software to the sale, through both partners and direct channels, of productized,
standards-based voice software that operates on open hardware platforms. Our
transition to this sales approach and technology is an ongoing process that will
continue in the future.
As part of our business
transition, we stopped manufacturing our own proprietary hardware and, instead,
have partnered with major mobile computing equipment manufacturers such as
Motorola, Inc. and LXE, Inc., a subsidiary of EMS Technologies, Inc. One
implication of this strategy is that we expect the portion of our revenues
associated with proprietary hardware sales to diminish as a percentage of total
revenues over time as we transition to a software-centric business model. In
addition, we expect that a greater percentage of our hardware revenues will be
derived from the sales of accessories, rather than hardware units. However, we
can provide no assurance as to the rate of this anticipated shift of revenue
sources.
- 16 -
We have also developed
partnerships with key VAR, and WMS companies, both in the United States and in
international markets, who are incorporating our voice technology, most notably
our Voxware 3 product, into their offerings. The first deliveries of solutions
by partners to end customers occurred during fiscal year 2007. However, we
believe it takes on average a year or more before new partners begin generating
sales to end user customers, because partners must complete product integration
efforts, become certified to deliver Voxware-based voice solutions and secure
customer acceptance of their initial deployments.
The continued
deterioration of general worldwide economic conditions has negatively impacted
certain vertical markets, including retail and food distribution, that are
significant to our operations. As a result of these general economic conditions,
our quarterly revenues in fiscal 2009 and the first two quarters of fiscal 2010
were adversely affected and the remaining quarters in fiscal 2010 could be lower
than those in 2009.
However, our customer
base continues to expand, with existing customers expected to implement our
products in additional sites as they experience favorable results with our
offerings and new customers brought to us through direct sales efforts, VARs and
other channel partners. We expect the majority of revenues will come from
existing customers in fiscal year 2010, but that revenues from new customers,
including those brought to us through VARs and other channel partners, will grow
faster than revenues from existing customers. We can provide no assurances that
revenues earned in any given fiscal quarter or year will exceed the preceding
fiscal quarter or year. Furthermore, we anticipate that in some fiscal quarters
and years, costs will exceed revenues.
On June 29, 2009, with
an effective date of June 1, 2009, we entered into a Sixth Loan Modification
Agreement with Silicon Valley Bank, or SVB, which, among other things extended
the maturity of a $1,500,000 revolving line of credit until July 31, 2009. On
September 9, 2009, we entered into a Seventh Loan Modification Agreement that,
among other things, lowered the interest rate to prime plus 2.25% and extended
the maturity of the Revolver until July 30, 2010. In addition, this modification
revised certain financial covenants under the Loan Agreement.
On June 29, 2009, we
received an equity infusion of $2.5 million from our two principal investors. On
June 29, 2009, we entered into a Securities Purchase Agreement with
Co-Investment Fund II, L.P. (a Cross Atlantic Technology Fund entity) and Edison
Venture Fund V, L.P., pursuant to which we issued and sold an aggregate of
1,428,571 shares of the our Common Stock, at a purchase price of $1.75 per
share, and warrants to purchase up to 142,857 shares of Common Stock, which
became exercisable six months after the date of issuance and shall expire three
years from the date of issuance, December 30, 2009, at an exercise price of
$2.50 per share.
Under the terms of the
Securities Purchase Agreement, Edison Venture Fund V, L.P. purchased 285,714
shares of Common Stock and Warrants to purchase 28,571 shares of Common Stock
and Co-Investment Fund II, L.P. purchased 1,142,857 shares of Common Stock and
Warrants to purchase 114,286 shares of Common Stock. The private placement
closed on June 30, 2009. We received gross proceeds equal to $2,500,000. The
securities sold in this private placement have not been registered under the
Securities Act of 1933, as amended, or Securities Act, and may not be offered or
sold in the United States in the absence of an effective registration statement
or exemption from the registration requirements under the Securities Act.
We may need to raise
additional capital through either new equity or debt financing arrangements and
may elect to utilize such an arrangement to fund further expansion of our
operations. Due to the recent downturn in the economy, there can be no
assurances that financing will be available on terms acceptable to us, if at
all. However, due to a general trend providing greater emphasis on sales of
higher margin product and given our efforts to reduce costs, as well as having
$2.8 million in cash and $1.5 million in debt availability, we believe that we
have adequate capital resources available to fund our operations through
December 31, 2010.
Critical Accounting Policies:
The preparation of
financial statements and related disclosures in conformity with U.S. GAAP
requires management to make judgments, assumptions and estimates that affect the
amounts reported in our consolidated financial statements and accompanying
notes. We base our estimates and judgments on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances. However, future events are subject to change, and the best
estimates and judgments routinely require adjustment. The amounts of assets and
liabilities reported in our consolidated balance sheets, and the amounts of
revenues and expenses reported for each of our fiscal periods, are affected by
estimates and assumptions which are used for, but not limited to, the accounting
for allowance for doubtful accounts, warranty costs, impairments, inventory,
share-based compensation and income taxes. Actual results could differ from
these estimates. The following critical accounting policies
are significantly affected by judgments,
assumptions and estimates used in the preparation of our consolidated financial
statements.
- 17 -
Revenue Recognition
Revenues are generated from licensing
application software, selling related computer hardware and accessories and
providing services, including professional deployment, configuration, customized
application development, training services, software maintenance, extended
hardware warranty and technical support services.
Product revenues consist
of software license fees, sales of related computer hardware and accessories and
extended hardware warranties. Revenues from the licensing of software are
recognized when (i) a signed contract or other persuasive evidence of an
arrangement exists; (ii) the product has been shipped or electronically
delivered; (iii) the license fee is fixed and determinable; and (iv) collection
of the resulting receivable is probable. This generally occurs upon shipment of
software or completion of the implementation, if applicable, provided collection
is determined to be probable and there are no significant post-delivery
obligations. If an acceptance period is required to ensure satisfactory delivery
of the application software solution, as may occur for the initial site
implementation for new direct-sales customers, revenues are recognized upon
customer acceptance. Revenues from the sale of hardware and accessories are
generally recognized upon shipment. Agreements with most direct customers do not
include an acceptance period, so revenues from the sale of hardware and
accessories and licensing of software in these transactions are recognized upon
shipment, with no revenue being recognized until shipment of software. Extended
hardware warranty revenues are recognized ratably over the life of the contract,
which is generally either one year or three years. Channel partner revenue is
recognized when the four criteria set forth above in clauses (i) through (iv)
are met. For the collectibility criteria, revenue from each channel partner is
deferred until cash is collected unless a pattern of collectibility is
established through actual transactions with each specific channel partner.
Services revenues
consist of professional deployment, configuration, customized application
development, training services, software maintenance and technical support
services. Professional services revenues are generally recognized as the
services are performed. For arrangements in which professional services are
provided in conjunction with software, professional services revenues generated
by services provided prior to delivery of software are deferred until delivery
of all software. Revenues from maintenance and technical support, which
typically consist of unspecified when-and-if-available product updates and
customer telephone support services, are recognized ratably over the term of the
service period, which is generally one year.
We recognize revenue in
accordance with the Software Revenue Recognition guidance of ASC 985, which
requires that revenue recognized from multiple element arrangements that include
software licenses be allocated to the various elements of the arrangement based
on the fair values of the elements, such as hardware, deployment services and
maintenance and technical support services. We follow the residual method of
accounting as provided in ASC 985. Under the residual method, the aggregate
arrangement fee is allocated to each of the undelivered elements in an amount
equal to their fair values, with the residual arrangement fee allocated to the
delivered elements. The fair value of the undelivered elements included in our
multi-element sales arrangements is based on vendor specific objective evidence,
or VSOE.
The fair value of
elements not essential to the functioning of the software, including hardware
units and related accessories, are calculated in accordance with the Multiple
Element Arrangements guidance of ASC 605. Under the ASC 605 guidance, we
determine the fair value of hardware elements based on the price when it is sold
separately by either us or a competitor.
We determine VSOE of the
fair values of maintenance and technical support based on annual renewal rates
provided to customers and for professional services based on standard hourly
rates when such services are provided on a stand-alone basis. As of December 31,
2009, we believe that we have realized VSOE of the fair values for maintenance
and professional services.
Deferred revenues
consist of unearned customer deposits, extended hardware warranties and post
contract support, or PCS arrangements. Customer deposits are recognized as
revenue upon customer acceptance of the underlying product and services in
conjunction with the recognition of deferred project costs. PCS arrangements
include software maintenance revenues. These arrangements, which sometimes
include amounts bundled with initial revenues, are deferred upon invoicing and
recognized as revenues over the term of the service period, which is typically
one year. Revenues from extended hardware warranties are recognized over the
term of the warranty, which is typically one year; however, certain extended
hardware warranty arrangements have a three year term.
Travel costs associated
with professional services and billed to customers are recorded as services
revenues at the time they are incurred by us.
Allowance for Doubtful
Accounts
The allowance for doubtful accounts is based
on our assessment of the collectibility of specific customer accounts and an
assessment of international and economic risk, as well as the aging of the
accounts receivable. If there is a change in a major customer’s credit
worthiness or if actual defaults differ from historical experience, our
estimates of recoverability of amounts due could be affected.
- 18 -
Research and
Development
Research
and development expenditures are charged to operations as incurred. In
accordance with ASC 985, development costs incurred in connection with the
research and development of software products and enhancements to existing
software products are charged to expense as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. We define
technological feasibility as the point at which there is a completed working
model of the software product, the completeness of which is to be confirmed by
testing. According to ASC 985, the working model is generally deemed to exist
with commencement of beta testing.
Warranty Costs
Our standard warranty policy generally allows
customers or end users to return defective products for repair or replacement,
provided that we are notified of the defective product generally within 90 days
from delivery of the product to the end user in the case of software, and up to
a one year in the case of hardware. We accrue for warranty costs based on our
estimate of expected repair cost per unit, service policies and specific known
issues. Certain extended hardware warranty services are outsourced to a
third-party in accordance with contracts that generally span three years. The
costs associated with these contracts are prepaid and recognized ratably over
the life of the contract. If we experience claims or significant changes in
costs of services, such as third-party vendor charges, materials or freight,
which could be higher or lower than our historical experience, our cost of
revenues could be affected.
Inventory
Inventory purchases and purchase commitments
are based upon forecasts of future demand. We value our inventory at the lower
of average cost or net realizable value. If we believe that demand no longer
allows us to sell our inventory above cost, or at all, then we write down that
inventory to net realizable value or write-off excess inventory levels. If
customer demand subsequently differs from our forecasts, requirements for
inventory write-offs could differ from our estimates.
Share-Based
Compensation
We account
for share-based compensation in accordance with ASC 718, which requires all
companies to measure compensation cost for all share-based payments, including
employee stock options, at fair value. The values of the portions of the awards
that are ultimately expected to vest are recognized as expense over the
requisite service periods. Compensation expense associated with equity awards is
determined based on the estimated fair value of the award itself, measured using
either current market data or an established option pricing model. We use the
Black-Scholes option pricing model to determine the fair value of option awards
and the market value on the date of the grant to determine the fair value of
other equity awards. The measurement date for option and other equity awards is
the date of grant. Changes to the underlying assumptions may have significant
impact on the underlying fair value of option and other equity awards, which
could have a material impact on our consolidated financial statements.
Income Taxes
There are significant differences in
calculating income or loss for accounting and tax purposes, primarily relating
to charges that are recorded in the current period for accounting purposes, but
are deferred for tax purposes. Furthermore, tax laws differ in each
jurisdiction, yielding differing amounts of taxable income or loss in each
jurisdiction. While we have substantial net operating losses to offset taxable
income in some taxing jurisdictions, certain restrictions preclude us from fully
utilizing the benefit of these net operating losses. In addition, the expansion
of our business requires us to file taxes in jurisdictions where we did not
previously operate, and thus do not have established net operating losses to
offset the tax liability.
Deferred income tax
assets and liabilities are determined based on differences between the financial
statement reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The measurement of deferred income tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits that are
not expected to be realized. The effect of a change in tax rates on deferred
income tax assets and liabilities is recognized in the period that such tax rate
changes are enacted.
We recognize interest
and penalties related to uncertain tax positions in income tax
expense.
Our key accounting
estimates and policies are reviewed with the Audit Committee of our Board of
Directors.
Off-Balance Sheet
Arrangements
:
We do not have any
off-balance sheet arrangements.
- 19 -
Results of Operations
Three months ended December 31, 2009 compared
to the three months ended December 31, 2008
(dollars in table are presented in
thousands)
|
Three Months
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
% of Total
|
|
December 31,
|
|
% of Total
|
|
|
|
|
|
|
|
|
2009
|
|
Revenue
|
|
2008
|
|
Revenue
|
|
$
Change
|
|
%
Change
|
Product revenues
|
$
|
1,749
|
|
|
52
|
%
|
|
$
|
1,985
|
|
|
58
|
%
|
|
$
|
(236
|
)
|
|
(12
|
%)
|
Services revenues
|
|
1,615
|
|
|
48
|
%
|
|
|
1,464
|
|
|
42
|
%
|
|
|
151
|
|
|
10
|
%
|
Total revenues
|
|
3,364
|
|
|
100
|
%
|
|
|
3,449
|
|
|
100
|
%
|
|
|
(85
|
)
|
|
(2
|
%)
|
|
Cost of product revenues
|
|
743
|
|
|
22
|
%
|
|
|
772
|
|
|
22
|
%
|
|
|
(29
|
)
|
|
(4
|
%)
|
Cost of services revenues
|
|
531
|
|
|
16
|
%
|
|
|
876
|
|
|
25
|
%
|
|
|
(345
|
)
|
|
(39
|
%)
|
Total cost of revenues
|
|
1,274
|
|
|
38
|
%
|
|
|
1,648
|
|
|
48
|
%
|
|
|
(374
|
)
|
|
(23
|
%)
|
|
Gross profit
|
|
2,090
|
|
|
62
|
%
|
|
|
1,801
|
|
|
52
|
%
|
|
|
289
|
|
|
16
|
%
|
|
Research and development
|
|
748
|
|
|
23
|
%
|
|
|
1,013
|
|
|
29
|
%
|
|
|
(265
|
)
|
|
(26
|
%)
|
Sales and marketing
|
|
976
|
|
|
29
|
%
|
|
|
1,451
|
|
|
42
|
%
|
|
|
(475
|
)
|
|
(33
|
%)
|
General and administrative
|
|
864
|
|
|
26
|
%
|
|
|
1,025
|
|
|
30
|
%
|
|
|
(161
|
)
|
|
(16
|
%)
|
Total operating expenses
|
|
2,588
|
|
|
78
|
%
|
|
|
3,489
|
|
|
101
|
%
|
|
|
(901
|
)
|
|
(26
|
%)
|
|
Operating loss
|
|
(498
|
)
|
|
(16
|
%)
|
|
|
(1,688
|
)
|
|
(49
|
%)
|
|
|
1,190
|
|
|
70
|
%
|
|
Interest expense, net
|
|
(30
|
)
|
|
0
|
%
|
|
|
(3
|
)
|
|
(0
|
%)
|
|
|
(27
|
)
|
|
(900
|
%)
|
Loss before income taxes
|
|
(528
|
)
|
|
(16
|
%)
|
|
|
(1,691
|
)
|
|
(49
|
%)
|
|
|
1,163
|
|
|
69
|
%
|
|
Provision for income taxes
|
|
-
|
|
|
0
|
%
|
|
|
(2
|
)
|
|
(0
|
%)
|
|
|
2
|
|
|
100
|
%
|
|
Net loss
|
$
|
(528
|
)
|
|
(16
|
%)
|
|
$
|
(1,693
|
)
|
|
(49
|
%)
|
|
$
|
1,165
|
|
|
69
|
%
|
|
- 20 -
The components of gross
profit for the three months ended December 31, 2009 and 2008 are as follows:
|
Three Months
Ended
|
|
|
|
|
|
|
December 31,
|
|
Difference
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
(in thousands)
|
|
(in
thousands)
|
|
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
$
|
426
|
|
$
|
541
|
|
$
|
(115
|
)
|
|
(21
|
%)
|
Hardware units and accessories
|
|
1,047
|
|
|
1,137
|
|
|
(90
|
)
|
|
(8
|
%)
|
Extended hardware
warranties
|
|
226
|
|
|
239
|
|
|
(13
|
)
|
|
(5
|
%)
|
Royalties
|
|
50
|
|
|
68
|
|
|
(18
|
)
|
|
(26
|
%)
|
|
|
1,749
|
|
|
1,985
|
|
|
(236
|
)
|
|
(12
|
%)
|
|
Cost of product
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
4
|
|
|
18
|
|
|
(14
|
)
|
|
(78
|
%)
|
Hardware units and accessories
|
|
647
|
|
|
685
|
|
|
(38
|
)
|
|
(6
|
%)
|
Extended hardware
warranties
|
|
92
|
|
|
69
|
|
|
23
|
|
|
33
|
%
|
|
|
743
|
|
|
772
|
|
|
(29
|
)
|
|
(4
|
%)
|
Gross Profit from product
revenues
|
|
1,006
|
|
|
1,213
|
|
|
(207
|
)
|
|
(17
|
%)
|
|
Services revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
439
|
|
|
413
|
|
|
26
|
|
|
6
|
%
|
Software maintenance services
|
|
1,131
|
|
|
1,006
|
|
|
125
|
|
|
12
|
%
|
Billable travel
|
|
45
|
|
|
45
|
|
|
-
|
|
|
0
|
%
|
|
|
1,615
|
|
|
1,464
|
|
|
151
|
|
|
10
|
%
|
|
Cost of services
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
313
|
|
|
614
|
|
|
(301
|
)
|
|
(49
|
%)
|
Software maintenance services
|
|
187
|
|
|
212
|
|
|
(25
|
)
|
|
(12
|
%)
|
Billable travel
|
|
31
|
|
|
50
|
|
|
(19
|
)
|
|
(38
|
%)
|
|
|
531
|
|
|
876
|
|
|
(345
|
)
|
|
(39
|
%)
|
Gross Profit from services
revenues
|
|
1,084
|
|
|
588
|
|
|
496
|
|
|
84
|
%
|
|
Gross Profit
|
$
|
2,090
|
|
$
|
1,801
|
|
$
|
289
|
|
|
16
|
%
|
|
Revenues
Total revenues were
$3,364,000 for the three months ended December 31, 2009 compared to total
revenues of $3,449,000 for the three months ended December 31, 2008. The $85,000
(2%) decrease in total revenues is primarily due to decreases of $90,000 (8%) in
revenues generated from the sale of hardware units and related accessories,
$115,000 (21%) in licensing of software $13,000 (5%) in extended hardware
warranties and $18,000 (26%) in royalties, offset by an increase of $26,000 (6%)
in professional services and $125,000 (12%) in software maintenance services.
Product revenues accounted for 52% of revenues during the three months ended
December 31, 2009 as compared to 58% during the three months ended December 31,
2008. Service revenues accounted for 48% of revenue during the three months
ended December 31, 2009 as compared to 42% during the three months ended
December 31, 2008.
Product revenues include
licensing of software, sales of hardware units and accessories, extended
hardware warranties and royalties from our speech compression technology. Total
product revenues decreased $236,000 (12%) to $1,749,000 during the three months
ended December 31, 2009 from $1,985,000 in the three months ended December 31,
2008. The decrease in product revenues during the three months ended December
31, 2009 was primarily due to decreases in hardware units and accessories sold
and related software licenses compared to the three months ended December 31,
2008. The decrease in hardware units and hardware accessories sold was primarily
due to certain customer sites purchasing hardware units from other vendors
during the three months ended December 31, 2009 as compared to the three months
ended December 31, 2008. Software licenses contributed 24% of product revenues
during the three months ended December 31, 2009 as compared to 27% during the
three months ended December 31, 2008. Hardware units and accessories accounted
for 60% of product revenues during the three months ended December 31, 2009 as
compared to 57% during the three months ended December 31, 2008. Accessories
generally provide higher gross margin percentages than hardware unit sales.
Accessories accounted for 72% of hardware revenues during the three months ended
December 31, 2009 as compared to 66% of hardware revenues for the three months
ended December 31, 2008.
- 21 -
Services revenues are
derived from professional services fees relating to voice-based solutions,
ongoing customer support activities and travel charges billed to customers for
costs incurred while providing services. For the three months ended December 31,
2009, services revenues totaled $1,615,000, an increase of $151,000 (10%) from
services revenues of $1,464,000 for the three months ended December 31, 2008.
Professional services increased $26,000 (6%) from $413,000 during the three
months ended December 31, 2008 to $439,000 during the three months ended
December 31, 2009. The increase in professional services reflects the increase
in the number of new sites at which our solutions were implemented during the
three months ended December 31, 2009 as compared to the three months ended
December 31, 2008. Voxware 3 provides tools to allow third-party partners to
develop voice-enabled logistics solutions independent of our professional
services staff. As a result, professional services revenues for new customers
may decline in the future. Software maintenance support services increased
$125,000 (12%) from $1,006,000 during the three months ended December 31, 2008
to $1,131,000 during the three months ended December 31, 2009. Revenues from
software maintenance support services tend to grow over time as additional
software licenses are sold and remain in effect.
Cost of Revenues
Total cost of revenues
decreased $374,000 (23%) from $1,648,000 for the three months ended December 31,
2008 to $1,274,000 for the three months ended December 31, 2009.
Cost of product revenues
decreased $29,000 (4%) from $772,000 in the three months ended December 31,
2008, to $743,000 in the three months ended December 31, 2009. Such costs
reflect materials, labor and overhead associated with the sale of our
voice-based products. Included in our cost of product revenues is the cost
associated with our team responsible for testing, shipping, supporting and
managing third party hardware. This team was comprised of three individuals as
of December 31, 2009 and four individuals as of December 31, 2008. The decrease
in cost of product revenues is primarily attributable to a decrease of $39,000
for direct material costs and freight charges. These cost reductions were
primarily due to a decrease in sales of computer hardware units and related
accessories during the three months ended December 31, 2009 as compared to the
three months ended December 31, 2008.
Cost of services
revenues consists primarily of the expenses associated with customer maintenance
support and professional services, including employee compensation, outside
consulting services and travel expenditures. Professional services costs include
labor charges for custom application design and development, customer training
and assisting customers implement our voice-based solutions. Professional
services costs are tracked by project and are deferred until the related project
revenue is recognized. Costs of customer support and professional services staff
performed in support of our sales and research and development activities are
recorded as operating expenses, while the cost of customer support or
professional service activities performed by our research and development staff
are recorded as cost of services revenues. Our customer support and professional
services staff was comprised of 10 individuals as of December 31, 2009, as
compared to 19 individuals as of December 31, 2008. Four positions were
eliminated in December 2008 in response to the decline in our revenues during
the period and others departed during fiscal year 2009. Cost of services
revenues decreased $345,000 (39%) from $876,000 in the three months ended
December 31, 2008 to $531,000 in the three months ended December 31, 2009.
Expenses related to professional services accounted for the majority of the
decrease as it decreased $301,000 (49%) from $614,000 in the three months ended
December 31, 2008 to $313,000 in the three months ended December 31, 2009.
Operating Expenses
Total operating expenses
decreased by $901,000 (26%) to $2,588,000 in the three months ended December 31,
2009 from $3,489,000 in the three months ended December 31, 2008 due in part to
lower average head count for the periods. The number of employees associated
with operating expenses (research and development, sales and marketing, general
and administrative) totaled 45 individuals as of December 31, 2009 and 49 as of
December 31, 2008.
Research and development
expenses primarily consist of employee compensation, consulting fees and other
costs associated with our voice recognition technology, hardware platform and
VoiceLogistics software suite development efforts. In addition, costs incurred
by our customer support and professional services teams relating to the
development of our VoiceLogistics software suite are charged to research and
development, while the cost of customer support or professional service
activities performed by our research and development staff are recorded as cost
of services revenues. Our research and development team was comprised of 19
individuals as of December 31, 2009 and 2008. Three positions were eliminated in
December 2008, net of new hires, in response to our decline in revenues during
the period. Our research and development expenses decreased $265,000 (26%) to
$748,000 in the three months ended December 31, 2009, from $1,013,000 in the
three months ended December 31, 2008. The majority of the decrease related to a
reduction of $82,000 for outside consultants, $78,000 for labor costs and
$38,000 for recruitment costs.
- 22 -
Sales and marketing
expenses primarily consist of employee compensation (including direct sales
commissions), third-party partnership fees, travel expenses and trade show and
other lead generation expenses. Our sales and marketing staff was comprised of
17 individuals as of December 31, 2009 compared to 19 individuals as of December
31, 2008. Three positions were eliminated during December 2008, in response to
our decline in revenues during the period. Sales and marketing expenses
decreased $475,000 (33%) to $976,000 in the three months ended December 31, 2009
from $1,451,000 in the three months ended December 31, 2008. The decrease in
sales and marketing expenses is due primarily to decreases during the three
months ended December 31, 2009 of $117,000 in marketing costs, $45,000 in sales
meeting and travel expenses and $251,000 in lower commissions expense
due to
an
adjustment to the estimate of accrued commission as of December 31,
2009
. In light of reduced revenues caused by global economic conditions,
we undertook steps to reduce sales and marketing expenses. We anticipate that
sales and marketing expenses during fiscal year 2010 may be less than those
costs incurred during fiscal year 2009.
General and
administrative expenses consist primarily of employee compensation and fees for
insurance, rent, office expenses, professional services, public company related
charges and income and expenses related to fluctuations in foreign currency
exchange rates. The general and administrative staff was comprised of 9 full
time employees as of December 31, 2009 compared to 11 full time employees as of
December 31, 2008. General and administrative expenses decreased $161,000 (16%)
to $864,000 in the three months ended December 31, 2009 from $1,025,000 in the
three months ended December 31, 2008. The decrease related to a decrease in
labor costs of $42,000, bank service charges of $21,000 and fluctuations in
foreign currency exchange rates generated losses of $21,000 during the three
months ended December 31, 2009 compared to losses of $217,000 during the three
months ended December 31, 2008, a change of $196,000, offset by increases in
stock option expense of $53,000 and professional services of $28,000.
Interest Income and Expense
Interest expense is
reported net of interest income earned. Net interest expense was $30,000 for the
three months ended December 31, 2009, compared to net interest expense of $3,000
for the three months ended December 31, 2008, an increase of $27,000. Interest
income decreased $16,000 from $17,000 during the three months ended December 31,
2008 to $1,000 during the three months ended December 31, 2009 due primarily to
declining interest rates and lower balances of invested funds. Interest expense
increased $11,000 from $20,000 during the three months ended December 31, 2008
to $31,000 during the three months ended December 31, 2009 due primarily to an
interest charge related to a sales tax audit relating to previous
years.
Income Taxes
There are significant
differences in calculating income or loss for accounting and tax purposes,
primarily relating to charges that are recorded in the current period for
accounting purposes, but are deferred for tax purposes. Furthermore, tax laws
differ in each jurisdiction, yielding differing amounts of taxable income or
loss in each jurisdiction. While we have substantial net operating losses to
offset taxable income in some taxing jurisdictions, certain restrictions
preclude us from fully utilizing the benefit of these net operating losses. In
addition, the expansion of our business requires us to file taxes in
jurisdictions where we did not previously operate, and thus do not have
established net operating losses to offset the tax liability.
The provision for income
taxes was $0 for the three months ended December 31, 2009 and $2,000 for the
three months ended December 31, 2008. We had a loss before taxes of $528,000 for
accounting purposes during the three months ended December 31, 2009, compared to
a loss before taxes of $1,691,000 during the three months ended December 31,
2008.
- 23 -
Six months ended December 31, 2009 compared to
the six months ended December 31, 2008
(dollars in table are presented in
thousands)
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
% of Total
|
|
December 31,
|
|
% of Total
|
|
|
|
|
|
|
|
|
2009
|
|
Revenue
|
|
2008
|
|
Revenue
|
|
$
Change
|
|
%
Change
|
Product revenues
|
$
|
3,101
|
|
|
51
|
%
|
|
$
|
3,805
|
|
|
57
|
%
|
|
$
|
(704
|
)
|
|
(19
|
%)
|
Services revenues
|
|
3,010
|
|
|
49
|
%
|
|
|
2,898
|
|
|
43
|
%
|
|
|
112
|
|
|
4
|
%
|
Total revenues
|
|
6,111
|
|
|
100
|
%
|
|
|
6,703
|
|
|
100
|
%
|
|
|
(592
|
)
|
|
(9
|
%)
|
|
Cost of product revenues
|
|
1,223
|
|
|
20
|
%
|
|
|
1,622
|
|
|
24
|
%
|
|
|
(399
|
)
|
|
(25
|
%)
|
Cost of services revenues
|
|
1,116
|
|
|
18
|
%
|
|
|
1,701
|
|
|
25
|
%
|
|
|
(585
|
)
|
|
(34
|
%)
|
Total cost of revenues
|
|
2,339
|
|
|
38
|
%
|
|
|
3,323
|
|
|
49
|
%
|
|
|
(984
|
)
|
|
(30
|
%)
|
|
Gross profit
|
|
3,772
|
|
|
62
|
%
|
|
|
3,380
|
|
|
49
|
%
|
|
|
392
|
|
|
12
|
%
|
|
Research and development
|
|
1,504
|
|
|
25
|
%
|
|
|
2,025
|
|
|
30
|
%
|
|
|
(521
|
)
|
|
(26
|
%)
|
Sales and marketing
|
|
2,226
|
|
|
36
|
%
|
|
|
2,931
|
|
|
44
|
%
|
|
|
(705
|
)
|
|
(24
|
%)
|
General and administrative
|
|
1,745
|
|
|
29
|
%
|
|
|
2,079
|
|
|
31
|
%
|
|
|
(334
|
)
|
|
(16
|
%)
|
Total operating expenses
|
|
5,475
|
|
|
90
|
%
|
|
|
7,035
|
|
|
105
|
%
|
|
|
(1,560
|
)
|
|
(22
|
%)
|
|
Operating loss
|
|
(1,703
|
)
|
|
(28
|
%)
|
|
|
(3,655
|
)
|
|
(55
|
%)
|
|
|
1,952
|
|
|
53
|
%
|
|
Interest expense, net
|
|
(40
|
)
|
|
(1
|
%)
|
|
|
(6
|
)
|
|
(0
|
%)
|
|
|
(34
|
)
|
|
(567
|
%)
|
Loss before income taxes
|
|
(1,743
|
)
|
|
(29
|
%)
|
|
|
(3,661
|
)
|
|
(55
|
%)
|
|
|
1,918
|
|
|
52
|
%
|
|
Provision for income taxes
|
|
-
|
|
|
0
|
%
|
|
|
(2
|
)
|
|
(0
|
%)
|
|
|
2
|
|
|
100
|
%
|
|
Net loss
|
$
|
(1,743
|
)
|
|
(29
|
%)
|
|
$
|
(3,663
|
)
|
|
(55
|
%)
|
|
$
|
1,920
|
|
|
52
|
%
|
|
- 24 -
The components of gross
profit for the six months ended December 31, 2009 and 2008 are as follows:
|
Six Months Ended
|
|
|
|
|
|
|
|
|
December 31,
|
|
Difference
|
|
2009
|
|
2008
|
|
$ change
|
|
% change
|
|
(in thousands)
|
|
(in thousands)
|
|
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
$
|
872
|
|
$
|
779
|
|
$
|
93
|
|
|
12
|
%
|
Hardware units and accessories
|
|
1,680
|
|
|
2,398
|
|
|
(718
|
)
|
|
(30
|
%)
|
Extended hardware
warranties
|
|
484
|
|
|
493
|
|
|
(9
|
)
|
|
(2
|
%)
|
Royalties
|
|
65
|
|
|
135
|
|
|
(70
|
)
|
|
(52
|
%)
|
|
|
3,101
|
|
|
3,805
|
|
|
(704
|
)
|
|
(19
|
%)
|
|
Cost of product
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
8
|
|
|
20
|
|
|
(12
|
)
|
|
(60
|
%)
|
Hardware units and accessories
|
|
1,055
|
|
|
1,474
|
|
|
(419
|
)
|
|
(28
|
%)
|
Extended hardware
warranties
|
|
160
|
|
|
128
|
|
|
32
|
|
|
25
|
%
|
|
|
1,223
|
|
|
1,622
|
|
|
(399
|
)
|
|
(25
|
%)
|
|
Gross Profit from product
revenues
|
|
1,878
|
|
|
2,183
|
|
|
(305
|
)
|
|
(14
|
%)
|
|
Services revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
768
|
|
|
810
|
|
|
(42
|
)
|
|
(5
|
%)
|
Software maintenance services
|
|
2,166
|
|
|
1,986
|
|
|
180
|
|
|
9
|
%
|
Billable travel
|
|
76
|
|
|
102
|
|
|
(26
|
)
|
|
(25
|
%)
|
|
|
3,010
|
|
|
2,898
|
|
|
112
|
|
|
4
|
%
|
|
Cost of services
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
644
|
|
|
1,180
|
|
|
(536
|
)
|
|
(45
|
%)
|
Software maintenance services
|
|
411
|
|
|
419
|
|
|
(8
|
)
|
|
(2
|
%)
|
Billable travel
|
|
61
|
|
|
102
|
|
|
(41
|
)
|
|
(40
|
%)
|
|
|
1,116
|
|
|
1,701
|
|
|
(585
|
)
|
|
(34
|
%)
|
|
Gross Profit from services
revenues
|
|
1,894
|
|
|
1,197
|
|
|
697
|
|
|
58
|
%
|
|
Gross Profit
|
$
|
3,772
|
|
$
|
3,380
|
|
$
|
392
|
|
|
12
|
%
|
Revenues
Total revenues were
$6,111,000 for the six months ended December 31, 2009 compared to total revenues
of $6,703,000 for the six months ended December 31, 2008. The $592,000 (9%)
decrease in total revenues is primarily due to decreases of $718,000 (30%) in
revenues generated from the sale of hardware units and related accessories,
$42,000 (5%) in professional services and $70,000 (52%) in royalties, offset by
an increase of $93,000 (12%) in licensing of software and $180,000 (9%) in
software maintenance services. Product revenues accounted for 51% of revenues
during the six months ended December 31, 2009 as compared to 57% during the six
months ended December 31, 2008. Service revenues accounted for 49% of revenue
during the six months ended December 31, 2009 as compared to 43% during the six
months ended December 31, 2008.
Product revenues include
licensing of software, sales of hardware units and accessories, extended
hardware warranties and royalties from our speech compression technology. Total
product revenues decreased $704,000 (19%) to $3,101,000 during the six months
ended December 31, 2009 from $3,805,000 in the six months ended December 31,
2008. The decrease in product revenues during the six months ended December 31,
2009 was primarily due to decreases in hardware units and accessories sold
compared to the six months ended December 31, 2008. The decrease in hardware
units and hardware accessories sold was primarily due to certain customer sites
purchasing hardware units from other vendors during the six months ended
December 31, 2009 as compared to the six months ended December 31, 2008.
Software licenses contributed 28% of product revenues during the six months
ended December 31, 2009 as compared to 20% during the six months ended December
31, 2008. Hardware units and accessories accounted for 54% of product revenues
during the six months ended December 31, 2009 as compared to 63% during the six
months ended December 31, 2008. Accessories generally provide higher gross
margin percentages than hardware unit sales. Accessories accounted for 72% of
hardware revenues during the six months ended December 31, 2009 as compared to
65% of hardware revenues for the six months ended December 31,
2008.
- 25 -
Services revenues are
derived from professional services fees relating to voice-based solutions,
ongoing customer support activities and travel charges billed to customers for
costs incurred while providing services. For the six months ended December 31,
2009, services revenues totaled $3,010,000, an increase of $112,000 (4%) from
services revenues of $2,898,000 for the six months ended December 31, 2008.
Professional services decreased $42,000 (5%) from $810,000 during the six months
ended December 31, 2008 to $768,000 during the six months ended December 31,
2009. The decrease in professional services reflects the decrease in the number
of new sites at which our solutions were implemented during the six months ended
December 31, 2009 as compared to the six months ended December 31, 2008. Voxware
3 provides tools to allow third-party partners to develop voice-enabled
logistics solutions independent of our professional services staff. As a result,
professional services revenues for new customers may decline in the future.
Software maintenance support services increased $180,000 (9%) from $1,986,000
during the six months ended December 31, 2008 to $2,166,000 during the six
months ended December 31, 2009. Revenues from software maintenance support
services tend to grow over time as additional software licenses are sold and
remain in effect.
Cost of Revenues
Total cost of revenues
decreased $984,000 (30%) from $3,323,000 for the six months ended December 31,
2008 to $2,339,000 for the six months ended December 31, 2009.
Cost of product revenues
decreased $399,000 (25%) from $1,622,000 in the six months ended December 31,
2008, to $1,223,000 in the six months ended December 31, 2009. Such costs
reflect materials, labor and overhead associated with the sale of our
voice-based products. Included in our cost of product revenues is the cost
associated with our team responsible for testing, shipping, supporting and
managing third party hardware. This team was comprised of three individuals as
of December 31, 2009 and four individuals as of December 31, 2008. The decrease
in cost of product revenues is primarily attributable to a decrease of $414,000
for direct material costs and freight charges. These cost reductions were
primarily due to a decrease in sales of computer hardware units and related
accessories during the six months ended December 31, 2009 as compared to the six
months ended December 31, 2008.
Cost of services
revenues consists primarily of the expenses associated with customer maintenance
support and professional services, including employee compensation, outside
consulting services and travel expenditures. Professional services costs include
labor charges for custom application design and development, customer training
and assisting customers implement our voice-based solutions. Professional
services costs are tracked by project and are deferred until the related project
revenue is recognized. Costs of customer support and professional services staff
performed in support of our sales and research and development activities are
recorded as operating expenses, while the cost of customer support or
professional service activities performed by our research and development staff
are recorded as cost of services revenues. Our customer support and professional
services staff was comprised of 10 individuals as of December 31, 2009, as
compared to 19 individuals as of December 31, 2008. Four positions were
eliminated in December 2008 in response to the decline in our revenues during
the period and others departed during fiscal year 2009. Cost of services
revenues decreased $585,000 (34%) from $1,701,000 in the six months ended
December 31, 2008 to $1,116,000 in the six months ended December 31, 2009.
Expenses related to professional services accounted for the majority of the
decrease as it decreased $536,000 (45%) from $1,180,000 in the six months ended
December 31, 2008 to $644,000 in the six months ended December 31, 2009.
Operating Expenses
Total operating expenses
decreased by $1,560,000 (22%) to $5,475,000 in the six months ended December 31,
2009 from $7,035,000 in the six months ended December 31, 2008 due in part to
lower average head count during the period and reasons discussed below. The
number of employees associated with operating expenses (research and
development, sales and marketing, general and administrative) totaled 45
individuals as of December 31, 2009 and 49 as of December 31, 2008.
Research and development
expenses primarily consist of employee compensation, consulting fees and other
costs associated with our voice recognition technology, hardware platform and
VoiceLogistics software suite development efforts. In addition, costs incurred
by our customer support and professional services teams relating to the
development of our VoiceLogistics software suite are charged to research and
development, while the cost of customer support or professional service
activities performed by our research and development staff are recorded as cost
of services revenues. Our research and development team was comprised of 19
individuals as of December 31, 2009 and 2008. Three positions were eliminated in
December 2008, net of new hires, in response to our decline in revenues during
the period. Our research and development expenses decreased $521,000 (26%) to
$1,504,000 in the six months ended December 31, 2009, from $2,025,000 in the six
months ended December 31, 2008. The majority of the decrease related to a
reduction of $194,000 for outside consultants, $185,000 for labor costs and
$55,000 for recruitment costs.
- 26 -
Sales and marketing
expenses primarily consist of employee compensation (including direct sales
commissions), third-party partnership fees, travel expenses and trade show and
other lead generation expenses. Our sales and marketing staff was comprised of
17 individuals as of December 31, 2009 compared to 19 individuals as of December
31, 2008. Three positions were eliminated during December 2008, in response to
our decline in revenues during the period. Sales and marketing expenses
decreased $705,000 (24%) to $2,226,000 in the six months ended December 31, 2009
from $2,931,000 in the six months ended December 31, 2008. The decrease in sales
and marketing expenses is due primarily to decreases during the six months ended
December 31, 2009 of $171,000 in marketing costs, $113,000 in sales meeting and
travel expenses, $77,000 in labor costs due to the smaller sales staff and
$257,000 in lower commission expense due to
reduction
in the revenues and changes in the sales mix.
In light of reduced
revenues caused by global economic conditions, we undertook steps to reduce
sales and marketing expenses. We anticipate that sales and marketing expenses
during fiscal year 2010 may be less than those costs incurred during fiscal year
2009.
General and
administrative expenses consist primarily of employee compensation and fees for
insurance, rent, office expenses, professional services, public company related
charges and income and expenses related to fluctuations in foreign currency
exchange rates. The general and administrative staff was comprised of 9 full
time employees as of December 31, 2009 compared to 11 full time employees as of
December 31, 2008. General and administrative expenses decreased $334,000 (16%)
to $1,745,000 in the six months ended December 31, 2009 from $2,079,000 in the
six months ended December 31, 2008. The decrease related to a decrease in labor
costs of $89,000, provision for doubtful accounts of $35,000 and fluctuations in
foreign currency exchange rates generated losses of $45,000 during the six
months ended December 31, 2009 compared to losses of $394,000 during the six
months ended December 31, 2008, a change of $349,000 offset by increases of
$72,000 for stock option expense and $43,000 for professional services.
Interest Income and Expense
Interest expense is
reported net of interest income earned. Net interest expense was $40,000 for the
six months ended December 31, 2009, compared to net interest expense of $6,000
for the six months ended December 31, 2008, an increase of $34,000. Interest
income decreased $33,000 from $34,000 during the six months ended December 31,
2008 to $1,000 during the six months ended December 31, 2009 due primarily to
declining interest rates and lower balances of invested funds. Interest expense
increased $1,000 from $40,000 during the six months ended December 31, 2008 to
$41,000 during the six months ended December 31, 2009 due primarily to an
interest charge related to a sales tax audit relating to previous years.
Income Taxes
There are significant
differences in calculating income or loss for accounting and tax purposes,
primarily relating to charges that are recorded in the current period for
accounting purposes, but are deferred for tax purposes. Furthermore, tax laws
differ in each jurisdiction, yielding differing amounts of taxable income or
loss in each jurisdiction. While we have substantial net operating losses to
offset taxable income in some taxing jurisdictions, certain restrictions
preclude us from fully utilizing the benefit of these net operating losses. In
addition, the expansion of our business requires us to file taxes in
jurisdictions where we did not previously operate, and thus do not have
established net operating losses to offset the tax liability.
The provision for income
taxes was $0 for the six months ended December 31, 2009 and $2,000 for the six
months ended December 31, 2008. We had a loss before taxes of $1,743,000 for
accounting purposes during the six months ended December 31, 2009, compared to a
loss before taxes of $3,661,000 during the six months ended December 31,
2008.
Liquidity and Capital Resources
As of December 31, 2009,
we had $2,828,000 in cash and cash equivalents, compared to $4,342,000 in cash
and cash equivalents as of June 30, 2009, a decrease of $1,514,000 (35%). Our
working capital as of December 31, 2009 was $2,118,000 compared to $3,195,000 as
of June 30, 2009, a decrease of $1,077,000 (34%).
Net cash used in
operating activities totaled $1,017,000 for the six months ended December 31,
2009, primarily consisting of a net loss of $1,743,000 and decreases of $624,000
in accounts payable and accrued expenses, offset by a decrease of $465,000 in
accounts receivable and non-cash charges totaling $870,000, consisting of
$723,000 of share-based compensation, $135,000 of depreciation and amortization
and a $12,000 provision for doubtful accounts. The reduction in accounts payable
and accrued expenses is primarily a function of payments of commissions and
bonuses accrued as of June 30, 2009. Changes in accounts receivable are the
function of the timing of invoicing and collections throughout the period.
Share-based compensation charges relate to grants of restricted stock units and
stock options. For the six months ended December 31, 2008, net cash used in
operating activities totaled $512,000, primarily consisting of a net loss of
$3,663,000 and decreases of $803,000 in accounts payable and accrued expenses
and $709,000 in deferred revenues. Cash used in operating activities was offset
by a decrease of $3,732,000 in accounts receivable and non-cash charges totaling
$819,000, consisting of $610,000 of share-based compensation, $162,000 of
depreciation and amortization, and a $47,000 provision for doubtful accounts.
The reduction in accounts payable and accrued expenses is primarily a function
of payments of inventory and bonuses accrued as of June 30, 2008. The decrease
in deferred revenues is due primarily to the timing of maintenance billings
throughout the year, and the completion of customer implementation projects.
Changes in accounts receivable are the function of the timing of invoicing and
collections throughout the period.
- 27 -
Net cash used in
investing activities totaled $147,000 during the six months ended December 31,
2009 and $69,000 during the six months ended December 31, 2008 due primarily to
purchases of property and equipment and $51,000 of capitalized software
development costs during the six month period ended December 31, 2009.
Net cash used in
financing activities totaled $350,000 during the six months ended December 31,
2009, compared to net cash provided by financing activities of $74,000 during
the six months ended December 31, 2008. During the six months ended December 31,
2009, we repaid $325,000 against term loans with SVB, paid $30,000 related to
employee taxes for certain cashless exercises of restricted stock units and
received proceeds of $5,000 from the exercise of stock options. During the six
months ended December 31, 2008, we borrowed $451,000 to fund the purchase of
fixed assets and repaid $379,000 against term loans with SVB. We received net
proceeds in the amount of $2,000 from the exercise of stock options during the
six months ended December 31, 2008.
We initially entered
into a credit facility with SVB on December 30, 2003. The following facilities
were outstanding during fiscal years 2008 and 2009:
On May 24, 2006, we
entered into a Loan and Security Agreement with SVB, or 2006 Facility, providing
an additional $3,000,000 credit facility comprised of a $1,500,000 revolving
line of credit, or Revolver and a $1,500,000 Non-Formula Term Loan, or 2006 Term
Loan to fund our anticipated working capital needs. The Revolver created by the
2006 Facility was initially available until October 31, 2007. It was extended to
February 11, 2009 by the Second Loan Modification Agreement, or SLMA. The
Revolver provides for a line of credit up to $1,500,000, with a $1,000,000
sub-limit to be established for cash management and foreign exchange
requirements. As of December 31, 2009, amounts outstanding under the Revolver
bear interest at prime plus 2.25%. In addition, a fee of 0.25% is charged
against the unused portion of the Revolver. No funds were borrowed against the
Revolver at December 31, 2009 or June 30, 2009.
The 2006 Term Loan is to
be repaid in 36 equal monthly payments of principle and interest, commencing on
April 1, 2007, and has an outstanding balance of $125,000 at December 31, 2009
and $375,000 at June 30, 2009. Monthly principle payments total approximately
$42,000. Amounts outstanding under the 2006 Term Loan bear interest at December
31, 2009 at a rate of 7%, calculated as the greater of 7% or prime plus 3%, as
established by the Waiver and Third Loan Modification Agreement, or TLMA with
SVB executed on November 17, 2008.
On February 13, 2008,
with an effective date of December 27, 2007, we entered into the SLMA with SVB,
providing for a new $600,000 revolving equipment line of credit, or Equipment
Revolver. The availability under the Equipment Revolver was limited to a
borrowing base advance rate that is equal to 100% against the invoice value of
new Eligible Equipment (as defined in the SLMA). The draw down period for the
Equipment Revolver expired May 31, 2008, but was extended by SVB to July 31,
2008. Originally, amounts advanced under the Equipment Revolver bore interest at
a rate equal to the greater of (a) 6.75% and (b) the amount equal to the prime
rate plus 1.0%. This rate was revised to the greater of 7% or prime plus 3% by
the TLMA. The repayment of the funds drawn against the Equipment Revolver will
be made in 36 equal monthly payments of principal and interest beginning August
1, 2008. Amounts outstanding under the Equipment Revolver bear interest at
December 31, 2009 at a rate of 7%. The outstanding balance on the Equipment
Revolver was $238,000 at December 31, 2009 and $313,000 at June 30,
2009.
On February 17, 2009, we
entered into a Waiver and Fourth Loan Modification Agreement that, among other
things, waived a loan covenant violation that existed at December 31, 2008, and
extended the maturity of the Revolver until March 31, 2009. In addition, the
Waiver and Fourth Loan Modification Agreement revised certain outstanding
financial covenants under the Loan Agreement, including minimum net loss
thresholds. On May 12, 2009, with an effective date of March 31, 2009, the
Company entered into a Fifth Loan Modification Agreement which extended the
maturity of the Revolver until May 31, 2009, and set financial covenants for the
period ended May 31, 2009.
On June 26, 2009, with
an effective date of June 1, 2009, we entered into a Sixth Loan Modification
Agreement which extended the Revolver until July 31, 2009. On September 9, 2009,
the Company entered in to a Seventh Loan Modification Agreement which extends
the maturity, lowers the interest rate to prime plus 2.25% and provides
covenants of the Revolver until July 30, 2010.
- 28 -
We continue to expand
our partnership channel, with particular emphasis on the development of
relationships with mobile computer equipment manufacturers and vendors, VARs,
logistics consultants and WMS vendors. Using Voxware 3 and VoxBrowser,
independent third-party partners are able to develop and deliver voice-enabled
logistics solutions on other manufacturers’ hardware. As a result of the partner
relationships and product offerings, a greater percentage of revenue may be
derived in the future from software than has occurred historically, with a lower
percentage of total revenue derived from hardware and professional services. The
gross margin generated by software revenue is higher than that earned on
hardware and professional services revenue. For the six months ended December
31, 2009, we earned gross margin from software licenses of 99%, as compared to
37% for sales of hardware units and related accessories. Partnership channel
sales accounted for 8% of our revenues during the six months ended December 31,
2009, compared to 13% during the six months ended December 31, 2008. Software
licenses contributed 14% of revenues for the six months ended December 31, 2009,
compared to 12% of revenue for the six months ended December 31, 2008. Decreases
in the percentage of revenues generated through partnership channels during the
six months ended December 31, 2009 represent a departure from trends noted in
recent periods. These decreases are primarily attributable to decisions by
customers and prospective customers to delay major capital expenditures in light
of tight credit markets associated with general worldwide economic conditions.
We expect that recent coordinated efforts by federal authorities throughout the
world will gradually lead to a general loosening of international credit
markets, thus enabling customers and prospective customers to increase levels of
capital expenditures. In addition, given the volume and quality of prospective
transactions in our sales pipeline, we anticipate a resumption of the trend
towards a more profitable mix of revenue prior to the end of fiscal year 2010.
However, we can provide no assurance with respect to the timing of this expected
long-term trend or whether the trend will be true in any specific period.
On June 29, 2009, we
received an equity infusion of $2.5 million from our two principal investors. On
June 29, 2009, we entered into a Securities Purchase Agreement with
Co-Investment Fund II, L.P. (a Cross Atlantic Technology Fund entity) and Edison
Venture Fund V, L.P., pursuant to which we issued and sold an aggregate of
1,428,571 shares of our Common Stock, at a purchase price of $1.75 per share,
and Warrants to purchase up to 142,857 shares of Common Stock, which will not be
exercisable until the six months after the date of issuance and shall expire
three years from the date of issuance, at an exercise price of $2.50 per
share.
Under the terms of the
Securities Purchase Agreement, Edison Venture Fund V, L.P. purchased 285,714
shares of Common Stock and Warrants to purchase 28,571 shares of Common stock
and Co-Investment Fund II, L.P. purchased 1,142,857 shares of Common Stock and
Warrants to purchase 114,286 shares of Common Stock. The private placement
closed on June 30, 2009. We received gross proceeds equal to $2,500,000. The
securities sold in this private placement have not been registered under the
Securities Act, and may not be offered or sold in the United States in the
absence of an effective registration statement or exemption from the
registration requirements under the Securities Act.
We may need to raise
additional capital through either new equity or debt financing arrangements and
may elect to utilize such an arrangement to fund further expansion of our
operations. Due to the recent downturn in the economy, there can be no
assurances that financing will be available on terms acceptable to us, if at
all. However, due to a general trend providing greater emphasis on sales of
higher margin product and given our efforts to reduce costs, as well as having
$2.8 million in cash and $1.5 million in debt availability we believe that we
have adequate capital resources available to fund our operations through
December 31, 2010.
- 29 -
Dilutive Effect of Options and Warrants
As of December 31, 2009,
15,000,000 shares of our Common Stock were authorized, of which 8,041,893 were
issued and outstanding. The following table summarizes the potential dilutive
impact in the event of the exercise of all options and warrants to purchase
stock, including options and warrants whose strike prices exceed the market
value of our Common Stock as of December 31, 2009.
Dilutive Effect of Options and Warrants as of
December 31, 2009
Common stock issued and outstanding as
of December 31, 2009
|
8,041,893
|
|
Dilutive instruments:
|
|
Outstanding warrants to
purchase common stock *
|
1,298,331
|
Outstanding options to purchase common stock *
|
1,113,392
|
Unissued restricted stock
units
|
111,522
|
|
Common stock plus dilutive instruments
outstanding
|
10,565,138
|
|
Options to purchase common stock
available to issue
|
|
pursuant to various stock option plans
|
265,599
|
|
Common stock outstanding if all dilutive
instruments
|
|
are
converted and exercised
|
10,830,737
|
|
* Includes all "in-the-money" and
"out-of-the-money" warrants and
options.
|
- 30 -
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
Interest Rate Risk
Our exposure to market
risk for changes in interest rates relates primarily to our investment
portfolio. The primary objective of our investment activities is to preserve
principal while maximizing yields without assuming significant risk. This is
accomplished by investing in diversified investments, consisting primarily of
short-term investment-grade securities. We do not use derivative financial
instruments in our investment portfolio. Due to the nature of our investments,
we believe that we are not exposed to material risk of interest rate changes. A
hypothetical 100 basis point change in interest rates, either positive or
negative, would not have had a significant effect on either (i) our cash flows
and reported results of operations in the six month periods ended December 31,
2009 and 2008, or (ii) the fair value of our investment portfolios at December
31, 2009 and June 30, 2009.
At December 31, 2009,
our cash and cash equivalents consisted entirely of money market investments
with remaining maturities of 90 days or less when purchased and non-interest
bearing checking accounts. Investments in marketable debt securities with
maturities greater than 90 days and less than one year are classified as
held-to-maturity short-term investments and are recorded at amortized cost.
Under current investment guidelines, maturities on short-term investments are
restricted to one year or less. Investments in auction rate securities, with
maturities which can be greater than one year but for which interest rates reset
in less than 90 days, are classified as available for sale securities and stated
at fair market value. At December 31, 2009 and June 30, 2009, we held no auction
rate securities.
At December 31, 2009,
our outstanding debt consisted of two loans in the aggregate amount of $363,000.
The Term Loan and Equipment Revolver with SVB had outstanding balances at
December 31, 2009 of $125,000 and $238,000, respectively. Interest on both loans
at December 31, 2009 was 7%, with the interest rate calculated as the greater of
7% or a rate of prime plus 3%. A hypothetical 100 basis point increase in
interest rates would not have had a significant effect on our annual interest
expense.
Foreign Currency Exchange Risk
We do not use foreign
currency forward exchange contracts or purchased currency options to hedge local
currency cash flows or for trading purposes. Sales arrangements with
international customers are generally denominated in foreign currency, typically
British pounds or Euros. For the six month period ended December 31, 2009,
approximately 25% of our overall revenue resulted from sales to customers
outside the United States. Accounts receivable at December 31, 2009 included
balances denominated in British pounds valued at $357,000 and balances
denominated in Euros valued at $183,000. During the six months ended December
31, 2009, we recognized a loss of $45,000 from transactions denominated in
foreign currency. A hypothetical 10% increase in the value of the U.S. dollar
relative to British pound and Euro as of December 31, 2009 would have resulted
in an increase to the operating loss of approximately $49,000 for the six months
ended December 31, 2009, while a 10% decrease in the value of the U.S. dollar
relative to British pound and Euro as of December 31, 2009 would have resulted
in a reduction of the operating loss of approximately $60,000.
Item 4(T). Controls and
Procedures
Disclosure Controls and Procedures
Our management, with the
participation of our principal executive officer and principal financial
officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2009. Based on this evaluation, our principal executive officer and
principal financial officer concluded that, as of December 31, 2009, our
disclosure controls and procedures were (1) effective in that they were designed
to ensure that material information relating to us, including our consolidated
subsidiaries, is made known to our principal executive officer and principal
financial officer by others within those entities, as appropriate to allow
timely decisions regarding required disclosures, and (2) effective in that they
ensure that information required to be disclosed by us in our reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Controls
We regularly review our
system of internal control over financial reporting and make changes to our
processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes may
include such activities as implementing new, more efficient systems,
consolidating activities and migrating processes.
There were no changes
during the quarter ended December 31, 2009 in our internal control over
financial reporting or in other factors that materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
- 31 -
PART II. OTHER INFORMATION
Item 1. Legal
Proceedings
We are subject to
various legal proceedings and claims, either asserted or unasserted, which arise
in the ordinary course of business. While the outcome of these claims cannot be
predicted with certainty, we do not believe that the outcome of any of these
legal matters will have a material adverse effect on our business, operating
results or financial condition.
Item 1A. Risk
Factors
We operate in a rapidly
changing business environment that involves substantial risk and uncertainty.
The following discussion addresses some of the risks and uncertainties that
could cause, or contribute to cause, actual results to differ materially from
expectations. We caution all readers to pay particular attention to the
descriptions of risks and uncertainties described below and in other sections of
this report and our other filings with the SEC, including our Annual Report on
Form 10-K for the fiscal year ended June 30, 2009.
If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. In such case, the trading price of our
Common Stock could decline, and we may be forced to consider additional
alternatives.
This Quarterly Report on
Form 10-Q contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including the
risks described below and elsewhere in this Quarterly Report on Form 10-Q.
Risks Relating to Our Business and
Operations
If we continue to incur operating losses, we may be unable to continue
our operations.
With the
exception of fiscal year 2008, we have incurred operating losses since we
started our company in August 1993. The accumulated deficit at December 31, 2009
was $81,309,000. The continued deterioration of general worldwide economic
conditions has negatively impacted certain vertical markets, including retail
and food distribution, that are significant to our operations. As a result of
these general economic conditions, we incurred a net loss of $1,743,000 for the
first six months of fiscal 2010. If we incur operating losses and consistently
fail to be a profitable company, we may be unable to continue our operations.
Our future profitability depends on our ability to obtain significant customers
for our products, to identify, engage and support significant partners to sell
our products, to respond to competition, to introduce new and enhanced products
and to successfully market and support our products. We cannot assure you that
we will achieve or sustain significant sales or profitability in the future.
If we cannot raise adequate capital in the
future, we may be unable to continue our product development, marketing and
business, generally.
We
anticipate investing significant resources to fund future operations, including
product development and marketing. The continued deterioration of general
worldwide economic conditions has negatively impacted certain vertical markets,
including retail and food distribution, that are significant to our operations.
As a result, we may need to raise additional capital to fund future operations.
Funding in the form of either debt or equity, from any source, may not be
available when needed or on favorable terms, particularly in light of the recent
tightening of worldwide credit markets. If we cannot raise adequate funds to
satisfy our capital requirements, we may have to limit, delay, scale-back or
eliminate product development programs, marketing or other activities. We might
be forced to sell or license our technologies. Any of these actions might harm
our business. If additional financing is obtained, the financing may be dilutive
to our current stockholders.
We rely substantially on key
customers.
Our customer
base is highly concentrated. One customer accounted for 15% of our total
revenues for the six months ended December 31, 2009. We believe that a
substantial portion of our net sales will continue to be derived from a
concentrated group of customers. However, the volume of sales to a specific
customer is likely to vary from period to period, and a significant customer in
one period may not purchase our products in a subsequent period. In general,
there are no ongoing written commitments by customers to purchase our products.
Our net sales in any period generally have been, and likely will continue to be,
in the near term, derived from a relatively small number of sales transactions.
Therefore, the loss of one or more major customers, or a delay in their orders,
could have a material adverse affect on our results of operations.
If our Voxware 3 family of products is not
successful in the market, we will not be able to generate substantial revenues
or achieve sustained profitability.
Our success is substantially dependent on the
success of our VoiceLogistics family of products. If the market accepts our
Voxware 3 products, these products will account for the vast majority of our net
revenue in the future. If our Voxware 3 products are unsatisfactory, or if we
are unable to generate significant demand for these products, or if we fail to
develop other significant products or applications, our business will be
materially and adversely affected.
We have a sole source vendor for our primary
hardware products
. One
vendor supplies us with our primary wearable computer hardware products. Any
disruption in supply by this vendor would prohibit us from shipping our
products, and thus recognizing revenue. In addition, other vendors provide
custom-made components that would take time to reproduce with other suppliers
should a current vendor fail to deliver quality product in a timely
manner.
- 32 -
We are relying on third-party hardware
manufacturers to develop and bring to market portable voice-compatible computer
equipment on which to run our software.
Sales of our Voxware 3 and VoxBrowser software
products depend, in part, upon the delivery by third-party hardware
manufacturers of robust Voxware-certified mobile computing devices with
sufficient memory, voice capabilities and form factor. While we anticipate the
entrance of additional Voxware-certified devices in the marketplace in the
future, our customers seeking best-of-breed hardware units to drive our software
currently have a limited selection from which to choose. We cannot assure you
that third-party manufacturers will develop and market hardware units compatible
with our software on a timely basis, if at all.
If we do not develop or acquire and introduce
new and enhanced products on a timely basis, our products may be rendered
obsolete.
The markets for
our speech recognition products and voice-based technologies are characterized
by rapidly changing technology. The introduction of products by others based on
new or more advanced technologies could render our products obsolete and
unmarketable. Therefore, our ability to build on our existing technologies and
products to develop and introduce new and enhanced products in a cost effective
and timely manner will be a critical factor in our ability to grow and compete.
We cannot assure you that we will develop new or enhanced products successfully
and bring them to market in a timely manner. Further, we cannot assure you that
the market will accept new or enhanced products. Our failure to develop new or
enhanced products, including our failure to develop or acquire the technology
necessary to do so, would have a material adverse effect on our business.
If our competitors introduce better or less
expensive products, our products may not be profitable to sell or to continue to
develop.
The business in
which we engage is highly competitive. Advances in technology, product
improvements and new product introductions, as well as marketing and
distribution capabilities and price competition influence success. Failure to
keep pace with product and technological advances could adversely affect our
competitive position and prospects for growth. Our products compete with those
being offered by larger, traditional computer industry participants who have
substantially greater financial, technical, marketing and manufacturing
resources than we do. We cannot assure you that we will be able to compete
successfully against these competitors, or that competitive pressures faced by
us would not adversely affect our business or operating results.
If we cannot integrate our speech recognition
products with other components of customer systems, we may not be able to sell
our products.
Although
state-of-the-art speech recognition technology is important to generating sales
in our target markets, other components of a voice-based system are also
necessary. Our products must be easily integrated with customers’ asset
management and information systems. The ability to incorporate speech
recognition products into customers’ systems, quickly and without excessive cost
or disruption, will be a key factor in our success. We do not now possess all
the necessary components for system integration. Acquisitions, joint ventures or
other strategic relationships may be required for us to develop or obtain access
to the necessary components to achieve market penetration. The development of
strategic relationships with other software vendors can be a lengthy process as
potential partners evaluate the benefit to their business of integrating
voice-based solutions, and in particular, our software, into their product
offerings. We cannot assure you that our efforts will be successful and, to the
extent we are unsuccessful, our business may be materially adversely affected.
There are a number of factors which may cause
substantial variability in our quarterly operating results.
Our revenues, gross profit, operating income
or loss and net income or loss may vary substantially from quarter-to-quarter
due to a number of factors. Many factors, some of which are not within our
control, may contribute to fluctuations in operating results. These factors
include, but are not limited to, the following:
-
market acceptance of our
products;
-
timing and levels of purchases by
customers;
-
interruption and delays in
production caused by vendor delays;
-
new product and service
introductions by our competitors or us;
-
market factors affecting the
availability or cost of qualified technical personnel;
-
timing and customer acceptance of
our new product and service offerings;
-
effectiveness of sales efforts by
third-party partners;
-
length of sales cycle;
-
introduction and application of
new generally accepted accounting principles; and
-
industry and general economic
conditions, including the recent slowdown of the global economy.
We cannot assure you
that any of these factors will not substantially influence our quarterly
operating results.
- 33 -
If our third-party partners do not effectively
market and service our products, we may not generate significant revenues or
profits from sales of our products.
We utilize third parties, such as hardware
system vendors, WMS companies, distributors, consultants, value added resellers
and system integrators, to sell and/or assist us in selling our products. To
date we have signed agreements with several of these third-party partners, and
we expect these partners to contribute an increasing percentage of overall
revenues in the future.
We believe that the
establishment of a network of third-party partners, with extensive and specific
knowledge of the various
applications critical in the industrial market, is important for us to succeed
in that market. Some third-party partners also purchase products from us at a
discount and incorporate them into application systems for various target
markets, and/or consult with us in the development of application systems for
end users. Once signed, new partners must be trained in the development and sale
of voice-based logistics solutions. Accordingly, there can be a significant lead
time between the signing of agreements with partners and the recognition of
revenues generated by the partners. For the foreseeable future, we may sell
fewer products if we cannot attract and retain third-party partners to sell and
service our products effectively and provide timely and cost-effective customer
support. An increasing number of companies compete for access to the types of
partners we use. Additionally, we may experience conflicts between our
distribution channel partners who may compete against one another. Our sales may
suffer as a result of these conflicts.
Either party generally
may terminate our current arrangements with third-party partners at any time
upon 30 days prior written notice. We cannot assure you that our partners will
continue to purchase and re-sell our products, or provide us with adequate
levels of support. If our partner relationships are terminated or otherwise
disrupted, our operating performance and financial results may be adversely
affected.
If we cannot attract and retain management and
other personnel with experience in the areas of our business focus, we will not
be able to manage and grow our business.
We have been developing and selling our
speech recognition products and voice-based technologies since February 1999.
Since that time, we have been hiring personnel with skills and experience
relevant to the development and sale of these products and technologies. If we
cannot continue to hire such personnel and to retain personnel hired, our
ability to operate our business will be materially adversely affected. On June
30, 2006, the Company accelerated the vesting of outstanding stock options to
all of its employees, thereby eliminating a possible reason for employees to
remain with us. As of December 31, 2009, 265,599 options to purchase shares of
our Common Stock were available for grant to employees. Competition for
qualified personnel is intense, and we cannot assure you that we will be able to
attract, assimilate or retain qualified personnel.
If the export of our technology is deemed a
violation of the regulations of the United States Department of Commerce, Bureau
of Industry and Security, our business will be substantially
harmed.
The Bureau of
Industry and Security, or BIS, oversees implementation and enforcement of the
Export Administration Regulations, or EAR, which control the export of most
commercial items. The BIS regulates "dual-use" items that have both commercial
and military or proliferation applications, however, purely commercial items
without an obvious military use are also subject to the EAR. The EAR prohibits
the export of certain technologies, while the export of other technologies is
restricted in certain geographical regions or to certain entities. Exporters
deemed in violation of the EAR are subject to substantial penalties. We are
developing international channels for the distribution of our speech recognition
and voice-based technology, and anticipate increasing our dependence upon
revenue derived from foreign sources. If some or all of our products are
classified as a restricted technology under the EAR, our ability to generate
revenue from international sources will be materially adversely affected.
If we cannot protect our proprietary rights
and trade secrets, or if we are found to be infringing on the patents and
proprietary rights of others, our business would be substantially
harmed.
Our success
depends in part on our ability to protect the proprietary nature of our
products, preserve our trade secrets and operate without infringing upon the
proprietary rights of others. If others obtain and copy our technology, or claim
that we are making unauthorized use of their proprietary technology, we may
become involved in lengthy and costly disputes to resolve questions of ownership
of the technology. If we are found to be infringing on the proprietary rights of
others, we could be required to seek licenses to use necessary technology. We
cannot assure you that licenses of third-party patents or proprietary rights
would be made available to us on acceptable terms, if at all. In addition, the
laws of certain countries may not protect our intellectual property because the
laws of some foreign countries do not protect proprietary rights to the same
extent as the laws of the United States, and many companies have encountered
significant problems and costs in protecting their proprietary rights in these
foreign countries. To protect our proprietary rights, we seek patents and we
enter into confidentiality agreements with our employees and consultants with
respect to proprietary rights and unpatented trade secrets. We cannot assure you
those patent applications in which we hold rights will result in the issuance of
patents. We cannot assure you that any issued patents will provide significant
protection for our technology and products. In addition, we cannot assure you
that others will not independently develop competing technologies that are not
covered by our patents. We cannot assure you that confidentiality agreements
will provide adequate protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosures. Any
unauthorized disclosure and use of our proprietary technology could have a
material adverse effect on our business.
- 34 -
Risks Relating to Our
Securities
The price of our Common Stock has been highly
volatile due to factors that will continue to affect the price of our
stock.
Our Common Stock
traded as high as $2.99 and as low as $1.19 per share between July 1, 2009 and
December 31, 2009. Historically, the over-the-counter markets and NASDAQ Capital
Market for securities such as our Common Stock have experienced extreme price
fluctuations. Some of the factors leading to this volatility
include:
-
fluctuations in our quarterly
revenue and operating results;
-
announcements of product releases
by us or our competitors;
-
announcements of acquisitions
and/or partnerships by us or our competitors;
-
increases in outstanding shares of
our Common Stock upon exercise or conversion of derivative securities, and
the
issuances of our Common
Stock pursuant to our private placement transactions;
-
delays in producing finished goods
inventory for shipment; and
-
the small public float of our
outstanding Common Stock in the marketplace.
There is no assurance
that the price of our Common Stock will not continue to be volatile in the
future.
A significant portion of our total outstanding
shares of Common Stock may be sold in the market in the near future. This could
cause the market price of our Common Stock to drop significantly, even if our
business is doing well.
Sales of a substantial number of shares of our Common Stock in the public
market could occur at any time. These sales, or the perception in the market of
such sales, may have a material adverse effect on the market price of our Common
Stock. We previously registered all shares of Common Stock that we may issue
under our employee benefit plans. Sales of outstanding shares, when sold, could
reduce the market price of our Common Stock.
Future sales of our Common Stock in the public
market could adversely affect the price of our Common Stock.
Sales in the public market of substantial
amounts of our Common Stock that are not currently freely tradable, or even the
potential for such sales, could impair the ability of our stockholders to recoup
their investments or make a profit. As of January 31, 2010 these shares include:
-
approximately 2,999,000 shares of
our Common Stock owned by Edison Venture Fund and 2,047,000 shares of
our
Common Stock owned by Cross
Atlantic Technology Fund Entities; and
-
approximately 285,000 shares of
our Common Stock owned by our executive officers and directors; and
-
approximately 2,515,000 shares of
our Common Stock issuable to warrant holders option and RSU holders,
which
may be sold under various
prospectuses filed under the Securities Act of 1933, as amended, or the
Securities Act.
The sale of substantial
amounts of our Common Stock by certain affiliates, including our largest
stockholders, or the sale of substantial amounts of our Common Stock received
through the exercise of outstanding options and/or warrants, or the perception
of such sales, may have a material adverse effect on our stock price.
If the holders of the
warrants and options to purchase our Common Stock elect to have their collective
holdings assumed by a potential acquirer of us, the potential acquirer could be
deterred from completing the acquisition. Also, if the holders of the warrants
and options to purchase our Common Stock elect to have their holdings remain
outstanding after an acquisition of us, the potential acquirer could be deterred
from completing the acquisition.
Our management and other affiliates have
significant control of our Common Stock and could control our actions in a
manner that conflicts with our interests and the interests of other
stockholders, as well as impacting the price of our Common
Stock.
As of January 31,
2010, our executive officers, directors and affiliated entities together
beneficially own approximately 7,117,000 shares of our Common Stock, assuming
the exercise of options, warrants and other Common Stock equivalents, which are
currently exercisable, held by these stockholders with Edison Venture Fund, or
Edison, beneficially owning approximately 3,800,000 shares of our Common Stock
and Cross Atlantic Technology Fund Entities, or Cross Atlantic, beneficially
owning approximately 2,419,000 shares of our Common Stock. As a result, these
stockholders, acting together, will be able to exercise considerable influence
over matters requiring approval by our stockholders, including the election of
directors, and may not always act in the best interests of other stockholders.
Such a concentration of ownership may have the effect of delaying or preventing
a change in our control, including transactions in which our stockholders might
otherwise receive a premium for their shares over then current market prices. In
addition, because Edison and Cross Atlantic are each Venture Capital Funds, they
may require liquidity which could result in transfers and sales of large blocks
of our Common Stock. Such transfers and sales could negatively impact the price
at which our Common Stock trades on the NASDAQ Capital Market.
If we are unable to maintain our listing on
the NASDAQ Capital Market, the marketability of our Common Stock could be
adversely affected.
Our
Common Stock is currently listed on the NASDAQ Capital Market under the symbol
“VOXW”. In order for our Common Stock to continue trading on the NASDAQ Capital
Market, we must meet certain minimum financial requirements. Among other
requirements, the minimum bid price of our Common Stock must remain at least
$1.00 per share and the market value of publicly held shares, as defined by the
NASDAQ Capital Market, must remain at least $1,000,000. In addition, we must
continue to meet at least one of the following three requirements:
-
Stockholders’ equity must be at
least $2,500,000;
-
Market value of our Common Stock
must be at least $35,000,000; or
-
Net income from continuing
operations must be at least $500,000.
- 35 -
While we satisfy the
requirements for continued listing on the NASDAQ Capital Market as of December
31, 2009, periods of operating losses may adversely affect our ability to
maintain minimum required values of stockholders’ equity or Common Stock market
value. If we are unable to satisfy the criteria to maintain listing of our
Common Stock, our Common Stock could be subject to delisting. Trading, if any,
of our Common Stock would thereafter be conducted on the OTC Bulletin Board or
in the so-called “Pink Sheets”. As a consequence, it would be far more difficult
for our stockholders to trade in our Common Stock, and it may be more difficult
to obtain accurate and current information concerning market prices for our
Common Stock.
Risks Relating to Accounting Rules and
Internal Controls
Changes in, or interpretations of, accounting rules and regulations, such
as expensing of stock options, could result in unfavorable accounting
charges.
We prepare our
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. These principles are subject
to interpretation by the SEC and various bodies formed to interpret and create
appropriate accounting policies. A change in these policies can have a
significant effect on our reported results, and may even retroactively affect
previously reported transactions.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior
Securities
Not applicable.
Item 4. Submission of Matters to a Vote of
Security Holders
On December 10, 2009,
the Company held its 2009 Annual Meeting of Stockholders (the “Annual Meeting’).
The total number of outstanding shares of common stock entitled to vote at the
Annual Meeting was 8,026,867, of which an aggregate of 6,426,839 shares of
common stock were present in person or represented by proxy. The Company’s
stockholders were asked to consider and vote upon the following five proposals:
(1) to elect seven directors to the Company’s Board of Directors to serve
a one-year term expiring at the next Annual Meeting of Stockholders and until
such director’s successor shall have been elected and qualified;
(2) to amend the Company’s Amended and Restated Certificate of
Incorporation, as amended, to increase the number of shares of common stock
authorized for issuance from 12,000,000 shares to 15,000,000 shares has been
approved;
(3) to amend the Company’s 2003 Plan to increase the maximum number of
shares of common stock reserved for issuance thereunder by an additional 250,000
shares of common stock from 1,534,734 to 1,784,734 shares has been approved;
(4) to approve an amendment to the Company’s 2003 Plan to allow for a
one-time stock option exchange program under which eligible employees and
directors would be able to elect to exchange outstanding stock options with an
exercise price of $2.25 or greater issued under the Company’s 2003 Plan, as
amended, for new options at an exchange rate of 1.15 to 1.00 has been approved;
and
(5) to ratify the appointment of BDO Seidman, LLP as the Company’s
independent registered public accounting firm for the fiscal year ending June
30, 2010 has been approved.
- 36 -
On December 10, 2009,
the inspector of election certified the results of the vote as follows:
Proposal
|
|
|
|
|
|
|
(1)
|
|
Election of each of the nominees for the
Board of Directors of the Company:
|
|
|
|
|
|
|
For
|
|
Withheld
|
|
|
Joseph A. Allegra
|
|
6,412,884
Shares
|
|
13,955 Shares
|
|
|
|
James L. Alexandre
|
|
6,415,032
Shares
|
|
11,807 Shares
|
|
|
|
Donald R. Caldwell
|
|
6,412,914
Shares
|
|
13,925 Shares
|
|
|
|
Don Cohen
|
|
6,412,877
Shares
|
|
13,962 Shares
|
|
|
|
Robert Olanoff
|
|
6,414,995
Shares
|
|
11,844 Shares
|
|
|
|
David J. Simbari
|
|
6,414,995
Shares
|
|
11,844 Shares
|
|
|
|
Scott J. Yetter
|
|
6,415,006
Shares
|
|
11,833 Shares
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
(2)
|
|
Amendment to the Company’s Amended and
Restated Certificate of Incorporation, as amended, to increase the number
of shares of common stock authorized for issuance from 12,000,000 shares
to 15,000,000 shares:
|
|
6,401,797 Shares
|
|
25,030 Shares
|
|
1,600,040 Shares
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
(3)
|
|
Amendment to the Company’s 2003 Stock
Incentive Plan to increase the maximum number of shares of common stock
reserved for issuance thereunder by an additional 250,000 shares of common
stock from 1,534,734 to 1,784,734 shares:
|
|
5,317,049 Shares
|
|
587,436 Shares
|
|
2,122,382 Shares
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
(4)
|
|
Approval of an amendment to the
Company’s 2003 Stock Incentive Plan to allow for a one-time stock option
exchange program under which eligible employees and directors would be
able to elect to exchange outstanding stock options with an exercise price
of $2.25 or greater issued under the Company’s 2003 Stock Incentive Plan,
as amended, for new options at an exchange rate of 1.15 to 1.00:
|
|
5,317,162 Shares
|
|
587,255 Shares
|
|
2,122,450 Shares
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
(5)
|
|
Ratification of the appointment of BDO
Seidman, LLP, as the Company’s independent registered public accounting
firm for the year ending June 30, 2010:
|
|
6,407,735 Shares
|
|
18,808 Shares
|
|
1,600,324 Shares
|
For Proposal 1, each
nominee received the affirmative vote of a plurality of the shares of common
stock cast by the stockholders present in person or represented by proxy at the
Annual Meeting. For Proposal 2, the Company received the affirmative vote of a
majority of the shares of common stock outstanding and entitled to vote thereon.
For Proposals 3, 4 and 5, the Company received the affirmative vote of a
majority of the shares of common stock present ore represented by proxy at the
Annual Meeting.
Therefore, each
proposal was approved by the requisite number of votes at the Annual
Meeting.
- 37 -
Item 5. Other
Information
On January 20, 2010, the
Company commenced a formal tender offer which allows its employees to exchange
certain outstanding options to purchase shares of the Company’s common stock for
new nonqualified options to purchase fewer shares of common stock with an
exercise price per share equal to the closing price per share of the Company’s
common stock on the new grant date. An option will be eligible for exchange in
the tender offer if it (i) was granted under the Company’s 2003 Stock Incentive
Plan, as amended and restated, (ii) has an exercise price per share equal to or
greater than $2.25, (iii) is held by an active employee of the Company or its
subsidiaries, including its executive officers and non-employee members of its
Board of
Directors, but excluding
those who have resigned or given or received a written notice of their
termination at any time before the expiration of the tender offer and (iv) is
outstanding on the expiration date of the tender offer. Each option that is
eligible for exchange in the tender offer will be canceled and a replacement
option to purchase that number of shares of the Company's common stock
determined by dividing the number of shares of common stock underlying the
canceled eligible option by 1.15 and rounding down to the next whole share. The
replacement options will vest in accordance with the vesting schedule currently
in place for the eligible option it replaces. All eligible options that are
tendered for exchange will be canceled on the date on which the tender offer
expires, and the replacement options will be granted on the first business day
thereafter. Subject to satisfaction of the conditions to the offer, the Company
currently anticipates that the tender offer will expire on February 25, 2010,
unless it decides to extend the tender offer. If an eligible option is not
tendered for exchange in the tender offer, such eligible option will remain
outstanding in accordance with its terms currently in effect. As of January 19,
2010 (the day prior to commencement of the tender offer), options to purchase
822,591 shares of the Company’s common stock were outstanding that were eligible
for exchange in the tender offer.
Item 6. Exhibits
(a)
|
|
Exhibits
|
|
|
|
Exhibit
Number
|
|
Description of
Document
|
31.1
|
|
Certification of principal executive
officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
|
Certification of principal financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
|
Certification of principal executive
officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
|
Certification of principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
- 38 -
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.
Dated: February 12, 2010
VOXWARE, INC.
|
(Registrant)
|
|
|
By: /s/ Scott J.
Yetter
|
|
Scott J. Yetter, President
and
|
Chief Executive Officer
|
(Principal Executive
Officer)
|
|
|
By: /s/ William G.
Levering III
|
|
William G. Levering III
|
Chief Financial Officer
|
(Principal Financial Officer
and
|
Principal Accounting
Officer)
|
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