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UNITED
STATES SECURITIES AND EXCHANGE
COMMISSION Washington, D.C.
20549____________________


FORM 10-K

|x                                       |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934    
|--------------------------------------- |  | ----------------------------------------------------------------------------------------
|                                        |  |                                                                                         
|For the fiscal year ended June 30, 2009
|                                        |  |                                                                                         
|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 Registrant in its Charter)

Delaware
    36-3934824(State or
      Other Jurisdiction of
    (I.R.S.
      EmployerIncorporation 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 registeredCommon Stock,
      $0.001 par value per share
    NASDAQ STOCK
      MARKET LLC


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

Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YesoNo x

Indicate by check mark if the registrant is not required to
file reports under Section 13 or 15(d) of the Act. Yes oNo x

Indicate by check mark if the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes xNo o

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files) Yes oNo o

Indicate by check mark if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-K
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-K or any amendment to this
Form 10-K. o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):


|Large
      accelerated filero                                             | Accelerated
      filer o        
|-------------------------------------------------------------------------- | ---------------------------------
|Non-accelerated
      filer (do not check If a smaller reporting company)o | Smaller
      reporting company x

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
oNo x

The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant was
approximately $2,157,000 as of December 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, 2009 is 8,013,941.

DOCUMENTS INCORPORATED BY
REFERENCE

Certain information required by Part III
of this Annual Report on Form 10-K will be set forth in, and is incorporated by
reference to, the Registrant's Proxy Statement for the 2009 Annual Meeting of
Stockholders.

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VOXWARE, INC.ANNUAL REPORT ON FORM 10-K

TABLE OF
CONTENTS

|PART I                                     |                                                                                                        |     |                                                                                         | 4 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------ | --- | --------------------------------------------------------------------------------------- | --
|                                           | ITEM 1.                                                                                                |     | BUSINESS                                                                                |   
|                                           | ITEM 1A.                                                                                               |     | RISK FACTORS                                                                            |   
|                                           | ITEM
1B.                                                                                               |     | UNRESOLVED STAFF
      COMMENTS                                                         |   
|                                           | ITEM 2.                                                                                                |     | PROPERTIES                                                                              |   
|                                           | ITEM 3.                                                                                                |     | LEGAL
      PROCEEDINGS                                                                 |   
|                                           | ITEM 4.                                                                                                |     | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                     |   
|                                           |                                                                                                       
|PART II                                    |                                                                                                        |     |                                                                                         | 16
|                                           | ITEM 5.                                                                                                |     | MARKET FOR
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
    OF |   
|                                           |                                                                                                        |     | EQUITY
      SECURITIES                                                                 |   
|                                           | ITEM 6.                                                                                                |     | SELECTED FINANCIAL DATA                                                                 |   
|                                           | ITEM 7.                                                                                                |     | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        |   
|                                           |                                                                                                        |     | OPERATIONS                                                                              |   
|                                           | ITEM 7A.                                                                                               |     | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK                              |   
|                                           | ITEM 8.                                                                                                |     | FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA                                       |   
|                                           | ITEM 9.                                                                                                |     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL         |   
|                                           |                                                                                                        |     | DISCLOSURE                                                                              |   
|                                           | ITEM
    9A(T).                                                                                        |     | CONTROLS AND
      PROCEDURES                                                           |   
|                                           | ITEM 9B.                                                                                               |     | OTHER INFORMATION                                                                       |   
|                                           |                                                                                                       
|PART III                                   |                                                                                                        |     |                                                                                         | 31
|                                           | ITEM
10.                                                                                               |     | DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                            |   
|                                           | ITEM 11.                                                                                               |     | EXECUTIVE COMPENSATION                                                                  |   
|                                           | ITEM
12.                                                                                               |     | SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED        |   
|                                           |                                                                                                        |     | STOCKHOLDER
      MATTERS                                                               |   
|                                           | ITEM 13.                                                                                               |     | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE         |   
|                                           | ITEM
14.                                                                                               |     | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                            |   
|                                           |                                                                                                       
|PART IV                                    |                                                                                                        |     |                                                                                         | 32
|                                           | ITEM
15.                                                                                               |     | EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES                                           |   
|                                           |                                                                                                       
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |                                                                                                        | F-1
|                                           | Report of Independent
      Registered Public Accounting Firm                                          |     | F-2                                                                                    
|                                           | Consolidated
      Balance Sheets as of June 30, 2009 and 2008                                         |     | F-3                                                                                    
|                                           | Consolidated Statements of
      Operations for the years ended June 30, 2009 and 2008                 |     | F-4                                                                                    
|                                           | Consolidated
      Statements of Stockholders Equity for the years ended June 30, 2009 and
      2008 |     | F-5                                                                                    
|                                           | Consolidated Statements of
      Cash Flows for the years ended June 30, 2009 and 2008                 |     | F-6                                                                                    
|                                           | Summary of
      Accounting Policies and Notes to Consolidated Financial
    Statements                |     | F-7                                                                                    

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PART I

When used in this report, the term
Voxware, us, our, we, the Company and similar terms refer to Voxware,
Inc., a Delaware Corporation and our Subsidiaries.

This Annual Report on Form 10-K 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.

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ITEM 1. 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, or an Enterprise Resource
Management System, or ERP.

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.

Our sales are generated primarily by our
own sales force working directly with the end users of the voice recognition
solution. In addition, we have developed partnerships with VARs and WMS
companies, both in the United States and in international markets, who are
incorporating our voice technology, most notably our Voxware 3 product, into
their offerings. The first deliveries of solutions by partners to end customers
occurred during fiscal year 2007. However, we believe it takes on average a year
or more before new partners begin generating sales to end user customers,
because partners must complete product integration efforts, become certified to
deliver Voxware-based voice solutions and secure customer acceptance of their
initial deployments.

The continued deterioration of general
worldwide economic conditions has negatively impacted certain vertical markets,
including retail and food distribution, that are significant to our operations.
However, we anticipate an expansion of our customer base, with existing
customers expected to implement our products in additional sites as they
experience favorable results with our offerings and new customers brought to us
through direct sales efforts, VARs and other channel partners. We expect the
majority of revenues will come from existing customers in fiscal year 2010, but
that revenues from new customers, including those brought to us through VARs and
other channel partners, will grow faster than revenues from existing customers.
We can provide no assurances that revenues earned in any given fiscal quarter or
year will exceed the preceding fiscal quarter or year. Furthermore, we
anticipate that in some fiscal quarters and years, costs will exceed revenues.

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.

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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.

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.

Our solutions require mobile computing
equipment and related hardware accessories. We typically supply the hardware
accessories, but have partnered with major mobile computing equipment
manufacturers such as Motorola, Inc., Intermec, Inc. and LXE, Inc., a subsidiary
of EMS Technologies, Inc., for the provision of mobile computers. Our customers
may elect to purchase the mobile computing equipment from us or from any other
authorized dealer of the equipment. One implication of this strategy is that if
customers elect to buy the equipment from other sources, the portion of our
revenues associated with hardware sales could diminish as a percentage of total
revenues over time as we transition to a software-centric business model.
However, we can not predict whether customers will buy from us or other
authorized distributors. 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, we are focused on growing our 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.

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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, Intermec 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.

We are 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 software and 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 our new customers.

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.

Customers

Our customers include some of the largest
and best-known companies in their respective industries, including 7-Eleven,
Inc., AutoZone, Inc., Black and Decker, Carters, Inc., Dunkin Donuts, McGraw
Hill, 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
2009 and 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, 2009 and 2008, US Foodservice accounted for
approximately 16% and 18%, 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. No other customer accounted
for greater than 10% of our total revenues for the last two fiscal
years.

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.

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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.

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 and will
expire in 2023.

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.

Research and Development

We incurred $3,686,000 and $3,830,000 in
2009 and 2008, respectively of Company-sponsored research and development
activities and $0 in each year related to customer-sponsored activities.

Employees

As of June 30, 2009, we had 64 full-time
employees, consisting of 19 individuals in cost of goods sold (which includes
professional services, customer support and production), 18 individuals in
research and development, 17 individuals in sales and marketing and 10
individuals in general and administrative. Twenty two of our employees are
located at our Cambridge, Massachusetts facility, 23 individuals are located at
our corporate offices in Hamilton, New Jersey, 8 individuals work with our sales
and customer support office in the United Kingdom and 11 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.

- 8 -

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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 athttp://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, LLC.

- 9 -

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ITEM 1A. RISK
FACTORS.

We operate in a rapidly changing business
environment that involves substantial risk and uncertainty. The following
discussion addresses some of the risks and uncertainties that could cause, or
contribute to cause, actual results to differ materially from expectations. We
caution all readers to pay particular attention to the descriptions of risks and
uncertainties described below and in other sections of this Annual Report on
Form 10-K 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-K 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-K.

Risks Relating to Our Business and
OperationsIf we incur operating
losses, we may be unable to continue our operations.With the exception of fiscal 2008, we have incurred cumulative operating
losses since we started our company in August 1993. The accumulated deficit at
June 30, 2009 was $79,566,000. The continued deterioration of general worldwide
economic conditions has negatively impacted certain vertical markets, including
retail and food distribution, that are significant to our operations. As a
result of these general economic conditions, combined with the seasonal impact
of the typically slower summer months, our revenue during the first quarter of
fiscal 2010 is expected to be in line with the first quarter of fiscal 2009,
which was 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 continued deterioration of general worldwide economic
conditions has negatively impacted certain vertical markets, including retail
and food distribution, that are significant to our operations. As a result of
these general economic conditions, combined with the seasonal impact of the
typically slower summer months, our revenue during the first quarter of fiscal
2010 is expected to be in line with the first quarter of fiscal 2009, which was
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 16% of our total revenues for the year ended June 30,
2009. We believe that a substantial portion of our net sales will continue to be
derived from a concentrated group of customers. However, the volume of sales to
a specific customer is likely to vary from period to period, and a significant
customer in one period may not purchase our products in a subsequent period. In
general, there are no ongoing written commitments by customers to purchase our
products. Our net sales in any period generally have been, and likely will
continue to be, in the near term, derived from a relatively small number of
sales transactions. Therefore, the loss of one or more major customers, or a
delay in their orders, could have a material adverse affect on our results of
operations.

If our VoiceLogistics family of
products is not successful in the market, we will not be able to generate
substantial revenues or achieve sustained profitability.Our success is substantially dependent on the success of our
VoiceLogistics family of products. If the market accepts our Voxware 3 products,
these products will account for the vast majority of our net revenue in the
future. If our Voxware 3 products are unsatisfactory, or if we are unable to
generate significant demand for these products, or if we fail to develop other
significant products or applications, our business will be materially and
adversely affected.

We have a sole source vendor for our
primary hardware products. One vendor
supplies us with our primary wearable computer hardware products 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. Any disruption in or termination of
supply by our vendors could have a material adverse effect on our results of
operations.

- 10 -

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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 continued economic slowdown of the global economy.

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

- 11 -

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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, VARs and system integrators to sell and/or assist us
in selling our products. To date we have signed agreements with several of these
third-party partners, and we expect these partners to contribute an increasing
percentage of overall revenues in the future. We believe that the establishment
of a network of third-party partners, with extensive and specific knowledge of
the various applications critical in the industrial market, is important for us
to succeed in that market. Some third-party partners also purchase products from
us at a discount and incorporate them into application systems for various
target markets and/or consult with us in the development of application systems
for end users. Once signed, new partners must be trained in the development and
sale of voice-based logistics solutions. Accordingly, there can be a significant
lead time between the signing of agreements with partners and the recognition of
revenues generated by the partners. For the foreseeable future, we may sell
fewer products if we cannot attract and retain third-party partners to sell and
service our products effectively and provide timely and cost-effective customer
support. An increasing number of companies compete for access to the types of
partners we use. Additionally, we may experience conflicts between our
distribution channel partners who may compete against one another. Our sales may
suffer as a result of these conflicts.

Either party generally may terminate our
current arrangements with third-party partners at any time upon 30 days prior
written notice. We cannot assure you that our partners will continue to purchase
and re-sell our products or provide us with adequate levels of support. If our
partner relationships are terminated or otherwise disrupted, our operating
performance and financial results may be adversely affected.

If we cannot attract and retain
management and other personnel with experience in the areas of our business
focus, we will not be able to manage and grow our business.We have been developing and selling our speech recognition
products and voice-based technologies since February 1999. Since that time, we
have been hiring personnel with skills and experience relevant to the
development and sale of these products and technologies. If we cannot continue
to hire such personnel and to retain personnel hired, our ability to operate our
business will be materially adversely affected. On June 30, 2006, 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,
2009, 31,982 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.

- 12 -

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Risks Relating to Our
Securities

The price of our Common Stock has been
highly volatile due to factors that will continue to affect the price of our
stock.Our Common Stock traded as high as $5.52 and as low as $0.10 per
share between July 1, 2008 and June 30, 2009. Historically, the over-the-counter
markets and NASDAQ Capital Market for securities such as our Common Stock have
experienced extreme price fluctuations. Some of the factors leading to this
volatility include:

- fluctuations in our quarterly revenue and
  operating results;
- announcements of product releases by us or our
  competitors;
- announcements of acquisitions and/or partnerships
  by us or our competitors;
- increases in outstanding shares of our Common
  Stock upon exercise or conversion of derivative securities and the
  issuances of our Common Stock pursuant to our
  private placement transactions;
- delays in producing finished goods inventory for
  shipment; and
- the small public float of our outstanding Common
  Stock in the marketplace.

There is no assurance that the price of
our Common Stock will not continue to be volatile in the future.

A significant portion of our total
outstanding shares of Common Stock may be sold in the market in the near future.
This could cause the market price of our Common Stock to drop significantly,
even if our business is doing well. Sales of
a substantial number of shares of our Common Stock in the public market could
occur at any time. These sales, or the perception in the market of such sales,
may have a material adverse effect on the market price of our Common Stock. 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 effected 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, 2009, these shares
include:

- approximately 255,000 shares of our Common Stock
  owned by our executive officers and directors; and
- approximately 2,409,000 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, 2009, our
executive officers, directors and affiliated entities together beneficially own
approximately 5,933,000 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.

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On various occasions during the year ended
June 30, 2009, the bid price of our Common Stock closed below $1.00 per share.
Because this occurrence was widespread among NASDAQ listed companies, NASDAQ
suspended enforcement of its minimum $1.00 closing bid price requirement on
October 16, 2008. NASDAQ originally announced the suspension of enforcement of
the rule would remain in effect through January 16, 2009. However, on December
19, 2008, NASDAQ announced that the suspension of enforcement of the rule was
extended through April 17, 2009 and on March 23, 2009 the extension was granted
through July 20, 2009. Accordingly, we were not in violation of the minimum
bid price requirement for NASDAQ as of June 30, 2009.

While we satisfied the requirements for
continued listing on the NASDAQ Capital Market as of June 30, 2009, periods of
operating losses may adversely affect our ability to maintain minimum required
values of stockholders equity or Common Stock market value. If we are unable to
satisfy the criteria to maintain listing of our Common Stock, our Common Stock
could be subject to delisting. Trading, if any, of our Common Stock would
thereafter be conducted on the OTC Bulletin Board or in the so-called Pink
Sheets. As a consequence, it would be far more difficult for our stockholders
to trade in our Common Stock, and it may be more difficult to obtain accurate
and current information concerning market prices for our Common
Stock.

Risks Relating to Accounting Rules
and Internal ControlsChanges in, or interpretations of, accounting rules
and regulations, such as expensing of stock options, could result in unfavorable
accounting charges. We prepare our consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America. These principles are subject to interpretation by the SEC and various
bodies formed to interpret and create appropriate accounting policies. A change
in these policies can have a significant effect on our reported results and may
even retroactively affect previously reported transactions.

ITEM 1B. UNRESOLVED STAFF
COMMENTS.

Not applicable

ITEM 2.
PROPERTIES.

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 £1,763 on March 1, 2008 and will
increase to £1,860 on March 1, 2010.

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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.

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PART II

|ITEM
      5. | MARKET FOR COMMON
      EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES.
|------------- | ------------------------------------------------------------------------------------------------------------

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, as quoted on the
NASDAQ Capital Market for our two most recent fiscal years:

High
    
    LowFiscal 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
    
    $3.52Fiscal Year
      Ended June 30, 2009Quarter ended
      September 30, 2008
    $4.57
    
    $1.90Quarter ended
      December 31, 2008
    $4.25
    
    $0.75Quarter ended
      March 31, 2009
    $5.52
    
    $0.10Quarter ended
      June 30, 2009
    $2.89
    
    $0.75


As of August 31, 2009, there were
approximately 148 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, 2009, with respect to the shares of our Common Stock that may be
issued under our existing equity compensation plans which were all approved by
our stockholders.

|                                                   |                      | 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                          | 1,107,048            | $4.46             | 31,082               
|1994 Stock Option Plan                             | 1,168                | $365.32           | 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

On June 29, 2009, the Company entered into
a Securities Purchase Agreement (the Securities Purchase Agreement) with
Co-Investment Fund II, L.P. (a Cross Atlantic Technology Fund entity) and Edison
Venture Fund V, L.P., pursuant to which the Company issued and sold an aggregate
of 1,428,571 shares (the Shares) of the Companys common stock, $0.001 par
value per share (the Common Stock), at a purchase price of $1.75 per share,
and warrants to purchase up to 142,857 shares (the Warrant Shares) of Common
Stock, which will not be exercisable until the six (6) months after the date of
issuance and shall expire three (3) years from the date of issuance, at an
exercise price of $2.50 per share (the Warrants).

- 16 -

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Under the terms of the Securities Purchase
Agreement, Edison Venture Fund V, L.P. purchased 285,714 shares of Common Stock
and Warrants to purchase 28,571 shares of Common stock and Co-Investment Fund
II, L.P. purchased 1,142,857 shares of Common Stock and Warrants to purchase
114,286 shares of Common Stock. The private placement closed on June 30, 2009.
The Company received gross proceeds equal to $2,500,000. The securities sold in
this private placement have not been registered under the Securities Act of
1933, as amended (the Securities Act) as such issuance of securities was
exempt from registration under Section 4(2) of the Securities Act, and may not
be offered or sold in the United States in the absence of an effective
registration statement or exemption from the registration requirements under the
Securities Act.

Purchase of Equity Securities by the
Registrant and Affiliated Purchases

None.

ITEM 6. SELECTED FINANCIAL
DATA.

The Company is not required to provide the
information required by this Item as a smaller reporting company.

ITEM 7. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report contains forward-looking
statements. Such statements are subject to certain factors that may cause our
plans to differ, or results to vary from those expected, including:

- our evolving distribution strategy and increasing
  dependence on third-party distribution channels and hardware
  manufacturers;
- the risks
  associated with our need to introduce new and enhanced products and services
  in order to increase market penetration;
- the risk of
  obsolescence of our products and services due to technological change;
- our need to
  attract and retain key management and other personnel with experience in
  providing integrated voice-based solutions for logistics, specializing in the
  supply chain sector;
- the potential
  for substantial fluctuations in our results of operations;
- the continuing
  negative impact of the current global economy on our target customer markets,
  including retail and food distribution;
- competition
  from others;
- the potential
  that voice-based products will not be widely accepted; and
- a variety of
  risks set forth from time to time in our filings with the Securities and
  Exchange Commission, or SEC.

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.

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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.

Our sales are generated primarily by our
own sales force working directly with the end users of the VoiceLogistics
solution. Since our 2005 fiscal year, we have been transitioning from direct
selling of custom solutions that included proprietary hardware and software to
the sale, through both partners and direct channels, of productized,
standards-based voice software that operates on open hardware platforms. Our
transition to this sales approach and technology is an ongoing process that will
continue in the future.

As part of our business transition, we
stopped manufacturing our own proprietary hardware and, instead, have partnered
with major mobile computing equipment manufacturers such as Motorola, Inc. and
LXE, Inc., a subsidiary of EMS Technologies, Inc. One implication of this
strategy is that we expect the portion of our revenues associated with
proprietary hardware sales to diminish as a percentage of total revenues over
time as we transition to a software-centric business model. In addition, we
expect that a greater percentage of our hardware revenues will be derived from
the sales of accessories, rather than hardware units. However, we can provide no
assurance as to the rate of this anticipated shift of revenue
sources.

We have also developed partnerships with
key VAR, and WMS companies, both in the United States and in international
markets, who are incorporating our voice technology, most notably our Voxware 3
product, into their offerings. The first deliveries of solutions by partners to
end customers occurred during fiscal year 2007. However, we believe it takes on
average a year or more before new partners begin generating sales to end user
customers, because partners must complete product integration efforts, become
certified to deliver Voxware-based voice solutions and secure customer
acceptance of their initial deployments.

The continued deterioration of general
worldwide economic conditions has negatively impacted certain vertical markets,
including retail and food distribution, that are significant to our operations.
As a result of these general economic conditions, combined with the seasonal
impact of the typically slower summer months, our revenue during the first
quarter of fiscal 2010 is expected to be in line with the first quarter of
fiscal 2009, which was lower than quarterly revenues reported for fiscal 2008.
In response to the changing economic environment, we eliminated a net of 18
positions during first half of fiscal 2009, after considering new
hires, and scaled back certain planned costs, new hires and capital purchases.
However, our customer base continues to expand, with existing customers expected
to implement our products in additional sites as they experience favorable
results with our offerings and new customers brought to us through direct sales
efforts, VARs and other channel partners. We expect the majority of revenues
will come from existing customers in fiscal year 2010, but that revenues from
new customers, including those brought to us through VARs and other channel
partners, will grow faster than revenues from existing customers. We can provide
no assurances that revenues earned in any given fiscal quarter or year will
exceed the preceding fiscal quarter or year. Furthermore, we anticipate that in
some fiscal quarters and years, costs will exceed revenues.

On June 29, 2009, with an effective date
of June 1, 2009, we entered into a Sixth Loan Modification Agreement with
Silicon Valley Bank (SVB), which, among other things extended the maturity of
a $1,500,000 revolving line of credit until July 31, 2009. On September 9, 2009,
we entered into a Seventh Loan Modification Agreement that, among other things,
lowered the interest rate to prime plus 2.25% and extended the maturity of the
Revolver until July 30, 2010. In addition, this modification revised certain
financial covenants under the Loan Agreement.

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On June 29, 2009, the Company received an
equity infusion of $2.5 million from its two principal investors. On June 29,
2009, the Company entered into a Securities Purchase Agreement (the Securities
Purchase Agreement) with Co-Investment Fund II, L.P. (a Cross Atlantic
Technology Fund entity) and Edison Venture Fund V, L.P., pursuant to which the
Company issued and sold an aggregate of 1,428,571 shares (the Shares) of the
Companys common stock, $0.001 par value per share (the Common Stock), at a
purchase price of $1.75 per share, and warrants to purchase up to 142,857 shares
(the Warrant Shares) of Common Stock, which will not be exercisable until the
six (6) months after the date of issuance and shall expire three (3) years from
the date of issuance, at an exercise price of $2.50 per share (the
Warrants).

Under the terms of the Securities Purchase
Agreement, Edison Venture Fund V, L.P. purchased 285,714 shares of Common Stock
and Warrants to purchase 28,571 shares of Common stock and Co-Investment Fund
II, L.P. purchased 1,142,857 shares of Common Stock and Warrants to purchase
114,286 shares of Common Stock. The private placement closed on June 30, 2009.
The Company received gross proceeds equal to $2,500,000. The securities sold in
this private placement have not been registered under the Securities Act of
1933, as amended (the Securities Act), and may not be offered or sold in the
United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act.

We may need to raise additional capital
through either new equity or debt financing arrangements and may elect to
utilize such an arrangement to fund further expansion of our operations. Due to
the recent downturn in the economy, there can be no assurances that financing
will be available on terms acceptable to us, if at all. However, due to a
general trend providing greater emphasis on sales of higher margin product and
given our efforts to reduce costs, as well as having $4.3 million in cash and
$1.5 million in debt availability we believe that we have adequate capital
resources available to fund our operations through June 30, 2010.

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.

Revenue RecognitionRevenues are generated from licensing application software,
selling related computer hardware and accessories, providing extended hardware
warranties and providing services, including professional deployment,
configuration, customized application development, training services, software
maintenance 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 most direct customers do not include an acceptance
period, so revenues from the sale of hardware and accessories and licensing of
software in these transactions are recognized upon shipment. Extended hardware
warranty revenues are recognized ratably over the life of the contract, which is
generally either one year or three years. Channel partner revenue is recognized
when the above four criteria are met. For the collectibility criterion, 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.

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We recognize 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 revenues 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, 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 fair value of the undelivered
elements included in our multi-element sales arrangements is based on vendor
specific objective evidence, or VSOE. The fair value of elements not essential
to the functioning of the software, including hardware units and related
accessories, are calculated in accordance with Financial Accounting Standards
Board Emerging Issues Task Force (EITF) No. 00-21, Revenue Arrangements with
Multiple Deliverables.

Under EITF 00-21, we determine the fair
value of hardware elements based on the price when they are 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, 2009, we believe that we have realized VSOE of the fair values
for maintenance and professional services, and the fair value of hardware
elements.

Deferred revenues consist of unearned
customer deposits, extended hardware warranties, depot management service fees
and post contract support (PCS) arrangements. Customer deposits are recognized
as revenue upon customer acceptance of the underlying product and services in
conjunction with the recognition of deferred project costs. PCS arrangements
include software maintenance revenues. These arrangements, which sometimes
include amounts bundled with initial revenues, are deferred upon invoicing and
recognized as revenues over the term of the service period, which is typically
one year. Revenues from extended hardware warranties are recognized over the
term of the warranty, which is typically one year. Certain extended hardware
warranty arrangements have a three year term. Revenues from depot management
services, which were provided through December 2007, were recognized over the
contract period.

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

Allowance for Doubtful
AccountsThe 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 (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. We define technological feasibility as the point at which there is a
completed working model of the software product, the completeness of which is to
be confirmed by testing. According to SFAS 86, the working model is generally
deemed to exist with commencement of beta testing.

Warranty Costs Our standard warranty
policy generally allows customers or end users to return defective products for
repair or replacement, provided that we are notified of the defective product
generally within 90 days from delivery of the product to the end user in the
case of software, and up to one year in the case of hardware. We accrue for
warranty costs based on our estimate of expected repair cost per unit, service
policies and specific known issues. Certain extended hardware warranty services
are outsourced to a third-party in accordance with contracts that generally span
three years. The costs associated with these contracts are prepaid and
recognized ratably over the life of the contract. If we experience claims or
significant changes in costs of services, such as third-party vendor charges,
materials or freight, which could be higher or lower than our historical
experience, our cost of revenues could be affected.

Inventory Inventory purchases and purchase
commitments are based upon forecasts of future demand. We value our inventory at
the lower of average cost or net realizable value. If we believe that demand no
longer allows us to sell our inventory above cost, or at all, then we write down
that inventory to net realizable value or write off excess inventory levels. If
customer demand subsequently differs from our forecasts, requirements for
inventory write-offs could differ from our estimates.

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Share-Based Compensation
We account for
share-based compensation in accordance with SFAS No. 123(R), Share-Based
Payment, 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.

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 may
preclude us from fully utilizing the benefit of these net operating losses. In
addition, the expansion of our business requires us to file taxes in
jurisdictions where we did not previously operate, and thus do not have
established net operating losses to offset the tax liability.

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

We recognize interest and penalties
related to uncertain tax positions in income tax expense. As of June 30, 2009
and 2008, there was no accrued interest related to uncertain tax
positions.

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 2009 versus Fiscal
2008

(dollars in table are presented in
thousands)

|                                  | Year
      Ended |        | % of
      Total |  | Year
      Ended |    | % of
      Total |   |          |   |          |     |    | 
|--------------------------------- | ---------------- | ------ | ---------------- |  | ---------------- | -- | ---------------- | - | -------- | - | -------- | --- | -- | 
|                                  | June 30, 2009    |        | Revenue          |  | June 30, 2008    |    | Revenue          |   | $ Change |   | % Change
|Product revenues                  | $                | 8,643  |                  |  | 59               | %  |                  | $ | 17,173   |   |          | 73  | %  | 
|Services
      revenues           |                  | 5,884  |                  |  | 41               | %  |                  |   | 6,211    |   |          | 27  | %  | 
|Total revenues                    |                  | 14,527 |                  |  | 100              | %  |                  |   | 23,384   |   |          | 100 | %  | 
|Cost of product revenues          |                  | 3,321  |                  |  | 23               | %  |                  |   | 5,835    |   |          | 25  | %  | 
|Cost of services revenues         |                  | 2,974  |                  |  | 20               | %  |                  |   | 3,718    |   |          | 16  | %  | 
|Total cost of revenues            |                  | 6,295  |                  |  | 43               | %  |                  |   | 9,553    |   |          | 41  | %  | 
|Gross profit                      |                  | 8,232  |                  |  | 57               | %  |                  |   | 13,831   |   |          | 59  | %  | 
|                                  |                  |        |                  |  |                  |    |                  |   |          |   |          |     |    | 
|Research and development          |                  | 3,686  |                  |  | 25               | %  |                  |   | 3,830    |   |          | 16  | %  | 
|Sales and marketing               |                  | 5,321  |                  |  | 37               | %  |                  |   | 6,019    |   |          | 26  | %  | 
|General and administrative        |                  | 4,020  |                  |  | 28               | %  |                  |   | 3,414    |   |          | 14  | %  | 
|Total operating expenses          |                  | 13,027 |                  |  | 90               | %  |                  |   | 13,263   |   |          | 56  | %  | 
|Operating (loss) profit           |                  | (4,795 | )                |  | (33              | %) |                  |   | 568      |   |          | 2   | %  | 
|Interest (expense) income, net    |                  | (28    | )                |  | (0               | %) |                  |   | 24       |   |          | 0   | %  | 
|(Loss) profit before income taxes |                  | (4,823 | )                |  | (33              | %) |                  |   | 592      |   |          | 3   | %  | 
|Provision for income taxes        |                  | (3     | )                |  | (0               | %) |                  |   | (7       | ) |          | (0  | %) | 
|Net (Loss) profit                 | $                | (4,826 | )                |  | (33              | %) |                  | $ | 585      |   |          | 3   | %  | 

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The components of gross profit for the
years ended June 30, 2009 and 2008 are as follows:

|                                     | Year Ended     |       |                |   |          |  |          |       
|------------------------------------ | -------------- | ----- | -------------- | - | -------- |  | -------- | ------
|                                     | June 30,       |       |               
|                                     | 2009           |       | 2008           |   | $ change |  | % change
|                                     | (in thousands) |       | (in thousands) |   |          | 
|Product revenues                     |                |       |                |   |          |  |          |       
|Software licenses                    | $              | 2,476 |                | $ | 6,474    |  | $        | (3,998
|Hardware
      units and accessories |                | 4,922 |                |   | 9,086    |  |          | (4,164
|Extended
      hardware warranties   |                | 1,023 |                |   | 1,205    |  |          | (182  
|Royalties                            |                | 222   |                |   | 408      |  |          | (186  
|                                     |                | 8,643 |                |   | 17,173   |  |          | (8,530
|                                    
|Cost of product revenues             |                |       |                |   |          |  |          |       
|Software
      licenses              |                | 38    |                |   | 96       |  |          | (58   
|Hardware
      units and accessories |                | 3,004 |                |   | 5,531    |  |          | (2,527
|Extended
      hardware warranties   |                | 279   |                |   | 208      |  |          | 71    
|                                     |                | 3,321 |                |   | 5,835    |  |          | (2,514
|Gross Profit from product revenues   |                | 5,322 |                |   | 11,338   |  |          | (6,016
|                                    
|Services revenues                    |                |       |                |   |          |  |          |       
|Professional
      services          |                | 1,654 |                |   | 2,502    |  |          | (848  
|Software
      maintenance services  |                | 4,042 |                |   | 3,412    |  |          | 630   
|Billable
      travel                |                | 188   |                |   | 297      |  |          | (109  
|                                     |                | 5,884 |                |   | 6,211    |  |          | (327  
|                                    
|Cost of services revenues            |                |       |                |   |          |  |          |       
|Professional
      services          |                | 1,924 |                |   | 2,601    |  |          | (677  
|Software
      maintenance services  |                | 857   |                |   | 833      |  |          | 24    
|Billable
      travel                |                | 193   |                |   | 284      |  |          | (91   
|                                     |                | 2,974 |                |   | 3,718    |  |          | (744  
|Gross Profit from services revenues  |                | 2,910 |                |   | 2,493    |  |          | 417   
|Gross Profit                         | $              | 8,232 |                | $ | 13,831   |  | $        | (5,599

Revenues

Total revenues were $14,527,000 for the
year ended June 30, 2009 compared to total revenues of $23,384,000 for the year
ended June 30, 2008. The $8,857,000 (38%) decrease in total revenues is
primarily due to decreases of $3,998,000 (62%) in licensing of software,
$4,164,000 (46%) in revenues generated from the sale of hardware units and
related accessories, $182,000 (15%) in extended hardware warranties, $848,000
(34%) in professional services and $186,000 (46%) in royalties, offset by an
increase of $630,000 (18%) in software maintenance services. Product revenues
accounted for 59% of revenues during the year ended June 30, 2009 as compared to
73% during the year ended June 30, 2008. Services revenues accounted for 41% of
revenue during the year ended June 30, 2009 as compared to 27% during the year
ended June 30, 2008.

Product revenues include licensing of
software, sales of hardware units and accessories, extended hardware warranties
and royalties from our speech compression technology. Total product revenues
decreased $8,530,000 (50%) to $8,643,000 during the year ended June 30, 2009
from $17,173,000 in the year ended June 30, 2008. The decrease in product
revenues during the year ended June 30, 2009 was primarily due to decreases in
the number of VoxBrowser software licenses and related hardware units and
accessories sold compared to the year ended June 30, 2008. The decrease in the
number of software licenses, hardware units and hardware accessories sold was
primarily due to a decrease in the number of new customer sites purchasing our
solutions during the year ended June 30, 2009 as compared to the year ended June
30, 2008, which we believe was primarily caused by customers and sales prospects
delaying purchasing decisions in response to current global economic conditions
and/or purchasing one site at a time as opposed to purchasing multiple sites at
once. Software licenses contributed 29% of product revenues during the year
ended June 30, 2009 as compared to 38% during the year ended June 30, 2008.
Hardware units and accessories accounted for 57% of product revenues during the
year ended June 30, 2009 as compared to 53% during the year ended June 30, 2008.
Accessories generally provide higher gross margin percentages than hardware unit
sales. Accessories accounted for 60% of hardware revenues during the year ended
June 30, 2009 as compared to 48% of hardware revenues for the year ended June
30, 2008.

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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, 2009, services revenues
totaled $5,884,000, a decrease of 5% from $6,211,000 for the year ended June 30,
2008. Professional services decreased $848,000 (34%) from $2,502,000 during the
year ended June 30, 2008 to $1,654,000 during the year ended June 30, 2009. The
decrease in professional services reflects the decrease in the number of new
sites at which our solutions were implemented during the year ended June 30,
2009 as compared to during the year ended June 30, 2008. Voxware 3 provides
tools to allow third-party partners to develop voice-enabled logistics solutions
independent of our professional services staff. As a result, professional
services revenues for new customers may decline in the future. Software
maintenance support services increased $630,000 (18%) from $3,412,000 during the
year ended June 30, 2008 to $4,042,000 during the year ended June 30, 2009.
Revenues from software maintenance support services tend to grow over time as
additional software licenses are sold and remain in effect.

Cost of Revenues

Total cost of revenues decreased
$3,258,000 (34%) from $9,553,000 for the year ended June 30, 2008 to $6,295,000
for the year ended June 30, 2009.

Cost of product revenues decreased
$2,514,000 (43%) from $5,835,000 in the year ended June 30, 2008, to $3,321,000
in the year ended June 30, 2009. Such costs reflect materials, labor and
overhead associated with the sale of our voice-based products. Included in our
cost of product revenues is the cost associated with our team responsible for
testing, shipping, supporting and managing third party hardware. This team was
comprised of four individuals as of June 30, 2009 as compared to five
individuals as of June 30, 2008. One position was eliminated during December
2008 in response to the decline in our revenues during the period. The decrease
in cost of product revenues is primarily attributable to a decrease of
$2,425,000 for direct material costs. These cost reductions were primarily due
to a decrease in sales of computer hardware units and related accessories during
the year ended June 30, 2009 as compared to the year ended June 30,
2008.

Cost of services revenues consists
primarily of the expenses associated with customer maintenance support and
professional services, including employee compensation, outside consulting
services and travel expenditures. Professional services costs include labor
charges for custom application design and development, customer training and
assisting customers implement our voice-based solutions. Professional services
costs are tracked by project and are deferred until the related project revenue
is recognized. Costs of customer support and professional services staff
performed in support of our sales and research and development activities are
recorded as operating expenses, while the cost of customer support or
professional service activities performed by our research and development staff
are recorded as cost of services revenues. Our customer support and professional
services staff was comprised of 15 individuals as of June 30, 2009, as compared
to 23 individuals as of June 30, 2008. Four positions were eliminated during
December 2008 in response to the decline in our revenues during the period. Cost
of services revenues decreased $744,000 (20%) from $3,718,000 in the year ended
June 30, 2008 to $2,974,000 in the year ended June 30, 2009. Expenses related to
professional services accounted for the majority of the decrease as it decreased
$677,000 (26%) from $2,601,000 in the year ended June 30, 2008 to $1,924,000 in
the year ended June 30, 2009.

Operating Expenses

Total operating expenses decreased by
$236,000 (2%) to $13,027,000 in the year ended June 30, 2009 from $13,263,000 in
the year ended June 30, 2008. The number of employees associated with operating
expenses (research and development, sales and marketing, general and
administrative) totaled 45 individuals as of June 30, 2009 and 56 as of June 30,
2008.

Research and development expenses
primarily consist of employee compensation, consulting fees and other costs
associated with our voice recognition technology, hardware platform and
VoiceLogistics software suite. 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 18 individuals as of June 30,
2009 and 23 individuals as of June 30, 2008. Four positions were eliminated
during December 2008, net of new hires, in response to our decline in revenues
during the period. Our research and development expenses decreased $144,000 (4%)
to $3,686,000 in the year ended June 30, 2009, from $3,830,000 in the year ended
June 30, 2008. This decrease was mainly comprised of a decrease of $275,000 in
outside consulting costs. Offsetting this decrease, were labor costs, including
an increase of $262,000 of costs allocated from professional services and
customer support, which increased $114,000 during the year ended June 30, 2009
as compared to the year ended June 30, 2008.

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Sales and marketing expenses primarily
consist of employee compensation (including direct sales commissions),
third-party partnership fees, travel expenses and trade show and other lead
generation expenses. Our sales and marketing staff was comprised of 17
individuals as of June 30, 2009 compared to 22 individuals as of June 30, 2008.
Three positions were eliminated during December 2008, in response to our decline
in revenues during the period. Sales and marketing expenses decreased $698,000
(12%) to $5,321,000 in the year ended June 30, 2009, from $6,019,000 in the year
ended June 30, 2008. The change in sales and marketing expenses is due primarily
to decreases of $354,000 in commissions, $103,000 in labor costs due to the
lower sales staff and allocations from other departments, $73,000 of training
costs and $103,000 of recruitment costs during the year ended June 30, 2009 as
compared to the year ended June 30, 2008. In light of reduced revenues caused by
global economic conditions, we undertook steps to reduce sales and marketing
expenses.

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 10 full time employees as of June 30,
2009 and 11 at June 30, 2008. General and administrative expenses increased
$606,000 (18%) to $4,020,000 in the year ended June 30, 2009 from $3,414,000 in
the year ended June 30, 2008. Fluctuations in foreign currency exchange rates
generated losses of $320,000 during the year ended June 30, 2009 compared to
gains of $88,000 during the year ended June 30, 2008, a change of $408,000.
Labor costs increased $437,000 during the year ended June 30, 2009 as compared
to the year ended June 30, 2008 due primarily to an increase of $526,000 for
non-cash share based compensation charges associated with stock options and
restricted stock units granted in fiscal year 2008. These cost increases were
offset by a decrease in outside professional services costs, which were $142,000
lower during the year ended June 30, 2009 than during the year ended June 30,
2008, lower travel expenses of $26,000 and lower bad debt expense of $73,000,
due to the sufficiency of the accounts receivable reserve at June 30,
2009.

Interest Income and
Expense

Interest income earned is reported net of
interest expense. Net interest expense was $28,000 for the year ended June 30,
2009, compared to net interest income of $24,000 for the year ended June 30,
2008, a change of $52,000. Interest income decreased $101,000 from $144,000
during the year ended June 30, 2008 to $43,000 during the year ended June 30,
2009 due primarily to declining interest rates and lower balances of invested
funds. Interest expense decreased $49,000 from $120,000 during the year ended
June 30, 2008 to $71,000 during the year ended June 30, 2009 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.

The provision for income taxes was $3,000
for the year ended June 30, 2009 as compared to $7,000 for the year ended June
30, 2008. We had a loss before taxes of $4,823,000 for accounting purposes
during the year ended June 30, 2009, compared to a profit before taxes of
$592,000 during the year ended June 30, 2008.

Liquidity and Capital
Resources

As of June 30, 2009, we had $4,342,000 in
cash and cash equivalents, compared to $3,503,000 in cash and cash equivalents
as of June 30, 2008, an increase of $839,000. Our working capital as of June 30,
2009 was $3,195,000 compared to $3,799,000 as of June 30, 2008, a decrease of
$604,000.

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Net cash used in operating activities
totaled $1,313,000 for the year ended June 30, 2009, primarily consisting of a
net loss of $4,826,000 and decreases of $764,000 in accounts payable and accrued
expenses and $698,000 in deferred revenues, offset by a decrease of $2,722,000
in accounts receivable and non-cash charges totaling $1,979,000, consisting of
$1,617,000 of share-based compensation, $300,000 of depreciation and
amortization and a $62,000 of bad debt expense. The reduction in accounts
payable and accrued expenses is primarily a function of payments of commissions
and bonuses accrued as of June 30, 2008. The decrease in deferred revenues is
due primarily to the timing of maintenance billings throughout the year and the
completion of customer implementation projects. Changes in accounts receivable
are the function of the timing of invoicing and collections throughout the year.
There was a decrease in the accounts receivable during the year which was
primarily due to the reduction in revenues. Share-based compensation charges
relate to grants of restricted stock units and stock options. For the year ended
June 30, 2008, net cashused in operating
activities totaled $234,000, primarily consisting of decreases of $720,000 in
accounts payable and accrued expenses and $579,000 in deferred revenues, and an
increase of $1,032,000 in accounts receivable, $173,000 in prepaid expenses and
other assets, and $263,000 in other assets, offset by a net profit of $585,000
and decreases of $513,000 in inventory. 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, recognition
of foreign currency translation adjustment upon liquidation of Voxware, n.v. of
$17,000, and $136,000 of bad debt expense. The reduction in accounts payable and
accrued expenses is primarily a function of payments of inventory and bonuses
accrued 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. 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.

Net cash used in investing activities
totaled $91,000 during the year ended June 30, 2009 and $583,000 during the year
ended June 30, 2008 due primarily to purchases of property and
equipment.

Net cash provided by financing activities
totaled $2,243,000 during the year ended June 30, 2009, compared to net cash
used in financing activities of $641,000 during the year ended June 30, 2008.
During the year ended June 30, 2009, we had proceeds from equity financing of
$2,500,000, we borrowed $451,000 to fund the purchase of fixed assets and repaid
$704,000 against term loans with Silicon Valley Bank, SVB. We received net
proceeds in the amount of $5,000 from the exercise of stock options during the
year ended June 30, 2009. During the year ended June 30, 2008, we repaid
$687,000 against term loans with SVB and received proceeds of $46,000 from the
exercise of stock options.

We initially entered into a credit
facility with SVB on December 30, 2003. The following facilities were
outstanding during fiscal years 2008 and 2009:

A $1,000,000 equipment line of credit
(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 $17,000. Effective May 9, 2006, the
interest rate was fixed at 9.5%. The unpaid principal balance outstanding was $0
as of June 30, 2009 and $66,000 as of June 30, 2008.

On May 24, 2006, the Company entered into
a Loan and Security Agreement with SVB (2006 Facility) providing an additional
$3,000,000 credit facility comprised of a $1,500,000 revolving line of credit
(Revolver) and a $1,500,000 Non-Formula Term Loan, (2006 Term Loan) to fund
the Company's anticipated working capital needs. The Revolver created by the
2006 Facility was initially available until October 31, 2007. It was extended to
February 11, 2009 by the SLMA. The Revolver provides for a line of credit up to
$1,500,000, with a $1,000,000 sub-limit to be established for cash management
for foreign exchange requirements. As of June 30, 2009, amounts outstanding
under the Revolver bear interest at the rate of 7% calculated as the greater of
7% or prime plus 3%. 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,
2009 or June 30, 2008. The 2006 Term Loan is to be repaid in 36 equal monthly
payments of principle and interest, commencing on April 1, 2007, and had an
outstanding balance of $375,000 at June 30, 2009 and $875,000 at June 30, 2008.
Monthly principle payments total approximately $42,000. Amounts outstanding
under the 2006 Term Loan bear interest at June 30, 2009 at a rate of 7%,
calculated as the greater of 7% or prime plus 3%, as established by the Waiver
and Third Loan Modification Agreement (TLMA) with SVB executed on November 17,
2008.

On February 13, 2008, with an effective
date of December 27, 2007, the Company entered into a second loan modification
agreement (SLMA) with SVB, providing for a new $600,000 revolving equipment
line of credit (Equipment Revolver). The availability under the Equipment
Revolver was limited to a borrowing base advance rate that is equal to 100%
against the invoice value of new Eligible Equipment (as defined in the SLMA).
The draw down period for the Equipment Revolver expired May 31, 2008, but was
extended by SVB to July 31, 2008. Originally, amounts advanced under the
Equipment Revolver bore interest at a rate equal to the greater of (a) 6.75% and
(b) the amount equal to the prime rate plus 1.0%. This rate was revised to the
greater of 7% or prime plus 3% by the TLMA. The repayment of the funds drawn
against the Equipment Revolver will be made in 36 equal monthly payments of
principal and interest beginning August 1, 2008. The outstanding balance on the
Equipment Revolver was $313,000 at June 30, 2009 and $0 at June 30,
2008.

On February 17, 2009, the Company entered
into a Waiver and Fourth Loan Modification Agreement that, among other things,
waived a loan covenant violation that existed at December 31, 2008 and extended
the maturity of the Revolver until March 31, 2009. In addition, the Waiver and
Fourth Loan Modification Agreement revised certain outstanding financial
covenants under the 2006 Facility, including minimum net loss thresholds. On May
12, 2009, with an effective date of March 31, 2009, the Company entered into a
Fifth Loan Modification Agreement which extended the maturity of the Revolver
until May 31, 2009, and set financial covenants for the period ending May 31,
2009. On June 26, 2009, with an effective date of June 1, 2009, the Company
entered into a Sixth Loan Modification Agreement which extended the Revolver
until July 31, 2009. On September 9, 2009 the Company entered in to a Seventh
Loan Modification Agreement which extends the maturity, lowers the interest rate
to prime plus 2.25% and provides covenants of the Revolver until July 30, 2010.
(See Footnote 13  Subsequent Events)

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We continue to expand our partnership
channel, with particular emphasis on the development of relationships with
mobile computer equipment manufacturers and vendors, VARs, logistics consultants
and WMS vendors. Using Voxware 3 and VoxBrowser, independent third-party
partners are able to develop and deliver voice-enabled logistics solutions on
other manufacturers hardware. As a result of the partner relationships and
product offerings, a greater percentage of revenue may be derived in the future
from software than has occurred historically, with a lower percentage of total
revenue derived from hardware and professional services. The gross margin
generated by software revenue is higher than that earned on hardware and
professional services revenue. For the year ended June 30, 2009, we earned gross
margin from software licenses of 98%, as compared to 39% for sales of hardware
units and related accessories. Partnership channel sales accounted for 9% of our
revenues during the year ended June 30, 2009, as compared to 13% during the year
ended June 30, 2008. Software licenses contributed 17% of revenues for the year
ended June 30, 2009, compared to 28% of revenue for the year ended June 30,
2008. Decreases in the percentage of revenues generated through partnership
channels and the percentage of revenues derived from software licenses during
the year ended June 30, 2009 represent a departure from trends noted in recent
periods. These decreases are primarily attributable to decisions by customers
and prospective customers to delay major capital expenditures in light of tight
credit markets associated with general worldwide economic conditions. We expect
that recent coordinated efforts by federal authorities throughout the world will
gradually lead to a general loosening of international credit markets, thus
enabling customers and prospective customers to increase levels of capital
expenditures. In addition, given the volume and quality of prospective
transactions in our sales pipeline, we anticipate a resumption of the trend
towards a more profitable mix of revenue prior to the end of fiscal year 2010.
However, we can provide no assurance with respect to the timing of this expected
long-term trend or whether the trend will be true in any specific
period.

The continued deterioration of general
worldwide economic conditions has negatively impacted certain vertical markets,
including retail and food distribution, that are significant to our operations.
As a result of these general economic conditions, combined with the seasonal
impact of the typically slower summer months, our revenue during the first
quarter of fiscal 2010 is expected to be in line with the first quarter of
fiscal 2009, which was lower than quarterly revenues reported for fiscal 2008.
In response to the changing economic environment, we eliminated a net of 18
positions during the year ended June 30, 2009, after considering new hires, and
scaled back certain planned costs, new hires and capital purchases. However, our
customer base continues to expand, with existing customers expected to implement
our products in additional sites as they experience favorable results with our
offerings and new customers brought to us through direct sales efforts, VARs and
other channel partners. We expect the majority of revenues will come from
existing customers in fiscal year 2010, but that revenues from new customers,
including those brought to us through VARs and other channel partners, will grow
faster than revenues from existing customers. We can provide no assurances that
revenues earned in any given fiscal quarter or year will exceed the preceding
fiscal quarter or year. Furthermore, we anticipate that in some fiscal quarters
and years, costs will exceed revenues.

On June 29, 2009, the Company received an
equity infusion of $2.5 million from its two principal investors. On June 29,
2009, the Company entered into a Securities Purchase Agreement (the Securities
Purchase Agreement) with Co-Investment Fund II, L.P. (a Cross Atlantic
Technology Fund entity) and Edison Venture Fund V, L.P., pursuant to which the
Company issued and sold an aggregate of 1,428,571 shares (the Shares) of the
Companys common stock, $0.001 par value per share (the Common Stock), at a
purchase price of $1.75 per share, and warrants to purchase up to 142,857 shares
(the Warrant Shares) of Common Stock, which will not be exercisable until the
six (6) months after the date of issuance and shall expire three (3) years from
the date of issuance, at an exercise price of $2.50 per share (the
Warrant).

Under the terms of the Securities Purchase
Agreement, Edison Venture Fund V, L.P. purchased 285,714 shares of Common Stock
and warrants to purchase 28,571 shares of Common stock and Co-Investment Fund
II, L.P. purchased 1,142,857 shares of Common Stock and warrants to purchase
114,286 shares of Common Stock. The private placement closed on June 30, 2009.
The Company received gross proceeds equal to $2,500,000. The securities sold in
this private placement have not been registered under the Securities Act of
1933, as amended (the Securities Act), and may not be offered or sold in the
United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act.

We may need to raise additional capital
through either new equity or debt financing arrangements and may elect to
utilize such an arrangement to fund further expansion of our operations. Due to
the recent downturn in the economy, there can be no assurances that financing
will be available on terms acceptable to us, if at all. However, due to a
general trend providing greater emphasis on sales of higher margin product and
given our efforts to reduce costs as well as having $4.3 million in cash, $1.5
million in debt availability, we believe that we have adequate capital resources
available to fund our operations through June 30, 2010.

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As of June 30, 2009, 12,000,000 shares of
our Common Stock were authorized, of which 8,007,776 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, 2009

|Common
      stock issued and outstanding as of June 30, 2009 | 8,007,766 
|------------------------------------------------------------- | ----------
|                                                             
|Dilutive instruments:                                         |           
|Outstanding warrants to
      purchase common stock *         | 1,298,331 
|Outstanding options to
      purchase common stock *          | 1,108,216 
|Unissued restricted stock
      units                         | 150,714   
|                                                              |           
|Common
      stock plus dilutive instruments outstanding      | 10,565,027
|                                                             
|Options to
      purchase common stock available to issue     |           
|pursuant to various stock
      option plans                  | 31,982    
|                                                             
|Common stock
      outstanding if all dilutive instruments    |           
|are converted and
      exercised                             | 10,597,009

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

Effect of Recent Accounting
Pronouncements

In June 2008, the FASB ratified the
consensus reached on EITF 07-05, Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entitys Own Stock (EITF 07-05). EITF 07-05
clarifies the determination of whether an instrument (or an embedded feature) is
indexed to an entitys own stock, which would qualify as a scope exception under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We
will adopt EITF 07-5 effective July 1, 2009, and we do not expect it to have a
material impact on our consolidated financial statements.

On May 28, 2009, the FASB issued SFAS No.
165, Subsequent Events, (SFAS No. 165). SFAS No. 165 introduces the concept of
financial statements being available to be issued. This statement requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date, whether that date represents the date the financial
statements were issued or were available to be issued. The adoption of this
standard did not have a material impact on our financial statements.

In July 2009, the FASB issued Statement of
Financial Accounting Standards No. 168, the FASB Accounting Standards
CodificationTMand the Hierarchy of Generally Accepted Accounting Principles  a
replacement of FASB Statement No. 162 (SFAS 168). With the issuance of SFAS 168,
the FASB Accounting Standards Codification (Codification) becomes the single
source of authoritative U.S. accounting and reporting standards applicable for
all nongovernmental entities, with the exception of guidance issued by the
Securities and Exchange Commission (SEC). The Codification does not change
current U.S. GAAP, but changes the referencing of financial standards, and is
intended to simplify user access to authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one place. The
Codification is effective for interim and annual periods ending after September
15, 2009, and is effective for our first quarter of 2010. At that time, all
references made to U.S. GAAP will use the new Codification numbering system
prescribed by the FASB. We are currently evaluating the impact to our financial
reporting process of providing Codification references in our public filings.
However, as the Codification is not intended to change or alter existing US
GAAP, it is not expected to have any impact on our consolidated financial
position or results of operations.

In September 2009, the EITF reached a
consensus on Issue 08-1, Revenue Arrangements with Multiple Deliverables (EITF
08-1). EITF 08-1 replaces and significantly changes certain guidance in EITF
00-21. EITF 08-1 modifies the separation criteria of EITF 00-21, by eliminating
the criterion for objective and reliable evidence of fair value for the
undelivered products or services. Instead, revenue arrangements with multiple
deliverables should be divided into separate units of accounting if the
deliverables meet both of the following criteria:

- The delivered items have value to the customer on
  a standalone basis
- If the arrangement includes a general right of
  return relative to the delivered items, delivery or performance of the
  undelivered items is considered probable and substantially in the control of
  the vendor.

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The Issue eliminates the use of the
residual method of allocation and requires, instead, that arrangement
consideration be allocated, at the inception of the arrangement, to all
deliverables based on their relative selling price (i.e., the relative selling
price method). When applying the relative selling price method, a hierarchy is
used for estimating the selling price for each of the deliverables, as
follows:

- Vendor-specific objective evidence (VSOE) of the
  selling price  verifiable specific objective evidence
- Third-party evidence (TPE) of the selling price 
  prices of the vendors or any competitors largely interchangeable products or
  services, in standalone sales to similarly situated customers
- Best estimate of the selling price.

We will adopt EITF 08-1 effective July 1,
2010. We are currently evaluating the impact to our consolidated financial
statements.

In September 2009, the EITF reached a
consensus on Issue 09-3, Certain Revenue Arrangements That Include Software
Elements (EITF 09-3). Per EITF 09-3, all tangible products containing both
software and non-software components, that function together to deliver the
products essential functionality, will no longer be within the scope of SOP
97-2. In other words, entities that sell joint hardware and software products
that meet the scope exception (i.e., essential functionality) will be required
to follow the guidance in Issue 08-1. The Issue provides a list of items to
consider when determining whether the software and non-software components
function together to deliver a products essential functionality.

We will adopt EITF 09-3 effective July 1,
2010. We are currently evaluating the impact to our consolidated financial
statements.

ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.

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

ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A(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, 2009. Based on
this evaluation, our chief executive officer and chief financial officer
concluded that, as of June 30, 2009, 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.

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There were no changes during the quarter
ended June 30, 2009 in our internal control over financial reporting or in other
factors that materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.

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, 2009 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, 2009. Managements
assessment of the effectiveness of our internal control over financial reporting
as of June 30, 2009 has not been audited.

ITEM 9B. OTHER
INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE.

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 2009 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.

ITEM 11. EXECUTIVE
COMPENSATION.

The discussion under the headings
Executive Compensation Compensation Committee Report and Compensation
Committee Interlooks and Insider Participation in our definitive proxy
statement for the 2009 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.

|ITEM 12. | 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 2009 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.

ITEM 13. 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 2009 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.

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 2009 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES.

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

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

2. EXHIBITS. The following is a list of
Exhibits filed as part of this Annual Report on Form 10-K. 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**(7)                                                                                                                                                        
|    |     |                                                                                                                                                                                                               
|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.**(8)                           
|    |     |                                                                                                                                                                                                               
|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.**(9)                              
|    |     |                                                                                                                                                                                                               
|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.**(12)                         
|    |     |                                                                                                                                                                                                               
|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.**(11)
|    |     |                                                                                                                                                                                                               
|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.**(18)               
|    |     |                                                                                                                                                                                                               
|3.2 |     | Second Amended and Restated Bylaws.**(17)                                                                                                                                                                     
|    |     |                                                                                                                                                                                                               
|4.1 |     | Form of Common Stock Purchase Warrant.**(6)                                                                                                                                                                   
|    |     |                                                                                                                                                                                                               
|4.2 |     | Form of Common Stock Purchase Warrant issued to Ridgecrest Capital
      Partners.**(6)                                                                                                                       
|    |     |                                                                                                                                                                                                               
|4.3 |     | Form of Series D Convertible Preferred Stock Purchase
      Warrant.**(6)                                                                                                                                     
|    |     |                                                                                                                                                                                                               
|4.4 |     | Form of Series D Convertible Preferred Stock Purchase Warrant to be
      issued to Edison Venture Fund V, L.P., dated December 30,
      2003.**(8)                                                          
|    |     |                                                                                                                                                                                                               
|4.5 |     | Form of Series D Convertible Preferred Stock Purchase Warrant to be
      issued to Cross Atlantic Technology Fund II, L.P., dated December 30,
      2003.**(8)                                              
|    |     |                                                                                                                                                                                                               
|4.6 |     | 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).**(12)                                   
|    |     |                                                                                                                                                                                                               
|4.7 |     | Form of Common Stock Purchase Warrant issued to Mufson Howe Hunter
      & Company LLC, dated August 11, 2005.**(12)                                                                                          
|    |     |                                                                                                                                                                                                               
|4.8 |     | Form of Common Stock Purchase Warrant issued to Alan A. Nash, dated
      August 11, 2005.**(12)                                                                                                              
|    |     |                                                                                                                                                                                                               
|4.9 |     | Form of Common Stock Purchase Warrant issued to Duncan J. L.
      Fitzwilliams, dated August 11, 2005.**(12)                                                                                                 

- 32-

---

| | 4.10  | Form of Common
      Stock Purchase Warrant issued to Emma Smith, dated August 11,
      2005.**(12)                                                                                                                                        
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                             
| | 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.**(3)                                                                                        
| |      
| | 10.5  | Registration
      Rights Agreement, dated as of August 15, 2000, by and between Voxware,
      Inc. and Castle Creek Technology Partners, LLC.**(3)                                                                                        
| |      
| | 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.**(4)
| |      
| | 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.**(4)          
| |      
| | 10.8  | Voxware, Inc.
      1998 Stock Option Plan for Outside Directors.**(5)                                                                                                                                                                      
| |      
| | 10.9  | Voxware, Inc.
      Plan to Pay Non-Employee Directors an Annual Retainer.**(5)                                                                                                                                                             
| |      
| | 10.10 | Series D
      Convertible Preferred Stock Purchase Agreement, dated as of April 16,
      2003, by and among Voxware, Inc. and the Purchasers
  thereto.**(6)                                                                              
| |      
| | 10.11 | Exchange
      Agreement, dated as of April 16, 2003, by and between Voxware, Inc. and
      Castle Creek Technology Partners, LLC**(6).                                                                                                    
| |      
| | 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.**(6)                                                                              
| |      
| | 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.** (6)                                                       
| |      
| | 10.14 | Settlement
      Agreement, dated as of April 16, 2003, by and between Voxware, Inc. and
      Castle Creek Technology Partners, LLC.**(6)                                                                                                  
| |      
| | 10.15 | Investor Rights
      Agreement, dated as of June 27, 2003, by and between Voxware, Inc. and the
      Investors thereto.**(7)                                                                                                              
| |      
| | 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.**(7)                                                                                
| |      
| | 10.17 | Voxware, Inc.
      2003 Stock Option Plan.**(7)                                                                                                                                                                                            
| |      
| | 10.18 | Form of Voxware,
      Inc. Stock Option Agreement.**(7)                                                                                                                                                                                    
| |      
| | 10.19 | Loan and Security
      Agreement, dated as of December 29, 2003, by and between Voxware, Inc. and
      Silicon Valley Bank.**(8)                                                                                                          
| |      
| | 10.20 | Intellectual
      Property Security Agreement, dated as of December 29, 2003, by and between
      Voxware, Inc. and Silicon Valley Bank.**(8)                                                                                             

- 33
-

---

| | 10.21  | Unconditional Guaranty of Edison Venture Fund V, L.P., as
      guarantor, dated as of December 29, 2003.**(8)                                                                     
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                    
| | 10.22  | Unconditional Guaranty of Cross Atlantic Technology Fund II, L.P.,
      as guarantor, dated as of  December 29, 2003.**(8)                                                        
| |        |                                                                                                                                                                                    
| | 10.23# | Indemnification Agreement, dated June 21, 2004, by and between
      Voxware, Inc. and Paul Commons.**(12)                                                                         
| |       
| | 10.24  | Form of Common Stock Purchase Agreement, dated as of August 11,
      2005, by and between Voxware, Inc. and certain accredited
      investors.**(10)                             
| |       
| | 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.**(10)                   
| |       
| | 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.**(10)              
| |       
| | 10.27  | License, Development and Reseller Agreement, dated as of September
      26, 2005, by and between Voxware, Inc. and LXE, Inc.**(15)                                               
| |       
| | 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.**(13)
| |       
| | 10.29  | First Loan Modification Agreement dated as of February 1, 2007
      between Silicon Valley Bank and Voxware, Inc.**(14)                                                           
| |       
| | 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.** (13)                     
| |       
| | 10.31  | Amendment to Loan Arrangement with Voxware, Inc., dated as of
      January 3, 2007, from Verbex Acquisition Corporation.** (13)                                                   
| |       
| | 10.32# | Executive Employment Agreement, dated as of September 14, 2007,
      between Voxware, Inc. and Scott J. Yetter.** (16)                                                            
| |       
| | 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.**(17)          
| |       
| | 10.34  | Lease Agreement, dated as of December 3, 2007, by and between
      Voxware, Inc. and 240 Princeton TCI Associates, LLC.**(18)                                                     
| |       
| | 10.35  | 2007 Amendment to 2003 Stock Incentive Plan.**(18)                                                                                                                                 
| |       
| | 10.36  | Waiver and Third Loan Modification Agreement, dated November 17,
      2008, by and between the Company and Silicon Valley
  Bank.**(19)                                           
| |       
| | 10.37  | Waiver of Fourth Loan Modification Agreement, dated as of February
      17, 2009, by and between the Company and Silicon Valley
    Bank.**(20)                                   
| |       
| | 10.38  | Fifth Loan Modification Agreement, dated as of May 12, 2009, by and
      between the Company and Silicon Valley Bank.**(21)                                                       
| |       
| | 10.39  | Sixth Loan Modification Agreement, dated as of June 26, 2009, by
      and between the Company and Silicon Valley Bank. *                                                          
| |       
| | 10.40  | Securities Purchase Agreement, dated as of June 29, 2009, by and
      between the Company and The Co-Investment Fund II, L.P. and Edison Venture
      Fund V, L.P.**(22)         

- 34
-

---

| | 10.41 | Seventh Loan Modification Agreement, dated as of September 9, 2009
      by and between the Company and Silicon Valley Bank.**(23)
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                   
| | 21.1  | Subsidiaries of the registrant.*                                                                                                  
| |      
| | 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-K.                                                      

- 35
-

---

|(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 Current Report on Form 8-K that was filed on August 16,
      2000.                     
|    
|(4)  |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on April 20,
      2001.                      
|    
|(5)  |  | Filed in connection with the
      Companys Registration Statement on Form S-8 (File Number
    33-33342).                          
|    
|(6)  |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on April 17,
      2003.                      
|    
|(7)  |  | Filed in connection with the
      Companys Annual Report on Form 10-K for the fiscal year ended June 30,
      2003.               
|    
|(8)  |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on January 6,
      2004.                     
|    
|(9)  |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on May 7,
    2004.                           
|    
|(10) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on August 11,
      2005.                     
|    
|(11) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on November 29,
      2005.                   
|    
|(12) |  | Filed in connection with the
      Companys Annual Report on Form 10-KSB for the fiscal year ended June 30,
      2005.             
|    
|(13) |  | Filed in connection with the
      Companys Current Report on Form 8-K that was filed on January 8,
      2007.                     
|    
|(14) |  | Filed in connection with the
      Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
      December 31, 2006.   
|    
|(15) |  | Filed in connection with the
      Company's Quarterly Report on Form 10-QSB/A for the fiscal quarter ended
      September 30, 2005.
|    
|(16) |  | Filed in connection with the
      Companys Current Report on Form 8-K filed on September 17,
  2007.                               
|    
|(17) |  | Filed in connection with the
      Companys Current Report on Form 8-K filed on October 17,
  2007.                                 
|    
|(18) |  | Filed in connection with the
      Companys Quarterly Report on Form 10-QSB for the fiscal quarter ended
      December 31, 2008.   
|    
|(19) |  | Filed in connection with the
      Companys Current Report on Form 8-K filed on November 21,
  2008.                                
|    
|(20) |  | Filed in connection with the
      Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
      December 31, 2008.     
|    
|(21) |  | Filed in connection with the
      Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March
      31, 2009.        
|    
|(22) |  | Filed in connection with the
      Companys Current Report on Form 8-K filed on July 1, 2009.                                       
|    
|(23) |  | Filed in connection with the
      Companys Current Report on Form 8-K filed on September 14,
  2009.                               

- 36
-

---

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 28, 2009

- 37
-

---

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 28,
      2009
|Joseph A.
      Allegra          |  |                                                              |  |                         
|                                
|/s/ Scott J. Yetter              |  | President and
      Chief Executive Officer                  |  | September 28,
      2009
|Scott J.
      Yetter            |  | (principal executive officer)                                |  |                         
|                                
|/s/ William G. Levering,
    III |  | Chief Financial
      Officer                                |  | September 28,
      2009
|William G.
      Levering, III   |  | (principal financial and principal
      accounting officer) |  |                         
|                                
|/s/ James L. Alexandre           |  | Director                                                     |  | September 28,
      2009
|James L.
      Alexandre         |  |                                                              |  |                         
|                                
|/s/ Donald R. Caldwell           |  | Director                                                     |  | September 28,
      2009
|Donald R.
      Caldwell         |  |                                                              |  |                         
|                                
|/s/ Don Cohen                    |  | Director                                                     |  | September 28,
      2009
|Don
    Cohen                    |  |                                                              |  |                         
|                                
|/s/ Robert Olanoff               |  | Director                                                     |  | September 28,
      2009
|Robert
      Olanoff             |  |                                                              |  |                         
|                                
|/s/ David J. Simbari             |  | Director                                                     |  | September 28,
      2009
|David J.
      Simbari           |  |                                                              |  |                         

- 38
-

---

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, 2009 and 2008                                         | F-3
|Consolidated Statements
      of Operations for the years ended June 30, 2009 and 2008           | F-4
|Consolidated Statements of Stockholders Equity for the years ended
      June 30, 2009 and 2008 | F-5
|Consolidated Statements
      of Cash Flows for the years ended June 30, 2009 and 2008           | 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, New
Jersey

We have audited the accompanying
consolidated balance sheets of Voxware, Inc. and subsidiaries (the Company) as
of June 30, 2009 and 2008 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, 2009 and 2008,
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 28, 2009     |                           

F-2

---

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

|                                                                              | June 30, 2009 |         | June 30, 2008
|----------------------------------------------------------------------------- | ------------- | ------- | -------------
|ASSETS                                                                        |               |         |              
|CURRENT
      ASSETS                                                          |               |         |              
|Cash and cash equivalents                                                     | $             | 4,342   |              
|Accounts receivable, net of allowance for doubtful accounts of $158
      and |               |         |              
|$201 at June 30, 2009 and June 30, 2008,
      respectively                   |               | 3,350   |              
|Inventory, net                                                                |               | 564     |              
|Deferred project costs                                                        |               | 33      |              
|Prepaid expenses and other current assets                                     |               | 337     |              
|Total current assets                                                          |               | 8,626   |              
|                                                                             
|PROPERTY AND EQUIPMENT, NET                                                   |               | 454     |              
|OTHER
      ASSETS                                                            |               | 184     |              
|TOTAL ASSETS                                                                  | $             | 9,264   |              
|                                                                             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                          |               |         |              
|CURRENT
      LIABILITIES                                                     |               |         |              
|Current portion of long-term debt                                             | $             | 525     |              
|Accounts payable and accrued expenses                                         |               | 2,541   |              
|Current portion of deferred revenues                                          |               | 2,365   |              
|Total current liabilities                                                     |               | 5,431   |              
|Long-term portion of deferred revenues                                        |               | 85      |              
|Long-term debt, net of current maturities                                     |               | 163     |              
|Total liabilities                                                             |               | 5,679   |              
|                                                                             
|COMMITMENTS AND CONTINGENCIES                                                 |               |         |              
|                                                                             
|STOCKHOLDERS' EQUITY                                                          |               |         |              
|Common Stock, $0.001 par value, 12,000,000 shares authorized as
      of      |               |         |              
|June 30, 2009 and June 30, 2008; 8,007,766
      and 6,488,529                |               |         |              
|shares issued and outstanding at June 30,
      2009 and                      |               |         |              
|June 30, 2008, respectively                                                   |               | 8       |              
|Additional paid-in capital                                                    |               | 83,143  |              
|Accumulated deficit                                                           |               | (79,566 | )            
|Total stockholders' equity                                                    |               | 3,585   |              
|TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY                              | $             | 9,264   |              

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

F-3

---

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

|                                            | Year Ended June 30,
|------------------------------------------- | -------------------
|                                            | 2009               
|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 (LOSS) PROFIT                     |                    
|                                           
|INTEREST (EXPENSE) INCOME, NET              |                    
|                                           
|(LOSS) PROFIT BEFORE INCOME TAXES           |                    
|                                           
|PROVISION FOR INCOME TAXES                  |                    
|                                           
|NET (LOSS) PROFIT                           | $                  
|                                           
|NET (LOSS) PROFIT PER SHARE                 |                    
|Basic                                       | $                  
|Diluted                                     | $                  
|                                           
|WEIGHTED AVERAGE NUMBER OF SHARES USED IN   |                    
|COMPUTING NET
      (LOSS) PROFIT PER SHARE |                    
|Basic                                       |                    
|Diluted                                     |                    

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

F-4

---

Voxware, Inc. and
SubsidiariesConsolidated 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, 2007                     | 6,368,963    |   |           | $ | 6               |  | $           | 78,088 |                    |  | $    
|Share-based
      compensation             | -            |   |           |   | -               |  |             | 898    |                    |  |      
|Exercise of stock options                  | 58,774       |   |           |   | -               |  |             | 46     |                    |  |      
|Issuance of
      restricted stock units   | 60,792       |   |           |   | -               |  |             | -      |                    |  |      
|Comprehensive income:                      |              |   |           |   |                 |  |             |        |                    |  |      
|Net profit                                 | -            |   |           |   | -               |  |             | -      |                    |  |      
|Foreign
      currency translation         |              |   |           |   |                 |  |             |        |                    |  |      
|adjustment                                 | -            |   |           |   | -               |  |             | -      |                    |  |      
|Total
      comprehensive income           |              |   |           |   |                 |  |             |        |                    |  |      
|Balance, June 30, 2008                     | 6,488,529    |   |           | $ | 6               |  | $           | 79,032 |                    |  | $    
|Share-based
      compensation             | -            |   |           |   | -               |  |             | 1,617  |                    |  |      
|Issuance of common stock for               |              |   |           |   |                 |  |             |        |                    |  |      
|cash                                       | 1,428,571    |   |           |   | 1               |  |             | 2,499  |                    |  |      
|Exercise of
      stock options            | 2,500        |   |           |   | 1               |  |             | 4      |                    |  |      
|Issuance of restricted stock units         | 94,080       |   |           |   | -               |  |             | -      |                    |  |      
|Repurchase of
      restricted stock units | (5,914       | ) |           |   | -               |  |             | (9     | )                  |  |      
|Comprehensive loss:                        |              |   |           |   |                 |  |             |        |                    |  |      
|Net
      loss                             | -            |   |           |   | -               |  |             | -      |                    |  |      
|Total comprehensive loss                   |              |   |           |   |                 |  |             |        |                    |  |      
|Balance, June
      30, 2009               | 8,007,766    |   |           | $ | 8               |  | $           | 83,143 |                    |  | $    

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

F-5

---

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

|                                                                                               | Year Ended June 30,
|---------------------------------------------------------------------------------------------- | -------------------
|                                                                                               | 2009               
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                          |                    
|Net (loss) profit                                                                              | $                  
|Adjustments to reconcile net (loss) profit to net cash used in
      operating activities:     |                    
|Depreciation and amortization                                                                  |                    
|Bed debt expense                                                                               |                    
|Share-based compensation                                                                       |                    
|Recognition of foreign currency translation adjustment upon
      liquidation of Voxware, n.v. |                    
|Changes in
      assets and liabilities:                                                       |                    
|(Increase) decrease in assets:                                                                 |                    
|Accounts receivable                                                                            |                    
|Inventory                                                                                      |                    
|Deferred project costs                                                                         |                    
|Prepaid expenses 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                                                             |                    
|Net cash used in investing
      activities                                                    |                    
|                                                                                              
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                          |                    
|Proceeds from long-term debt                                                                   |                    
|Repayment of long-term debt                                                                    |                    
|Repurchase of restricted stock units                                                           |                    
|Proceeds from issuance of common stock                                                         |                    
|Proceeds from exercise of stock options                                                        |                    
|Net cash provided by (used in) financing
      activities                                      |                    
|                                                                                              
|NET INCREASE (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 the Companys 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 28%
and 35% of the Companys total revenue for fiscal years 2009 and 2008,
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. Voxware N.V. was dissolved
in fiscal year 2008.

Revenue Recognition

Revenues are generated from licensing
application software, selling related computer hardware and accessories,
providing extended hardware warranty and providing services, including
professional deployment, configuration, customized application development,
training services, software maintenance 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 criterion, 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 fair
value of the undelivered elements included in the Companys multi-element sales
arrangements is based on vendor specific objective evidence, or VSOE. The fair
value of elements not essential to the functioning of the software, including
hardware units and related accessories, are calculated in accordance with
Financial Accounting Standards Board Emerging Issues Task Force (EITF) No.
00-21, Revenue Arrangements with Multiple Deliverables.

Under EITF 00-21, the Company determines
the VSOE of fair value of hardware elements based on the price when they are
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, 2009, 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 post contract support (PCS) arrangements. Customer deposits are recognized
as revenue upon customer acceptance of the underlying product and services in
conjunction with the recognition of deferred project costs. PCS arrangements
include software maintenance revenues. These arrangements, which sometimes
include amounts bundled with initial revenues, are deferred upon invoicing and
recognized as revenues over the term of the service period, which is typically
one year. Revenues from extended hardware warranties are recognized over the
term of the warranty, which is typically one year. Certain extended hardware
warranty arrangements have a three year term. Revenues from depot management
services, which were provided through December 2007, were recognized over the
contract period.

F-8

---

The Company continues to generate royalty
revenues from our legacy speech compression technology business, which was sold
in 1999. Royalties are earned on technologies our customers incorporate into
their products for resale pursuant to contracts that are renewable year to year.
Revenues are recognized at the time of the customers shipment of those
products, as estimated based upon reports received periodically from our
customers.

Travel costs associated with professional
services and billed to customers are recorded as services revenues at the time
they are incurred by Voxware. Services revenues included billed travel costs
totaling $189,000 and $297,000, respectively, during the years ended June 30,
2009 and 2008.

Research and Development

Research and development expenditures are
charged to operations as incurred. Pursuant to Statement of Financial Accounting
Standards (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. 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, 2009 and 2008 as technological
feasibility is achieved substantially at the time the software is released for
general sale to our customers.

Net (Loss) Profit Per
Share

The Company computes net (loss) profit per
share under the provisions of SFAS No. 128, Earnings per Share (SFAS 128).
Basic net (loss) profit per share is calculated by dividing net (loss) profit by
the weighted average number of shares of common stock outstanding during the
period. Diluted net (loss) profit per share is calculated by dividing net (loss)
profit by the weighted average number of shares of common stock outstanding for
the period, adjusted to reflect the dilutive impact of potential shares of
common stock outstanding during the period. As the Company had a net loss for
the year ended June 30, 2009, the impact of the assumed exercise of in-the-money
stock options and warrants in the aggregate amount of approximately 398,000
shares at June 30, 2009 is anti-dilutive and as such, these amounts have been
excluded from the calculation of diluted net profit (loss) per share. 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.

Cash and 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 net realizable
value. If we believe that demand no longer allows us to sell our inventory above
cost or at all, we write down that inventory to net realizable value 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, 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 its fair
value.

Share-Based Compensation

The Company accounts for share-based
compensation in accordance with SFAS No. 123(R), Share-Based Payment, 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, 2008
    $
    73
    
    92
    
    95
    
    $
    70Year ended June
      30, 2009
    
    70
    
    45
    
    65
    
    
    50


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 16% and 18% of
total revenue for the fiscal years ended June 30, 2009 and 2008, respectively.
Two separate customers accounted for 15% and 11% of total receivables at June
30, 2009. No customer accounted for more then 10% of total receivables at June
30, 2008.

The Company uses a sole source vendor for
its primary wearable computer hardware products that it sells. 55% of the
Companys inventory purchases were derived from this vendor during the year
ended June 30, 2009, as compared to 61% during the year ended June 30, 2008. Any
disruption in supply by this vendor would prohibit the Company from shipping
products, and thus recognizing revenues on hardware.

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 may 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.

F-10

---

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, 2009, 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 (loss) income.

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 U.S. 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 (Loss) Income

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 (loss) profit. 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 (loss) income. 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.

Fair Value of Financial Instruments

Fair value is defined under SFAS No. 157,
Fair Value Measurements, as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to
measure fair value under SFAS No. 157 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes a fair value
hierarchy based on three levels of inputs, of which the first two are considered
observable and the third unobservable, that may be used to measure fair value
which are the following:

- Level 1  Quoted prices in active markets for
  identical assets or liabilities.
- Level 2  Inputs other than Level 1 that are
  observable, either directly or indirectly, such as quoted prices for similar
  assets or liabilities; quoted prices in markets that are not active; or other
  inputs that are observable or can be corroborated by observable market data
  for substantially the full term of the assets or liabilities.
- Level 3  Unobservable inputs that are supported
  by little or no market activity and that are significant to the fair value of
  the assets or liabilities.

The Company has adopted SFAS No. 157 for
financial assets and liabilities. The adoption of SFAS No. 157 had no impact on
the Companys consolidated results of operations and financial
condition.

F-11

---

At June 30, 2009, the Company held
$1,423,000 in money market funds which are valued in accordance with Level 1 and
are included in cash and cash equivalents. The Company has outstanding debt as
at June 30, 2009 aggregating $688,000, which is at variable interest rates. The
Company believes that the carrying value approximates fair value of the debt as
at June 30, 2009.

Recently Issued Accounting
Pronouncements

In June 2008, the FASB ratified the
consensus reached on EITF Issue No. 07-05, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-05). EITF
07-05 clarifies the determination of whether an instrument (or an embedded
feature) is indexed to an entitys own stock, which would qualify as a scope
exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. We will adopt EITF 07-5 effective July 1, 2009, and we do not
expect it to have a material impact on our consolidated financial statements.

In May 2009, the FASB issued Statement of
Financial Accounting Standards No. 165, Subsequent Events (SFAS 165), which
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. SFAS 165 is
effective for interim and annual periods ending after June 15, 2009.
Accordingly, the Company has adopted the provisions of SFAS 165 and the adoption
has not had a material impact on our consolidated financial statements. In
accordance with SFAS 165, the Company has evaluated subsequent events through
September 28, 2009, the date of issuance of the Consolidated Financial
Statements. During the period from July 1, 2009 to September 28, 2009, the
Company did not have any material recognizable subsequent events other than
those disclosed in Note 13.

In July 2009, the FASB issued Statement of
Financial Accounting Standards No. 168, the FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting
Principles  a replacement of FASB Statement No. 162 (SFAS 168). With the
issuance of SFAS 168, the FASB Accounting Standards Codification (Codification)
becomes the single source of authoritative U.S. accounting and reporting
standards applicable for all nongovernmental entities, with the exception of
guidance issued by the Securities and Exchange Commission (SEC). The
Codification does not change current U.S. GAAP, but changes the referencing of
financial standards, and is intended to simplify user access to authoritative
U.S. GAAP by providing all the authoritative literature related to a particular
topic in one place. The Codification is effective for interim and annual periods
ending after September 15, 2009, and is effective for the Companys first
quarter of 2010. At that time, all references made to U.S. GAAP will use the new
Codification numbering system prescribed by the FASB. The Company is currently
evaluating the impact to the Companys financial reporting process of providing
Codification references in the Companys public filings. However, as the
Codification is not intended to change or alter existing US GAAP, it is not
expected to have any impact on the Companys consolidated financial position or
results of operations.

In September 2009, the EITF reached a
consensus on Issue 08-1, Revenue Arrangements with Multiple Deliverables (EITF
08-1). EITF 08-1 replaces and significantly changes certain guidance in EITF
00-21. EITF 08-1 modifies the separation criteria of EITF 00-21, by eliminating
the criterion for objective and reliable evidence of fair value for the
undelivered products or services. Instead, revenue arrangements with multiple
deliverables should be divided into separate units of accounting if the
deliverables meet both of the following criteria:

- The delivered items have value to the customer on
  a standalone basis
- If the arrangement includes a general right of
  return relative to the delivered items, delivery or performance of the
  undelivered items is considered probable and
  substantially in the control of the vendor.

The Issue eliminates the use of the
residual method of allocation and requires, instead, that arrangement
consideration be allocated, at the inception of the arrangement, to all
deliverables based on their relative selling price (i.e., the relative selling
price method). When applying the relative selling price method, a hierarchy is
used for estimating the selling price for each of the deliverables, as
follows:

- Vendor-specific objective evidence (VSOE) of the
  selling price  verifiable specific objective evidence
- Third-party evidence (TPE) of the selling price 
  prices of the vendors or any competitors largely interchangeable
  products or services, in standalone sales to
  similarly situated customers
- Best estimate of the selling price.

The Company will adopt EITF 08-1 effective
July 1, 2010. The Company is currently evaluating the impact to the Companys
consolidated financial statements.

In September 2009, the EITF reached a
consensus on Issue 09-3, Certain Revenue Arrangements That Include Software
Elements (EITF 09-3). Per EITF 09-3, all tangible products containing both
software and non-software components, that function together to deliver the
products essential functionality, will no longer be within the scope of SOP
97-2. In other words, entities that sell joint hardware and software products
that meet the scope exception (i.e., essential functionality) will be required
to follow the guidance in Issue 08-1. The Issue provides a list of items to
consider when determining whether the software and non-software components
function together to deliver a products essential functionality.

F-12

---

The Company will adopt EITF 09-3 effective
July 1, 2010. The Company is currently evaluating the impact to the Companys
consolidated financial statements.

2. INVENTORY:

June 30, 2009
    
    June 30, 2008(in thousands)Raw materials
    $
    6
    
    
    $
    16Work in
      process
    
    15
    
    
    
    16Finished goods
    
    558
    
    
    
    516Less: inventory
      reserve
    
    (15
    )
    
    
    (15
    )Inventory - net
    $
    564
    
    
    $
    533


3. PROPERTY AND EQUIPMENT:

June 30,2009
    
    2008(in thousands)Equipment
    $
    2,305
    
    
    $
    2,216Leasehold
      improvements
    
    50
    
    
    
    48Furniture and fixtures
    
    641
    
    
    
    6412,996
    
    
    
    2,905Less: Accumulated depreciation
    
    (2,542
    )
    
    
    (2,242
    )Property and
      equipment, net
    $
    454
    
    
    $
    663


Depreciation expense was approximately
$300,000 and $279,000 for the fiscal years ended June 30, 2009 and 2008,
respectively.

4. ACCOUNTS PAYABLE AND ACCRUED
EXPENSES:

June 30,2009
    
    2008(in thousands)Accounts payable - trade
    $
    596
    
    $
    746Accrued
      compensation and benefits
    
    925
    
    
    1,269Accrued professional fees
    
    307
    
    
    312Accrued
      taxes
    
    132
    
    
    269Accrued inventory
    
    67
    
    
    151Accrued
      royalties
    
    79
    
    
    102Warranty reserves
    
    50
    
    
    70Other accrued
      expenses
    
    385
    
    
    386Accounts payable and accrued expenses
    $
    2,541
    
    $
    3,305


F-13

---

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 2008 and 2009:

A $1,000,000 equipment line of credit
(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, 2009 and 2008 was $0 and $66,000, respectively.

On May 24, 2006, the Company entered into
a Loan and Security Agreement with SVB (2006 Facility), providing an
additional $3,000,000 credit facility comprised of a $1,500,000 revolving line
of credit ("Revolver") and a $1,500,000 Non-Formula Term Loan ("2006 Term Loan")
to fund the Company's anticipated working capital needs. The Revolver created by
the 2006 Facility was initially available until October 31, 2007. It was
extended to February 11, 2009 by the SLMA. The Revolver provides for a line of
credit up to $1,500,000, with a $1,000,000 sub-limit to be established for cash
management and foreign exchange requirements. As of June 30, 2009, amounts
outstanding under the Revolver bear interest at the rate of 7%, calculated as
the greater of 7% or prime plus 3%. 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, 2009 or June 30, 2008. 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 had an
outstanding balance of $375,000 at June 30, 2009 and $875,000 at June 30, 2008.
Monthly principle payments total approximately $42,000. Amounts outstanding
under the 2006 Term Loan bear interest at June 30, 2009 at a rate of 7%,
calculated as the greater of 7% or prime plus 3%, as established by the waiver
and Third Loan Modification Agreement (TLMA) with SVB executed on November 17,
2008.

On February 13, 2008, with an effective
date of December 27, 2007, the Company entered into a second loan modification
agreement (SLMA) with SVB, providing for a new $600,000 revolving equipment
line of credit (Equipment Revolver). The availability under the Equipment
Revolver was limited to a borrowing base advance rate that is equal to 100%
against the invoice value of new Eligible Equipment (as defined in the SLMA).
The draw down period for the Equipment Revolver expired May 31, 2008, but was
extended by SVB to July 31, 2008. Originally, amounts advanced under the
Equipment Revolver bore interest at a rate equal to the greater of (a) 6.75% and
(b) the amount equal to the prime rate plus 1.0%. This rate was revised to the
greater of 7% or prime plus 3% by the TLMA. The repayment of the funds drawn
against the Equipment Revolver will be made in 36 equal monthly payments of
principal and interest beginning August 1, 2008. The outstanding balance on the
Equipment Revolver was $313,000 at June 30, 2009 and $0 at June 30,
2008.

On February 17, 2009, the Company entered
into a Waiver and Fourth Loan Modification Agreement that, among other things,
waived a loan covenant violation that existed at December 31, 2008, and extended
the maturity of the Revolver until March 31, 2009. In addition, the Waiver and
Fourth Loan Modification Agreement revised certain outstanding financial
covenants under the 2006 Facility, including minimum net loss thresholds. On May
12, 2009, with an effective date of March 31, 2009, the Company entered into a
Fifth Loan Modification Agreement which extended the maturity of the Revolver
until May 31, 2009, and set financial covenants for the period ending May 31,
2009. On June 26, 2009, with an effective date of June 1, 2009, the Company
entered into a Sixth Loan Modification Agreement which extended the Revolver
until July 31, 2009. On September 9, 2009, the Company entered in to a Seventh
Loan Modification Agreement which extends the maturity, lowers the interest rate
to prime plus 2.25% and provides covenants of the Revolver until July 30, 2010.
(See Footnote 13  Subsequent Events).



F-14

---

Future minimum payments under the credit facility are
as follows as of June 30, 2009 (in thousands):

**Silicon Valley Bank**2006 Term
    
    EquipmentLoan
    
    Revolver
    
    TotalShort Term
    
    $
    375
    
    $
    150
    
    $
    525Long
    Term
    
    
    -
    
    
    163
    
    
    163Total Debt
    
    $
    375
    
    $
    313
    
    $
    688


6. COMMON STOCK AND COMMON STOCK
WARRANTS:

The Company had 12,000,000 authorized
shares of Common Stock as of June 30, 2008 and 2009.

On June 29, 2009, the Company entered into
a Securities Purchase Agreement (the Securities Purchase Agreement) with
Co-Investment Fund II, L.P. (a Cross Atlantic Technology Fund entity) and Edison
Venture Fund V, L.P., pursuant to which the Company issued and sold an aggregate
of 1,428,571 shares (the Shares) of the Companys common stock, $0.001 par
value per share (the Common Stock), at a purchase price of $1.75 per share,
and warrants to purchase up to 142,857 shares (the Warrant Shares) of Common
Stock, which will not be exercisable until six (6) months after the date of
issuance and shall expire three (3) years from the date of issuance, at an
exercise price of $2.50 per share (the Warrant).

Under the terms of the Securities Purchase
Agreement, Edison Venture Fund V, L.P. purchased 285,714 shares of Common Stock
and warrants to purchase 28,571 shares of Common stock and Co-Investment Fund
II, L.P. purchased 1,142,857 shares of Common Stock and warrants to purchase
114,286 shares of Common Stock. The private placement closed on June 30, 2009.
The Company received gross proceeds equal to $2,500,000. The securities sold in
this private placement have not been registered under the Securities Act of
1933, as amended (the Securities Act), and may not be offered or sold in the
United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act. The Company
evaluated the transaction under the relevant accounting literature and
determined that the Warrant Shares should be classified as permanent equity.

As of June 30, 2009, the Company had
warrants outstanding to purchase 1,298,331 shares of the Companys Common Stock
at exercise prices ranging from $0.15 per share to $5.76 per share. All of the
warrants outstanding as of June 30, 2009 were granted in conjunction with
private equity transactions occurring between 2003 and 2009. A summary of the
Companys outstanding warrants as of June 30, 2009 is presented below:

WeightedAverageNumber
      of
    
    Exercise PriceExpiration
      Date
    
    Shares
    
    Per ShareAugust 2010
    
    43,527
    
    $
    5.432June 2012
    
    142,857
    
    
    2.500June 2013
    
    67,223
    
    
    2.250December 2013
    
    888,890
    
    
    2.250April 2014
    
    155,834
    
    
    0.150Total Warrants Outstanding
    
    1,298,331
    
    $
    2.132


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 options 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, 2009, and 2008, there were no shares of Common Stock
granted pursuant to this plan. However, non-employee directors received options
to purchase an aggregate of 5,000 and 17,334 shares of Common Stock pursuant to
a 2003 Option Plan approved by the Companys stockholders, respectively, during
the years ended June 30, 2009 and 2008. (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.

F-15

---

7. STOCK OPTIONS AND SHARE-BASED
COMPENSATION:

Stock Option Plans

As of June 30, 2009, options to purchase
1,108,216 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, 31,982 options
are available for grant under the Option Plans.

Information regarding option activity for
the years ended June 30, 2009 and 2008 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, 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         |  |           
|Granted                                       |  | 254,750     |   |                |   | 1.279         |  |           
|Exercised                                     |  | (2,500      | ) |                |   | 1.710         |  |           
|Forfeited                                     |  | (70,214     | ) |                |   | 5.241         |  |           
|Expired                                       |  | (1,170      | ) |                |   | 178.200       |  |           
|Options outstanding as of June 30, 2009       |  | 1,108,216   |   |                | $ | 4.839         |  | 7.80      
|                                             
|Options exercisable as of June 30, 2009       |  | 629,103     |   |                | $ | 5.912         |  | 7.03      
|                                             
|Options exercisable as of June 30, 2009 and   |  |             |   |                |   |               |  |           
|options expected to become exercisable        |  | 1,044,950   |   |                | $ | 4.969         |  | 7.73      

Aggregate intrinsic value of $0 was
calculated based on the Companys closing Common Stock price as of June 30, 2009
of $1.94 per share. Options exercisable as of June 30, 2009 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, 2009 and June 30,
2008 and changes during the years then ended is presented below:

|                                |  |             |   | Weighted   |   |             |   | Weighted  
|------------------------------- |  | ----------- | - | ---------- | - | ----------- | - | ----------
|                                |  |             |   | Average    |   | Restricted  |   | Average   
|                                |  | Options     |   | Grant-Date |   | Stock Units |   | Grant-Date
|                                |  | Outstanding |   | Fair Value |   | Outstanding |   | Fair Value
|Outstanding as of June 30, 2007 |  | 101,083     |   |            | $ | 392,176     |   |           
|Granted                         |  | 436,934     |   |            |   | 2,373,393   |   |           
|Vested                          |  | (114,344    | ) |            |   | (594,316    | ) |           
|Forfeited                       |  | (1,666      | ) |            |   | (10,190     | ) |           
|Outstanding as of June 30, 2008 |  | 422,007     |   |            |   | 2,161,063   |   |           
|Granted                         |  | 254,750     |   |            |   | 340,561     |   |           
|Vested                          |  | (170,644    | ) |            |   | (844,475    | ) |           
|Forfeited                       |  | (27,000     | ) |            |   | (109,337    | ) |           
|Outstanding as of June 30, 2009 |  | 479,113     |   |            | $ | 1,547,812   |   |           

F-16

---

Share-Based Compensation

The Company awarded a total of 0 and
305,586 restricted stock units (RSUs) to certain officers during the years
ended June 30, 2009 and 2008, respectively. 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 $592,000 and
$435,000 for the years ended June 30, 2009 and 2008, respectively. No RSUs were
granted prior to the year ended June 30, 2008.

The Company records the issuance of shares
of Common Stock as RSUs vest. During the years ended June 30, 2009 and 2008,
94,080 shares and 60,792 shares, respectively, 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 $1,617,000 for the year ended June 30, 2009 and $898,000
for the year ended June 30, 2008. At June 30, 2009, the Companys actual
forfeiture rate was lower than originally estimated. Also, the Company was not
recording the compensation cost to equal the portion of the grant-date value of
the award that was vested during the year. As such the Company corrected the
error and recorded a cumulative adjustment during the fourth quarter of fiscal
2009 to increase the share-based compensation change by an additional $344,000.
Of this amount, $205,000 pertained to years prior to 2009 and $139,000 pertained
to the earlier quarters in 2009. The Company determined that the effect on prior
periods was not material. Amounts charged to operations are as follows:

Year EndedJune 30,2009
    
    2008(in thousands)Research and development
    
    $
    144
    
    $
    86Sales and
      marketing
    
    
    316
    
    
    181General and administrative
    
    
    1,157
    
    
    631$
    1,617
    
    $
    898


As of June 30, 2009 and 2008, the Company
had $1,893,000 and $2,893,000, respectively of unrecognized compensation expense
that will be recognized as share-based compensation over a weighted average
period of 1 year. The weighted average per share fair value of stock options
granted was $1.34 and $5.43, respectively, during the years ended June 30, 2009
and 2008.

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 years ended June 30, 2009 and 2008 is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:

Year Ended June 30,2009
    
    2008Dividend yield
    
    -
    
    -Expected
      volatility
    
    134 -
    235%
    
    134 -
    145%Risk-free interest rate
    
    1.79% - 3.49%
    
    2.85% - 4.33%Expected
      life
    
    6.1
    years
    
    6.1 years


F-17

---

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 Staff
Accounting Bulletin (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. For the year ended June 30, 2009, the
Company estimates annual forfeiture rates of 5.24% for stock options and 0% for
restricted stock units. As of June 30, 2009, there are nonvested options for
approximately 478,000 shares and management estimates approximately 75,000 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. Beginning January 1, 2009, the Company matches 25% of employee
contributions on the initial 6% contributed by employees.

All employee contributions and Company
match contributions vest immediately. The Company recorded $30,000 and $0 of
compensation expense in connection with the 401(k) Plan for the fiscal years
ended June 30, 2009 and 2008, respectively.

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 $535,000 and $497,000 for the fiscal years ended June 30, 2009 and
2008, respectively. Future minimum rental payments for the Companys office
facilities and equipment under operating leases as of June 30, 2009 are as
follows:

Year ending June 30,
    
    (in thousands)2010
    
    $
    4312011
    
    
    4422012
    
    
    4232013
    
    
    2562014
    
    
    3$
    1,555


In May, 2008, the Company moved its
corporate headquarters into office facilities located in Hamilton, New Jersey 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-18

---

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 $3,000
and $7,000 for the years ended June 30, 2009 and 2008, respectively. The
provision for income taxes 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 2005-2008 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 2008, and these NOL carryforwards expire in the years 2011
through 2028. The cumulative unused NOL carryforward at June 30, 2009 was
approximately $16,000,000. 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.

F-19

---

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

June 30,(in thousands)
    
    2009
    
    2008Deferred tax assets:Net operating loss
      carryforwards
    
    $
    7,376
    
    
    $
    5,725Depreciation and
      amortization
    
    
    3,169
    
    
    
    3,661Allowances and reserve
      accounts
    
    
    335
    
    
    
    353Accrued expenses
    
    
    604
    
    
    
    593Deferred balances
    
    
    1,342
    
    
    
    1,385Research and development
      credit
    
    
    866
    
    
    
    866Total deferred
      tax assets
    
    
    13,692
    
    
    
    12,583Valuation Allowance
    
    
    (13,673
    )
    
    
    (12,564
    )Deferred tax liabilities:Capitalized software
    
    
    (19
    )
    
    
    (19
    )Net deferred tax assets
    
    $
    -
    
    
    $
    -


A reconciliation of the Companys
effective tax rate to the statutory federal rate for the years ended June 30,
2009 and 2008 is as follows:

Year Ended June 30,2009
    
    2008Federal statutory rate
    
    35.0
    %
    
    35.0
    %State taxes, net
      of federal
    
    0.0
    
    
    20.4Foreign taxes
    
    -2.4
    
    
    8.3Other
    
    -0.8
    
    
    4.6Reduction to deferred tax asset
    
    0.0
    
    
    -25.6Valuation
      allowance
    
    -31.8
    
    
    -41.50.0
    %
    
    1.2
    %


11. SEGMENT INFORMATION:

Voxwares international operations team
headquartered in the United Kingdom serves all customers outside of North
America. International operations, which historically focus primarily on the
United Kingdom, contributed 28% of the Companys revenues during the year ended
June 30, 2009, as compared to 35% during the year ended June 30, 2009. As of
June 30, 2009, Voxwares international operations team consisted of 10 employees
located in the United Kingdom and France. Long-lived assets supporting the
international operations, consisting of computer hardware and furniture and
fixtures, were not a material component of total long-lived assets as of June
30, 2009 and 2008.

F-20

---

12. COST RESTRUCTURING

In December 2008, the Company reduced its
staff to bring costs more in line with anticipated revenues. In conjunction with
the staff reduction, 13 positions were eliminated in December (including one
part-time position) and one position was eliminated in February 2009. Employment
termination charges totaling $92,000 were expensed during the year ended June
30, 2009, all of which was paid during the period. Of the termination charges,
$82,000 was related to North American operations and $10,000 was related to
international operations.

The following charges associated with the
staff reductions are included in the consolidated statement of operations:

Year EndedJune 30,2009(in thousands)Cost of product revenues
    
    $
    -Cost of service
      revenues
    
    
    35Research and development
    
    
    27Sales and
      marketing
    
    
    18General and administrative
    
    
    12$
    92


13. SUBSEQUENT EVENTS:

In accordance with the Companys adoption
of SFAS No. 165, the Company evaluated all events or transactions that occurred
after June 30, 2009 up through September 28, 2009, the date the Company issued
these consolidated financial statements. Based on that evaluation, we have
determined no material events or transactions occurred after June 30, 2009 up
through September 28, 2009 that would affect the June 30, 2009 consolidated
financial statements.

On September 9, 2009, the Company entered
into a Seventh Loan Modification Agreement that, among other things, extended
the maturity of the Revolver until July 30, 2010 and lowered the interest rate
to prime plus 2.25%. In addition, this modification revised certain financial
covenants under the Loan Agreement.

F-21

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