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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
____________________FORM
10-KSB

|x                                       |  | ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
|--------------------------------------- |  | ------------------------------------------------------------------------------------------
|                                        |  |                                                                                           
|For the fiscal year ended June 30, 2008
|                                        |  |                                                                                           
|o                                       |  | TRANSITION REPORT UNDER 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.(Name of Small Business Issuer 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 registrants principal executive office)

Securities registered under Section
12(b) of the Exchange Act:

|Title of each
      class                      | Name of each
      exchange on which registered
|---------------------------------------------- | -----------------------------------------------
|Common Stock, $0.001
      par value per share | NASDAQ STOCK MARKET
      LLC                  

Securities registered under Section
12(g) of the Exchange Act:None.

Check whether the issuer is not required
to file reports under Section 13 or 15(d) of the Exchange Act. o

Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act 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

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
o

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

The
revenues for the fiscal year ended June 30, 2008, the most recent fiscal year,
were $23,384,000.

The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant was
approximately $5,814,000 as of August 31, 2008, based upon the closing sale
price of the Common Stock as quoted on the NASDAQ Capital Market.

The number of shares of the registrants
Common Stock outstanding as of August 31, 2008 is 6,496,863.

DOCUMENTS INCORPORATED BY
REFERENCE


Certain information required by Part III
of this Annual Report on Form 10-KSB will be set forth in, and is incorporated
by reference from, the Registrant's Proxy Statement for the 2008 Annual Meeting
of Stockholders.


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VOXWARE, INC.ANNUAL REPORT ON FORM 10-KSB

TABLE OF
CONTENTS

|PART I                                     | 3                                                                                                     
|------------------------------------------ | ------------------------------------------------------------------------------------------------------
|                                           | ITEM 1.                                                                                               
|                                           | ITEM
      2.                                                                                         
|                                           | ITEM 3.                                                                                               
|                                           | ITEM
      4.                                                                                         
|                                           |                                                                                                       
|PART II                                    | 14                                                                                                    
|                                           | ITEM 5.                                                                                               
|                                           | ITEM
      6.                                                                                         
|                                           | ITEM 7.                                                                                               
|                                           | ITEM
      8.                                                                                         
|                                           |                                                                                                       
|                                           | ITEM 8A(T).                                                                                           
|                                           | ITEM
      8B.                                                                                        
|                                           |                                                                                                       
|PART III                                   | 29                                                                                                    
|                                           | ITEM 9.                                                                                               
|                                           |                                                                                                       
|                                           | ITEM
      10.                                                                                        
|                                           | ITEM 11.                                                                                              
|                                           |                                                                                                       
|                                           | ITEM
      12.                                                                                        
|                                           | ITEM 13.                                                                                              
|                                           | ITEM
      14.                                                                                        
|                                           |                                                                                                       
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | F-1                                                                                                   
|                                           | Report of Independent Registered
      Public Accounting Firm                                         
|                                           | Consolidated Balance
      Sheets as of June 30, 2008 and 2007                                        
|                                           | Consolidated Statements of
      Operations for the years ended June 30, 2008 and 2007                
|                                           | Consolidated
      Statements of Stockholders Equity for the years ended June 30, 2008 and
      2007
|                                           | Consolidated Statements of Cash
      Flows for the years ended June 30, 2008 and 2007                
|                                           | Summary of Accounting
      Policies and Notes to Consolidated Financial Statements                   

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PART I

This Annual Report on Form 10-KSB 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 Annual 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 Annual Report. You are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this Annual 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 Annual 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.

- 3 -

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|ITEM 1. |  | DESCRIPTION OF
  BUSINESS.
|------- |  | --------------------------

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 IT 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.

We also sell software and some hardware
accessories to value-added resellers, or VARs, who in turn develop and deliver
voice solutions based on our software for their customers.

Our revenues are generated primarily from
software license fees, maintenance fees, professional services and hardware
products sales to both our end customers and VARs.

Products and Services

The Voxware 3 product line is the primary
focus of our operations. The Voxware 3 product includes 1) VoxStudio, a facility
for designing and configuring voice applications without programming, 2)
applications such as VoxPick that target the mobile, front line workforce in
modernized distribution centers, and 3) Voxconnect, an integration tool that
simplifies the creation and maintenance of the Voxware application into the
customers warehouse system.

Voxware 3 is the first open service
oriented architecture-based, or SOA-based, voice software product for the
logistics industry. Usable by non-programmers, we believe Voxware 3 eliminates
up to 90% of the coding effort required by conventional voice products. The
output is a robust voice solution, complete with an operational voice interface
and a direct connection to the appropriate WMS/ERP system. Voxware 3 utilizes an
SOA-based modern Web service architecture, delivering complete independence from
the specifics of client hardware, operating system, data base and WMS/ERP system
details. The openness of Voxware 3 is demonstrated by the fact that we have
delivered Voxware 3 solutions to enterprises that operate with widely differing
technical infrastructures, represented by different Operating Systems (OS),
Database Management Systems (DBMS), WMS/ERP systems, and different wireless
computers from various manufacturers  in both decentralized and centralized
deployments.

Each Voxware solution requires software
and hardware components, and generally some professional services elements. As
noted above, the software always is provided by us  either directly or through
a VAR  but hardware and services may be acquired from other parties.

The client software component of the
solution includes two important Voxware software technologies that are installed
on each wearable computer: our noise-robust Voxware Integrated Speech
Recognition Engine (VISE), designed specifically for high performance
industrial environments, and our patented VoiceXML voice browser, which uses
standard Web technologies to enable application-level functionality on any
certified wearable computer.

- 4 -

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Voxware 3 solutions also generally include
a Voxware application software component installed on a server that communicates
with a central WMS (or system of record) and a variety of special purpose
wearable computers that are worn by individual warehouse workers.

Leading hardware Auto-ID manufacturers
bring voice to their mobile computers with the availability of our software.
Their devices must complete the Powered by Voxware Certification Program, a
process required of all third-party wireless computer manufacturers, enabling
them to integrate our client software on their mobile devices. Every terminal
submitted for certification must meet Voxwares minimum requirements. Our
certification process provides official recognition and gives our customers
confidence that all devices Powered by Voxware will operate satisfactorily in
their environments.

To date we have certified a variety of
wireless devices manufactured by LXE Inc., or LXE, a wholly-owned subsidiary of
Electromagnetic Sciences, Inc., Motorola, Inc. and Hand Held Products (now part
of Honeywell). We are continuing to work with these and other major vendors of
wireless computers to provide Voxware software on their devices. We believe this
gives customers flexibility in the choice of hardware and allows us to expand
our product line with new, multi-modal versions of Voxware 3, which will work
both via speech recognition and other modes, such as keyboard, screen, radio
frequency identification (RFID), or barcode scanning, as appropriate.

We offer professional services that
include system implementation and training, as well as assistance in tailoring
our solution to meet specific requirements within customers facilities. We also
offer customers the option to enter into extended warranties on hardware and
annual software maintenance and customer support arrangements with us. We will
continue to offer maintenance support and make software updates available to our
customers tailored solutions, as well as provide enhancements, upon their
request.

We also offer professional services to
partners that include training in Voxware 3 software and voice solution
implementation, as well as consulting, development or deployment services on
specific projects.

Although Voxware 3 is targeted at the
warehousing market today, we believe its voice recognition technology and
VoxStudio are open in design and, therefore, could be applied to other markets
in which highly accurate voice recognition in a demanding environment would be
important. At the present time, the Company is focused on growing its market
share within the warehousing environment, but we will continue to explore other
markets that may benefit from voice technology transactions.

Sales and Distribution

We sell directly to large companies in
North America and Europe. We also utilize third parties such as consultants,
VARs, wireless computer manufacturers and systems integrators to sell or assist
us in selling our products. To date, we have signed agreements with several
third-party partners. We believe that the establishment of a network of
third-party partners with extensive knowledge of specific market sectors is
important to our long-term success in those sectors.

Historically, our sales were generated
primarily by our own sales force working directly with the end users of the
Voxware solution. With the introduction of VoxBrowser in 2005, VoiceLogistics
Pro in 2006 and Voxware 3 in 2007, we have invested substantial resources into
expanding our partnership channels in North America and abroad. This is
evidenced through our relationships with LXE, Motorola and other companies. Our
direct sales efforts currently contribute the majority of our revenues; we
expect a gradual shift to more third-party generated revenues in the future as
our channel partner efforts expand.

Voxware is actively working with
third-party partners who purchase products and accessories 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. These
application systems integrate our Voxware software and Voxware accessories with
additional hardware and software components and include service and product
support. These partners then resell or lease the application systems to their
end user customers. Under these types of partnership agreements, we warrant to
repair or replace any defective hardware product delivered to a third-party
partner or their customer, provided that we are notified of the defective
product generally within one year from delivery of the product to the end user.
We believe that in the industrial speech recognition market, strategic
partnerships with these various parties are critical to our success. We
anticipate that, over time, an increasingly greater percentage of our revenues
will be generated from software components as our partners supply a greater
percentage of hardware and professional services to new Voxware
implementations.

Building a network of third-party partners
such as those described above takes time and requires different sales and
marketing expertise than that required to build a direct to end user software
distribution channel, or an original equipment manufacturer, or OEM,
relationship for technology. Challenges we face in establishing this network
include overcoming existing relationships potential partners have with our
competitors and training new partners to develop and sell solutions based on
Voxware 3. There can be no assurance that we will be successful in developing
strategic relationships with channel partners, hardware vendors, VARs, logistics
consultants or WMS vendors that produce a favorable impact on our
operations.

- 5 -

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Customers

Our customers include some of the largest
and best-known companies in their respective industries, including 7-Eleven,
Inc., AutoZone, Inc., Dunkin Donuts, Mohawk
Carpet Corporation, Neiman Marcus, Performance Food Group, West Marine, Inc. and
US Foodservice in North America; Argos, B&Q, Somerfield and Waitrose in the
UK;, and Intermarché in France. We added new customers in fiscal 2008 and are
optimistic our increased momentum in key market sectors such as retail, consumer
packaged goods and food service will continue. For the fiscal years ended June
30, 2008 and 2007, US Foodservice accounted for approximately 18% and 22%,
respectively, of our total revenues. There can be no assurance that this
customer will continue to seek our products and services at the same levels as
it has in the past, or at all.

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 one year in the case of hardware. Substantially all
components, parts and subassemblies purchased by Voxware are covered by other
manufacturer warranties for periods ranging from 30 days to one year from date
of purchase by us.

Competition

We encounter competition from two primary
sources. We experience direct competition from companies offering similar
voice-based solutions. Additionally, our solution competes with technologies
that may be considered an alternative to voice-based solutions.

A Voxware-based voice solution integrates
software, hardware and service components. There are several alternative
providers against whom we compete to market some or all of those components. The
major competitor offering a similar solution is Vocollect, Inc., which markets a
proprietary, wearable voice-based computer and complementary software.
Vocollect, Inc. also indirectly sells voice-based systems within the logistics
and distribution market to resellers who also compete against us. In addition to
Vocollect, Inc. and its resellers, there are other vendors who promote similar
solutions, including Lucas Systems, Inc., TOPSystem Systemhaus GmbH, Aldata and
Waveform.

In each application area, there exist
alternatives to voice-based solutions. Barcode scanning devices, for example,
represent a competitive alternative to voice-based products in certain warehouse
picking applications. Thus, barcode product companies such as Motorola, Intermec
Technologies Corporation (a subsidiary of UNOVA, Inc.), LXE, and Psion Teklogix
can be considered competitors in the logistics and fulfillment marketplace.
However, while these barcode product companies can sometimes be competitors to
us, we also have begun establishing formal relationships with several of these
companies to provide potential customers with complementary joint product
offerings that integrate voice-based capabilities with alternative technologies.
Likewise, in the package sorting and remittance processing segments, keyboards
are the most prevalent alternative along with an increasing use of barcode
scanning. Inspection, receiving and inventory applications use keyboards as
well, but often pen and paper comprise the primary alternative method in those
cases.

Factors considered by prospective
customers evaluating competing voice-based logistics solutions include technical
features and functionality of the underlying hardware and software components,
time required to deploy the solutions, quality and availability of professional
and support services, price and ongoing total cost of ownership, or TCO.
Hardware components are generally evaluated based upon such factors as size,
weight, processing speed and multi-modal functionality. Voxware-certified units
compete against Vocollects Talkman® series. Evaluations of competing software
solutions generally consider, among other factors, the breadth of applications
supporting various warehouse operations, support for different languages and
warehouse management systems, and the portability, scalability and extensibility
of the software. Deployment time is impacted primarily by the extent to which
customized software development is required to implement the solution. We
believe our Voxware 3 solution, coupled with our VoxBrowser client software, is
unique in the industry and gives us a competitive advantage by potentially
reducing TCO because its open standards, web-based, people-centric design
enables cross-platform portability, rapid deployment and ease of application
extension.

Voice-based logistics applications offer
real time updating of inventory systems, error checking capabilities to minimize
picking mistakes and hands-free communications allowing for easier handling of
bulky or frozen products. Barcode scanning applications offer similar file
update and error checking features but lack the advantages of hands-free
communication. Voice-based and barcode-based solutions both require
substantially higher capital investments than paper-based and other low
technology systems.

- 6 -

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Patents and Proprietary
Information

Voxware 3 is based on our VISE speech
engine, which is a highly noise-tolerant, continuous speech recognizer. We
believe it is the first speech recognizer to be engineered specifically for use
in highly demanding industrial environments. Voxware 3, and all of our other
voice-based products sold to industrial customers, are based on VISE
technology.

All Voxware-certified mobile devices, when
deployed for a Voxware-based voice solution, incorporate an embedded version of
our VISE speech recognition engine with a standards-based interface that allows
for interfaces with a wide variety of WMS packages. Voxware 3 also employs our
patented invention of systems and methods for using standard Internet protocols
in conjunction with VoiceXML Web pages to remotely program portable voice
devices, such as our VoiceLogistics computer, that direct and guide users
through defined tasks and work. The United States Patent and Trademark Office
issued a patent relating to this invention (Patent #6662163) in 2003.

We believe that owning and developing our
core technologies represents a significant strategic and competitive advantage
for us. We may, from time to time, file patent applications as deemed
appropriate. Our success will depend in part on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing the proprietary rights of other parties.

The software market has traditionally
experienced widespread unauthorized reproduction of products in violation of
manufacturers intellectual property rights. Such activity is difficult to
detect and legal proceedings to enforce the manufacturers intellectual property
rights are often burdensome and involve a high degree of uncertainty and
costs.

Our success is also dependent upon
unpatented trade secrets, which are difficult to protect. To help protect our
rights, we require employees and consultants to enter into confidentiality
agreements that prohibit disclosure of our proprietary information and require
the assignment to us of their ideas, developments, discoveries and inventions.
We cannot assure you, however, that these agreements will provide adequate
protection for our trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosures.

Employees

As of June 30, 2008, we had 84 full-time
employees and consultants, consisting of 28 individuals in cost of goods sold
(which includes professional services, customer support and production), 23
individuals in research and development, 22 individuals in sales and marketing
and 11 individuals in general and administrative. Thirty-one of our employees
are located at our Cambridge, Massachusetts facility, 27 individuals are located
at our corporate offices in Hamilton, New Jersey, 10 individuals work with our
sales and customer support office in the United Kingdom and 16 individuals work
elsewhere. None of our employees are represented by a labor union or are subject
to a collective bargaining agreement. We believe we have good relations with our
employees.

Corporate Information

We were incorporated on August 20, 1993 in
the State of Delaware. Our headquarters is located at 300 American Metro Blvd,
Suite 155, Hamilton, NJ 08619. Our telephone number is +1
609-514-4100.

We file annual, quarterly and current
reports, proxy statements and other documents with the SEC, under the Securities
Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy any
materials that we file with the SEC at the SECs Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at +1 800 SEC-0330.
Our reports, proxy statements and other documents filed electronically with the
SEC are available at the website maintained by the SEC at http://www.sec.gov. In addition, we also make available free
of charge on or through our Internet website, http://www.voxware.com, our annual, quarterly and current
reports, and, if applicable, amendments to those reports, filed or furnished
pursuant to Section 13(a) of the Exchange Act, as soon as reasonably practicable
after we electronically file such reports with the SEC. Copies of our SEC
filings may also be obtained by calling our main number and asking for investor
relations or emailing: ir@voxware.com.
Information on our website is not a part of this report. In addition, we make
available on our website (i) the charters for the committees of our Board of
Directors, including the Audit Committee, Compensation Committee and Nominating
and Corporate Governance Committee and (ii) our Code of Business Conduct and
Ethics governing our directors, officers and employees. We intend to disclose on
our website any amendments to, or waivers from, our Code of Business Conduct and
Ethics that are required to be disclosed pursuant to the rules of the Securities
and Exchange Commission and The NASDAQ Stock Market.

- 7 -

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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.

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 Report on Form 10-KSB 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 Annual Report on Form 10-KSB.

Risks Relating to Our Business and
OperationsIf we incur operating
losses, we may be unable to continue our operations. We have incurred cumulative operating losses since we started our company
in August 1993. While we achieved a net profit during the year ended June 30,
2008, the accumulated deficit at that date was $74,740,000. The recent
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, combined
with the seasonal impact of the typically slower summer months, our revenue
during the first quarter of fiscal 2009 will likely be lower than quarterly
revenues reported for fiscal 2008. If we incur operating losses and consistently
fail to be a profitable company, we may be unable to continue our operations. In
addition, we plan to continue to increase spending on research and development,
along with sales and marketing, at levels higher than in the recent past and
possibly disproportionate to revenue, thus incurring net losses in the near
term. 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 recent 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, combined with the seasonal impact of the typically
slower summer months, our revenue during the first quarter of fiscal 2009 will
likely be lower than quarterly revenues reported for fiscal 2008. 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 18% of our total revenues for the year
ended June 30, 2008. 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 Voxware 3
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 that we resell.
Any disruption in supply by this vendor would prohibit us from shipping the
products we resell, and we would need to convince the customer to purchase a
supported product distributed by another vendor. 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.

- 8 -

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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 revenue, 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 economic slowdown being experienced
worldwide.

We cannot assure you that any of these
factors will not substantially influence our quarterly operating
results.

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.

- 9 -

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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, we accelerated
the vesting of outstanding stock options to all of our employees, thereby
eliminating a possible reason for employees to remain with us. As of June 30,
2008, 216,801 options to purchase shares of our Common Stock were available for
grant to employees and directors. 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 prohibit 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 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.

- 10
-

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Risks Relating to Our
SecuritiesThe 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 $7.55 and as low as $1.03 per share between July 1, 2007 and June 30,
2008. 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. On
October 25, 2005, we registered 1,084,383,899 shares (7,229,226 shares after
giving effect to the 1-for-150 reverse stock split executed in December 2005, or
Reverse Split) of Common Stock, including an aggregate of 193,070,922 shares
(1,287,139 shares after giving effect to the Reverse Split) of Common Stock
issuable upon the exercise of warrants. We also 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
investment or make a profit. As of August 31, 2008, these shares
include:

- approximately 173,000 shares of our Common Stock
  owned by our executive officers and directors; and
- approximately 2,089,000 shares of our Common Stock
  issuable to warrant holders and option 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 of August 31, 2008, our
executive officers, directors and affiliated entities together beneficially own
approximately 5,699,000 shares of our Common Stock, assuming the exercise of
options, warrants and other Common Stock equivalents, which are currently
exercisable, held by these stockholders. 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.

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.

- 11
-

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While we satisfy the requirements for
continued listing on the NASDAQ Capital Market as of June 30, 2008, 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. Our accounting policies that recently have
been, or may be, affected by changes in the accounting rules are as
follows:

- revenue recognition;
- accounting for share-based payments; and
- accounting for income taxes.

|ITEM 2. |  | DESCRIPTION OF PROPERTY.
|------- |  | ------------------------

Effective May 23, 2008, we commenced a
lease for our headquarters facility, which contains 9,473 square feet of office
space in Hamilton, New Jersey. The initial term of this lease expires on May 31,
2013. Payments under this lease consist of a base rent of:

- $23.50 per square foot through May 31,
  2009;
- $24.00 per square foot from June 1, 2009 through
  May 31, 2010;
- $24.50 per square foot from June 1, 2010 through May 31,
  2011;
- $25.00 per square foot from June 1, 2011 through May 31,
  2012; and
- $25.50 per square foot from June 1, 2012 through May 31,
  2013.

Beginning in 2009, the lease requires us
to pay for escalations in property operating expenses, property taxes and other
items. We retain an option to extend the lease for five years after the initial
lease termination date. In addition to our executive offices, this facility
houses our Voxware 3 development staff, part of our sales and marketing staff
and our finance and accounting staff. Prior to May 23, 2008, our headquarters
contained approximately 5,000 square feet of leased office space in
Lawrenceville, New Jersey. We anticipate that the Hamilton, New Jersey facility
provides sufficient space for our headquarters operations for the foreseeable
future.

Effective August 1, 2007, we moved our
Cambridge, Massachusetts operations to office space containing 7,632 square
feet. This facility houses our customer support, professional services, product
engineering, final assembly and testing and part of our research and development
staff. The initial term of this lease expires on July 31, 2012. Payments under
this lease consist of a base rent of:

- $17.00 per square foot through July 31,
  2008;
- $18.00 per square foot from August 1, 2008 through
  July 31, 2009;
- $19.00 per square foot from August 1, 2009 through
  July 31, 2010;
- $20.00 per square foot from August 1, 2010 through
  July 31, 2011; and
- $21.00 per square foot from August 1, 2011 through July 31,
  2012.



Additionally, we are responsible for our
proportionate share of building operating costs and real estate taxes, which are
initially estimated to be $11.01 per square foot. Prior to August 1, 2007, our
Cambridge, Massachusetts operations were housed in a different facility
consisting of approximately 9,500 square feet of office space.

Our Reading, England facility serves as a
sales and service office for our customers based in the United Kingdom and
Europe. On November 22, 2006, we entered into a 10 year lease of an office
consisting of approximately 1,000 square feet. Under the lease terms, we have
options to terminate the lease without penalty after three and five years.
Minimum rent payments of £1,713.54 per month commenced on March 1, 2007. The
minimum monthly lease payment increased to £1,762.50 on March 1, 2008. In the
event we opt to continue the lease beyond the third year, the minimum monthly
lease payment increases to £1,860.42 on March 1, 2009.

- 12
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|ITEM 3. |  | 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 4. |  | SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS.
|------- |  | ----------------------------------------------------------

Not applicable.

- 13
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PART II

|ITEM 5. |  | MARKET FOR COMMON EQUITY AND
      RELATED STOCKHOLDER MATTERS.
|------- |  | ---------------------------------------------------------------

Market Information

From March 1, 2001 through December 11,
2005, our Common Stock traded on the NASDAQ OTC Bulletin Board under the symbol
VOXW.ob. From December 12, 2005 through March 19, 2006, our Common Stock was
traded on the NASDAQ OTC Bulletin Board under the symbol VXWR.ob after giving
effect to the 1-for-150 reverse split of all the outstanding shares of our
Common Stock, or the Reverse Split. On March 20, 2006, our Common Stock began
trading on the NASDAQ Capital Market under the symbol VOXW. The following table
sets forth the high and low closing sale prices per share, after adjustment for
Reverse Split, as quoted on the NASDAQ Capital Market for our two most recent
fiscal years:

High
    
    LowFiscal Year Ended June 30, 2007Quarter ended September 30, 2006
    $7.00
    
    $3.80Quarter ended December 31,
      2006
    $5.01
    
    $3.22Quarter ended March 31, 2007
    $5.25
    
    $2.41Quarter ended June 30,
    2007
    $7.40
    
    $2.10Fiscal Year
      Ended June 30, 2008Quarter ended September 30,
      2007
    $7.45
    
    $3.78Quarter ended December 31, 2007
    $6.10
    
    $3.31Quarter ended March 31,
    2008
    $6.00
    
    $4.10Quarter ended June 30, 2008
    $4.97
    
    $3.52


As of June 30, 2008, there were
approximately 151 holders of record of our Common Stock. We have never declared
nor paid any cash dividends on our Common Stock. We do not anticipate paying any
cash dividends in the foreseeable future.

Equity Compensation Plan
Information

The following table provides information
as of June 30, 2008, with respect to the shares of our Common Stock that may be
issued under our existing equity compensation plans.

|                                                   |                            | Weighted          | Number
  of          
|-------------------------------------------------- | -------------------------- | ----------------- | ---------------------
|                                                   | Number of
      Securities | Average           | Securities           
|                                                   | to be Issued
      Upon    | Exercise Price of | Available
      for  
|                                                   | Exercise
      of          | Outstanding       | Future
      Issuance
|                                                   | Outstanding
      Options, | Options,          | under
    Equity     
|                                                   | Warrants and
      Rights  | Warrants and      | Compensation         
|Plan
      Category                                | (1)                        | Rights            | Plans
  (2)          
|2003
      Stock Incentive Plan                    | 924,729                    | $5.36             | 215,901              
|1994
      Stock Option Plan                       | 2,621                      | $252.16           | 0                    
|1998 Stock Option Plan for Outside
      Directors | 0                          | --                | 900                  

|(1) |  | Reflects 1-for-150 reverse stock
      split effectuated December 12, 2005.                                                                                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Shares reserved for issuance
      under the plan may be issued upon the exercise of stock options or through
      direct stock issuances which vest upon the completion of designated
      service periods or the attainment of prescribed performance
    goals.

Sale of Unregistered
Securities

None.

Purchase of Equity Securities by the
Small Business Issuer and Affiliated Purchases

None.

- 14
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|ITEM 6. |  | MANAGEMENTS DISCUSSION AND
      ANALYSIS OR PLAN 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;
- 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.

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 IT 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 VARs.

Historically, our sales were 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.

- 15
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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.

At the same time we have developed
partnerships with key value added reseller, or 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 recent 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, combined with the seasonal impact
of the typically slower summer months, our revenue during the first quarter of
fiscal 2009 will likely be lower than quarterly revenues reported for fiscal
2008.

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
2009. Revenue from new customers, including those brought to us through VARs and
other channel partners, grew faster than revenue from existing customers during
the year ended June 30, 2008, and these customers are expected to contribute a
higher percentage of our total revenues during fiscal year 2009 than during
fiscal year 2008. We generated net profits during the year ended June 30, 2008
due to increased revenues, a greater percentage of revenues derived from higher
margin software licenses and the cost savings realized from the staff reduction
that we undertook during the second quarter of fiscal year 2007. We expect
revenues will generally increase beyond fiscal 2009, although 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. Also, $1,465,000 was
available under the Revolver with SVB as of June 30, 2008, which is available
for short-term operating needs. Approximately $451,000 was borrowed in July 2008
under the Equipment Revolver. In addition, we believe we are able 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 a greater emphasis on sales of higher margin product and the
availability of cash through existing relationships with SVB, we believe that we
have adequate capital resources available to fund our operations through June
30, 2009.

- 16
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Selected Financial Data

The selected statement of operations data
for the fiscal years ended June 30, 2008 and 2007, and the selected balance
sheet data as of June 30, 2008 and 2007, have been derived from our audited
financial statements, which are included elsewhere in this Annual Report on Form
10-KSB. The selected statements of operations data for the fiscal years ended
June 30, 2006, 2005 and 2004, and the balance sheet data as of June 30, 2006,
2005 and 2004, have been derived from our audited financial statements not
included herein. The selected statement of operations data set forth below
should be read in conjunction with Managements Discussion and Analysis of
Results of Operations and Financial Condition and the financial statements and
notes thereto included elsewhere in this Annual Report on Form
10-KSB.

|                                        |  | Year Ended June 30,                  
|--------------------------------------- |  | -------------------------------------
|                                        |  | 2004                                 
|                                        |  | (In thousands, except per share data)
|Statement of Operations Data:           |  |                                      
|Total
      revenues                    |  | $                                    
|Total cost of revenues                  |  | $                                    
|Net income
      (loss) attributable to |  |                                      
|common stockholders                     |  | $                                    
|Net income (loss) per share             |  |                                      
|attributable to common                  |  |                                      
|stockholders:                           |  |                                      
|- basic                                 |  | $                                    
|- diluted                               |  | $                                    
|Weighted average
      number of shares |  |                                      
|used in computing net income            |  |                                      
|(loss) per common share, adjusted       |  |                                      
|for Reverse Split:                      |  |                                      
|- basic                                 |  |                                      
|- diluted                               |  |                                      
|                                       
|                                        |  | As of June 30,                       
|                                        |  | 2004                                 
|                                        |  | (In thousands)                       
|Balance Sheet Data:                     |  |                                      
|Cash, cash
      equivalents and short  |  |                                      
|term investments                        |  | $                                    
|Working capital (deficit)               |  | $                                    
|Total
      assets                      |  | $                                    
|Long-term liabilities                   |  | $                                    
|Stockholders'
      equity (deficit)    |  | $                                    

Critical Accounting Policies

The preparation of financial statements
and related disclosures in conformity with accounting principles generally
accepted in the United States of America 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.

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Revenues 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 is 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 some 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 above four criteria are met. For the collectibility criteria, revenue
from each channel partner is deferred until cash is collected, unless a pattern
of collectibility has been 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,
is recognized ratably over the term of the service period, which is generally
one year.

We recognize revenue in accordance with
the American Institute of Certified Public Accountants Statement of Position, or
SOP, No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9. SOP
97-2, as amended, requires that revenues recognized from multiple element
arrangements that include software licenses be allocated to the various elements
of the arrangement based on the relative fair values of the elements, such as
hardware, deployment services, maintenance and technical support services. We
follow the residual method of accounting under SOP 97-2, as amended. 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 relative fair value of
the undelivered elements included in our multi-element sales arrangements is
based on vendor specific objective evidence, or VSOE.

VSOE of fair value exists for hardware
sold separately. We determine the VSOE of fair value of hardware based on the
price when it is sold separately. 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 June 30, 2008, we believe
that we have realized VSOE of the fair values for hardware, maintenance and
professional services.

We continue to generate royalty revenues
from our legacy speech coding technology business, which was sold in 1999.
Royalties are earned on technologies our customers incorporate into their
products for resale. Revenues are recognized at the time of the customers
shipment of those products, as estimated based upon reports received
periodically from our customers. If our customers business operations change
dramatically, our actual royalty revenues earned could differ substantially from
our estimates.

Travel costs associated with professional
services and billed to customers are recorded as services revenues at the time
they are incurred.

Deferred Revenues Deferred revenues consist
of unearned customer deposits, extended hardware warranties, depot management
service fees 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. Certain extended
hardware warranty arrangements have a three year term. Revenues from depot
management services, which were provided through December 2007, were recognized
over the contract period.

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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 our historical experience, our estimates of recoverability of amounts due
us could be affected.

Research and Development
Research and
development expenditures are charged to operations as incurred. Pursuant to
Statement of Financial Accounting Standards, or SFAS, No. 86, "Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise Marketed",
development costs incurred in connection with the research and development of
software products and enhancements to existing software products are 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 achieved substantially at the
time the software is released for general sale to our customers.

Warranty Costs 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 market. 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 market or write off excess inventory levels. If customer demand
subsequently differs from our forecasts, requirements for inventory write-offs
could differ from our estimates.

Stock Based Compensation
Effective July 1,
2006, we adopted SFAS No. 123(R), Share-Based Payment, an amendment of SFAS
No. 123 and 95, which requires all companies to measure compensation cost for
all share-based payments, including employee stock options and other equity
awards, 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.

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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.

Our deferred tax assets represent net
operating loss carry-forwards and temporary differences that will result in
deductible amounts in future years if we have taxable income. Our ability to
utilize net operating losses is limited in accordance with section 382 of the
Internal Revenue Code. We reviewed significant transactions affecting Voxwares
capital structure and determined the most recent event triggering net operating
loss limitations occurred in June 2003. Accordingly, our deferred tax assets
consist primarily of losses incurred subsequent to June 2003. We have
established a 100% valuation allowance against our net deferred tax assets based
on estimates and certain tax planning strategies. The carrying value of our net
deferred tax assets assumes that it is more likely than not that we will not be
able to utilize the benefit of these tax assets to offset future taxable income
in certain tax jurisdictions. If these estimates and related assumptions change
in the future, we may be required to adjust the valuation allowance in future
years.

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.

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Results of Operations

Fiscal 2008 Versus Fiscal
2007

|                                        |  | Year
      Ended     |        | % of
      Total |  | Year
      Ended     |    | % of
      Total |   |                      |   |         
|--------------------------------------- |  | -------------------- | ------ | ---------------- |  | -------------------- | -- | ---------------- | - | -------------------- | - | --------
|                                        |  | June 30, 2008        |        | Revenue          |  | June 30, 2007        |    | Revenue          |   | $ Change             |   | % Change
|                                        |  | (In
      thousands) |        |                  |  | (In
      thousands) |    |                  |   | (In
      thousands) |   |         
|Product revenues                        |  | $                    | 17,173 |                  |  | 73                   | %  |                  | $ | 11,566               |   |         
|Services
      revenues                 |  |                      | 6,211  |                  |  | 27                   | %  |                  |   | 3,854                |   |         
|Total revenues                          |  |                      | 23,384 |                  |  | 100                  | %  |                  |   | 15,420               |   |         
|                                       
|Cost of product revenues                |  |                      | 5,835  |                  |  | 25                   | %  |                  |   | 3,785                |   |         
|Cost of services
      revenues         |  |                      | 3,718  |                  |  | 16                   | %  |                  |   | 2,713                |   |         
|Total cost of revenues                  |  |                      | 9,553  |                  |  | 41                   | %  |                  |   | 6,498                |   |         
|                                        |  |                      |        |                  |  |                      |    |                  |   |                      |   |         
|Gross profit                            |  |                      | 13,831 |                  |  | 59                   | %  |                  |   | 8,922                |   |         
|                                       
|Research and development                |  |                      | 3,830  |                  |  | 16                   | %  |                  |   | 2,783                |   |         
|Sales and
      marketing               |  |                      | 6,019  |                  |  | 26                   | %  |                  |   | 5,394                |   |         
|General and administrative              |  |                      | 3,414  |                  |  | 14                   | %  |                  |   | 2,718                |   |         
|Total operating
      expenses          |  |                      | 13,263 |                  |  | 56                   | %  |                  |   | 10,895               |   |         
|                                        |  |                      |        |                  |  |                      |    |                  |   |                      |   |         
|Operating profit (loss)                 |  |                      | 568    |                  |  | 3                    | %  |                  |   | (1,973               | ) |         
|                                       
|Interest income, net                    |  |                      | 24     |                  |  | 0                    | %  |                  |   | 37                   |   |         
|Profit (loss)
      before income taxes |  |                      | 592    |                  |  | 3                    | %  |                  |   | (1,936               | ) |         
|                                       
|Provision for income taxes              |  |                      | (7     | )                |  | (0                   | %) |                  |   | -                    |   |         
|                                       
|Net profit (loss)                       |  | $                    | 585    |                  |  | 3                    | %  |                  | $ | (1,936               | ) |         

Revenues

Our total revenues were $23,384,000 for
the year ended June 30, 2008 compared to total revenues of $15,420,000 for the
year ended June 30, 2007. The $7,964,000 (52%) increase in total revenues is
primarily due to increases of $2,768,000 (75%) in licensing of software,
$3,099,000 (52%) in revenues generated from the sale of hardware units and
related accessories, $1,041,000 (71%) in professional services and $1,193,000
(54%) in software maintenance services. Product revenues accounted for 73% of
revenues during the year ended June 30, 2008, as compared to 75% during the year
ended June 30, 2007. Service revenues accounted for 27% of revenue during the
year ended June 30, 2008, as compared to 25% during the prior year.

Product revenues include licensing of
software, sales of hardware units and accessories, sales of extended hardware
warranties and depot management services, and royalties from our legacy speech
compression technology. Total product revenues increased $5,607,000 (48%) to
$17,173,000 during the year ended June 30, 2008 from $11,566,000 in the year
ended June 30, 2007. Software licenses increased $2,768,000 (75%) to $6,475,000
during the year ended June 30, 2008 from $3,707,000 in the year ended June 30,
2007. Sales of hardware units and accessories increased $3,099,000 (52%) to
$9,086,000 during the year ended June 30, 2008 from $5,987,000 in the year ended
June 30, 2007. Revenues from extended hardware warranties and depot management
services decreased $237,000 (16%) to $1,205,000 during the year ended June 30,
2008 from $1,442,000 in the year ended June 30, 2007. The increase in product
revenues during the year ended June 30, 2008 was primarily due to increases in
the number of new customer sites running our software, the number of VoxBrowser
software licenses, the related hardware units and accessories sold compared to
the year ended June 30, 2007. The increase in the number of software licenses,
hardware units and hardware accessories sold was primarily due to an increase in
the number of new customer sites purchasing our solutions during the year ended
June 30, 2008, as compared to the year ended June 30, 2007. The decrease in
extended hardware warranties and depot management services decreased due to the
termination at December 31, 2007 of a contract to provide depot management
services to one customer. As a result of the introduction of Voxware 3, which is not dependent on our proprietary hardware
platform, we anticipate that software licenses will account for a greater
percentage of product revenues in the future, with less emphasis on sales of new
or upgraded hardware units. Software licenses contributed 38% of product
revenues during the year ended June 30, 2008, as compared to 32% during the year
ended June 30, 2007. In addition, we expect that a greater percentage of
hardware sales will be derived from accessories, rather than hardware units, as
more hardware manufacturers and resellers enter the marketplace. Accessories
generally provide higher gross margin percentages than hardware unit sales. For
the year ended June 30, 2008, accessories accounted for 48% of hardware
revenues, as compared to 39% for the year ended June 30, 2007. However, we
cannot predict the rate of future growth or the relative mix of products and
services.

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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 year ended June 30, 2008, services revenues
totaled $6,211,000, an increase of $2,357,000 (61%) from services revenues of
$3,854,000 for the year ended June 30, 2007. Professional services increased
$1,041,000 (71%) from $1,461,000 during the year ended June 30, 2007 to
$2,502,000 during the year ended June 30, 2008, reflecting the increase in the
number of new sites at which our solutions were first deployed. Voxware 3
provides tools to allow third-party partners to develop voice-enabled logistics
solutions independent of our professional services staff. As a result, and
despite the increase in professional services revenues during the year ended
June 30, 2008, as compared to the year ended June 30, 2007, professional
services revenues for new customers may decline in the future. Software
maintenance support services increased $1,193,000 (54%) from $2,219,000 during
the year ended June 30, 2007 to $3,412,000 during the year ended June 30, 2008.
Revenues from software maintenance support services tend to grow over time as
additional software licenses are sold. Billed travel costs increased $123,000
(71%) to $297,000 during the year ended June 30, 2008 from $174,000 during the
year ended June 30, 2007. The increase in billed travel costs reflects the
increase in the number of sites implementing our solutions.

Cost of Revenues

Total cost of revenues increased
$3,055,000 (47%) from $6,498,000 for the fiscal year ended June 30, 2007 to
$9,553,000 for the fiscal year ended June 30, 2008.

Cost of product revenues increased
$2,050,000 (54%) from $3,785,000 in the year ended June 30, 2007, to $5,835,000
in the year ended June 30, 2008. Such costs reflect materials, labor and
overhead associated with the sale of our voice-based products. Included in our
cost of product revenues is our manufacturing staff, which was comprised of 5
individuals as of June 30, 2008, as compared to 3 individuals as of June 30,
2007. The increase in cost of product revenues is primarily attributable to an
increase of $1,827,000 for direct material costs and $125,000 for freight
charges, which were primarily due to increases in hardware unit sales and
average cost per unit during the year ended June 30, 2008, as compared to the
year ended June 30, 2007. Labor related costs increased $82,000 during the year
ended June 30, 2008, as compared to the year ended June 30, 2007, due to the
larger staff size. We expect software licensing to account for a higher
percentage of product revenues in the future. Accordingly, cost of product
revenues, as a percentage of product revenues, may gradually decline, so that
our margins earned on product revenues may increase. However, any such increases
in gross margin percentages may be offset if end users seek to purchase portable
computer hardware units and related accessories directly from us versus through
third-party partners, as the gross margin on sales of hardware is lower than
that on sales of software.

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 to 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. Our customer support and professional services
staff was comprised of 23 individuals as of June 30, 2008, as compared to 20
individuals as of June 30, 2007. Cost of services revenues increased $1,005,000
(37%) from $2,713,000 in the year ended June 30, 2007 to $3,718,000 in the year
ended June 30, 2008. Project costs incurred during the year ended June 30, 2008
exceeded project costs incurred during the year ended June 30, 2007 by $719,000.
Travel costs, primarily associated with customer projects, increased $156,000
and labor costs increased $78,000 during the year ended June 30, 2008, as
compared to the year ended June 30, 2007. Charges for outside services increased
by $79,000 during the year ended June 30, 2008, as compared to the year ended
June 30, 2007. The cost increases were partially offset by decreases of $60,000
in office related charges.

Operating Expenses

Total operating expenses increased by
$2,368,000 (22%) to $13,263,000 in the fiscal year ended June 30, 2008 from
$10,895,000 in the fiscal year ended June 30, 2007. As of June 30, 2008,
headcount associated with operating expenses (research and development, sales
and marketing, general and administrative) totaled 56 individuals compared to 46
individuals as of June 30, 2007.

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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. 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 23 individuals as of June 30,
2008 compared to 20 individuals as of June 30, 2007. Our research and
development expenses increased $1,047,000 (38%) to $3,830,000 in the year ended
June 30, 2008 from $2,783,000 in the year ended June 30, 2007, as we continue to
make investments in our new product development. Labor costs, net of costs
allocated to or from professional services and customer support, increased
$424,000 during the year ended June 30, 2008, as compared to the year ended June
30, 2007. Labor charges for the year ended June 30, 2008 included $71,000
related to the tender offer closed on November 19, 2007, which allowed our
employees to tender certain stock options for amendment in order to avoid
potential adverse tax consequences for below market options under Section 409A.
In addition, the cost of outside development services increased by $419,000,
recruiting costs increased by $82,000, travel costs increased by $63,000 and
office expenses increased by $48,000. We anticipate research and development
expenses during fiscal year 2009 may be higher than those costs incurred during
fiscal year 2008, as we continue to enhance Voxware 3 and hire additional
development staff.

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 22
individuals as of June 30, 2008, compared to 16 individuals as of June 30, 2007.
Sales and marketing expenses increased $625,000 (12%) to $6,019,000 in the year
ended June 30, 2008 from $5,394,000 in the year ended June 30, 2007, reflecting
our focus on expanding customer base and channel partner relationships both
domestically and abroad. The change in sales and marketing expenses is due
primarily to increases of $827,000 in compensation costs due to increased
headcount and increased revenue related commission expense, $121,000 in
marketing program costs, $110,000 in recruiting charges associated with staff
hired during the year ended June 30, 2008 and $72,000 in employee training
programs. These increases were partially offset by decreases of $201,000 in
costs incurred by customer support and professional services staff in support of
our sales activities, $16,000 in travel costs and $30,000 in equipment and
supplies. Sales and marketing costs were reduced during the year ended June 30,
2008 by $179,000 of charges accrued in prior years that the Company determined
would not be paid. Labor charges for the year ended June 30, 2008 included
$12,000 related to the tender offer closed on November 19, 2007, which allowed
our employees to tender certain stock options for amendment in order to avoid
potential adverse tax consequences for below market options under Section 409A.
We expect to continue investing additional resources in the expansion of our
marketing programs and channel partner relationships. Due to the significant
lead time required to identify, engage, and train third-party partners in the
sale and development of Voxware 3 solutions, we anticipate sales and marketing
expenses during fiscal year 2009 may be higher than those costs incurred during
fiscal year 2008.

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 11 individuals as of June 30, 2008 and
10 individuals as of June 30, 2007. General and administrative expenses
increased $696,000 (20%) to $3,414,000 in the year ended June 30, 2008 from
$2,718,000 in the year ended June 30, 2007. Total labor compensation costs were
$412,000 higher during the year ended June 30, 2008 than during the year ended
June 30, 2007. This increase includes an increase of $508,000 for non-cash share
based compensation charges, partially offset by one-time severance-related costs
of $270,000 associated with the November 2006 reduction in force. In addition,
we experienced increases of $239,000 in outside professional services. Bad debt
charges were $136,000 during the year ended June 30, 2008, as compared to $1,000
during the year ended June 30, 2007, due to the sufficiency of the accounts
receivable reserve at that date. We experienced a gain of $129,000 from
fluctuations in foreign currency exchange rates during the year ended June 30,
2008, as compared to a gain of $89,000 during the year ended June 30, 2007, a
change of $40,000. During the year ended June 30, 2008, costs associated with
being a publicly traded company were $28,000 lower than during the year ended
June 30, 2007. General and administrative costs were reduced during the year
ended June 30, 2008 by $134,000 of charges accrued in prior years that the
Company determined would not be paid.

Interest Income, net

Interest income earned is reported net of
interest expense. Net interest income was $24,000 for the year ended June 30,
2008, compared to $37,000 for the year ended June 30, 2007, a decrease of
$13,000. Interest income decreased $63,000 from $207,000 during the year ended
June 30, 2007 to $144,000 during the year ended June 30, 2008 due primarily to
declining interest rates and lower balances of invested funds. Interest expense
decreased $50,000 from $170,000 during the year ended June 30, 2007 to $120,000
during the year ended June 30, 2008 due primarily to declining debt
levels.

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.

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The provision for income taxes was $7,000
for the year ended June 30, 2008, as compared $0 for the year ended June 30,
2007. We had a profit before taxes of $592,000 for accounting purposes during
the year ended June 30, 2008, compared to a loss before taxes of $1,936,000
during the year ended June 30, 2007. The provision for income taxes is primarily
the result of federal and state alternative minimum tax regulations, which
prevent us from fully utilizing our net operating losses.

Liquidity and Capital
Resources

As of June 30, 2008, we had $3,503,000 in
cash and cash equivalents, compared to $4,961,000 in cash and cash equivalents
as of June 30, 2007, a decrease of $1,458,000. Our working capital as of June
30, 2008 was $3,799,000, compared to $3,281,000 as of June 30, 2007, an increase
of $518,000.

Net cash used in operating activities
totaled $234,000 for year ended June 30, 2008, primarily consisting of decreases
of $720,000 in accounts payable and accrued expenses and $579,000 in deferred
revenues, and increases of $1,032,000 in accounts receivable and $436,000 in
prepaid expenses and other assets, offset by a net profit of $585,000, a
decrease of $513,000 in inventory and $105,000 in deferred project costs. Cash
used in operating activities was offset by non-cash charges totaling $1,330,000,
consisting of $898,000 of share based compensation, $279,000 of depreciation and
amortization, a $136,000 increase in the provision for bad debts, and the
recognition of accumulated other comprehensive losses related to foreign
currency adjustments upon the liquidation of Voxware, n.v. in the amount of
$17,000. The reduction in accounts payable and accrued expenses is primarily a
function of payments of inventory and other accruals recorded as of June 30,
2007. 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 year, but were impacted by
increased billings during the year ended June 30, 2008 as compared to the year
ended June 30, 2007. The decrease in inventory is primarily due to the delivery
to our customer in July 2007 of a significant inventory order that we received
in June 2007. Share based compensation charges relate to grants of restricted
stock units and stock options. These charges are expected to increase during
fiscal year 2009 due to the grants during the year ended June 30, 2008 of
approximately 306,000 restricted stock units and options to purchase
approximately 437,000 shares of Common Stock. The increases in prepaid expenses
and other assets is due primarily to the prepaid portion of contracts providing
outsourced hardware warranty services and deposits for new office leases. For
the year ended June 30, 2007, net cash used in operating activities totaled
$1,546,000, primarily consisting of a net loss of $1,936,000 and increases of
$2,859,000 in accounts receivable and $417,000 in inventory, offset by an
increase in deferred revenues of $1,776,000, an increase of $1,713,000 in
accounts payable and accrued expenses, and non-cash charges of $512,000
primarily for depreciation and amortization and share based compensation. The
increases in accounts receivable primarily reflects revenues of $4,904,000 for
the three months ended June 30, 2007, which were $1,419,000 higher than for the
three months ended June 30, 2006. Additionally, the increase in accounts
receivable reflects increased software maintenance and extended hardware
warranty billings, and the impact of foreign sources of revenue, which generally
require a longer collection cycle. Increases in deferred revenues are primarily
due to the timing of maintenance billings throughout the year, which were higher
during the year ended June 30, 2007 than during the year ended June 30, 2006 and
new customer site implementations during the year ended June 30, 2007. The
increase in inventory is primarily due to the receipt in June 2007 of a
significant inventory order that we delivered to our customer in July 2007.
Changes in accounts payable and accrued expenses are primarily a function of the
timing of the recording of expenses versus related payments. Accounts payable
and accrued expenses as of June 30, 2007 includes $1,029,000 more of inventory
purchases and $718,000 more in accruals of operating costs than at June 30,
2006. Non-cash charges during the year ended June 30, 2007 consisted primarily
of depreciation and amortization costs and share based compensation, and were
$4,009,000 less than for the year ended June 30, 2006.

Net cash used in investing activities
totaled $583,000 during the year ended June 30, 2008 and $183,000 during the
year ended June 30, 2007, due to purchases of property and equipment for the new
premises leased at Cambridge, MA and Hamilton, NJ.

Net cash used in financing activities
totaled $641,000 during the year ended June 30, 2008, compared to $219,000 used
in financing activities during the year ended June 30, 2007. During the year
ended June 30, 2008, we repaid $687,000 against term loans with Silicon Valley
Bank, or SVB. We received net proceeds in the amount of $46,000 from the
exercise of stock options during the year ended June 30, 2008. During the year
ended June 30, 2007, we received proceeds of $1,800,000 and $3,000,000,
respectively against our working line of credit and term loan with SVB and
$209,000 from the exercise of stock options. Also during the year ended June 30,
2007, we repaid $3,100,000 against the working line of credit and $2,128,000
against term loans with SVB.

- 24 -

---

On February 15, 2007, we received a notice
from the Listing Qualifications Department of The NASDAQ Stock Market, Inc., or
NASDAQ, indicating that the NASDAQ staff had determined that we did not comply
with or satisfy NASDAQ Marketplace Rule 4310(c)(2)(B) for continued listing on
the NASDAQ Capital Market, which requires that we maintain minimum stockholders
equity of $2,500,000, $35,000,000 market value of listed securities or $500,000
of net income from continuing operations for the most recently completed fiscal
year or two of the three most recently completed fiscal years. On March 2, 2007,
we provided the NASDAQ staff with our specific plan to achieve and sustain
compliance with the NASDAQ Capital Market listing requirements, including the
time frame for completion of the plan. In response thereto, we received, on
March 23, 2007, a determination from the NASDAQ staff a notice denying our
request for continued listing on The NASDAQ Capital Market, or the
Determination, as a result of our failure to comply with or satisfy NASDAQ
Marketplace Rule 4310(c)(2)(B). In response to the Determination, we requested a
hearing before the NASDAQ Listing Qualifications Panel, or the Panel, to appeal
the Determination and seek continued listing on The NASDAQ Capital Market. We
were granted a hearing before the Panel, scheduled for May 10, 2007. On May 1,
2007, we reported stockholders' equity of $2,556,000 in our Form 10-QSB for the
period ended March 31, 2007. In response to this filing, we received a letter
from the NASDAQ Stock Market Inc. indicating that our stockholders equity
balance again satisfied NASDAQ Marketplace Rule 4310(c)(2)(B) for continued
listing on the NASDAQ Capital Market as we regained a minimum stockholders'
equity of $2,500,000. Accordingly, the hearing before the NASDAQ Listing
Qualifications Panel scheduled for May 10, 2007 to appeal the Determination was
cancelled. In order to assist our efforts to sustain compliance with NASDAQ
Marketplace Rule 4310(c)(2)(B), certain stockholders agreed in April 2007 to
exercise warrants to purchase Common Stock if requested in writing by us. Under
the terms of the agreement, the stockholders would, upon written request from
us, exercise warrants to purchase up to 354,322 shares of Common Stock on or
before June 30, 2008. In the event that all of the warrants were exercised, we
would have received cash proceeds increasing stockholders equity by $500,000. We
were in compliance with the requirements for continued listing on The NASDAQ
Capital Market as of June 30, 2008, and the agreement with stockholders
terminated without the exercise of warrants to purchase any shares.

On October 19, 2007, we commenced a formal
tender offer which allowed our employees to tender certain stock options for
amendment in order to avoid potential adverse tax consequences for below market
options under section 409A of the Internal Revenue Code, or Section 409A, which
closed on November 19, 2007. The 67,669 option shares covered by the tender
offer had exercise prices per share that were less than the closing trading
value of our common stock on the OTC Bulletin Board on the option grant date.
The options covered by the tender offer were issued with exercise prices per
share equal to what we believed to be market value; however, these prices varied
from the trading value of our stock on the OTC Bulletin Board. Pursuant to the
tender offer, we canceled the tendered options and issued in replacement thereof
a new option with the same terms as the cancelled option, except the exercise
price per share is equal to the lower of (a) the trading value per share of our
common stock on the date that original options were granted and (b) the trading
value per share of our common stock on the expiration date of the tender offer,
but in no event will such exercise price be less than the exercise price in
effect for the cancelled options. To the extent that the exercise price of a new
option was higher than the exercise price of the cancelled option, the affected
employee received a bonus, paid in January 2008, in an amount equal to the
increased cost to the employee of exercising the option. The bonus amounts paid
to the affected employees equaled $118,000 in the aggregate. We recognized a
one-time charge of $118,000 relating to the tender offer.

We initially entered into a credit
facility with SVB on December 30, 2003 which was fully paid in December 2006.
The following facilities were outstanding during fiscal years 2007 and
2008:

A $1,500,000 term loan was payable in
monthly installments over a 36-month period commencing February 1, 2004. The
final term loan payment was made on December 1, 2006.

A $1,000,000 equipment line of credit, or
the Equipment Line, secured by all of the Companys personal property was first
drawn upon on December 16, 2005. We were required to make interest-only
payments, at a rate of prime plus 1.75%, on the principal balance through May 9,
2006, at which point the Equipment Line was converted into a term loan with 30
fixed monthly payments of approximately $16,000. Effective May 9, 2006, the
interest rate was fixed at 9.5%. The unpaid principal balance outstanding as of
June 30, 2008 was $66,000.

On May 24, 2006, we entered into a Loan
and Security Agreement with SVB, or the 2006 Facility, providing an additional
$3,000,000 credit facility comprised of a $1,500,000 revolving line of credit,
or the Revolver, and a $1,500,000 Non-Formula Term Loan, or the 2006 Term Loan,
to fund our anticipated working capital needs. The Revolver was initially
available until October 31, 2007. 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 $875,000 at June 30, 2008 and $1,375,000 at June 30,
2007. Monthly principle payments total approximately $42,000. Amounts
outstanding under the 2006 Term Loan bear interest at June 30, 2008 at a rate of
6.75%, calculated as prime plus 1.75%.

- 25 -

---

On February 13, 2008, with an effective
date of December 27, 2007, we entered into a second loan modification agreement,
or the SLMA, with SVB, renewing the existing Revolver, to expire on February 11,
2009, revising the terms of the existing Term Loan, and providing for a new
$600,000 revolving equipment line of credit, or the Equipment Revolver. The
terms to the Revolver remained materially the same, except that the borrowing
base advance rate was increased from 75% to 80% of Eligible Accounts (as defined
in the SLMA). Amounts outstanding under the Revolver bear interest at a rate
equal to prime plus 0.5%. The terms to the 2006 Term Loan remained materially
the same, except the interest rate was adjusted such that amounts outstanding
under the 2006 Term Loan will bear interest at a rate of prime plus 1.75%. The
availability under the Equipment Revolver is 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), and such borrowing base shall include up to 25% of
"soft" costs (e.g., shipping, installation, taxes, warranty charges and freight
discounts). At the time of an advance under the Equipment Revolver, at our
choice, amounts outstanding under the Equipment Revolver bear interest at a rate
equal to either (i) the greater of (a) 6.75%; and (b) the amount equal to the
prime rate plus 1.0%; or (ii) a fixed rate equal to 8.25%. The repayment of any
funds drawn against the Equipment Revolver shall be made in 36 equal monthly
payments following each new advance under the Equipment Revolver. The draw down
period for the Equipment Revolver expired May 31, 2008, but was extended by SVB
to July 31, 2008. No funds were drawn against the Equipment Revolver as of June
30, 2008, however, we borrowed approximately $451,000 against the Equipment
Revolver in July 2008.

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 June 30, 2008, amounts
outstanding under the Revolver bear interest at the rate of 5.50%, calculated as
prime plus 0.5%. In addition, a fee of 0.25% is charged against the unused
portion of the Revolver. No funds were borrowed against the Revolver at June 30,
2008 or June 30, 2007.

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. Partnership channel sales accounted for 13% of our revenues
during the year ended June 30, 2008, as compared to 5% during the year ended
June 30, 2007, and is expected to contribute a higher percentage of revenue in
the future. With the introduction of 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 is likely
to be derived in the future from software than has occurred historically, with a
lower percentage of total revenue derived from hardware and professional
services. However, we can provide no assurance that this expected long-term
trend will be true in any specific period. Software licenses contributed 28% of
revenues for the year ended June 30, 2008, compared to 24% of revenue for the
year ended June 30, 2007. The initial production implementations of Voxware 3 at
customer facilities occurred during the fourth quarter of fiscal 2007. For the
year ended June 30, 2008, we earned gross margin from software licenses of 99%,
as compared to 39% for sales of hardware units and related accessories . The
gross margin generated by software revenue is higher than that earned on
hardware and professional services revenue. The anticipated trend towards a more
profitable mix of revenue may provide higher liquidity and improved cash
flow.

In an effort to realign resources away
from labor intensive, highly customized software solutions in favor of more
productized offerings, the Company enacted a cost restructuring plan in November
2006. We eliminated 21 staff positions during the second quarter of fiscal 2007
through attrition and a reduction in force, representing approximately 24% of
our workforce. The eliminated positions were primarily focused on the
development, support and marketing of our older VLE product line. Subsequent to
the November 2006 staff reduction, we added new staff positions primarily
focused on the development, support and marketing of our Voxware 3 product line.
As a result of these costs added during fiscal 2008, our operating costs during
fiscal 2009 may exceed fiscal 2008 levels.

The recent 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, combined with the seasonal impact
of the typically slower summer months, our revenue during the first quarter of
fiscal 2009 will likely be lower than quarterly revenues reported for fiscal
2008. 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 2009. Revenue from new
customers, including those brought to us through VARs and other channel
partners, grew faster than revenue from existing customers during the year ended
June 30, 2008, and these customers are expected to contribute a higher
percentage of our total revenues during fiscal year 2009 than during fiscal year
2008. We generated net profits during the year ended June 30, 2008 due to
increased revenues, a greater percentage of revenues derived from higher margin
software licenses and the cost savings realized from the staff reduction that we
undertook during the second quarter of fiscal year 2007. We expect revenues will
generally increase beyond fiscal 2009, although 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. Also, $1,465,000 was available
under the Revolver with SVB as of June 30, 2008, which is available for
short-term operating needs. Approximately $451,000 was borrowed in July 2008
under the Equipment Revolver. In addition, we believe we are able 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 a greater emphasis on sales of higher margin product and the
availability of cash through existing relationships with SVB, we believe that we
have adequate capital resources available to fund our operations through June
30, 2009.

- 26 -

---

As of June 30, 2008, 12,000,000 shares of
our Common Stock were authorized, of which 6,488,529 were issued and
outstanding. The following table summarizes the dilutive impact in the event of
the exercise of all options and warrants to purchase stock, including options
and warrants whose strike price exceeds the market value of our Common
Stock.

**Dilutive Effect of Options and Warrants as of June 30,
      2008**Common stock issued and outstanding as of June 30, 2008
    
    6,488,529Dilutive instruments:Outstanding warrants to purchase common stock
      *
    
    1,155,474Outstanding options to purchase common stock *
    
    927,350Unissued restricted stock units
    
    244,794Common stock plus dilutive instruments outstanding
    
    8,816,147Options to
      purchase common stock available to issuepursuant to various stock option plans
    
    216,801Common stock outstanding if all dilutive instrumentsare
      converted and exercised
    
    9,032,948


*
    
    Includes all "in-the-money" and
      "out-of-the-money" warrants and options.


Effect of Recent Accounting
Pronouncements

In September 2006, the FASB issued SFAS
No. 157, "Fair Value Measurements", or SFAS 157. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 does not require new fair value measurements.
We are required to adopt SFAS 157 as of July 1, 2008. Management does not
believe the adoption of SFAS 157 will have a material effect on our reported
financial results.

In February 2007, the FASB issued SFAS No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities", or
SFAS 159. SFAS 159 defines fair value, permits optional fair value reporting of
certain assets and liabilities in lieu of historical cost reporting. We are
required to adopt SFAS 159 as of July 1, 2008. Management does not believe the
adoption of SFAS 157 will have a material effect on our reported financial
results.

Quantitative and Qualitative Disclosure
About Market Risk

Interest Rate
Sensitivity

We currently maintain an investment
portfolio consisting mainly of cash equivalents. The primary objective of our
investment activities is to maintain the safety of principal and preserve
liquidity, while maximizing yields without significantly increasing risk. This
is accomplished by investing in highly liquid short-term instruments with
maturities of 90 days or less from the date of purchase.

We also maintain a credit facility with
SVB that includes a term loan, equipment line of credit and working capital line
of credit. In addition, this credit facility provides additional borrowing
capacity as of June 30, 2008 via an asset-based revolving line of credit and
term loan. Interest on this credit facility is based on the prime interest rate.
Interest rate changes would impact our interest income earned, but would be
partially offset by changes to our interest expense charges. Accordingly, we
would not expect our operating results or cash flows to be affected to any
significant degree by a sudden change in market interest rates.

Foreign Currency Exchange
Rate

We frequently denominate our sales to
certain European customers in Euros and Pound Sterling. Although we do not
currently hedge certain balance sheet exposures and inter-company balances
against future movements in foreign currency exchange rates, we do anticipate
exploring using foreign exchange contracts in the future. We did not hold
derivative financial instruments for trading purposes during fiscal years 2008
and 2007.

|ITEM
      7. | **** | FINANCIAL
      STATEMENTS.
|------------- | ---- | ---------------------------

The financial statements and supplementary
data required by this Item are included in this Annual Report on Form 10-KSB
beginning on page F-1.

- 27 -

---

|ITEM
      8. | **** | CHANGES IN
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
|------------- | ---- | -------------------------------------------------------------------------------------------------

None.

|ITEM
      8A(T). | **** | CONTROLS
      AND PROCEDURES.
|----------------- | ---- | ------------------------------

Disclosure Controls and
Procedures

We maintain disclosure controls and
procedures designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including our chief executive
officer and our chief financial officer/principal accounting officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their
objectives.

Our management, with the participation of
our chief executive officer and chief 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 June 30, 2008. Based on
this evaluation, our chief executive officer and chief financial officer
concluded that, as of June 30, 2008, our disclosure controls and procedures were
functioning effectively to provide reasonable assurance that the information
required to be disclosed by us in reports filed under the Securities Exchange
Act of 1934 is (i) recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms and (ii) accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decision regarding
disclosures.

Changes in Internal Controls over
Financial Reporting

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 June 30, 2008 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.

Managements Report on Internal Control
over Financial Reporting

Our management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Companys assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.

This annual report does not include an
attestation report of the Companys independent registered public accounting firm regarding
internal control over financial reporting. Managements report was not subject
to attestation by the Companys independent registered public accounting firm pursuant to
temporary rules of the SEC that permit the Company to provide only managements
report in this annual report.

Management assessed the effectiveness of
our internal control over financial reporting as of June 30, 2008 utilizing the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on the
assessment by our management, we determined that the Companys internal control
over financial reporting was effective as of June 30, 2008. Managements
assessment of the effectiveness of our internal control over financial reporting
as of June 30, 2008 has not been audited.

|ITEM
      8B. | **** | OTHER
      INFORMATION.
|-------------- | ---- | ------------------------

None.

- 28 -

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PART III

|ITEM 9. | **** | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
      CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
      ACT.
|------- | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------

The information relating to our directors,
nominees for election as directors and executive officers under the headings
Election of Directors and Executive Officers in our definitive proxy
statement for the 2008 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.

|ITEM 10. | **** | EXECUTIVE COMPENSATION.
|-------- | ---- | -----------------------

The discussion under the heading
Executive Compensation in our definitive proxy statement for the 2008 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.

|ITEM 11. | **** | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS.
|-------- | ---- | -----------------------------------------------------------------------------------------------------

The discussion under the heading Security
Ownership of Certain Beneficial Owners and Management in our definitive proxy
statement for the 2008 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.

|ITEM 12. | **** | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
|-------- | ---- | --------------------------------------------------------------------------------

The discussion under the heading Certain
Relationships and Related Transactions and Board Independence in our
definitive proxy statement for the 2008 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.

|ITEM 13. | **** | EXHIBITS.
|-------- | ---- | ---------

List of documents filed as part of this
Annual Report on Form 10-KSB.

1. FINANCIAL STATEMENTS. The financial
statements listed in the accompanying Index to Financial Statements appearing on
page F-1 are filed as part of this Annual Report on Form 10-KSB.

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

|(a) | Exhibit No. |     | Description                                                                                                                                                                                                   
|--- | ----------- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 2.1         |     | Asset Purchase Agreement, dated as of February 4, 1999, by and
      between Ascend Communications, Inc. and Voxware, Inc.**(1)                                                                               
|    |             |     |                                                                                                                                                                                                               
|    | 3.1         | (a) | Amended and Restated Certificate of Incorporation**(8)                                                                                                                                                        
|    |             |     |                                                                                                                                                                                                               
|    | 3.1         | (b) | Certificate of Amendment to the Amended and Restated Certificate of
      Incorporation filed with the Secretary of State of the State of Delaware
      on December 30, 2003.**(9)                           
|    |             |     |                                                                                                                                                                                                               
|    | 3.1         | (c) | Certificate of Amendment to the Amended and Restated Certificate of
      Incorporation filed with the Secretary of State of the State of Delaware
      on April 30, 2004.**(10)                             
|    |             |     |                                                                                                                                                                                                               
|    | 3.1         | (d) | Certificate of Amendment to the Amended and Restated Certificate of
      Incorporation, filed with the Secretary of State of the State of Delaware
      on November 29, 2004.**(13)                         
|    |             |     |                                                                                                                                                                                                               
|    | 3.1         | (e) | Certificate of Amendment to the Companys Amended and Restated
      Certificate of Incorporation, as amended, as filed with the Secretary of
      State of the State of Delaware on November 28, 2005.**(12)
|    |             |     |                                                                                                                                                                                                               
|    | 3.1         | (f) | Certificate of Amendment to the Companys Amended and Restated
      Certificate of Incorporation, filed with the Secretary of State of the
      State of Delaware on December 13,
2007.**(19)               

- 29 -

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| |  | 3.2  |  | Second Amended
      and Restated Bylaws.**(18)                                                                                                                                                                                             
| |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      | 
| |  | 4.1  |  | Stock Restriction
      and Registration Rights Agreement, dated April 4, 2000, by and among
      Voxware, Inc., Verbex Acquisition Corporation, InRoad, Inc. and Stratos
      Product Development LLC.**(3)                              
| |  |     
| |  | 4.2  |  | Form of Warrant
      issued to InRoad, Inc., dated April 4, 2000.**(3)                                                                                                                                                                     
| |  |     
| |  | 4.3  |  | Warrant issued to
      Stratos Product Development, LLC, dated April 4, 2000.**(3)                                                                                                                                                         
| |  |     
| |  | 4.4  |  | Amendment to
      Warrants, dated as of July 7, 2003, by and among Voxware, Inc. and Stratos
      Product Development, LLC and InRoad, Inc.**(13)                                                                                         
| |  |     
| |  | 4.5  |  | Form of Common
      Stock Purchase Warrant.**(7)                                                                                                                                                                                           
| |  |     
| |  | 4.6  |  | Form of Common
      Stock Purchase Warrant issued to Ridgecrest Capital
    Partners.**(7)                                                                                                                                                 
| |  |     
| |  | 4.7  |  | Form of Series D
      Convertible Preferred Stock Purchase Warrant.**(7)                                                                                                                                                                   
| |  |     
| |  | 4.8  |  | Form of Series D
      Convertible Preferred Stock Purchase Warrant to be issued to Edison
      Venture Fund V, L.P., dated December 30, 2003.**(9)                                                                                        
| |  |     
| |  | 4.9  |  | Form of Series D
      Convertible Preferred Stock Purchase Warrant to be issued to Cross
      Atlantic Technology Fund II, L.P., dated December 30,
  2003.**(9)                                                                          
| |  |     
| |  | 4.10 |  | Form of Common
      Stock Purchase Warrant issued to former holders of Series D Convertible
      Preferred Stock Purchase Warrants (see Exhibits 4.7, 4.8 and
      4.9).**(13)                                                           
| |  |     
| |  | 4.11 |  | Form of Common
      Stock Purchase Warrant issued to Mufson Howe Hunter & Company LLC,
      dated August 11, 2005.**(13)                                                                                                                  
| |  |     
| |  | 4.12 |  | Form of Common
      Stock Purchase Warrant issued to Alan A. Nash, dated August 11,
      2005.**(13)                                                                                                                                      
| |  |     
| |  | 4.13 |  | Form of Common
      Stock Purchase Warrant issued to Duncan J. L. Fitzwilliams, dated August
      11, 2005.**(13)                                                                                                                         
| |  |     
| |  | 4.14 |  | Form of Common
      Stock Purchase Warrant issued to Emma Smith, dated August 11,
      2005.**(13)                                                                                                                                        
| |  |     
| |  | 10.1 |  | Voxware, Inc.
      1994 Stock Option Plan.**(2)                                                                                                                                                                                            
| |  |     
| |  | 10.2 |  | Form of Voxware,
      Inc. Stock Option Agreement.**(2)                                                                                                                                                                                    
| |  |     
| |  | 10.3 |  | Form of
      Indemnification Agreement.**(2)                                                                                                                                                                                               
| |  |     
| |  | 10.4 |  | Securities
      Purchase Agreement, dated as of August 10, 2000, by and between Voxware,
      Inc. and Castle Creek Technology Partners, LLC.**(4)                                                                                        
| |  |     
| |  | 10.5 |  | Registration
      Rights Agreement, dated as of August 15, 2000, by and between Voxware,
      Inc. and Castle Creek Technology Partners, LLC.**(4)                                                                                        
| |  |     
| |  | 10.6 |  | Securities
      Purchase Agreement, dated as of April 19, 2001, by and between Voxware,
      Inc. and Castle Creek Technology Partners, LLC, together with the form of
      Additional Share Warrant attached as an exhibit thereto.**(5)
| |  |     
| |  | 10.7 |  | Registration
      Rights Agreement, dated as of April 19, 2001, by and between Voxware, Inc.
      and Castle Creek Technology Partners, LLC, together with the form of
      Remedy Warrant attached as an exhibit thereto.**(5)          
| |  |     
| |  | 10.8 |  | Voxware, Inc.
      1998 Stock Option Plan for Outside
Directors.**(6)                                                                                                                                                                      

- 30 -

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| |  | 10.9  |   | Voxware, Inc. Plan to Pay
      Non-Employee Directors an Annual Retainer.**(6)                                                                                                          
| |  | ----- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |       |  
| |  | 10.10 |   | Series D Convertible Preferred Stock
      Purchase Agreement, dated as of April 16, 2003, by and among Voxware, Inc.
      and the Purchasers thereto.**(7)                             
| |  |      
| |  | 10.11 |   | Exchange Agreement, dated as of
      April 16, 2003, by and between Voxware, Inc. and Castle Creek Technology
      Partners, LLC**(7).                                                 
| |  |      
| |  | 10.12 |   | Exchange Agreement, dated as of
      April 16, 2003, by and among Voxware, Inc. and certain holders of its
      Series C Convertible Preferred Stock.**(7)                             
| |  |      
| |  | 10.13 |   | Exchange Agreement, dated as of
      April 16, 2003, by and among Voxware, Inc., Creafund n.v., Avvision BVBA,
      BVBA Com2Wizards, Eurl Val D Auso and Wim Deneweth.** (7)          
| |  |      
| |  | 10.14 |   | Settlement Agreement, dated as of
      April 16, 2003, by and between Voxware, Inc. and Castle Creek Technology
      Partners, LLC.**(7)                                               
| |  |      
| |  | 10.15 |   | Investor Rights Agreement, dated as
      of June 27, 2003, by and between Voxware, Inc. and the Investors
      thereto.**(8)                                                           
| |  |      
| |  | 10.16 |   | Stockholders Agreement, dated as of
      June 27, 2003, by and between Voxware, Inc. and the Holders and Investors
      listed on Schedule 1 thereto.**(8)                             
| |  |      
| |  | 10.17 |   | Voxware, Inc. 2003 Stock Option
      Plan.**(8)                                                                                                                                         
| |  |      
| |  | 10.18 |   | Form of Voxware, Inc. Stock Option
      Agreement.**(8)                                                                                                                                 
| |  |      
| |  | 10.19 |   | Loan and Security Agreement, dated
      as of December 29, 2003, by and between Voxware, Inc. and Silicon Valley
      Bank.**(9)                                                       
| |  |      
| |  | 10.20 |   | Intellectual Property Security
      Agreement, dated as of December 29, 2003, by and between Voxware, Inc. and
      Silicon Valley Bank.**(9)                                          
| |  |      
| |  | 10.21 |   | Unconditional Guaranty of Edison
      Venture Fund V, L.P., as guarantor, dated as of December 29,
      2003.**(9)                                                                     
| |  |      
| |  | 10.22 |   | Unconditional Guaranty of Cross
      Atlantic Technology Fund II, L.P., as guarantor, dated as of December 29,
      2003.**(9)                                                         
| |  |      
| |  | 10.23 | # | Indemnification Agreement, dated
      June 21, 2004, by and between Voxware, Inc. and Paul
      Commons.**(13)                                                                         
| |  |      
| |  | 10.24 |   | Form of Common Stock Purchase
      Agreement, dated as of August 11, 2005, by and between Voxware, Inc. and
      certain accredited investors.**(11)                                   
| |  |      
| |  | 10.25 |   | Form of Amendment No. 2 to
      Stockholders Agreement, dated as of August 11, 2005, by and between
      Voxware, Inc. and certain accredited investors.**(11)                         
| |  |      
| |  | 10.26 |   | Form of Amended and Restated
      Investor Rights Agreement, dated as of August 11, 2005, by and between
      Voxware, Inc. and certain accredited investors.**(11)                    
| |  |      
| |  | 10.27 |   | License, Development and Reseller
      Agreement, dated as of September 26, 2005, by and between Voxware, Inc.
      and LXE, Inc.**(16)                                               
| |  |      
| |  | 10.28 |   | Amended and Restated Loan and
      Security Agreement dated as of January 3, 2007, and effective as of
      December 29, 2006 between Silicon Valley Bank and Voxware,
      Inc.**(14)
| |  |      
| |  | 10.29 |   | First Loan Modification Agreement
      dated as of February 1, 2007 between Silicon Valley Bank and Voxware,
      Inc.**(15)                                                           

- 31 -

---

| |  | 10.30 |   | Loan and Security Agreement dated as
      of January 3, 2007 and effective as of December 29, 2006 between Silicon
      Valley Bank and Voxware, Inc.** (14)           
| |  | ----- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |       |  
| |  | 10.31 |   | Amendment to Loan Arrangement with
      Voxware, Inc., dated as of January 3, 2007, from Verbex Acquisition
      Corporation.** (14)                                   
| |  |      
| |  | 10.32 | # | Executive Employment Agreement,
      dated as of September 14, 2007, between Voxware, Inc. and Scott J.
      Yetter.** (17)                                            
| |  |      
| |  | 10.33 |   | Second Loan Modification Agreement,
      dated as of February 13, 2008, and effective as of December 27, 2007,
      between Silicon Valley Bank and Voxware, Inc.**(29)
| |  |      
| |  | 10.34 |   | Lease Agreement, dated as of
      December 3, 2007, by and between Voxware, Inc. and 240 Princeton TCI
      Associates, LLC.**(19)                                     
| |  |      
| |  | 10.35 |   | 2007 Amendment to 2003 Stock
      Incentive Plan.**(19)                                                                                                                 
| |  |      
| |  | 21.1  |   | Subsidiaries of Voxware,
      Inc.**(8)                                                                                                                                 
| |  |      
| |  | 23.1  |   | Consent of BDO Seidman,
      LLP*                                                                                                                                       
| |  |      
| |  | 31.1  |   | Certification of principal executive
      officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*                                                     
| |  |      
| |  | 31.2  |   | Certification of the principal
      financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*                                                 
| |  |      
| |  | 32.1  |   | Certification of the principal
      executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.*                                                 
| |  |      
| |  | 32.2  |   | Certification of the principal
      financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.*                                                 

|*   |  | Filed
      herewith.                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                          
|**  |  | Previously filed with the Commission
      as Exhibits to, and incorporated by reference from, the following
      documents:                                            
|    |  |                                                                                                                                                                          
|   |  | Portions of this exhibit have been
      omitted and filed separately with the Securities and Exchange Commission
      pursuant to a request for confidential treatment.
|    |  |                                                                                                                                                                          
|#   |  | Management contract or compensatory
      plan or arrangement required to be filed as an exhibit to this Form
      10-KSB.                                              
|    |  |                                                                                                                                                                          
|(1) |  | Filed in connection with the
      Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
      December 31, 1998.                                         
|    |  |                                                                                                                                                                          
|(2) |  | Filed in connection with the
      Companys Registration Statement on Form S-1 (File Number
      33-08393).                                                            
|    |  |                                                                                                                                                                          
|(3) |  | Filed in connection with the
      Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March
      31, 2000.                                            
|    |  |                                                                                                                                                                          
|(4) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on August 16,
      2000.                                                         
|    |  |                                                                                                                                                                          
|(5) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on April 20,
      2001.                                                          
|    |  |                                                                                                                                                                          
|(6) |  | Filed in connection with the
      Companys Registration Statement on Form S-8 (File Number
      33-33342).                                                            
|    |  |                                                                                                                                                                          
|(7) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on April 17,
      2003.                                                          
|    |  |                                                                                                                                                                          
|(8) |  | Filed in connection with the
      Companys Annual Report on Form 10-K for the fiscal year ended June 30,
      2003.                                                   
|    |  |                                                                                                                                                                          
|(9) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on January 6,
      2004.                                                         

- 32 -

---

|(10) |  | Filed in connection
      with the Companys Current Report on Form 8-K that was filed on May 7,
      2004.                         
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------
|    
|(11) |  | Filed in connection
      with the Companys Current Report on Form 8-K that was filed on August 11,
      2005.                     
|    
|(12) |  | Filed in connection
      with the Companys Current Report on Form 8-K that was filed on November
      29, 2005.                   
|    
|(13) |  | Filed in connection
      with the Companys Annual Report on Form 10-KSB for the fiscal year ended
      June 30, 2005.             
|    
|(14) |  | Filed in connection
      with the Companys Current Report on Form 8-K that was filed on January 8,
      2007.                     
|    
|(15) |  | Filed in connection
      with the Company's Quarterly Report on Form 10-QSB for the fiscal quarter
      ended December 31, 2006.   
|    
|(16) |  | Filed in connection
      with the Company's Quarterly Report on Form 10-QSB/A for the fiscal
      quarter ended September 30, 2005.
|    
|(17) |  | Filed in connection
      with the Companys Current Report on Form 8-K filed on September 17,
      2007.                           
|    
|(18) |  | Filed in connection
      with the Companys Current Report on Form 8-K filed on October 17,
      2007.                             
|    
|(19) |  | Filed in connection
      with the Companys Quarterly Report on Form 10-QSB for the fiscal quarter
      ended December 31, 2007.   

|ITEM
      14. | **** | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.
|-------------- | ---- | ---------------------------------------------

The discussion under the heading
Independent Registered Public Accounting Firm Fees and Other Matters in our
definitive proxy statement for the 2008 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.

- 33 -

---

SIGNATURES

In accordance with Section 13 or 15(d) of
the Exchange Act, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

VOXWARE, INC.By:
    
    /s/ Scott J. YetterScott J. Yetter,
      President and Chief Executive
Officer


Date: September 29, 2008

- 34 -

---

In accordance with the Exchange Act, this
report has been signed below be the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|Signature                        |  | Title                                       |  | Date                    
|-------------------------------- |  | ------------------------------------------- |  | ------------------------
|/s/ Joseph A. Allegra            |  | Chairman and
      Director                 |  | September 29,
      2008
|Joseph A.
      Allegra          |  |                                             |  |                         
|                                
|/s/ Scott J. Yetter              |  | President and
      Chief Executive Officer |  | September 29,
      2008
|Scott J.
      Yetter            |  | (principal
      executive officer)         |  |                         
|                                
|/s/ William G. Levering,
    III |  | Chief Financial
      Officer               |  | September 29,
      2008
|William G.
      Levering, III   |  | (principal
      financial                  |  |                         
|                                 |  | and principal accounting
      officer)     |  |                         
|                                
|/s/ James L. Alexandre           |  | Director                                    |  | September 29,
      2008
|James L.
      Alexandre         |  |                                             |  |                         
|                                
|/s/ Donald R. Caldwell           |  | Director                                    |  | September 29,
      2008
|Donald R.
      Caldwell         |  |                                             |  |                         
|                                
|/s/ Don Cohen                    |  | Director                                    |  | September 29,
      2008
|Don
    Cohen                    |  |                                             |  |                         
|                                
|/s/ Robert Olanoff               |  | Director                                    |  | September 29,
      2008
|Robert
      Olanoff             |  |                                             |  |                         
|                                
|/s/ David J. Simbari             |  | Director                                    |  | September 29,
      2008
|David J.
      Simbari           |  |                                             |  |                         

- 35 -

---

VOXWARE, INC. AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|Consolidated Financial Statements:                                                               |    
|------------------------------------------------------------------------------------------------ | ---
|                                                                                                 |    
|Report
      of Independent Registered Public Accounting Firm                                    | F-2
|                                                                                                 |    
|Consolidated Balance Sheets as of June 30, 2008 and
    2007                                     | F-3
|                                                                                                 |    
|Consolidated Statements of Operations for the years ended June 30,
      2008 and 2007           | F-4
|                                                                                                 |    
|Consolidated Statements of Stockholders Equity for the years ended
      June 30, 2008 and 2007 | F-5
|                                                                                                 |    
|Consolidated Statements of Cash Flows for the years ended June 30,
      2008 and 2007           | F-6
|                                                                                                 |    
|Summary
      of Accounting Policies and Notes to Consolidated Financial
      Statements        | F-7

F-1

---

Report of Independent Registered Public
Accounting Firm



Board of Directors and
StockholdersVoxware, Inc.Hamilton,
NJ

We have audited the accompanying
consolidated balance sheets of Voxware, Inc. and subsidiaries (the Company) as
of June 30, 2008 and 2007 and the related consolidated statements of operations,
stockholders equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Voxware, Inc. and subsidiaries at June 30, 2008 and 2007,
and the results of their operations and their cash flows for the years then
ended, in
conformity with accounting principles generally accepted in the United States of
America.

|                         | /s/ BDO Seidman,
      LLP | 
|------------------------ | -------------------------- | 
|Bethesda,
      Maryland |                            | 
|September 26,
      2008 |                            | 

F-2

---

Voxware, Inc. and Subsidiaries
Consolidated Balance Sheets (in thousands, except share
data)

|                                                                              |  | June 30, 2008 |         | June 30, 2007
|----------------------------------------------------------------------------- |  | ------------- | ------- | -------------
|ASSETS                                                                        |  |               |         |              
|CURRENT
      ASSETS                                                          |  |               |         |              
|Cash
      and cash equivalents                                               |  | $             | 3,503   |              
|Accounts receivable, net of allowance for doubtful accounts of $201
      and |  |               |         |              
|$104 at June 30, 2008 and June 30, 2007,
      respectively                   |  |               | 6,134   |              
|Inventory, net                                                                |  |               | 533     |              
|Deferred project costs                                                        |  |               | 163     |              
|Prepaids and other current assets                                             |  |               | 380     |              
|Total current assets                                                          |  |               | 10,713  |              
|                                                                             
|PROPERTY AND EQUIPMENT, NET                                                   |  |               | 663     |              
|OTHER
      ASSETS                                                            |  |               | 316     |              
|TOTAL ASSETS                                                                  |  | $             | 11,692  |              
|                                                                             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                          |  |               |         |              
|CURRENT
      LIABILITIES                                                     |  |               |         |              
|Current portion of long-term debt                                             |  | $             | 566     |              
|Accounts payable and accrued expenses                                         |  |               | 3,305   |              
|Current portion of deferred revenues                                          |  |               | 3,043   |              
|Total current liabilities                                                     |  |               | 6,914   |              
|Long-term portion of deferred revenues                                        |  |               | 105     |              
|Long-term debt, net of current maturities                                     |  |               | 375     |              
|Total liabilities                                                             |  |               | 7,394   |              
|                                                                             
|COMMITMENTS AND CONTINGENCIES                                                 |  |               |         |              
|                                                                             
|STOCKHOLDERS' EQUITY                                                          |  |               |         |              
|Common Stock, $0.001 par value, 12,000,000 shares authorized as
      of      |  |               |         |              
|June 30, 2008 and June 30, 2007; 6,488,529 and
      6,368,963                |  |               |         |              
|shares issued and outstanding at June 30, 2008
    and                        |  |               |         |              
|June 30, 2007, respectively                                                   |  |               | 6       |              
|Additional paid-in capital                                                    |  |               | 79,032  |              
|Accumulated deficit                                                           |  |               | (74,740 | )            
|Accumulated other comprehensive loss                                          |  |               | -       |              
|Total stockholders' equity                                                    |  |               | 4,298   |              
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    |  | $             | 11,692  |              

See accompanying summary of accounting
policies and notes to consolidated financial statements.

F-3

---

Voxware, Inc. and Subsidiaries Consolidated Statements of Operations
(in thousands, except per share data)

|                                          |  | Year Ended June
    30,
|----------------------------------------- |  | -----------------------
|                                          |  | 2008                   
|REVENUES                                  |  |                        
|Product revenues                          |  | $                      
|Services revenues                         |  |                        
|Total revenues                            |  |                        
|                                         
|COST
      OF REVENUES                    |  |                        
|Cost of product revenues                  |  |                        
|Cost
      of services revenues           |  |                        
|Total cost of revenues                    |  |                        
|                                         
|GROSS PROFIT                              |  |                        
|                                         
|OPERATING EXPENSES                        |  |                        
|Research and development                  |  |                        
|Sales and marketing                       |  |                        
|General and administrative                |  |                        
|Total operating expenses                  |  |                        
|                                         
|OPERATING PROFIT (LOSS)                   |  |                        
|                                         
|INTEREST INCOME, NET                      |  |                        
|                                         
|PROFIT (LOSS) BEFORE INCOME TAXES         |  |                        
|                                         
|PROVISION FOR INCOME TAXES                |  |                        
|                                         
|NET
      PROFIT (LOSS)                   |  | $                      
|                                         
|NET
      PROFIT (LOSS) PER SHARE         |  |                        
|Basic                                     |  | $                      
|Diluted                                   |  | $                      
|                                         
|WEIGHTED AVERAGE NUMBER OF SHARES USED IN |  |                        
|COMPUTING NET PROFIT (LOSS) PER SHARE     |  |                        
|Basic                                     |  |                        
|Diluted                                   |  |                        

See accompanying summary of accounting
policies and notes to consolidated financial statements.

F-4

---

Voxware, Inc. and Subsidiaries Consolidated Statements of
Stockholders' Equity (in thousands, except share data)

|                                             |  | Common             |  | Par Value |   |                 |   |             |  |                    |         |      
|-------------------------------------------- |  | ------------------ |  | --------- | - | --------------- | - | ----------- |  | ------------------ | ------- | -----
|                                             |  | Stock
      Number |  | $.001     |   | Additional      |   | Accumulated |  | Accumulated Other  |         |      
|                                             |  | of Shares          |  | Amount    |   | Paid-in Capital |   | Deficit     |  | Comprehensive Loss |         | Total
|Balance, June 30, 2006                       |  | 6,262,844          |  | $         | 6 |                 | $ | 77,713      |  | $                  | (73,389 | )    
|Share-based
      compensation               |  | -                  |  |           | - |                 |   | 166         |  |                    | -       |      
|Exercise of stock options                    |  | 106,119            |  |           | - |                 |   | 209         |  |                    | -       |      
|Comprehensive
      loss:                    |  |                    |  |           |   |                 |   |             |  |                    |         |      
|Net loss                                     |  | -                  |  |           | - |                 |   |             |  |                    | (1,936  | )    
|Foreign currency translation                 |  |                    |  |           |   |                 |   |             |  |                    |         |      
|adjustment                                   |  | -                  |  |           | - |                 |   | -           |  |                    | -       |      
|Total
      comprehensive loss               |  |                    |  |           |   |                 |   |             |  |                    |         |      
|Balance, June 30,
      2007                 |  | 6,368,963          |  | $         | 6 |                 | $ | 78,088      |  | $                  | (75,325 | )    
|Share-based compensation                     |  | 60,792             |  |           | - |                 |   | 898         |  |                    | -       |      
|Exercise of stock
      options and warrants |  | 58,774             |  |           | - |                 |   | 46          |  |                    | -       |      
|Comprehensive income:                        |  |                    |  |           |   |                 |   |             |  |                    |         |      
|Net profit                                   |  | -                  |  |           | - |                 |   | -           |  |                    | 585     |      
|Foreign currency translation                 |  |                    |  |           |   |                 |   |             |  |                    |         |      
|adjustment                                   |  | -                  |  |           | - |                 |   | -           |  |                    | -       |      
|Total comprehensive
      income             |  |                    |  |           |   |                 |   |             |  |                    |         |      
|Balance, June 30, 2008                       |  | 6,488,529          |  | $         | 6 |                 | $ | 79,032      |  | $                  | (74,740 | )    

See accompanying summary of accounting
policies and notes to consolidated financial statements.

F-5

---

Voxware, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)

|                                                                                               |  | Year Ended June 30,
|---------------------------------------------------------------------------------------------- |  | -------------------
|                                                                                               |  | 2008               
|CASH
      FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                    
|Net profit (loss)                                                                              |  | $                  
|Adjustments to reconcile net profit (loss) to net cash used in
      operating activities:     |  |                    
|Depreciation and amortization                                                                  |  |                    
|Provision for doubtful accounts                                                                |  |                    
|Share based compensation                                                                       |  |                    
|Amortization of capitalized software development
    costs                                     |  |                    
|Recognition of foreign currency translation adjustment upon
      liquidation of Voxware, n.v. |  |                    
|Amortization of deferred financing costs                                                       |  |                    
|Changes in assets
      and liabilities:                                                       |  |                    
|(Increase) decrease in assets:                                                                 |  |                    
|Accounts receivable                                                                            |  |                    
|Inventory                                                                                      |  |                    
|Deferred project costs                                                                         |  |                    
|Prepaids and other current assets                                                              |  |                    
|Other assets                                                                                   |  |                    
|Increase (decrease) in liabilities:                                                            |  |                    
|Accounts payable and accrued expenses                                                          |  |                    
|Deferred revenues                                                                              |  |                    
|Net cash used in operating
activities                                                          |  |                    
|                                                                                              
|CASH
      FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                    
|Purchase of property and equipment                                                             |  |                    
|Proceeds from disposal of property and equipment                                               |  |                    
|Net cash used in investing
activities                                                          |  |                    
|                                                                                              
|CASH
      FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                    
|Proceeds from long term debt                                                                   |  |                    
|Proceeds from short-term borrowings                                                            |  |                    
|Repayment of long-term debt                                                                    |  |                    
|Repayment of short-term borrowings                                                             |  |                    
|Proceeds from exercise of stock options and
warrants                                           |  |                    
|Net cash used in financing
activities                                                          |  |                    
|                                                                                              
|NET
      DECREASE IN CASH AND CASH EQUIVALENTS                                                |  |                    
|CASH AND CASH
      EQUIVALENTS, BEGINNING OF YEAR                                             |  |                    
|CASH
      AND CASH EQUIVALENTS, END OF YEAR                                                   |  | $                  
|                                                                                              
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION:                                          |  |                    
|Cash paid for
      interest                                                                   |  | $                  

See accompanying summary of accounting
policies and notes to consolidated financial statements.

F-6

---

SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

1.     THE COMPANY
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of Business
Operations

Voxware, Inc. and subsidiaries (Voxware,
or the Company) 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. Voxware 3
offers multiple languages so companies can leverage non native speaking
workers.

The Companys primary software product is
Voxware 3. 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 IT infrastructures with a system that is configurable and adaptable,
Voxwares customers can respond to change rapidly. Thus, the Company finds its
customers achieve benefits faster with less cost since systems can be
implemented more rapidly using less resources.

A complete voice recognition solution
combines software, hardware and professional services. The primary focus and the
core of Voxwares 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 Voxware. Customers may also choose to have solutions delivered by
receiving services from the Company or from its 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 the Companys business.

The Company sells Voxware 3 primarily to
large companies that operate warehouses and distribution centers. Voxwares
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. The Companys technology has
the ability to integrate easily with an external warehouse management system, or
WMS.

The Company also sells software and some
hardware accessories to value-added resellers, or VARs, who in turn develop and
deliver voice solutions based on Voxware software for their
customers.

Voxwares revenues are generated primarily
from software license fees, maintenance fees, professional services and hardware
products sales to both end customers and VARs.

The European customers accounted for 35%
and 26% of the Companys total revenue for fiscal years 2008 and 2007,
respectively.

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 potential customers, the lengthy sales cycle of the
Companys solutions, the volume of and revenues derived from sales of products
utilizing our 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.

Summary of Significant Accounting
Policies

Use of Estimates

The preparation of financial statements
and related disclosures in conformity with accounting principles generally
accepted in the United States of America 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 consolidated 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 the
allowance for doubtful accounts, warranty costs, impairments, inventory,
share-based compensation and income taxes. Actual results could differ from
these estimates.

F-7

---

Principles of
Consolidation

The accompanying consolidated financial
statements include the financial statements of Voxware, Inc. and its
wholly-owned subsidiaries, Verbex Acquisition Corporation, Voxware (UK) Limited
and Voxware n.v. 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 is 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 some 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 above four criteria 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 is 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,
is recognized ratably over the term of the service period, which is generally
one year.

The Company recognizes revenue in
accordance with the American Institute of Certified Public Accountants Statement
of Position (SOP) No. 97-2, Software Revenue Recognition, as amended by SOP
No. 98-9. SOP 97-2, as amended, 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 under SOP 97-2, as
amended. 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
relative fair value of the undelivered elements included in the Companys
multi-element sales arrangements is based on vendor specific objective evidence,
or VSOE.

VSOE of fair value exists for hardware
elements sold separately. The Company determines the VSOE of fair value of
hardware elements based on the price when it is sold separately. 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 June 30, 2008, the Company believes that it has realized VSOE of the fair
values for hardware, maintenance and professional services.

Deferred revenues consist of unearned
customer deposits, extended hardware warranties, depot management service fees
and 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. Revenues from depot management services,
which were provided through December 2007, were recognized over the contract
period.

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 expiring at various dates
through December 31, 2009. 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. Services revenues included billed travel costs totaling
$297,000 and $174,000, respectively, during the years ended June 30, 2008 and
2007.

F-8

---

Research and Development

Research and development expenditures are
charged to operations as incurred. Pursuant to Statement of Financial Accounting
Standards No. 86 (SFAS 86), Accounting for the Cost of Computer Software to
be Sold, Leased or Otherwise Marketed, development costs incurred in connection
with the research and development of software products and enhancements to
existing software products are 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. The
Company defines 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 SFAS 86,
the working model is generally deemed to exist with commencement of beta
testing. No costs associated with the development of software products were
capitalized during the years ended June 30, 2008 and 2007 as technological
feasibility is achieved substantially at the time the software is released for
general sale to our customers.

Net Profit (Loss) Per
Share

The Company computes net profit (loss) per
share under the provisions of Statement of Financial Accounting Standards No.
128, Earnings per Share (SFAS 128). Basic net profit (loss) per share is
calculated by dividing net profit (loss) by the weighted average number of
shares of common stock outstanding during the period. Diluted net profit (loss)
per share is calculated by dividing net profit (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. The impact at June 30, 2008 of the assumed exercise of in-the-money
stock options and warrants in the aggregate amount of approximately 722,000
shares is included in the calculation of diluted net profit (loss) per share for
the year ended June 30, 2008. The impact of the assumed exercise of
approximately 42,000 restricted stock units at June 30, 2008 is anti-dilutive
and as such, this has been excluded from the calculation of diluted net profit
(loss) per share. As the Company had a net loss applicable to common
stockholders during the year ended June 30, 2007, the impact of the assumed
exercise of in-the-money stock options and warrants in the aggregate amount of
approximately 1,706,000 shares at June 30, 2007 is anti-dilutive and as such,
these amounts have been excluded from the calculation of diluted net profit
(loss) per share

Cash and Cash
Equivalents

The Company currently maintains an
investment portfolio consisting mainly of cash equivalents. Cash and cash
equivalents consist of investments in highly liquid short-term instruments
(short-term bank deposits and commercial paper) with maturities of 90 days or
less from the date of purchase.

Accounts Receivable and Credit
Policies

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. The Company performed a detailed review of
the allowance for doubtful accounts as of June 30, 2008. Bad debt expense for
the year ended June 30, 2008 in the amount of $136,000 is net of a reduction of
$94,000 resulting from the review of the allowance for doubtful accounts at that
date.

Inventory

We value our inventory at the lower of
average cost (which approximates first-in, first-out cost) or market. If we
believe that demand no longer allows us to sell our inventory above cost or at
all, we write down that inventory to market or write off excess inventory
levels.

F-9

---

Property and Equipment

Property and equipment are stated at cost.
Purchases of property and equipment valued at less than $1,000 are charged to
expense. Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets, ranging from three to seven years. Maintenance,
repairs and minor replacements are charged to expense as incurred.

Impairment of Long-Lived
Assets

The Company reviews its long-lived assets,
including property and equipment, and intangible assets subject to amortization
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine the
recoverability of its long-lived assets, the Company evaluates the estimated
future undiscounted cash flows that are directly associated with, and that are
expected to arise as a direct result of, the use and eventual disposition of the
long-lived asset. If the estimated future undiscounted cash flows demonstrate
that recoverability is not probable, an impairment loss would be recognized. An
impairment loss would be calculated based on the excess carrying amount of the
long-lived asset over the long-lived assets fair value.

Stock Based Compensation

Effective July 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123(R), Share-Based
Payment (SFAS 123(R)), an amendment of FASB Statements No. 123 and 95, which
requires all companies to measure compensation cost for all share-based
payments, including employee stock options and other equity awards, 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.

Warranty

The Company warrants all manufacturer
defects on its voice-based solutions, generally commencing upon shipment, and
extending for twelve months. The Company accrues warranty costs based on
historical experience and managements estimates. Changes in accrued warranty
costs were as follows:



Balance at
    
    Charged
      to
    
    
    
    Balance atBeginning of
    
    Costs
      and
    
    
    
    End ofPeriod
    
    Expenses
    
    Deductions
    
    Period(In thousands)Year
      ended June 30, 2007
    
    $
    68
    
    128
    
    123
    
    $
    73Year ended June 30,
      2008
    
    
    73
    
    92
    
    95
    
    
    70


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 18% and 22% of
total revenue for the fiscal years ended June 30, 2008 and 2007, respectively.
This customer accounted for 8% and 30%, respectively, of total receivables at
those dates.

The Company uses a sole source vendor for
its primary wearable computer hardware products that it sells. 61% of the
Companys inventory purchases were derived from this vendor during the year
ended June 30, 2008, as compared to 78% during the year ended June 30, 2007. Any
disruption in supply by this vendor would prohibit the Company from shipping
products, and thus recognizing revenues.

F-10

---

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.

The Company adopted the provisions of
Financial Accounting Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes  An interpretation of FASB Statement No. 109 (FIN
48) on July 1, 2007. As a result of the implementation of FIN 48, no adjustment
in the liability for unrecognized income tax benefits was recognized.

The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense. As of June
30, 2008, there was no accrued interest related to uncertain tax
positions.

Foreign Currency
Translation

The Companys wholly-owned subsidiary,
Voxware n.v., which was dissolved during the year ended June 30, 2008, utilized
its local currency (Euro) as its functional currency. Its assets and liabilities
were translated into U.S. dollars monthly, at exchange rates as of the balance
sheet date. Revenues, expenses, gains and losses were translated monthly, at
average exchange rates during the period. Resulting foreign currency translation
adjustments were included as a component of other comprehensive income
(loss).

The Company incorporated Voxware (UK)
Limited (Voxware UK) as a wholly-owned subsidiary during the year ended June
30, 2008. Voxware UKs functional currency is deemed to be the US dollar. Assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars monthly, at exchange rates as of the balance sheet date, with any
adjustment recorded as an increase or decrease to general and administrative
expense.

Comprehensive Income
(Loss)

The Company has adopted SFAS No. 130,
Reporting Comprehensive Income ("SFAS 130"). Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net profit (loss). SFAS 130 requires that all items defined as
comprehensive income (loss), including changes in the amounts of unrealized
gains and losses on available-for-sale securities, be shown as a component of
comprehensive income (loss). The only items of other comprehensive income (loss)
of the Company in the year ended June 30, 2007 are foreign currency translation
adjustments related to Voxware, n.v. The entire accumulated comprehensive loss
of $17,000 recorded as of June 30, 2007 was recognized as general and
administrative expenses upon the dissolution of Voxware, n.v. during the year
ended June 30, 2008.

Recent Accounting
Pronouncements

In September 2006, the FASB issued SFAS
No. 157, "Fair Value Measurements", or SFAS 157. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 does not require new fair value measurements.
We are required to adopt SFAS 157 as of July 1, 2008. Management does not
believe the adoption of SFAS 157 will have a material effect on our reported
financial results.

In February 2007, the FASB issued SFAS No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities", or
SFAS 159. SFAS 159 defines fair value, permits optional fair value reporting of
certain assets and liabilities in lieu of historical cost reporting. We are
required to adopt SFAS 159 as of July 1, 2008. Management does not believe the
adoption of SFAS 157 will have a material effect on our reported financial
results.

F-11

---

2.    
INVENTORY:

June 30, 2008
    
    June 30, 2007(in
      thousands)Raw
      materials
    
    $
    16
    
    
    $
    46Work in
    process
    
    
    16
    
    
    
    41Finished goods
    
    
    516
    
    
    
    999Less: inventory
      reserve
    
    
    (15
    )
    
    
    (40
    )Inventory - net
    
    $
    533
    
    
    $
    1,046


3.     PROPERTY AND
EQUIPMENT:

June 30,2008
    
    2007**(in
      thousands)**Equipment
    
    $
    2,216
    
    
    $
    1,849Leasehold
      improvements
    
    
    48
    
    
    
    103Furniture and fixtures
    
    
    641
    
    
    
    4602,905
    
    
    
    2,412Less:
      Accumulated depreciation
    
    
    (2,242
    )
    
    
    (2,053
    )Property and equipment,
      net
    
    $
    663
    
    
    $
    359


Depreciation expense was approximately
$279,000 and $212,000 for the fiscal years ended June 30, 2008 and 2007,
respectively.

4.     ACCOUNTS
PAYABLE AND ACCRUED EXPENSES:

June 30,2008
    
    2007(in thousands)Accounts payable - trade
    
    $
    746
    
    $
    1,397Accrued compensation
      and benefits
    
    
    1,269
    
    
    959Accrued
      professional fees
    
    
    312
    
    
    266Accrued
    taxes
    
    
    269
    
    
    154Accrued
      inventory
    
    
    151
    
    
    483Accrued
      royalties
    
    
    102
    
    
    93Warranty reserves
    
    
    70
    
    
    73Other accrued
      expenses
    
    
    386
    
    
    600Accounts payable and accrued expenses
    
    $
    3,305
    
    $
    4,025


F-12

---

During the fourth quarter of fiscal year
2008, Voxware conducted an extensive review of accrued expenses. The review
considered, among other factors, the age of recorded liabilities, the likelihood
of a liquidating event, and the most likely value of payments to be made in
satisfaction of the liabilities. As a result of this review, accrued expenses
were reduced by an aggregate of $349,000 comprised of reductions of $47,000 to
accrued professional fees, $17,000 to accrued inventory, $1,000 to accrued
royalties and $284,000 to other accrued expenses. These adjustments are recorded
as reductions to the following expenses for the year ended June 30,
2008:

ExpenseReduction forthe Year EndedJune 30, 2008(in thousands)Cost of
      product revenues
    
    $
    18Research and
      development
    
    
    18Sales
      and marketing
    
    
    179General and
      administrative
    
    
    134$
    349


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 2007 and
2008:

A $1,500,000 term loan was payable in
monthly installments over a 36-month period commencing February 1, 2004. The
final term loan payment was made on December 1, 2006.

A $1,000,000 equipment line of credit (the
Equipment Line) secured by all of the Companys personal property was first
drawn upon on December 16, 2005. The Company was required to make interest-only
payments, at a rate of prime plus 1.75%, on the principal balance through May 9,
2006, at which point the Equipment Line was converted into a term loan with 30
fixed monthly payments of approximately $16,000. Effective May 9, 2006, the
interest rate was fixed at 9.5%. The unpaid principal balance outstanding as of
June 30, 2008 and 2007 was $66,000 and $238,000, respectively.

On May 24, 2006, the Company entered into
a Loan and Security Agreement with SVB (the 2006 Facility), providing an
additional $3,000,000 credit facility comprised of a $1,500,000 revolving line
of credit (the "Revolver") and a $1,500,000 Non-Formula Term Loan (the "2006
Term Loan") to fund the Company's anticipated working capital needs. The
Revolver was initially available until October 31, 2007. 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 $875,000 at June 30, 2008
and $1,375,000 at June 30, 2007. Monthly principle payments total approximately
$42,000. Amounts outstanding under the 2006 Term Loan bear interest at June 30,
2008 at a rate of 6.75%, calculated as prime plus 1.75%.

On February 13, 2008, with an effective
date of December 27, 2007, the Company entered into a second loan modification
agreement, ( SLMA), with SVB, renewing the existing Revolver, to expire on
February 11, 2009, revising the terms of the existing Term Loan, and providing
for a new $600,000 revolving equipment line of credit, or the Equipment
Revolver. The terms to the Revolver remained materially the same, except that
the borrowing base advance rate was increased from 75% to 80% of Eligible
Accounts (as defined in the SLMA). Amounts outstanding under the Revolver bear
interest at a rate equal to prime plus 0.5%. The terms to the 2006 Term Loan
remained materially the same, except the interest rate was adjusted such that
amounts outstanding under the 2006 Term Loan will bear interest at a rate of
prime plus 1.75%. The availability under the Equipment Revolver is 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), and such borrowing base shall
include up to 25% of "soft" costs (e.g., shipping, installation, taxes, warranty
charges and freight discounts). At the time of an advance under the Equipment
Revolver, at the Companys choice, amounts outstanding under the Equipment
Revolver bear interest at a rate equal to either (i) the greater of (a) 6.75%;
and (b) the amount equal to the prime rate us 1.0%; or (ii) a fixed rate equal
to 8.25%. The repayment of any funds drawn against the Equipment Revolver shall
be made in 36 equal monthly payments following each new advance under the
Equipment Revolver. The draw down period for the Equipment Revolver expired May
31, 2008, but was extended by SVB to July 31, 2008. No funds were drawn against
the Equipment Revolver as of June 30, 2008, however, the Company borrowed
approximately $451,000 against the Equipment Revolver in July 2008.

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 June 30, 2008, amounts
outstanding under the Revolver bear interest at the rate of 5.50%, calculated as
prime plus 0.5%. In addition, a fee of 0.25% is charged against the unused
portion of the Revolver. No funds were borrowed against the Revolver at June 30,
2008 or June 30, 2007.

F-13

---

Future minimum payments under the credit
facility are as follows as of June 30, 2008 (in thousands):

Silicon Valley Bank2006 Term
    
    EquipmentLoan
    
    Line
    
    TotalShort
      Term
    
    $
    500
    
    $
    66
    
    $
    566Long Term:Fiscal year 2010
    
    
    375
    
    
    -
    
    
    375Total Debt
    
    $
    875
    
    $
    66
    
    $
    941


6.     COMMON STOCK
AND COMMON STOCK WARRANTS:

The Company had 12,000,000 authorized
shares of Common Stock as of June 30, 2007 and 2008.

As of June 30, 2008, the Company had
warrants outstanding to purchase 1,155,474 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 June 30, 2008 were granted in conjunction with
private equity transactions occurring between 2003 and 2005. A summary of the
Companys outstanding warrants as of June 30, 2008 is presented
below:

WeightedAverageExerciseNumber
      of
    
    Price PerExpiration
      Date
    
    Shares
    
    ShareAugust 2010
    
    43,527
    
    
    5.432June 2013
    
    67,223
    
    
    2.250December 2013
    
    888,890
    
    
    2.250April 2014
    
    155,834
    
    
    0.150Total
      Warrants Outstanding
    
    1,155,474
    
    $
    2.087


Annual Stock Grant Retainer to
Directors

In January 1998 the Companys Board of
Directors and stockholders approved a plan which provides for the granting to
non-employee directors options to purchase shares of Common Stock. Each calendar
year in which the Company holds an Annual Meeting of Stockholders, each
non-employee director can receive shares valued at $10,000 based on the market
price of the Companys Common Stock, as defined in the plan. For the fiscal
years ended June 30, 2008, and 2007, there were no shares of Common Stock
granted pursuant to this plan. However, non-employee directors received options
to purchase an aggregate of 17,334 and 6,667 shares of Common Stock pursuant to
the 2003 Plan, respectively, during the years ended June 30, 2008 and 2007. (See
Note 7 below.)

Since April 2001, all non-employee
directors have volunteered to not be paid for attending any regular or special
meeting of any committee of the Board of Directors until further notice.
Accordingly, the Company has not accrued any charges during the period pursuant
to this plan for the grant of Common Stock for attendance by members of the
Board of Directors at any regular or special meeting of any committee of the
Board of Directors.

7.     STOCK
OPTIONS AND STOCK BASED COMPENSATION:

Stock Option Plans

As of June 30, 2008, options to purchase
927,350 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 (the Option Plans). In addition, 216,801 options
are available for grant under the Option Plans.

F-14

---

Information regarding option activity for
the years ended June 30, 2008 and 2007 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     
|Options
      outstanding as of June 30, 2006     |  | 1,099,992   |   |                | $        | 4.959         |           |            |           |   |  
|Granted                                           |  | 190,444     |   |                |          | 3.703         |           |            |           |   |  
|Exercised                                         |  | (309,061    | ) |                |          | 2.278         |           |            |           |   |  
|Forfeited                                         |  | (384,935    | ) |                |          | 5.774         |           |            |           |   |  
|Expired                                           |  | -           |   |                |          | -             |           |            |           |   |  
|Options outstanding as
      of June 30, 2007     |  | 596,440     |   |                | $        | 5.421         |           |            |           |   |  
|Granted                                           |  | 504,603     |   |                |          | 5.825         |           |            |           |   |  
|Exercised                                         |  | (100,249    | ) |                |          | 2.940         |           |            |           |   |  
|Forfeited                                         |  | (73,431     | ) |                |          | 4.263         |           |            |           |   |  
|Expired                                           |  | (13         | ) |                |          | 665.625       |           |            |           |   |  
|Options
      outstanding as of June 30, 2008     |  | 927,350     |   |                | $        | 6.057         |           | 8.30       |           | $ | -
|                                                 
|Options
      exercisable as of June 30, 2008     |  | 505,343     |   |                | $        | 6.463         |           | 7.60       |           | $ | -
|                                                 
|Options
      exercisable as of June 30, 2008 and |  |             |   |                |          |               |           |            |           |   |  
|options
      expected to become exercisable      |  | 837,924     |   |                | $        | 6.127         |           | 8.21       |           | $ | -

Aggregate intrinsic value of $0 was
calculated based on the Companys closing Common Stock price as of June 30, 2008
of $3.60 per share. Options exercisable as of June 30, 2008 and options expected
to become exercisable includes vested options and nonvested options less
expected forfeitures.

A summary of the status of the Companys
nonvested options and restricted stock units as of June 30, 2008 and changes
during the year then ended is presented below:

|                                                  |  |             |   |            | Weighted |             |            |            |         | Weighted
|------------------------------------------------- |  | ----------- | - | ---------- | -------- | ----------- | ---------- | ---------- | ------- | --------
|                                                  |  |             |   |            | Average  |             | Restricted |            | Average
|                                                  |  | Options     |   | Grant-Date |          | Stock Units |            | Grant-Date
|                                                  |  | Outstanding |   | Fair Value |          | Outstanding |            | Fair Value
|Nonvested options outstanding as of June 30, 2007 |  | 101,083     |   |            | $        | 392,176     |            |            | -       |         
|Granted                                           |  | 436,934     |   |            |          | 2,373,393   |            |            | 305,586 |         
|Vested                                            |  | (114,344    | ) |            |          | (594,316    | )          |            | (60,792 | )       
|Forfeited                                         |  | (1,666      | ) |            |          | (10,190     | )          |            | -       |         
|Nonvested options outstanding as of June 30, 2008 |  | 422,007     |   |            | $        | 2,161,063   |            |            | 244,794 |         

F-15

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Stock Based Compensation

In December 2004, the FASB issued
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment
(SFAS 123(R)), an amendment of FASB Statements No. 123 and 95, which requires
all companies to measure compensation cost for all share-based payments,
including employee stock options, at fair value. Effective July 1, 2006, the
Company adopted the fair value recognition provisions of SFAS 123(R) using the
modified prospective transition method.

The Company awarded a total of 305,586
restricted stock units (RSUs) to certain officers during the year ended June
30, 2008. 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 $4.39 to $6.95 per share, for a total fair
value of $1,889,000. Share-based compensation charges associated with the RSUs
were recorded in the amount of $435,000 for the year ended June 30, 2008. No
RSUs were granted prior to the year ended June 30, 2008, so there were no
related share-based compensation charges during the year ended June 30,
2007.

The Company records the issuance of shares
of Common Stock as RSUs vest. During the year ended June 30, 2008, 60,792 shares
of Common Stock were issued as a result of the vesting of RSUs.

The statement of operations includes total
share-based employee compensation charges resulting from stock option and RSU
awards in the amount of $898,000 for the year ended June 30, 2008 and $166,000
for the year ended June 30, 2007. Amounts charged to operations are as
follows:

Year EndedJune 302008
    
    2007(in thousands)Research and development
    
    $
    86
    
    $
    -Sales and
      marketing
    
    
    181
    
    
    7General
      and administrative
    
    
    631
    
    
    159$
    898
    
    $
    166


As of June 30, 2008, the Company had
$2,893,000 of unrecognized compensation expense that will be recognized as
share-based compensation over a weighted average period of 1.3 years. The
weighted average per share fair value of stock options granted was $5.43 and
$3.70, respectively, during the years ended June 30, 2008 and 2007.

The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options, which have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of subjective assumptions including the
expected stock price volatility. The Companys employee stock options have
characteristics different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value
estimate.

The fair value of each option granted
during the year ended June 30, 2008 and 2007 is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:

Year Ended June 30,2008
    
    2007Dividend yield
    
    -
    
    -Expected
      volatility
    
    134 -
    145%
    
    101%-145%Risk-free interest rate
    
    2.85% - 4.33%
    
    4.69% - 4.92%Expected life
    
    6.1
    years
    
    6.1
    years


F-16

---

Dividend yield  The Company has never
declared or paid any cash dividends on its Common Stock and does not expect to
do so in the foreseeable future. Accordingly, the Company uses an expected
dividend yield of zero to calculate the grant-date fair value of a stock
option.

Expected volatility  The expected
volatility is a measure of the amount by which the Companys Common Stock price
is expected to fluctuate during the expected term of options granted. SFAS
123(R) provides that expected volatility should be based upon the historical
volatility of the Companys Common Stock, but adjusted based upon the expected
impact of changes in the business.

Risk-free interest rate  The risk-free
interest rate is the implied yield available on U.S. Treasury zero-coupon issues
with a remaining term equal to the options expected term on the grant date.
Since the U.S. Treasury Department does not issue zero-coupon securities with
maturity periods equal to the presumed expected life of the Companys
outstanding options, the risk-free interest rate is interpolated based on rates
reported by the U.S. Treasury Department for securities with maturities shorter
than and longer than the expected life of the Companys outstanding
options.

Expected life The expected life of stock
options granted is based on the simplified method prescribed under SAB 107.
Accordingly, the expected term is presumed to be the midpoint between the
vesting term and the original contract term.

The Company recognizes compensation
expense on a straight-line basis over the requisite service period based upon
options that are ultimately expected to vest, and accordingly, such compensation
expense has been adjusted by an amount of estimated forfeitures. Forfeitures
represent only the nonvested portion of a surrendered option. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. However the estimation of forfeitures requires significant judgment,
and to the extent actual results or updated estimates differ from the Companys
current estimates, such amounts will be recorded as a cumulative adjustment in
the period in which estimates are revised. The Company estimates annual
forfeiture rates of 8.42% for stock options and 0% for restricted stock units.
As of June 30, 2008, there are nonvested options for approximately 422,000
shares and management estimates 36,000 will ultimately be forfeited.

8.     401(k)
SAVINGS PLAN:

Effective January 1997, the Company
adopted a 401(k) Savings Plan ("401(k) Plan") that is available to all
employees. The 401(k) Plan permits participants to contribute up to 85% of their
base salary, pre-tax, not to exceed the limits established by the Internal
Revenue Code. The Company previously matched 25% of employee contributions on
the initial 6% contributed by employees. Effective January 1, 2002, the Company
match was suspended.

All employee contributions and Company
match contributions vest immediately. The Company recorded no compensation
expenses in connection with the 401(k) Plan for the fiscal years ended June 30,
2008 and 2007.

9.     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 $497,000 and $517,000 for the fiscal years ended June 30, 2008 and
2007, respectively. Future minimum rental payments for the Companys office
facilities and equipment under operating leases as of June 30, 2008 are as
follows:

(in thousands)Year
      ending June 30, 2009
    
    $
    419Year ending June 30,
      2010
    
    
    388Year
      ending June 30, 2011
    
    
    398Year ending June 30,
      2012
    
    
    405Year
      ending June 30, 2013
    
    
    256$
    1,866


In May, 2008, the Company moved its
corporate headquarters into office facilities located at 300 American Metro
Boulevard, Hamilton, New Jersey 08619 in accordance with a five-year Lease
Agreement. The Lease Agreement provides for total base rental payments of
$1,160,442 ($222,616 in the first year of the lease, $227,352 in the second year
of the lease, $232,088 in the third year of the lease, $236,825 in the fourth
year of the lease, and $241,561 in the last year of the lease). The Lease
Agreement provides that the above annual amounts be paid in equal monthly
installments.

F-17

---

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 one-year employment
agreements with two of its officers. The agreements extend annually unless
terminated by either the employee or Company at least 90 days prior to the
scheduled renewal date. The agreements provide for minimum salary levels,
adjusted annually at the discretion of the 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.

10.     INCOME
TAXES:

The provision for income taxes was $7,000
for the year ended June 30, 2008, and $0 for the year ended June 30, 2007. The
provision for income taxes during the year ended June 30, 2008 is primarily the
result of federal and state alternative minimum tax regulations, which prevent
the Company from fully utilizing its net operating losses.

The Company and its wholly-owned domestic
subsidiaries are subject to U.S. federal income tax as well as income tax of
multiple state jurisdictions. The Companys subsidiary based in the United
Kingdom is subject to income taxes imposed by the United Kingdom. The Company
had no accumulated earnings in the United Kingdom.

The tax years 2004-2006 remain open to
examination by the major taxing jurisdictions to which the Company is subject.
However, due to net operating loss (NOL) carryforwards, the Internal Revenue
Service (IRS) is permitted to recompute income from a closed year in order to
determine the NOL carryforward allowable in an open year. The Company has
operated at a loss since inception; therefore, NOL carryforwards are available
from 1995 through 2007, and these NOL carryforwards expire in the years 2011
through 2027. The cumulative unused NOL carryforward at June 30, 2008 was
approximately $12,000,000. Additionally, there are research credit carryforwards
from 1996 through 2002 that total approximately $866,000. As with the NOLs, the
IRS is permitted to recompute the research credit from a closed year in order to
determine the tax due in an open year.

The Tax Reform Act of 1986 enacted a
complex set of rules limiting the potential utilization of net operating loss
and tax credit carry-forwards in periods following a corporate ownership
change. In general, for federal income tax purposes, an ownership change is
deemed to occur if the percentage of stock of a loss corporation owned
(actually, constructively and, in some cases, deemed) by one or more 5%
shareholders has increased by more than 50 percentage points over the lowest
percentage of such stock owned during a three-year testing period. During 2003,
such a change in ownership occurred. As a result of the change, the Companys
ability to utilize certain of its net operating loss carry-forwards that were
generated prior to ownership changes will be limited.

A deferred tax asset or liability is
recorded for NOL carryforwards, research credit carryforwards and temporary
differences in the bases of assets and liabilities for book and tax based on
enacted rates expected to be in effect when these temporary items are expected
to reverse. The Company established a 100% valuation allowance against its net
deferred tax assets based on estimates and certain tax planning strategies.
Valuation allowances are provided to the extent it is more likely than not that
all or a portion of the deferred tax assets will not be realized.

Deferred tax assets reflect the impact of
temporary differences as follows:

June 30, 2008(in thousands)
    
    2008
    
    2007Deferred tax assets:Net operating loss
      carryforwards
    
    $
    5,725
    
    
    $
    4,340Depreciation &
      amortization
    
    
    3,661
    
    
    
    3,878Allowances and reserve
      accounts
    
    
    353
    
    
    
    235Accrued expenses
    
    
    593
    
    
    
    538Deferred balances
    
    
    1,385
    
    
    
    1,296Research and development
      credit
    
    
    866
    
    
    
    866Total deferred tax
      assets
    
    
    12,583
    
    
    
    11,153Valuation Allowance
    
    
    (12,564
    )
    
    
    (11,137
    )Deferred tax liabilities:Capitalized software
    
    
    (19
    )
    
    
    (16
    )Net
      deferred tax assets
    
    $
    -
    
    
    $
    -


F-18

---

A reconciliation of the Companys
effective tax rate to the statutory federal rate for the year ended June 30,
2008 is as follows:

Year Ended June 30,2008
    
    2007Federal
      statutory rate
    
    35.0
    %
    
    35.0
    %State taxes, net of
      federal
    
    20.4
    
    
    8.2Foreign
      taxes
    
    8.3
    
    
    0.0Other
    
    4.6
    
    
    -2.4Reduction to deferred tax asset
    
    -25.6
    
    
    0.0Valuation
      allowance
    
    -41.5
    
    
    -40.81.2
    %
    
    0.0
    %


11.     SEGMENT
INFORMATION:

Voxwares international operations team
headquartered in England serves all customers outside of North America.
International operations, which historically focus primarily on the United
Kingdom, contributed 35% of the Companys revenues during the year ended June
30, 2008, as compared to 26% during the year ended June 30, 2007. As of June 30,
2008, Voxwares international operations team consisted of 13 employees 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 June 30, 2008 and
2007.

12.     SUBSEQUENT
EVENTS:

In July 2008, Voxware borrowed
approximately $451,000 against the Equipment Revolver (see Note 5). This
principle balance is to be paid in 36 monthly installments of approximately
$13,000 plus interest commencing on August 1, 2008. The interest is not fixed
and accrues at the greater of 6.75% or prime rate plus 1%. At the time funds
were borrowed, prime rate was 5.0%, so interest on the Equipment Revolver was
initially set at 6.75%.

F-19

---