<PAGE>

================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 10-K

[X]  Annual Report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
     For the fiscal year ended June 30, 2000
                               --------------------------

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
     For the transition period from
                                   ---------------------

                         Commission File Number 0-021403
                                  VOXWARE, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

         Delaware                                              36-3934824
---------------------------                                  -------------
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                            Lawrenceville Office Park
                                  P.O. Box 5363
                           Princeton, New Jersey 08543
                                  609-514-4100
                   (Address, including zip code, and telephone
                  number (including area code) of registrant's
                           principal executive office)

        Securities registered pursuant to Section 12(b) of the Act: NONE

     Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
     $.001 par value per share

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [x] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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. [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $31,875,883as of August 24, 2000, based upon
the closing sale price of the Common Stock as quoted on the Nasdaq National
Market. This amount excludes an aggregate of 128,718shares of Common Stock held
by executive officers, directors and by each individual and entity that owns 5%
or more of the Common Stock outstanding at August 24, 2000. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

     The number of shares of the registrant's Common Stock outstanding as of
August 24, 2000 was 14,295,777.

================================================================================
<PAGE>

                                  VOXWARE, INC.

                             FORM 10-K ANNUAL REPORT

                       For Fiscal Year Ended June 30, 2000


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                                TABLE OF CONTENTS
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PART I

Item 1. Business ......................................................................................   3

Item 2. Properties ....................................................................................  10

Item 3. Legal Proceedings .............................................................................  10

Item 4. Submission of Matters to a Vote of Security Holders ...........................................  11

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .....................  12

Item 6. Selected Financial Data .......................................................................  13

Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition .........  14

Item 8. Financial Statements and Supplementary Data ...................................................  21

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........  21



PART III

Item 10. Directors and Executive Officers of the Registrant............................................  21

Item 11. Executive Compensation .......................................................................  23

Item 12. Security Ownership of Certain Beneficial Owners and Management ...............................  27

Item 13. Certain Relationships and Related Transactions ...............................................  28



PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............................  28

Index to Financial Statements .........................................................................  F-1

</TABLE>





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                                     PART I

     This annual report on Form 10-K contains some "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 prospectus, 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. Such risks and uncertainties include, but are not limited to those
included under "Important Factors Regarding Forward-Looking Statements,"
attached as Exhibit 99. 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 prospectus
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.

ITEM 1. BUSINESS.

Overview

     Voxware, Inc. is a Delaware corporation, incorporated in 1993. We design,
develop, market and sell voice-based solutions for the logistics, distribution
and package sorting industries. Our primary product offering is called
VoiceLogistics(TM). VoiceLogistics is a voice-based solution set of software,
hardware, and professional services used for various mobile industrial and
warehouse applications. Our solutions are designed specifically for use in
warehouses, distribution centers and other industrial settings, to enable
workers to perform, through speech interface, typical logistics tasks such as
picking, receiving, returns processing, cycle counting, cross-docking and order
entry, frequently in a more efficient and effective manner than with alternative
methods. Our products consist of software and proprietary hardware that will
generally work with wireless local area networks, networking, web and speech
technology to provide a mobile, networked connection between the warehouse
management system, workers and management. We believe that our VoiceLogistics
solution is unique in the industry today because it is the first web-optimized
speech recognition system, deployed in an industrial application, that delivers
a networked, interactive voice interface to computer systems.

     Our voice-based systems are designed to provide large companies that
operate warehouses and distribution centers, a more efficient way for their
workers to perform a wide variety of logistics tasks. Our VoiceLogistics
solution provides the capability to integrate easily (generally within 60 to 90
days) with external warehouse management systems. This flexibility allows our
solutions to be deployed rapidly and work with the latest Internet protocol and
voice standards. Our solutions are designed to be used in many major market
industry sectors, including consumer goods manufacturers, consumer packaged
goods, direct to consumer, food and grocery, retail, third party logistics
providers and wholesale distribution. Our products have been and continue to be
deployed in package handling, mail sorting, manufacturing, inspection and
military combat applications. We generate revenues primarily from product sales,
licenses of technology, and development services. Product sales consist of our
VoiceLogistics product suite described above, stationary voice-based devices
primarily used for warehouse receiving and package sorting applications, and
accessories that complement our products. Accessories include microphones,
headsets and computer hardware. Development services consist of providing
technical resources and assistance to customers in the custom design of their
systems. License fees are generally derived from licensing the our voice-based
software applications, as well as from licensing the Company's speech
compression technologies to customers in the multimedia and consumer devices
market.

     Until February 1999, our business was developing and licensing software for
speech compression to be used in multimedia Websites, Internet telephony and
consumer devices. In February 1999, we acquired from Verbex Voice Systems the
assets and technology on which VoiceLogistics is based. We have since largely
ceased our prior business and in September 1999 we sold substantially all of the
assets relating to that business.

                                       3
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     Our products are targeted primarily to be sold directly to large customers
with annual revenues in excess of $100 million. However, we also expect to
utilize other third party partners such as consultants, value-added resellers
and system integrators to also sell and/or assist us in selling our products to
these types of large customers. To date, we have signed agreements with several
third party partners, and we expect to generate at least 20% of our total
revenues in the current fiscal year from these third parties.

     Speech recognition products are designed to provide the ability to input
data that cannot be easily bar-coded, where key entry is impractical or where
productivity or safety are enhanced by having both the workers' hands free while
performing their jobs. We believe that the large market for speech recognition
products in the industrial workplace has emerged and continues to grow due to
the convergence of the following factors:

o    design advances which permit speech recognition products to be smaller,
     portable and more durable;

o    advances in wireless communications permitting an enhanced interface
     between mobile PCs and servers;

o    the increasing deployment of wireless networks in warehouses and other
     industrial operations;

o    an increased industry focus to reduce the cost of logistics in order to
     increase profitability and achieve competitive advantages;

o    the growth in electronic commerce has resulted in an increase in the number
     of businesses having significant warehouse picking functions; and

o    the decreasing cost of microprocessors and digital signal processors

Products

     The Company's primary product line is called VoiceLogistics(TM), which is a
voice-based solution set of software, hardware and professional services used
for various mobile industrial and warehouse applications. The Company also sells
stationary voice-based devices used primarily for warehouse receiving and
package sorting applications. Both of these products are based on the Company's
proprietary speech recognition technology. The Company also generates revenues
from licensing speech coding technologies which we developed prior to the sale
of the assets relating to that business in September 1999.

     VoiceLogistics. The VoiceLogistics solution consists of standards-based
software and proprietary hardware that utilizes a wireless local area network,
networking, web and speech technology to provide a mobile, networked, interface
between the warehouse management system, workers and management. This solution
is unique in the industry today in that we believe it is the first web-optimized
speech recognition system, deployed in a commercial application, that delivers a
networked, interactive voice-interface to computer systems. This solution has
been designed by our engineers to integrate easily (generally within 60 to 90
days) with external warehouse management systems. The VoiceLogistics solution
includes the VoiceLogistics server software, our patented noise-robust speech
recognizer designed specifically for high performance in industrial
environments, our patent pending VoiceXML browser and the VoiceLogistics
wireless wearable computer. Warehouse workers wear the computer around their
waist and communicate with the system through a headset that includes a close
talking microphone. It is through this headset that a worker in the warehouse or
distribution center communicates through voice with our VoiceLogistics
application in order to complete their assigned tasks, while at the same time
update various inventory, customer invoicing and other internal systems in
real-time.

     The wearable computer is a rugged, continuous speech input/output device
designed for industrial applications that require mobility and connectivity. The
unit weighs approximately 40 ounces and measures 8.8 inches in length, 3 inches
in width and 1.5 inches in depth. It is worn on the belt of the user and is
connected by wire to a headset with a microphone. When the user speaks into the
microphone, the electronics and software in the unit process the speech signal
to determine what was communicated. After the unit has determined what was said,
that information is typically transmitted by a wireless link to the system
network, which, depending upon the application, could be a warehouse management
system, a manufacturing tracking system or another software package that tracks
inventory or operations. The system network then records and processes the
information, sends additional instructions to the user or takes other action.
Instructions sent from the system to the user are communicated through the
headset. In




                                       4
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applications such as receiving and package sorting, the information processed by
the unit is sometimes used to print a bar code label locally rather than being
transmitted by a wireless link to a system network. Although the software
"system" is the primary focus of our product line, we recognize this wearable
client to be a critical component of the system, and as such we continue to
research ways to optimize the operations of the client.

     We purchase parts and electronics boards for our products from external
vendors. We also have external vendors perform major sub-assemblies where
appropriate and cost efficient. Our employees perform final assembly and
testing. We also offer customers the opportunity to purchase accessories such as
headsets and computer hardware that we purchase from third party vendors for
resale.

     Stationary Devices. Certain industrial applications do not require a high
degree of mobility by each user. For those applications, we design and
manufacture a family of stationary devices that house digital signal processing
chips and other electronics. The stationary devices, like the portable devices,
are connected by wire to a headset with a microphone. The speech information is
sent to the board in the computer. Much like the VoiceLogistics portable device,
the board employs its electronics and software to recognize what was said and
sends commands to the computer to take action such as communicating with the
system network or printing a label. This product line has been proven in
industrial applications such as receiving and package sorting. Our sales of
stationary products range from individual boards to complete computer
workstations, depending on the customer's application.

     We typically subcontract the assembly of PC board products to local
manufacturers, but our manufacturing personnel perform final testing and
shipment of the PC boards. When a customer requires a fully integrated computer
loaded with our board products in the PC or workstation, our personnel perform
the integration and testing. We also offer customers the opportunity to purchase
accessories such as headsets and computer hardware that we purchase from third
party vendors for resale.

     Speech Coding Technologies. On February 4, 1999, we entered into an asset
purchase agreement with Ascend (a wholly owned subsidiary of Lucent
Technologies, Inc.) to sell to Ascend substantially all of our assets relating
to what had historically been our primary business of developing and selling
speech compression technologies and products. The sale to Ascend was consummated
on September 21, 1999. The sale of the assets to Ascend did not include the
Company's rights and obligations under its then existing license agreements. We
continue to have revenue from existing licensees of our speech coding technology
in the form of periodic license renewal fees, royalties and service fees. With
the consent of Ascend, we may also license our speech coding technologies for
uses that are not competitive with Ascend. Although we do not have any
agreements or arrangements with Ascend relating to any general or specific
guidelines for obtaining Ascend's consent, we believe that Ascend will consent
to our licensing the speech coding technologies in the multimedia and consumer
devices markets. While we may continue to take advantage of favorable
opportunities to license our speech coding technologies in the future, we do not
dedicate significant resources to the development, marketing or licensing of our
speech coding technologies.

Applications

     Our primary market area is the distribution and logistics market in
e-commerce, retail, direct-to-consumer, wholesale and business-to-business
operations. This market is attractive because of the market's size, the move
toward automation and increased productivity, the advent of e-commerce and its
impact on the supply chain infrastructure and the Company's belief that
voice-based products can add considerable value to operational efficiency.
According to Brooker and Associates, an industry consultant we have retained,
North America has between 500,000 and 750,000 warehouses. Those warehouse
operations employ over 14 million people, including approximately 7 million
pickers, and 1.5 million receivers. Within this market, we intend to target the
relatively larger warehouse operations with our industrial voice-based
solutions. Less than half of the warehouse operations run by large US companies
are estimated to be automated with radio frequency ("RF") scanners, while less
than 15% of those operated by smaller companies use RF systems today. Figures
provided by the ARC Advisory Group indicate that worldwide shipments of
e-logistics solutions are expected to grow from $493 million in 1999 to $3.6
billion in 2004. The primary applications that we target in this area are
picking, receiving, returned goods processing, cross-docking, directed put-away,
inventory/cycle counting and condition reporting processes. Our solutions are
also deployed in package handling, mail sorting, manufacturing, inspection and
military combat applications.

     The following is a description of some of these target application areas,
as well as a discussion of other application areas outside the warehousing
market where we believe our products have market value.


                                       5
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     Warehouse Picking. A large part of the distribution industry involves the
assembly of orders for individual customers by workers who walk through
warehouses, individually selecting items and preparing orders for shipment. This
"picking" function employs millions of workers in North America alone. Our
products are designed to be used by the worker doing the picking (the "picker")
to enhance the accuracy and speed of these operations. Using our system, picking
instructions are synthetically generated from electronic or written orders
received from the warehouse's customers and are communicated via voice to a
picker on the warehouse floor who is wearing a headset and a portable
VoiceLogistics client. While keeping both hands free the picker walks through
the warehouse and listens to the instructions, acts upon those instructions and
confirms the selections using voice commands spoken into the headset's
microphone. We believe that our voice-based products for picking applications
have provided customers with the benefits of increased productivity, accuracy
and the elimination of paper.

     An example of a warehouse picking application which we believe provides a
large target market for our products is grocery picking. Grocery warehouse
pickers are typically filling small, case-based orders very quickly and handling
hundreds of different items. In this environment, products that offer
hands-free, eyes-free operation can enhance speed and accuracy, and may be
particularly attractive in freezers where heavy gloves limit the pickers'
ability to execute the fine motor movements necessary to work with paper and
pen, keyboards or hand held computers or even scanners.

     Warehouse Receiving, Package Sorting and Returns Order Processing. A
distribution and warehousing facility may receive anywhere from hundreds to tens
of thousands of packages daily. Each of these packages must be formally received
such that the warehouse's system can account for and track the package. The
receiving process can be cumbersome, often relying on paper or PCs and manual
recording and input of information that may lead to high error rates and low
productivity. When a package arrives, dock workers wearing a headset and a
portable device speak information into their headsets about the arriving
packages, such as the purchase order number corresponding to the package or some
other identification information. The portable device recognizes the information
and communicates it to the distribution center or warehouse software system,
which adjusts the inventory count. Alternatively, the speech data may be
transmitted to a bar code printer that immediately prints a bar code label to be
adhered to the package and used to track the package internally thereafter.

     An example of a logistics receiving market is the retail clothing industry,
which often uses a distribution method known as "cross-docking" in which goods
arrive in the distribution center on one truck and exit on another truck minutes
or hours later. The goods are routed to the appropriate trucks using bar code
scanners on conveyers inside the facility. However, since many packages arrive
without usable bar codes, labels must be generated on the receiving dock and
adhered to the package immediately. Because of the fast-paced, high-volume
receiving operations typical in clothing distribution operations, and because a
high percentage of arriving packages do not have usable bar codes, we believe
that this application lends itself well to a voice-based solution.

     Two specialized versions of the "receiving" application are package sorting
and returns order processing. In both circumstances, warehouse or distribution
center employees are formally accepting goods into their system, and information
must be recorded so that the central system can properly route and disposition
those items. We consider the application mechanics to be similar among
cross-docking, receiving, returns order processing and package sorting, and have
therefore discussed them as a single application category.

     Manufacturing and Other Inspection. Newly manufactured goods are often
inspected at the end of or during the manufacturing process to highlight defects
and to ensure the proper disposition of the finished good. These inspections are
typically accomplished with pen and paper. Our products are designed to allow
inspectors to input more information faster without removing their hands or eyes
from the item under inspection.

     Other Applications & Markets. We have also licensed our technology or sold
its products to dentists interested in charting patient conditions without the
use of an assistant and customers deploying lumber grading systems for saw
mills. In addition, we have marketed a PC-based product targeted to consumers
and an automated telephony personal assistant software package for the small
office/home office market, and built speech-recognition OEM boards for a
hospital bed manufacturer to allow bed-ridden patients to control bed position,
television settings and other room devices using voice commands.

     Although standard products will be available for these "other" applications
when we encounter an opportunity, and we intend to fulfill support obligations
to existing customers, we do not intend to invest substantial sales,


                                       6
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marketing, or development resources to maintain or increase revenue from market
areas other than our primary target areas identified above.

Sales and Distribution

     We believe that the industrial marketplace for our products is large and
diverse. We are targeting primarily to sell solutions direct to large customers.
However, we also expect to utilize other third parties such as consultants,
value added resellers (VARs) and system integrators to also sell and/or assist
us in selling our products to these types of large customers. To date, we have
signed agreements with several of these third party partners. 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 in order for us to succeed in that market. In developing a
marketing and sales presence in Europe, we anticipate that this market will be
supported primarily through third party partnerships as opposed to concentrating
on direct sales in the European market. Some third party partners purchase
products from us at discounts ranging from 30-35% and incorporate them into
"application systems" for various target markets and/or consult us in the
development of application systems for end-users. These application systems
integrate our products with additional hardware and software components and
include service and product support. They then resell or lease the application
systems to end-user customers. Under these types of partnership agreements, we
warrant to repair, replace or refund the purchase price of any defective product
delivered to a third party partner or their customer, provided that we are
notified of the defective product within 90 days from delivery of the product to
the end-user in the case of software and one year from such delivery in the case
of hardware. Building a network of third party partners takes time and requires
different sales and marketing expertise than that required when building a
consumer software distribution channel, or an OEM relationship for technology.

     We have continued to expand our partnership channel not only in North
America but abroad, with particular emphasis on the development of strategic
relationships with warehouse management system ("WMS") vendors and RF system
vendors. Assuring that our products are easily integrated with these vendors'
systems, as well as other components of customers' asset management and
information systems, will be a key factor in our success. We believe that in the
industrial speech recognition market, strategic partnerships with the
appropriate WMS vendors, as well as the major RF infrastructure corporations,
are critical to success. As is the case with the development of an effective
third party partner channel discussed above, nurturing and building these
relationships takes time. There can be no assurance that we will be successful
in developing strategic partnerships with WMS and RF system vendors.

     In July 1999, we entered into an agreement with a division of ITT
Industries, Inc. under which we have licensed our speech recognition products
and technologies to ITT for the creation of speech recognition products for sale
to military and other governmental customers. The agreement creates a strategic
relationship involving joint product development, cross licensing of technology,
marketing and co-branding. Under the agreement, Voxware is evaluating ITT's
speech products and technologies for potential combination with Voxware's
products to create products for sale to non-military or governmental customers.
Voxware received license fees of $265,000 from ITT during the year ending June
30, 2000 and, if ITT develops and sells products incorporating our technologies,
ITT will pay royalties to Voxware. We recognized the ITT license fee in the
quarter ended March 31, 2000, and royalty revenues, if received, will be
recognized in the fiscal quarters in which they are reported to us by ITT. We
cannot assure you as to whether ITT products incorporating Voxware's
technologies will be developed or sold, or what amount of royalty revenues, if
any, Voxware will receive from ITT.

Customers

     We generate revenues through both our voice-based solutions business and
our speech coding business. Historically, the Company has derived a significant
portion of our revenues from licensing and royalties related to our speech
coding business and sales of our voice-based solutions through VARs and systems
integrators. We also sell our products directly to customers. Historically, our
five largest direct-sale customers have been two major package handling
companies, a governmental agency, a branch of the U.S. armed services and a
major pharmaceutical company. For the fiscal year ended June 30, 2000 53% of our
revenue was derived from our speech coding business and 47% was related to our
voice-based solutions business. For the year ended June 30, 2000, three
customers accounted for 35% of our total revenues. There can be no assurance
that these customers will continue to seek our products and services at the same
levels as they have in the past, or at all.

     Our standard warranty policy generally allows customers or end-users to
return defective products for repair, replacement or refund of purchase price,
provided that we are notified of the defect within 90 days from delivery to


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the customer or end-user in the case of software and one year from the delivery
in the case of hardware. Substantially all components, parts and subassemblies
purchased by Voxware are covered by warranty by the manufacturer for periods
ranging from 30 days to one year.

Technology

     Speech recognition technology can be broadly segregated into two
categories: speaker-independent and speaker-dependent systems.
Speaker-independent products can recognize the utterances of many speakers using
a specific language, while speaker dependent systems require that each
individual user train the system to recognize his or her specific voice.
Speaker-dependent systems are typically much more accurate than
speaker-independent systems, while speaker-independent products often require
less training. Speaker-independent systems may be less effective in applications
where there is a diverse speaker population having regional accents and/or
speaking different languages.

     As a practical matter, many applications cannot use speaker-dependent
technology. For example, a telephone-based airline reservation system is a good
example of the appropriate use of a speaker-independent technology. In general,
the system must support many different users and the number of interactions in a
single call is minimal. In this example the use of a speaker-independent
technology is ideal because the airline cannot predict who will be calling or
what actions it may be requested to perform. Thus, the airline will sacrifice
some accuracy in exchange for speaker independence. In addition, these
phone-based interactive voice response systems operate in a relatively stable
acoustic environment, which contributes to improving the overall system
performance of the speaker-independent application. The users of this type of
non-mission critical application of speech technology will often tolerate
occasional mis-recognitions, as the cost is usually very low.

     In industrial applications such as logistics, fulfillment, warehousing,
package handling or manufacturing, where the applications are mission critical,
the acoustic environment is often in excess of 90 decibel and the use is
directive and repetitive in nature, we believe that significant accuracy
improvements are offered by speaker-dependent technologies over
speaker-independent technologies. In warehouse and manufacturing environments,
where accuracy in noisy environments is critical, the accuracy improvements
offered by speaker-dependent technologies over speaker-independent technologies
are typically considered to be worth the time required to train the system for
the user's voice. In addition, speaker-dependent systems are by nature language
independent, so workers with multiple accents, dialects and native languages can
use the system without custom development.

     Our current VoiceLogistics product line is based on our patented,
proprietary Voxware Integrated Speech Engine (VISE) speaker-dependent speech
recognition technology, which is a continuous speech recognizer, and highly
noise-tolerant. Users of products based on our VISE engine must initially train
the system to recognize their individual voices in order to achieve an optimum
level of performance. Initial training is often a necessity for most industrial
applications, and is typically something customers are willing to accept for the
resulting improvement in performance. Our VoiceLogistics product line and all of
our other voice-based products sold to industrial customers are based on our
VISE technology. Our VoiceLogistics computer incorporates an embedded version of
our VISE speech recognition engine with a standards based interface that allows
for interfaces with a wide variety of warehouse management systems. This
embedded engine is also suitable for applications such as handheld, portable or
mobile devices, phones and other applications, which may benefit from a noise
robust speech interface, and employ some type of processing capability. As a
result of our filing a patent in March of this year, our VoiceLogistics
solution also employs our patent-pending invention of systems and methods for
using standard Internet protocols in conjuction 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.

     In addition to our VISE speaker-dependent technology, prior to our
acquisition of Verbex, Verbex had developed FlexVISE, a noise robust large
vocabulary speaker-dependent technology designed to provide additional
flexibility for applications that may require a larger vocabulary, yet provide
high accuracy in high noise environments. We believe that this technology, which
is still in the early stages of development, may be included in some future
level for our voice-based products. At this time we have not determined the
level at which we would dedicate resources to the further development of
FlexVISE, however we are examining the feasibility of including this as part of
a future product offering. We believe that owning and developing our core
technologies represents a significant strategic and competitive advantage for
the Company at this time.

Competition

     We encounter competition from two sources: direct competition from
companies offering similar voice-based solutions, and technologies that may be
considered an alternative to voice-based solutions.


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     Companies that build competitive voice-based systems comprise a source of
competition for Voxware. To date, we are only aware of two small, private
companies that also directly sell voice-based systems within the logistics and
distribution market. Vocollect, Inc., a privately held Pittsburgh, PA-based
company, markets a wearable voice-based computer and complementary software
targeted primarily at the food and grocery warehouse picking market. Vocollect
designs and manufactures their wearable computer product, and we believe that
they currently license their speech recognition technology from the speech
consortium at Carnegie Mellon University. Similarly, SyVox Corporation, a
privately held Boulder, CO-based company, offers a wearable voice-based computer
product and complimentary software for the food consumer products warehouse
picking market. SyVox, formerly Speech Systems, was at one time a premier
developer of speech-based products for the desktop, with their own speech
recognition technology. We believe that recent investments from the Flanders
Language Valley Fund and Teklogix have transformed SyVox into a systems
integration company, matching up speech technology from Lernout & Hauspie with
wearable computing products from third party vendors.

     Second, in each application area, there exist alternatives to voice-based
solutions. In the logistics and fulfillment market, bar code scanning devices,
for example, represent a competitive alternative to voice-based products in
warehouse picking applications. Thus, bar code product companies such as Symbol
Technologies, Inc., Intermec Technologies Corporation (a subsidiary of UNOVA,
Inc.), LXE Inc. (a wholly-owned subsidiary of Electromagnetic Sciences, Inc.),
Teklogix International Inc. (pending merger with Psion of the UK) and Telxon
Corporation (pending acquisition by Symbol Technologies, Inc.), can be
considered competitors in the logistics and fulfillment marketplace. Likewise,
in the package sorting and remittance processing segments, keyboards are the
most prevalent alternative along with an increasing use of bar code scanning as
is applicable. Inspection, receiving, and inventory applications use keyboards
as well, but often pen and paper comprise the primary alternative method in
those cases. Many applications have access to more technologically sophisticated
alternatives, but few have implemented them.

Sale of Speech Coding Business

     Prior to our acquisition of Verbex Voice Systems, Voxware developed,
marketed, licensed and supported digital speech and audio technologies,
solutions and applications. On September 21, 1999, our stockholders approved the
sale of substantially all of the assets of our speech coding business to Ascend
(a wholly owned subsidiary of Lucent Technologies, Inc.). Upon closing, Voxware
received $4,146,000 in cash. We had previously received $204,000 of the purchase
price, and the remaining $750,000 is being held in escrow for 18 months (until
March 21, 2001) to secure Voxware's indemnification provisions under the sale of
assets agreement. The sale to Ascend did not include our rights and obligations
under our existing speech coding license agreements. As part of the sale, we
received a license from Ascend to use the speech coding technologies necessary
to service those existing licensees. With the consent of Ascend, we may also
license the speech coding technologies to new licensees for uses that are not
competitive with Ascend. Although we do not have any agreements or arrangements
with Ascend relating to any general or specific guidelines for obtaining
Ascend's consent, we believe that Ascend will consent to our licensing the
speech coding technologies in the multimedia and consumer devices markets.
Voxware's revenue from licensing speech coding technologies and audio
compression technologies has been steadily decreasing. While we may continue to
take advantage of favorable opportunities to license our speech coding
technologies in the future, we do not dedicate significant resources to the
development, marketing or licensing of our speech coding technologies.

Patents and Proprietary Information

     With our acquisition of Verbex, we acquired certain patents and patent
applications related to the Verbex technology. In addition, we have recently
filed a patent application for our VoiceLogistics wireless client, which
incorporates applications of some of our other patented technologies as well. We
expect to routinely 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. We cannot assure you that those patent applications to which
we hold rights will result in the issuance of patents, or that any issued
patents will provide commercially significant protection to our technology,
products and processes. In addition, we cannot assure you that others will not
independently develop substantially equivalent proprietary information not
covered by patents to which we own rights or obtain access to our know-how or
that others will not claim to have or will not be issued patents which may
prevent the sale of one or more of our products. In addition, the laws of
certain countries may not protect our intellectual property. The software market
has traditionally



                                       9
<PAGE>

experienced widespread unauthorized reproduction of products in violation of
manufacturers' intellectual property rights. Such activity is difficult to
detect and legal proceedings to enforce the manufacturers' intellectual property
rights are often burdensome and involve a high degree of uncertainty and costs.
Our success is also dependent upon unpatented trade secrets which are difficult
to protect. To help protect our rights, we require employees and consultants to
enter into confidentiality agreements that prohibit disclosure of our
proprietary information and require the assignment to us of their ideas,
developments, discoveries and inventions. We cannot assure you, however, that
these agreements will provide adequate protection for our trade secrets,
know-how, or other proprietary information in the event of any unauthorized use
or disclosures.

Employees

     As of August 28, 2000, we had 39 full-time employees, consisting of 4 in
manufacturing, 17 in research and development, 12 in sales and marketing, and 6
in administration and finance. Twenty-five of our employees are located at our
Cambridge, Massachusetts's facility, and nine are located at our corporate
offices in Lawrenceville, New Jersey. The remainder work at various other
locations. None of our employees are represented by a labor union or are subject
to a collective bargaining agreement. We believe that our employee relations are
good.

ITEM 2. PROPERTIES.

     Effective July 1, 2000 we entered into a lease for our executive facility,
which contains approximately 4,000 square feet of office space in Lawrenceville,
NJ. The initial term of this lease will expire on June 30, 2003. Total payments
under this lease consist of a base rent of $16.00 per square foot in the first
year, $17.00 per square foot in the second year and $18.00 per square foot in
the third year, plus escalations for property operating expenses, property taxes
and other items.

     Our prior principal facility, which contains approximately 18,000 square
feet of office space, was located in Princeton, New Jersey. We leased this space
under a lease which will expire on May 31, 2003. Total payments under this lease
consist of a base rent of $21.30 per square foot, plus escalations for property
operating expenses, property taxes and other items. We entered into a Sublease
Agreement in July 1998, under which we subleased to a third party approximately
47% of the space in the facility. The initial term of that Sublease Agreement
will expire on May 31, 2003. Effective June 30, 2000, we have been released from
our lease commitment for 9,500 square feet of the office space in Princeton, New
Jersey. The remaining 8,500 square feet of this space is occupied by the
sub-lessee and payments received under the Sublease Agreement offset all but
$0.30 per square foot of our remaining lease commitment.

     Our principal facility is now located in Cambridge, Massachusetts. We lease
this space for research and development, product marketing, product engineering
and final assembly and testing. There are two separate lease agreements covering
this office space. The first lease agreement is related to approximately 9,500
square feet of office space. Total payments under the lease consist of a base
rent of $27.00 per square foot, an electricity charge of $1.50 per square foot
and an expense charge of 14.9% of the landlord's building expenses. The initial
term for the lease of this office space will expire on June 30, 2004. The second
lease agreement covers approximately 1,780 square feet of office space. Total
payments under the lease consist of a base rent of $35.00 per square foot and an
electricity charge of $1.50 per square foot. The initial term for the lease of
this office space will expire on April 30, 2002. We believe that existing
facilities are adequate for operations through the year ending June 30, 2001.

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.



                                       10
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The annual meeting of stockholders of Voxware, Inc. was held on May 22,
2000. Three matters were submitted to a vote of the stockholder. These matters
were:

1.   To elect three directors to serve until the next annual meeting of
     stockholders or until their respective successors shall have been duly
     elected and qualified.

2.   To approve an amendment to the Company's 1994 Stock Option Plan in order to
     increase the number of shares of common stock reserved for issuance under
     the plan by 800,000 shares to an aggregate of 4,000,000 shares.

3.   To approve an amendment to the Company's certificate of incorporation to
     eliminate the provision for a classified board of directors.

The results of the vote on these matters were:

1.   Bathsheba Malsheen, David Levi and Eli Porat were each elected as a
     Director of the Company.

2.   Proposal No. 2 was adopted. The number of shares of common stock reserved
     for issuance under the 1994 Stock Option Plan was increased by 800,000
     shares to an aggregate of 4,000,000 shares.

3.   Proposal No. 3 was not adopted. The Company will continue to have a
     classified board of directors.



                                       11
<PAGE>


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS.

Market Information

     Our Common Stock is traded on the National Market segment of The Nasdaq
Stock Market under the symbol "VOXW." The following table sets forth the high
and low sale prices as quoted on The Nasdaq Stock Market.

                                          High          Low
                                          ----          ---
Fiscal Year Ended June 30, 1997

Quarter ended December 31, 1996
 (beginning October 31, 1996)          $ 8.50     $ 6.375
Quarter ended March 31, 1997           $ 7.625    $ 2.00
Quarter ended June 30, 1997            $ 6.00     $ 4.00

Fiscal Year Ended June 30, 1998

Quarter ended September 30, 1997       $ 6.063    $ 3.75
Quarter ended December 31, 1997        $ 6.688    $ 3.188
Quarter ended March 31, 1998           $ 4.00     $ 2.031
Quarter ended June 30, 1998            $ 3.50     $ 2.00

Fiscal Year Ended June 30, 1999

Quarter ended September 30, 1998       $ 2.375    $ 0.813
Quarter ended December 31, 1998        $ 1.50     $ 0.469
Quarter ended March 31, 1999           $ 1.969    $ 0.750
Quarter ended June 30, 1999            $ 1.563    $ 0.625

Fiscal Year Ending June 30, 2000

Quarter ending September 30, 1999      $ 1.50     $ 0.875
Quarter ended December 31, 1999        $ 1.75     $ 0.656
Quarter ended March 31, 2000           $13.25     $ 1.063
Quarter ended June 30, 2000            $11.859    $ 1.875


     As of August 17, 2000 there were approximately 139 holders of record of our
Common Stock. Because many of the shares of our Common Stock are held by brokers
and other institutions on behalf of stockholders we are unable to estimate the
total number of stockholders represented by these holders of record. We have
never declared or paid any cash dividends on our Common Stock. We do not
anticipate paying any cash dividends in the foreseeable future.



                                       12

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

     The selected statement of operations data for the years ended June 30, 1999
and 2000 and the selected balance sheet data as of June 30, 1999 and 2000 have
been derived from the financial statements of the Company, which have been
audited by Arthur Andersen LLP, independent public accountants, and which
financial statements are included elsewhere in this Form 10-K. The selected
statements of operations data for the fiscal years ended June 30, 1996, 1997 and
1998, and the balance sheet data as of June 30, 1996, 1997 and 1998 have been
derived from the Company's audited financial statements not included herein. The
selected statement of operations data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the financial statements and notes thereto included
elsewhere in this Form 10-K.

<TABLE>
<CAPTION>

                                                                   1996       1997        1998        1999        2000
                                                                 -------    --------    --------    --------    --------
                                                                           (In thousands, except per share data)
<S>                                                                <C>        <C>         <C>         <C>         <C>
Statement of Operations Data:
   Revenues:
     Product revenues:
        Product sales .........................................  $  --      $   --      $   --      $    791    $  1,419
        License fees ..........................................    1,256       5,432       2,935         705       1,668
        Royalties and recurring revenues ......................      238       1,996       1,918         511         488
                                                                 -------    --------    --------    --------    --------
          Total product revenues ..............................    1,494       7,428       4,853       2,007       3,575
     Service revenues .........................................      113         351       1,029         879         226
                                                                 -------    --------    --------    --------    --------
               Total revenues .................................    1,607       7,779       5,882       2,886       3,801
                                                                 =======    ========    ========    ========    ========
   Cost of revenues:
        Cost of product revenues ..............................       17         178         142         429         799
        Cost of service revenues ..............................       28         164         441         542          70
                                                                 -------    --------    --------    --------    --------
               Total cost of revenues .........................       45         342         583         971         869
                                                                 -------    --------    --------    --------    --------
               Gross profit ...................................    1,562       7,437       5,299       1,915       2,932
                                                                 =======    ========    ========    ========    ========
   Operating expenses:
        Research and development ..............................    2,497       7,796       4,726       2,058       2,835
        Sales and marketing ...................................    1,084       4,018       3,844       2,513       2,870
        General and administrative ............................      980       3,204       2,467       1,691       2,140
        Amortization of purchased intangibles .................     --          --          --           478       1,989
                                                                 -------    --------    --------    --------    --------
               Total operating expenses .......................    4,561      15,018      11,037       6,740       9,834
                                                                 -------    --------    --------    --------    --------
               Operating loss .................................   (2,999)     (7,581)     (5,738)     (4,825)     (6,902)
   Interest income ............................................      132         722         844         539         357
   Gain on sale of tax loss carryforwards .....................     --          --          --          --           501
   Gain on sale of assets .....................................     --          --          --          --         3,799
                                                                 -------    --------    --------    --------    --------
   Net loss ...................................................   (2,867)     (6,859)     (4,894)     (4,286)     (2,245)
   Accretion of preferred stock to
     redemption value .........................................       (7)         (5)       --          --          --
                                                                 -------    --------    --------    --------    --------
   Net loss applicable to common stockholders .................  $(2,874)   $ (6,864)   $ (4,894)   $ (4,286)   $ (2,245)
                                                                 =======    ========    ========    ========    ========
   Basic and diluted net loss per common share ................  $ (0.50)   $  (0.67)   $  (0.38)   $  (0.32)   $  (0.16)
                                                                 =======    ========    ========    ========    ========
   Weighted average number of
     common shares outstanding ................................    5,784      10,242      12,890      13,330      13,667
                                                                 =======    ========    ========    ========    ========

                                                                                        June 30,
                                                                 -------------------------------------------------------
                                                                   1996       1997        1998        1999        2000
                                                                 -------    --------    --------    --------    --------
Balance Sheet Data:                                                                  (In thousands)
   Cash, cash equivalents and
     short-term investments ...................................  $ 3,837    $ 16,469    $ 13,537    $  4,446    $  3,226
   Working capital ............................................    3,887      16,966      13,743       4,446       4,351
   Total assets ...............................................    5,336      20,221      15,557      12,592      17,440
   Redeemable Series A Convertible
     Preferred Stock ..........................................    5,938        --          --          --          --
   Stockholders' equity (deficit) .............................   (1,076)     17,376      13,913       9,709      16,053
</TABLE>


                                       13
<PAGE>

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

     This report contains forward-looking statements which involve risks and
uncertainties. Such statements are subject to certain factors which may cause
our plans and results to differ significantly from plans and results discussed
in forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in "Important
Factors Regarding Forward-Looking Statements" attached hereto as Exhibit 99.

Overview

     Voxware designs, develops, markets and sells industrial integrated
voice-based solutions for logistics, distribution and package sorting
industries. Until February 1999, our business was developing, marketing and
selling speech compression technologies and products to be used in websites,
Internet telephony and consumer devices. In February 1999, we acquired from
Verbex Voice Systems the assets and technology on which our voice-based
applications are based. We have since largely ceased our prior speech
compression business and in September 1999 we sold substantially all of the
assets relating to that business. Our solutions are designed specifically for
use in warehouses, distribution centers and other industrial settings, to enable
workers to perform, through speech interface, typical logistics tasks such as
picking, receiving, returns processing, cycle counting, cross-docking and order
entry, in a more efficient and effective manner than with alternative
methods. Voxware solutions are designed to be used in most major market industry
sectors, including consumer goods manufacturers, consumer packaged goods, direct
to consumer (e-commerce and catalog), food and grocery, retail, third party
logistics providers and wholesale distribution. Voxware's products are also
deployed in package handling, mail sorting and manufacturing, inspection and
military combat applications. Revenues are generated primarily from product
sales, licenses and development services. Product sales consist of portable
devices and software used for various mobile industrial and warehouse
applications; stationary voice-based devices, primarily used for warehouse
receiving and package sorting applications; and accessories that complement our
product offerings, including microphones, headsets and computer hardware.
License fees are generally derived from licensing the Company's voice-based
software applications. Royalty revenues comprise royalties from voice-based
systems and from exiting speech and audio coding technologies. Development
services consist of providing technical resources and assistance to
customer-specific development. Revenues from product sales are generally
recognized when products are deployed for their intended use, or when they are
shipped to a specific third party partner.

     Prior to our acquisition of Verbex, Voxware generated revenues relating to
its speech and audio coding business from fees for software product licenses and
fees for services provided. Product revenues consist of software license fees
and royalties and recurring revenues. Voxware licensed its products primarily to
software and hardware companies which incorporated Voxware's products and
technologies into their products. Arrangements with customers, which were
negotiated on a case-by-case basis, included one or more of the following:
initial license fees, quarterly license fees, annual license fees or royalties
based on the licensee's revenue generated or units shipped of products
incorporating Voxware's technologies. Software product revenues are generally
recognized upon shipment, provided that there are no significant post-delivery
obligations, persuasive evidence of an arrangement exists, pricing is fixed or
determinable, the payment is due within one year and collection of the resulting
receivable is deemed probable. If an acceptance period is required, revenues are
recognized upon customer acceptance. Royalty revenues are recognized in the
period of customer shipment. Service revenues consist of customer maintenance
support and engineering fees. Customer maintenance support revenues are
recognized over the term of the support period, which typically lasts for one
year. Engineering fees are generally recognized upon customer acceptance or upon
delivery if customer acceptance is not required. All research and development
costs are expensed as incurred.

     The sale of the assets, relating to the speech and audio coding business,
to Ascend did not include Voxware's rights and obligations under its then
existing license agreements. We continue to derive revenue from existing
licensees of our speech coding technology in the multimedia and consumer devices
markets in the form of periodic license renewal fees, royalties and service
fees. With the consent of Ascend, we may also license our speech coding
technologies for uses that are not competitive with Ascend. Although we do not
have any agreements or arrangements with Ascend relating to any general or
specific guidelines for obtaining Ascend's consent, we believe that Ascend will
consent to our licensing the speech coding technologies in the multimedia and
consumer devices markets. Our new licensing activity relating to the speech
coding technologies has been decreasing prior to the sale to Ascend and we
expect this trend to continue. Furthermore, as we focus on voice-based systems
for industrial markets, revenues from licenses of speech coding technologies
will become a less significant portion of our revenues. For the year ended June
30, 2000 revenues related to the speech coding business accounted for 53% of
total revenues


                                       14
<PAGE>

for the year, while revenue from our voice-based solutions accounted for 47% of
annual revenues. While we may continue to take advantage of favorable
opportunities to license our speech coding technologies in the future, we are
not dedicating significant resources to the development, marketing or licensing
of our speech coding technologies.

     On April 5, 2000 the Company introduced VoiceLogistics(TM), a voice-based
solution set of software, hardware and professional services. VoiceLogistics
enables businesses to achieve new levels of customer satisfaction by expanding
the distribution and logistics capabilities of e-commerce, retail,
direct-to-consumer, wholesale and business-to-business operations with
integrated voice solutions for fulfillment. The product provides a set of speech
dialogues that interact with and guide workers in logistics tasks such as
picking, receiving, put away, inspection, returns processing, cycle counting,
value-added services and other procedural or directed operations. In conjunction
with our introduction of VoiceLogistics, Voxware acquired certain assets of
InRoad, Inc. on April 4, 2000. This asset purchase includes ownership rights to
all intellectual property, proprietary processes, and production equipment and
tools necessary for us to manufacture a rugged, wireless hardware computer as
part of our new VoiceLogistics solution set. This new platform is an integral
component of our voice-based logistics solutions.

     Voxware has only a limited operating history upon which an evaluation of
Voxware and its prospects can be based. Since its inception, Voxware has
incurred significant losses and, as of June 30, 2000, Voxware had an accumulated
deficit of $22,548,000. In at least the near term quarters, we expect to incur
net losses as we continue to pursue our market opportunities. The recent shift
in Voxware's business focus makes the prediction of future results of operations
impossible. Therefore, Voxware's historical revenues should not be taken as
indicative of future revenues. In addition, Voxware's operating results may
fluctuate significantly in the future as a result of a variety of factors,
including, but not limited to, the entrance into a new line of business, the
budgeting cycles of potential customers, the volume of, and revenues derived
from sales of products by our licensees that incorporate our products, the rate
of new licensing activity, as well as the termination of existing license
agreements, the introduction of new products or services by Voxware or its
competitors, pricing changes in the industry, the degree of success of Voxware's
efforts to penetrate its target markets, technical difficulties with respect to
the use of products developed by Voxware or its licensees and general economic
conditions.

Results of Operations

Fiscal 2000 Versus Fiscal 1999

Revenues

     Voxware recorded revenues of $3,801,000 for the year ended June 30, 2000
compared to revenues of $2,886,000 for the year ended June 30, 1999. The
$915,000 increase in total revenues reflects an increase in product sales and
license fees offset by a decrease in royalties and recurring revenues and
service revenues from our speech compression technology products. During the
fiscal year ended June 30, 2000, Voxware recognized $1,786,000 (47%) of total
revenue from the sale of voice-based solution products compared to $809,000
(28%) of total revenues during the prior fiscal year ended June 30, 1999. We
expect that over time, sales of voice-based solutions will comprise the most
significant portion of our revenue. Revenues from speech compression
technologies for the year ended June 30, 2000 approximated $2,015,000 (53%) of
total revenues versus $2,077,000 (72%) of total revenues for the year ended June
30, 1999.

     Total product revenues increased $1,568,000 to $3,575,000 during fiscal
year ended June 30, 2000 from $2,007,000 in the prior fiscal year ended June 30,
1999. The $1,568,000 increase in total product revenues reflects an increase of
$628,000 in product sales or $1,419,000 recognized in fiscal year ended June 30,
2000 compared to $791,000 of product sales recognized in the fiscal year ended
June 30, 1999. During fiscal year ended June 30, 2000, Voxware recognized
license fees of $1,668,000 compared to $705,000 during fiscal year ended June
30, 1999, resulting in a $963,000 increase. Microsoft, Inc. signed a license
agreement representing $500,000 (13%) of total product revenue, relating to
speech compression technology for the year ended June 30, 2000. The increase in
product sales and license fees were partially offset by a nominal decrease of
$23,000 in royalties and recurring revenue attributable to Voxware' s shift in
business focus, from the speech compression business and towards speech-based
solutions for industrial products. We believe the factors discussed in the
"Overview" above are indicative of future revenues. For the fiscal years ended
June 30, 2000 and 1999, 40% and 39% of the Company's product revenues were
attributable to product sales, respectively, 47% and 36% were attributable to
license fees, respectively, and 13% and 25% were attributable to royalties and
recurring revenues, respectively.

                                       15
<PAGE>

     Service revenues were primarily attributable to customer maintenance
support and fees for engineering services. For the fiscal year ended June 30,
2000, service revenues totaled $226,000, reflecting a decrease of $653,000 from
service revenues of $879,000 for the fiscal year ended June 30, 1999. The
decrease in service revenue is attributable to reduced customer maintenance
support revenues due to a reduction in the Company's portfolio of speech
compression technology customers. In addition, service revenues earned for
fiscal year ended June 30, 1999 included $273,000 pursuant to a services
agreement between Voxware and Ascend, whereas 10 Voxware Engineers performed
services for Ascend. Voxware expects a decline in service revenues as a result
of the Company's shift in business focus. As we continue to pursue opportunities
within the logistics distribution and package sorting industries, custom
development of OEM products for speech compression technologies will diminish.

     Cost of Revenues

     Cost of revenues decreased $102,000 from $971,000 for the fiscal year ended
June 30, 1999 to $869,000 for the fiscal year ended June 30, 2000. The decrease
in cost of revenues reflects decreases in cost of services revenues as a result
of the sale of our speech and audio coding business, offset by an increase
in cost of product revenue. As a result, we will generate increases in cost of
product revenues because our voice-based solution products include hardware
material costs. Our speech and audio products do not include any hardware
material costs.

     Cost of product revenues increased $370,000 from $429,000 in the fiscal
year ended June 30, 1999 to $799,000 in the fiscal year ended June 30, 2000,
reflecting materials, labor and overhead costs primarily associated with the
sale of our stationary devices. Such costs accounted for the majority of costs
of product revenues in fiscal 2000, as cost of revenues remained relatively
constant as a percentage of product revenues reported in fiscal 1999. As of June
30, 2000 and 1999, Voxware's manufacturing staff, comprised of four individuals,
is included in cost of product revenues.

     Cost of services revenues consists primarily of the expenses associated
with customer maintenance support and engineering services, including employee
compensation and equipment depreciation. Cost of service revenues decreased
$472,000 from $542,000 in the fiscal year ended June 30, 1999 to $70,000 in the
fiscal year ended June 30, 2000. The decrease in cost of service revenues is
primarily attributable to Voxware's implementation of voice-based recognition
products.

     Operating Expenses

     Total operating expenses increased by $1,583,000 (25%) from $6,262,000 in
the fiscal year ended June 30, 1999 to $7,845,000 in the fiscal year ended June
30, 2000, excluding amortization of purchased intangibles totaling $1,989,000
for the year ended June 30, 2000 compared to $478,000 for the year ended June
30, 1999. The implementation and development of our VoiceLogistics product
suite, which was launched in April 2000, resulted in higher research and
development costs. In addition, an increase in sales and marketing expenses can
also be attributed to the launch of our VoiceLogistics product suite. As of June
30, 2000 headcount totaled 39 compared to our headcount at June 30, 1999, which
totaled 31.

     Research and development expenses primarily consist of employee
compensation and equipment depreciation and lease expenditures related to
product research and development. Research and development expenses increased
$777,000 (38%) from $2,058,000 in the fiscal year ended June 30, 1999 to
$2,835,000 in the fiscal year ended June 30, 2000. As of June 30, 1999, we had a
research and development staff of 17 compared to 11 at June 30, 1999.

     Sales and marketing expenses primarily consist of employee compensation
(including sales commissions), travel expenses and trade shows. Sales and
marketing expenses increased $357,000 (14%) from $2,513,000 in the fiscal year
ended June 30, 1999 to $2,870,000 in the fiscal year ended June 30, 2000.
Voxware hired new personnel to better suit our sales and marketing objectives
with the introduction of VoiceLogistics. Additional resources were utilized as
part of this effort, including recruitment, as we added three new sales
personnel and one European consultant as of June 30, 2000. Voxware had a sales
and marketing staff of 12 at June 30, 2000 compared to 9 at June 30, 1999.

     General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and professional
services. General and administrative expenses increased $449,000 (27%) from


                                       16
<PAGE>

$1,691,000 in the fiscal year ended June 30, 1999 to $2,140,000 in the fiscal
year ended June 30, 2000. The increase in general and administrative expenses
was primarily realized through reductions in personnel and recruitment offset by
the expansion of our Cambridge facility. As of June 30, 2000, Voxware had a
general and administrative staff of 6 compared to 7 at June 30, 1999.

     Amortization of purchased intangibles totaled $1,989,000 for the fiscal
year ended June 30, 2000 compared to $478,000 in fiscal year ended June 30,
1999. The increase relates to a full year of amortization expense from the
acquisition of Verbex which closed in February 1999 and amortization of the
intangible assets related to the Inroad Asset Acquisition which closed in April
2000. The total amount of capitalized intangibles from these transactions
approximated $5,191,000 and $8,404,000, respectively. The intangibles
capitalized from the Verbex acquisition are being amortized over four years and
the amortization of Inroad intangibles over three years.

     Interest Income

     Interest income decreased $182,000 to $357,000 for the fiscal year ended
June 30, 2000 from $539,000 for the fiscal year ended June 30, 1999. The
decrease is primarily related to the decrease in Voxware's total cash, cash
equivalents and short-term investments portfolio balance as a result of cash
used for operations, research and development, sales and marketing expense
related of the introduction of VoiceLogistics and the purchase of substantially
all of the assets of Inroad, Inc. in April 2000. As of June 30, 2000 Voxware's
cash, cash equivalents and short-term investments portfolio totaled $3,226,000
compared to $4,446,000 at June 30, 1999.

     Income Taxes

     As of June 30, 2000, we had approximately $20,300,000 of federal net
operating loss carryforwards which will begin to expire in 2009 if not utilized.
As of June 30, 2000, a full valuation allowance has been provided on the net
deferred tax asset because of the uncertainty regarding realization of the
deferred asset, primarily as a result of the operating losses incurred to date.

     Gain on Sale of Tax Loss Carryforwards

     During 1999, the State of New Jersey passed legislation which allows New
Jersey technology companies to apply for the transfer or sale of unused New
Jersey state net operating losses and research and development tax credits for
cash. Profitable companies can buy these losses and credits at a discount,
thereby reducing their state tax obligation. Voxware applied to the State of New
Jersey to sell up to approximately $14,900,000 of its New Jersey State net
operating losses carryforwards. Voxware received a determination letter from the
State of New Jersey to sell $7,420,000 of its New Jersey State net operating
losses which, upon the sale, provided Voxware $501,000 in cash as of December
31, 1999. The remaining $7,480,000 has been approved for sale and if sold could
provide Voxware with up to an additional $540,000 in December 2000.

     Gain on Sale of Assets

     During the quarter ended September 30, 1999, we completed the sale of
substantially all of the assets relating to our speech coding technology
business for $5,100,000, of which $750,000 has been placed in escrow for a
period of 18 months from the closing date to secure our indemnification
obligations under the agreement with Ascend. Upon closing, we received
$4,146,000 from Ascend. We had previously received a payment of $204,000 of the
purchase price. For the year ended June 30, 2000 we recorded a gain on the sale
of speech coding assets totaling $3,799,000, which reflects the total proceeds
received to date totaling $4,350,000 less transaction costs of $517,000 and
equipment transferred to Ascend totaling $34,000, but excludes the $750,000
escrow amount.

Fiscal 1999 Versus Fiscal 1998

Revenues

     Voxware recorded revenues of $2,886,000 for the year ended June 30, 1999
compared to revenues of $5,882,000 for the year ended June 30, 1998. The
$2,996,000 total decrease in revenues reflects decreases in the amounts of
license fees, royalties and recurring revenues and service revenues from our
speech compression technology products, partially offset by an increase in
industrial speech recognition product sales.

                                       17
<PAGE>

     During the year ended June 30, 1998, Voxware derived approximately
$4,437,000 (75% of total revenues) from multimedia customers versus
approximately $974,000 (34% of total revenues) for the year ended June 30, 1999.
The $3,463,000 decrease in multimedia revenues reflects the deterioration of the
multimedia Internet software market for Voxware speech compression products, a
shift in Voxware focus away from the speech compression business and toward
Verbex's industrial speech recognition products business after Voxware
acquisition of Verbex in February 1999, and also reflects that revenues earned
from major customers during the fiscal year ended June 30, 1998 were not
repeated or replaced during the year ended June 30, 1999. In particular, the
amendment and termination of Voxware's agreement with Netscape, under which
Voxware derived $1,250,000 (21% of total revenues) in revenues during the fiscal
year ended June 30, 1998 and none during the fiscal year ended June 30, 1999,
accounts for a significant portion of the reduction in Voxware's revenues. We
are not currently receiving any revenue from Netscape and we do not anticipate
receiving any revenues from Netscape in the future.

     During the fiscal year ended June 30, 1999, Voxware recognized $809,000 of
revenue from the sale of speech recognition products, all of which was recorded
after our acquisition of substantially all of the assets of Verbex in February
1999. These revenues represent Voxware's first revenues recognized from the sale
of Verbex products. We expect that over time, sales of speech recognition
products will comprise the most significant portion of our revenue.

     Total product revenues decreased $2,846,000 from $4,853,000 in the fiscal
year ended June 30, 1998 to $2,007,000 in the fiscal year ended June 30, 1999.
The decrease in product revenues reflects a decrease in the amount of license
fees recognized during the fiscal year ended June 30, 1999 compared to the
amount of license fees recognized during the fiscal year ended June 30, 1998,
and a decrease in the amount of royalties and recurring revenues recognized
during the period from customers who licensed the Company's products in previous
periods. These decreases were partially offset by $809,000 in product sales
attributable to speech recognition products. We believe that the factors
discussed in the "Overview" above were primarily responsible for the overall
decrease in product revenues. For the fiscal years ended June 30, 1999 and 1998,
39% and none of the Company's product revenues were attributable to product
sales, respectively, 35% and 60% were attributable to license fees,
respectively, and 25% and 40% were attributable to royalties and recurring
revenues, respectively.

     Service revenues were primarily attributable to customer maintenance
support and fees for engineering services. For the fiscal year ended June 30,
1999, service revenues totaled $879,000, reflecting a decrease of $150,000 from
service revenues of $1,029,000 for the fiscal year ended June 30, 1998. The
decrease in service revenues is primarily attributable to (i) a decline in
customer maintenance support revenues because we had a much smaller portfolio of
customers to which we provided maintenance support services during the fiscal
year ended June 30, 1999 than we did for the fiscal year ended June 30, 1998,
and (ii) a decline in development services revenues because of our shift in
focus away from the custom development facet of the speech compression business
to the operation of Verbex's business. Service revenues for the fiscal year
ended June 30, 1999 includes $273,000 earned pursuant to a services agreement
between Voxware and Ascend, under which ten of Voxware's engineers performed
services for Ascend at various times from February 4, 1999 through June 24,
1999. All ten of those employees became employees of Ascend on June 24, 1999.

     Cost of Revenues

     Cost of revenues increased $388,000 from $583,000 for the fiscal year ended
June 30, 1998 to $971,000 for the fiscal year ended June 30, 1999. The increase
in cost of revenues reflects increases in cost of product revenues and cost of
services revenues.

     Cost of product revenues increased $287,000 from $142,000 in the fiscal
year ended June 30, 1998 to $429,000 in the fiscal year ended June 30, 1999,
reflecting materials, labor and overhead costs associated with hardware products
related to the Verbex business. Such costs accounted for the majority of cost of
products revenues in fiscal 1999. As of June 30, 1999, Voxware had a
manufacturing staff of four compared to none at June 30, 1998. In fiscal 1998,
cost of products revenues represented costs related to our speech compression
software licensing business, for which revenues declined significantly in fiscal
1999. Since the industrial speech recognition hardware products business is a
lower gross margin business than software licensing, cost of products revenues
increased as a percentage of product revenues in fiscal 1999.

     Cost of services revenues consists primarily of the expenses associated
with customer maintenance support and engineering services, including employee
compensation and equipment depreciation. Cost of service revenues increased
$101,000 from $441,000 in the fiscal year ended June 30, 1998 to $542,000 in the
fiscal year ended June


                                       18
<PAGE>

30, 1999. The increase in cost of service revenues is primarily attributable to
Voxware's services agreement with Ascend. Under this agreement, ten of Voxware's
engineers performed services for Ascend at various times from February 4, 1999
through June 24, 1999. For these services, Voxware earned services fees, which
were based upon those employees' salaries, and provided Voxware lower gross
margins than the gross margins on other services fees. As a result, cost of
service revenues increased as a percentage of revenues during fiscal 1999 as
compared to fiscal 1998.

     Operating Expenses

     Total operating expenses decreased by $4,297,000 (39%) from $11,037,000 in
the fiscal year ended June 30, 1998 to $6,740,000 in the fiscal year ended June
30, 1999. The decrease primarily reflects headcount reductions in each of
research and development, sales and marketing and administration, and other cost
reductions associated with the restructuring of Voxware's business focus over
the past several quarters prior to the Ascend and Verbex transactions. As of
June 30, 1999, our headcount totaled 31, compared to total headcount of 46 as of
June 30, 1998.

     Research and development expenses primarily consist of employee
compensation and equipment depreciation and lease expenditures related to
product research and development. Research and development expenses decreased
$2,668,000 (56%) from $4,726,000 in the fiscal year ended June 30, 1998 to
$2,058,000 in the fiscal year ended June 30, 1999. As of June 30, 1999, we had a
research and development staff of 11 compared to 24 at June 30, 1998.

     Sales and marketing expenses primarily consist of employee compensation
(including sales commissions), travel expenses and trade shows. Sales and
marketing expenses decreased $1,331,000 (35%) from $3,844,000 in the fiscal year
ended June 30, 1998 to $2,513,000 in the fiscal year ended June 30, 1999. As of
June 30, 1999, Voxware had a sales and marketing staff of 9 compared to 12 at
June 30, 1998.

     General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and professional
services. General and administrative expenses decreased $776,000 (31%) from
$2,467,000 in the fiscal year ended June 30, 1998 to $1,691,000 in the fiscal
year ended June 30, 1999. The decrease in general and administrative expenses
was primarily realized through reductions in personnel, recruitment and general
cost savings achieved through expense management. As of June 30, 1999, Voxware
had a general and administrative staff of 7 compared to 10 at June 30, 1998.

     Amortization of purchased intangibles totaled $478,000 for the fiscal year
ended June 30, 1999. These intangibles related to the acquisition of Verbex in
February 1999. The total amount of intangibles capitalized from the Verbex
acquisition approximated $5,158,000, and those intangibles are being amortized
over four years.

     Interest Income

     Interest income decreased $305,000 to $539,000 for the fiscal year ended
June 30, 1999 from $844,000 for the fiscal year ended June 30, 1998. The
decrease is primarily related to the decrease in Voxware's total cash, cash
equivalents and short-term investments portfolio balance as a result of cash
used for operations and the acquisition of substantially all of the assets of
Verbex for approximately $5,200,000 plus transaction costs in February 1999. As
of June 30, 1999, Voxware's cash, cash equivalents and short-term investments
portfolio totaled $4,446,000 compared to $13,537,000 at June 30, 1998.

     Income Taxes

     As of June 30, 1999, we had approximately $18,000,000 of federal net
operating loss carry forwards which will begin to expire in 2009 if not
utilized. As of June 30, 1999, we have provided a full valuation allowance on
the net deferred tax asset because of the uncertainty regarding realization of
the deferred asset, primarily as a result of considering such factors as our
limited operating history, the volatility of the market in which we compete, the
operating losses incurred to date and the operating losses anticipated in future
periods.

     In addition, during 1999, the State of New Jersey passed legislation which
allows New Jersey technology companies to apply for the transfer or sale of
unused New Jersey state net operating losses and research and development tax
credits for cash. Profitable companies can buy these losses and credits at a
discount, thereby


                                       19
<PAGE>

reducing their state tax obligation. Voxware applied to the State of New Jersey
to sell up to approximately $14,900,000 of its New Jersey State net operating
losses. Voxware received a determination letter from the State of New Jersey to
sell $7,420,000 of its New Jersey State net operating losses which, upon the
sale, provided Voxware $501,000 in cash as of December 31, 1999.

Liquidity and Capital Resources

     As of June 30, 2000, we had a total of $3,226,000 in cash, cash equivalents
and short-term investments consisting of $502,000 of cash and cash equivalents
and $2,724,000 in short-term investments. In September 1999, we received
$4,146,000 upon the closing of the Ascend transaction and $750,000 was placed in
escrow for a period of 18 months to secure our indemnification obligations.
Voxware also received $501,000 in December 1999 from the sale of New Jersey
State net operating losses. We anticipate that the Company may receive up to an
additional $540,000 in fiscal year 2001 from the sale of our remaining New
Jersey State net operating losses that have been approved by the State for sale.
Also, in August 2000 the Company completed a private placement of $4,000,000 of
Series A Convertible Preferred Stock, which resulted in proceeds to the Company
of approximately $3,840,000, net of transaction costs. Our cash, cash
equivalents and short-term investments portfolio is liquid and investment grade,
consisting of high-grade money-market funds, United States Government-backed
securities and commercial paper and corporate obligations. Since inception, we
have primarily financed our operations through the sale of equity securities.

     Cash of $4,218,000, $3,617,000 and $5,629,000 was used to fund operations
for the years ended June 30, 1998, 1999 and 2000, respectively. Cash provided by
investing activities totaled $1,393,000 in fiscal 1998 due to the liquidation of
short-term investments, offset by equipment purchases. In fiscal 1999, cash used
in investing activities totaled $3,174,000, reflecting Voxware's purchase of
Verbex Voice Systems, Inc. and equipment purchases, offset by liquidations of
short-term investments. In fiscal 2000, cash provided by investing activities
totaled $3,375,000, which consisted of proceeds from the sale of net operating
loss carry forwards totaling $501,000 and proceeds from the sale of assets to
Ascend of $4,146,000, which were offset by $722,000 in net purchases of
short-term investments, $259,000 in purchases of property and equipment, a
payment of $240,000 related to the purchase of certain assets of InRoad, Inc.
and $51,000 contingent purchase price adjustment to Verbex Voice Systems for the
purchase of substantially all of the assets in February 1999.

     For the years ended June 30, 1998, 1999 and 2000, cash provided by
financing activities totaled $1,347,000, $80,000 and $318,000, respectively. In
fiscal 1998, $1,347,000 of cash was provided by financing activities, reflecting
$1,158,000 in proceeds from the exercise of common stock options and $189,000
from the issuance of common stock pursuant to the Employee Stock Purchase Plan.
In fiscal 1999, $80,000 was provided by financing activities, reflecting $19,000
in proceeds from the exercise of common stock options and $61,000 from the
issuance of common stock pursuant to the Employee Stock Purchase Plan. A total
of $318,000 of cash was provided by financing activities in fiscal 2000,
reflecting $305,000 in proceeds from the exercise of common stock options and
$13,000 from the issuance of common stock pursuant to the Employee Stock
Purchase Plan.

     We have a $2,000,000 revolving line of credit with Silicon Valley Bank.
Borrowings under the credit facility will bear interest at the bank's prime
lending rate. As amended on May 9, 2000, the credit facility requires Voxware to
secure all indebtedness with cash held at the bank's offices in an amount not
less than 100% of the outstanding amount of all indebtedness we owe to the bank.
The credit facility requires payment of all outstanding principal, if any, plus
all accrued interest on May 8, 2001. In connection with the lease of our office
facility, we have outstanding a $225,000 standby letter of credit at June 30,
2000 naming the lessor of the office facility beneficiary of the standby letter
of credit in the event that we default on the lease. As required by the credit
facility, we have secured the $225,000 standby letter of credit with cash that
is included in "other assets" in the June 30, 2000 balance sheet.

     We have no material commitments for capital expenditures except for those
under operating leases for our facilities and leased equipment. At June 30,
2000, our working capital totaled approximately $4,351,000. We believe that our
current cash, cash equivalents and short-term investments balances, together
with the approximately $3,840,000 in net cash received upon completion of the
private placement of our Series A Convertible Preferred Stock on August 15,
2000, will be sufficient to fund our working capital and capital expenditures
requirements, exclusive of cash required for possible acquisitions of, or
investments in businesses, products and technologies until at least June 30,
2001.

                                       20
<PAGE>

Recent Accounting Pronouncements

     See Note 1 in "Notes to Financial Statements" for recent accounting
pronouncements.

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

     We do not engage in significant activity with respect to market risk
sensitive instruments. Accordingly, our risk with respect to market risk
sensitive instruments is immaterial.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

     None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS OF THE COMPANY

The directors of the Company and their respective ages and principal occupations
are as follows:

<TABLE>
<CAPTION>
                Name            Age       Officers with the Company                   Class
                ----            ---       -------------------------                   -----
<S>                             <C>      <C>                                         <C>
Bathsheba J. Malsheen, Ph.D..... 49      President, Chief Executive Officer and
                                         Director                                      III
Nicholas Narlis................. 40      Senior Vice President, Chief Financial
                                         Officer, Secretary and Treasurer
David B. Levi (1)(2)............ 67      Director                                       II
Eli Porat (1)(2)................ 54      Director                                        I
</TABLE>

          (1) Member of the Compensation Committee.
          (2) Member of the Audit Committee.

     Bathsheba J. Malsheen, Ph.D. has served as President, Chief Executive
Officer and Director of the Company since October 1997. She previously served as
Chief Operating Officer of the Company from May 1997 through October 1997, and
as Vice President of OEM Licensing since joining Voxware in October 1996 through
April 1997. From April 1990 to October 1996, Dr. Malsheen held various executive
positions with Centigram Communications Corporation, a voice messaging company,
most recently as General Manager of their Technology Business Unit and was
responsible for licensing of text-to-speech software products. Previously, she
worked for Speech Plus, Inc. where she served as Director of Speech Technology
from 1985 to 1990. Dr. Malsheen holds a Ph.D. and M.A. from Brown University and
a B.A. from Hofstra University.

     Nicholas Narlis has served as Senior Vice President, Chief Financial
Officer and Secretary of the Company since April 1998, and Treasurer of the
Company since June 1996. He previously served as Vice President and Chief
Accounting Officer of the Company from March 1997 through April 1998, and as
Controller and Chief Accounting Officer from March 1996 through February 1997.
From 1992 to March 1996, Mr. Narlis served in various capacities at Dendrite
International, Inc., a sales force automation software and service company,
including most recently Director of Finance. Previously, from 1983 to May 1992,
Mr. Narlis worked for KPMG Peat Marwick where he served as a Senior Manager from
1989 to May 1992 in the New Jersey Audit Practice Unit. Mr. Narlis holds a B.S.
from Rider University and is a Certified Public Accountant.

                                       21
<PAGE>

     David B. Levi has served as a director of Voxware since January 1998. Mr.
Levi served as President of Natural MicroSystems Corporation, a provider of
hardware and software for developers of high-value telecommunications solutions
from June 1991 to April 1995. In November 1995 Mr. Levi became President of
Voice Processing Corp ("VPC"). VPC merged with Voice Control Systems, Inc.
("VCS"), a supplier of telecommunications based speech recognition systems, in
November 1996 and Mr. Levi served as Chief Operating Officer of VCS until his
retirement in October 1997. Prior to 1991, Mr. Levi held Chief Executive Officer
an Chief Operating Officer positions at Raytheon Data Systems (a division of
Raytheon Corp.), Centronics Data Computer Corp., and Raster Technologies Inc.
and consulted to Regional Bell Operating Companies. Mr. Levi currently serves on
the Board of Directors of PictureTel, Inc., and Microlog Corporation. Mr. Levi
holds an A.B. from Harvard College and an M.B.A. from the Harvard Graduate
School of Business Administration.

     Eli Porat has served as a director of Voxware since August 1998. Mr. Porat
has served as Chairman and CEO of Ensemble Solutions Inc., a provider of
electronic distribution through a suite of electronic business products, since
August 1997. From May 1996 to August 1997 he was a General Partner of DEFTA
Partners, a venture capital group specializing in Internet telephony
investments. From 1991 to May 1996, Mr. Porat was the President and CEO of
DSPGroup, Inc., a developer of digital signal processing cores used in a wide
range of applications such as wireless communications, telephony and personal
computers. Prior to 1991, Mr. Porat held various senior-level positions with
ZYMOS Computer Systems Inc., Sytek Inc. and Intel Corporation. He also serves on
the Board of Directors of Starfish Software, Inc., a leading supplier of core
device, server and desktop technologies for wireless and wireline Connected
Information Devices. Mr. Porat has an M.S.E.E.C.S. and a B.S.E.E.C.S. from the
University of California at Berkeley.



COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16 (a) under the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than ten
percent of our Common Stock, to file initial reports of ownership and reports of
changes in ownership with the SEC. Executive officers, directors and greater
than ten percent beneficial owners are required by the SEC to furnish us with
copies of all Section 16 forms they file.

     Based upon a review of the copies of such forms furnished to us and written
representations from our executive officers and directors, we believe that the
reporting requirements of Section 16, as amended, applicable to our executive
officers, directors and greater than ten percent beneficial owners were complied
with on a timely basis.




                                       22
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

     The following table provides information concerning compensation paid to or
earned for the fiscal years ended June 30, 2000, 1999 and 1998 by each
individual serving as the Chief Executive Officer of Voxware during the fiscal
year ended June 30, 2000 and the next most highly compensated executive officer
who was serving as executive officer at June 30, 2000.

<TABLE>
<CAPTION>
                           Summary Compensation Table
                                                                                       Long Term
                                                    Annual Compensation              Compensation
                                                    -------------------              ------------
                                                                                      Securities
                                               Fiscal                                  Underlying      All Other
Name and Principal Position                    Period    Base Salary       Bonus        Options     Compensation (1)
---------------------------                    ------    -----------       -----        -------     ----------------
<S>                                             <C>        <C>            <C>           <C>              <C>
Bathsheba J. Malsheen, Ph.D. . . . . . . . .    2000       $209,376       $102,521      300,000          $ ---
   President and                                1999       $206,700       $60,813       300,000          $ ---
   Chief Executive Officer (2)                  1998       $198,752       $41,875       200,000          $ ---

Nicholas Narlis. . . . . . . . . . . . . . .    2000       $155,000       $71,875       200,000          $2,362
  Senior Vice President, Chief Financial,       1999       $150,000       $43,500       150,000          $2,612
  Officer, Secretary and Treasurer              1998       $133,538       $21,675        70,000          $1,999
</TABLE>

--------
(1)  All Other Compensation for Mr. Narlis consists of $2,362, $2,219 and $1,999
     in Voxware contributions to Mr. Narlis' account under our 401(k) Plan in
     fiscal 2000, 1999 and 1998, respectively, and disability insurance
     premiums, of which Voxware is not the beneficiary, totaling $393 in fiscal
     1999.
(2)  Dr. Malsheen joined Voxware in October 1996, and became an executive
     officer in May 1997.


     The following table summarizes stock options granted during fiscal 2000 to
the Named Executive Officers.

<TABLE>
<CAPTION>
                        Option Grants in Last Fiscal Year

                                                                  Individual Grants
                             --------------------------------------------------------------------------------------------
                              Number of                                                Potential Realized Value at Assumed
                              Securities   Percentage                                      Annual Rates of Stock Pice
                              Underlying   of Total                                      Appreciation for Option Term (3)
                               Options      Options                                      -----------------------------
Name                         Granted (1)   Granted(2)  Exercise Price   Expiration Date       5%               10%
----                         -----------   ----------  --------------   ---------------       --               ---
<S>                             <C>             <C>        <C>            <C>   <C>       <C>              <C>
Bathsheba J. Malsheen,   Ph.D.  150,000         10.4%      $0.75          11/08/09        $ 70,751         $ 179,296
Bathsheba J. Malsheen,   Ph.D.  150,000         10.4%      $3.88          06/26/10        $ 366,017        $ 927,558
Nicholas Narlis.................100,000          6.9%      $0.75          11/08/09        $ 47,167         $ 119,531
Nicholas Narlis.................100,000          6.9%      $3.88          06/26/10        $ 244,011        $ 618,372
</TABLE>
--------

(1)  These options vest over a four-year period from the date of grant, becoming
     exercisable as to 25% on the first anniversary of the date of grant, and at
     6.25% per quarter thereafter.
(2)  Based on an aggregate of 1,448,752 options granted to employees in fiscal
     2000, including options granted to the Named Executive Officers.
(3)  Represents the hypothetical gains or "option spreads" that would exist for
     the options at the end of their ten year term. These gains are based on
     assumed rates of annual compound stock price appreciation of 5% and 10%
     from the date the option was granted to the end of the option term and are
     calculated based on the exercise price per share on the date of grant. Such
     5% and 10% assumed annual compound rates of stock price appreciation are
     mandated by the rules of the SEC and do not represent our estimate or
     projection of the future Voxware Common Stock price.

                                       23

<PAGE>

     The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
June 30, 2000.

<TABLE>
<CAPTION>
                          Fiscal Year-End Option Values
                                                                                   Value of Unexercised
                                                   Number of Securities       In-the-Money Options at Fiscal
                                              Underlying Unexercised Options           Year-End (1)
                                              ------------------------------- --------------------------------
Name                                          Exercisable     Unexercisable   Exercisable     Unexercisable
----                                          ------------    -------------   ------------    -------------
<S>                                              <C>            <C>            <C>              <C>
Bathsheba J. Malsheen, Ph.D................      458,750        501,250        $ 619,438        $ 884,063
Nicholas Narlis............................      194,375        285,625        $ 362,269        $ 552,581
</TABLE>

--------
(1)  Based on the difference between $4.31, which was the closing price per
     share on June 30, 2000, and the exercise price of the option.

Employment Agreements

     Bathsheba J. Malsheen, Ph.D., President and Chief Executive Officer of
Voxware, has a three-year employment agreement with Voxware which commenced in
August 1998. Dr. Malsheen currently receives an annual base salary of $205,200
and also receives allowances for residential and vehicle lease payments.

     Nicholas Narlis, Vice President, Chief Financial Officer and Treasurer of
Voxware, has a three-year employment agreement with Voxware which commenced in
August 1998. Mr. Narlis currently receives an annual base salary of $170,100.

     Each of the foregoing employment agreements are automatically renewable for
successive one-year terms unless terminated by either party.

     Under the employment agreements for each of Dr. Malsheen and Mr. Narlis, if
either of them, respectively, is dismissed for any reason other than Cause (as
defined in their respective employment agreements), death or disability, he or
she shall be entitled to receive an amount equal to: in the case of Dr.
Malsheen, twelve months salary at her then current rate; or in the case of Mr.
Narlis, nine months salary at his then current rate.

     Each of the employment agreements grant to Voxware the rights to any
information created, discovered or developed by the executive which is related
to or useful in the business of Voxware. The employment agreements prohibit the
executive from disclosing our proprietary information and contain certain
covenants by the executive not to compete with Voxware.

Director Compensation

     Our 1998 Stock Option Plan for Non-Employee Directors was adopted by the
Board of Directors in October 1997 and approved by our stockholders in January
1998. The plan provides for the automatic grant of options to purchase shares of
our Common Stock to directors who are not officers, nor employees, nor
consultants of Voxware or any of its subsidiaries (other than the Chairman of
the Board of Directors of Voxware who shall be eligible if he or she is not
otherwise an officer, employee or consultant of Voxware). Subject to the
provisions of the plan, the Board has the power and authority to interpret the
plan, to prescribe, amend and rescind rules and regulations relating to the plan
and to make all other determinations deemed necessary or advisable for the
administration of the plan.

     Under the plan, each eligible individual receives an option to purchase
30,000 shares of our Common Stock (the "Initial Options") on the date of his or
her initial election or appointment to the Board; provided that all outside
directors elected at the 1998 Annual Meeting of Stockholders in January 1998
received the initial option whether or not they served on the Board of Directors
prior to the meeting. In addition, on the date of an eligible individual's
reelection to the Board, if he or she has attended at least seventy-five percent
(75%) of the meetings of the Board of Directors that were held while he or she
was a director in the just completed calendar year, he or she will be granted an
option to purchase an additional 10,000 shares of our Common Stock. All options
granted under the plan will have an exercise price equal to the fair market
value on the date of grant. Options granted under


                                       24
<PAGE>

the plan vest in 12 equal quarterly installments beginning at the end of the
first three-month period following the date of grant.

     In September 1997, we implemented a plan, which was approved by our
stockholders at our 1998 Annual Meeting of Stockholders, pursuant to which we
pay (or paid as outlined in accordance with the plan):

o    on the last day of the month in which the annual meeting of stockholders is
     held in each calendar year commencing with the 1998 meeting, to each
     non-employee director elected at the meeting, an annual retainer equal to a
     number of shares of our Common Stock with a fair market value on that date
     of $10,000;

o    on the last day of the month in which any newly appointed non-employee
     director is appointed after the annual meeting of stockholders in any year
     (provided that the director is appointed at least six months prior to the
     next annual meeting of stockholders), to the newly appointed director, a
     retainer equal to a number of shares of our Common Stock with a fair market
     value on that date of $10,000.

     In addition, commencing on the date of the 1998 meeting, we have paid
$1,000 to each non-employee director attending any regular or special meeting of
the Board of Directors, and $500 to each non-employee director attending any
regular or special meeting of any Committee of the Board of Directors.

     The Board also approved on May 22, 2000, to grant both Messrs. David Levi
and Eli Porat an option to purchase 10,000 shares of our Common Stock from the
Company's 1994 Stock Option Plan. These options have an exercise price of $3.00
which was the fair market value of the Company's stock on the date of granting.
These options vest in twelve equal quarterly installments beginning at the end
of the first three-month period following the date of grant.

           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Compensation Committee is currently composed of Messrs. David
B. Levi and Eli Porat. No interlocking relationship exists between any member of
the Compensation Committee and any member of the compensation committee of any
other company, nor has any such interlocking relationship existed in the past.
No member or nominee of the Compensation Committee is or was formerly an officer
or an employee of the Company.

                          COMPENSATION COMMITTEE REPORT

     The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on compensation matters generally,
determines the compensation of the Chief Executive Officer and the President,
reviews and takes action on the recommendation of the Chief Executive Officer as
to the appropriate compensation of other officers and key personnel, and
approves the grants of bonuses to officers and key personnel. The Compensation
Committee also is responsible for the administration of our 1994 Stock Option
Plan and 1998 Stock Option Plan for Outside Directors.

     General Compensation Policy for Executive Officers. The fundamental policy
of the Compensation Committee is to provide our executive officers with
competitive compensation opportunities based upon their contribution to our
development and financial success and their personal performance. It is the
Compensation Committee's objective to have a portion of each executive officer's
compensation contingent upon Voxware's performance as well as upon each
executive officer's own level of performance. Accordingly, the compensation
package for each executive officer is comprised of three elements: (1) base
salary which reflects individual performance and is designed primarily to be
competitive with salary levels in the industry, (2) cash bonuses which reflect
the achievement of performance objectives and goals, and (3) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and our stockholders.

     Factors. The principal factors which the Compensation Committee considered
with respect to each executive officer's compensation for fiscal 2000 are
summarized below. The Compensation Committee may, however, in its discretion
apply entirely different factors with respect to executive compensation for
future years.

     o    Base Salary. The base salary for each executive officer is determined
          on the basis of the following factors: experience, personal
          performance, the salary levels in effect for comparable positions
          within and without the industry, and internal base salary
          comparability considerations. The weight given to

                                       25
<PAGE>

          each of these factors differs from individual to individual, as the
          Compensation Committee deems appropriate. Base salaries are generally
          reviewed on an annual basis, with adjustments made in accordance with
          the factors indicated above. The Compensation Committee utilized
          specific compensation information available for similar positions at
          competitor companies for comparative compensation purposes in
          determining base salaries for fiscal 2000.

     o    Bonus. The incentive compensation of executive officers is closely
          related to Voxware's performance, taking into account our change in
          business focus to a voice-based logistics solutions business. A
          portion of the cash compensation of executive officers consists of
          contingent compensation. Bonus awards are based on, among other
          things, performance objectives and goals that are tailored to the
          responsibilities and functions of key executives, including
          qualitative measures of Voxware's performance such as progress in the
          development, marketing and adaptation of Voxware's products to its
          target markets, the establishment of key strategic relationships with
          customers and other key partners in our target markets, and proficient
          usage of our available financial and manpower resources.

     o    Long-Term Incentive Compensation. Long-term incentives are provided
          through grants of stock options. The grants are designed to align the
          interests of each executive officer with those of the stockholders and
          provide each individual with a significant incentive to manage Voxware
          from the perspective of an owner with an equity stake. Each option
          grant allows the individual to acquire shares of our Common Stock at a
          fixed price per share (generally, the market price on the grant date)
          over a specified period of time (up to ten years). Each option
          generally becomes exercisable in installments over a four-year period,
          contingent upon the executive officer's continued employment with
          Voxware. Accordingly, the option grant will provide a return to the
          executive officer only if the executive officer remains employed by
          Voxware during the vesting period, and then only if the market price
          of the underlying shares appreciates.

          The number of shares subject to each option grant is set at a level
          intended to create meaningful opportunity for appreciation based on
          the executive officer's current position with Voxware, the base salary
          associated with that position, the size of comparable awards made to
          individuals in similar positions within the industry, and the
          individual's personal performance in recent periods. The Compensation
          Committee also considers the number of unvested options held by the
          executive officer in order to maintain an appropriate level of equity
          incentive for that individual. However, the Compensation Committee
          does not adhere to any specific guidelines as to the relative option
          holdings of our executive officers. Options to acquire an aggregate of
          860,000 shares were granted to executive officers in fiscal 2000.

     CEO Compensation. In determining the compensation payable to our Chief
Executive Officer, the Compensation Committee considered the CEO's performance
in fiscal 2000, and Voxware's performance taking into account our change in
business focus to a voice-based logistics solutions business.

     Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code generally denies a federal income tax deduction for
compensation exceeding $1,000,000 paid to the CEO or any of the four other
highest paid executive officers, excluding performance-based compensation.
Through June 30, 2000, this provision has not affected our tax deductions, but
the Committee will continue to monitor the potential impact of Section 162(m) on
our ability to deduct executive compensation.

     Summary. The Compensation Committee believes that its compensation
philosophy of paying its executive officers well by means of competitive base
salaries and cash bonus and long-term incentives, as described in this report,
serves the interests of Voxware and its stockholders.

                                                      The Compensation Committee

                                                      Eli Porat
                                                      David B. Levi

                                       26
<PAGE>

                                PERFORMANCE GRAPH

     The graph below compares the cumulative total stockholder return on our
Common Stock with the cumulative total stockholder return of (i) the Nasdaq
National Market--U.S. Index, and (ii) the Chase Hambrecht & Quist Technology
Index, assuming an investment in each of $100 on October 31, 1996. The graph
commences on the date our Common Stock became publicly traded.

                  [PERFORMANCE GRAPH]

                            NASDAQ    Chase H&Q
             Voxware    Stock Market  Technology
11/1/96       100.00       100.00      100.00
12/31/96      100.00       106.12      108.93
3/31/97        55.00       100.36      103.83
6/30/97        66.67       118.75      124.98
9/30/97        75.00       138.84      151.46
12/31/97       47.50       130.02      127.71
3/31/98        37.50       152.17      154.64
6/30/98        29.17       156.34      158.31
9/30/98        10.00       141.08      140.73
12/31/98       12.92       183.33      198.65
3/31/99        10.00       205.59      216.35
6/30/99        13.75       225.12      256.23
9/30/99        13.33       230.59      271.07
12/31/99       13.75       340.80      443.65
3/31/00       137.51       382.62      500.46
6/30/00        57.51       332.56      449.52


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth information regarding the beneficial
ownership of our Common Stock as of August 17, 2000, by (i) each person or group
who is known by Voxware to own beneficially more than 5% of our Common Stock,
(ii) each of our directors, (iii) each of the Named Executive Officers and (iv)
all executive officers and directors as a group. Unless indicated otherwise, the
address of each of these persons is c/o Voxware, Inc. P.O. Box 5363, Princeton,
New Jersey 08543.

<TABLE>
<CAPTION>
                                                                   Number of Shares
                                                                 Beneficially Owned     Percentage of Shares
             Name and Address of Beneficial Owner                      (1) (2)           Beneficially Owned
             ------------------------------------                      -------           ------------------
<S>                                                                    <C>                     <C>
Bathsheba J. Malsheen, Ph.D.(3) . . . . . .                            514,000                 3.5%
Nicholas Narlis(4)  . . . . . . . . . . . .                            218,375                 1.5%
David B. Levi(5) . . . . . . . . . . . . .                              51,776                  *
Eli Porat(6)  . . . . . . . . . . . . . . .                             36,314                  *
All Directors and Executive Officers as a group (9 persons)            966,114                 6.4%
</TABLE>
--------
 *Less than 1% of outstanding shares of our Common Stock.

                                       27
<PAGE>

(1)  Number of shares beneficially owned is determined by assuming that options
     that are held by such person (but not those held by any other person) and
     which are exercisable or convertible within 60 days have been exercised or
     converted.
(2)  Unless otherwise noted, we believe that all persons named in the table have
     sole voting and investment power with respect to all shares beneficially
     owned by them.
(3)  Includes 510,000 shares of our Common Stock issuable upon the exercise of
     stock options.
(4)  Includes 214,375 shares of our Common Stock issuable upon the exercise of
     stock options.
(5)  Includes 31,667 shares issuable upon the exercise of stock options.
(6)  Includes 24,167 shares issuable upon the exercise of stock options.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     None.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a)  List of documents filed as part of this 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.   FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule for each of the years ended June 30, 1998, 1999 and 2000 is filed as
part of this Form 10-K and should be read in conjunction with the Financial
Statements, and related notes thereto, of the Company.

                                  VOXWARE, INC.
                 Schedule II--Valuation and Qualifying Accounts
                         Allowance for Doubtful Accounts
                    Years Ended June 30, 1998, 1999 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                               Balance
                                   Balance at        Charged to Costs                           at End
                               Beginning of Period     and Expenses        Deductions         of Period
                               -------------------- -------------------- ---------------- -------------------
<S>                                   <C>                  <C>                <C>               <C>
Year ended June 30, 1998              $ 400                $ 795              $ 688             $ 507
                                      =====                =====              =====             =====

Year ended June 30, 1999              $ 507                $ 119              $ 265             $ 361
                                      =====                =====              =====             =====

Year ended June 30, 2000              $ 361                $  15              $ 232             $ 144
                                      =====                =====              =====             =====
</TABLE>

     Schedules other than those listed above have been omitted since they are
either not required, not applicable, or the information is otherwise included in
this Form 10-K.

                                       28
<PAGE>

     3.   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.

Exhibit No.                Description
-----------                -----------

2.1            Asset Purchase Agreement dated as of February 4, 1999 by and
               between Ascend Communications, Inc. and Voxware, Inc.**(1)
2.2            Acquisition Agreement by and among Voxware, Inc., Verbex
               Acquisition Corporation and Verbex Voice Systems, Inc. dated as
               of February 4, 1999.**(1)
2.3            Acquisition Agreement dated as of April 4, 2000 by and among
               Voxware, Inc., Verbex Acquisition Corporation and InRoad,
               Inc.**(3)
3.1            Certificate of Incorporation, as amended.**(2)
3.2            Bylaws.**(2)
3.3            Certificate of designations for the Series A Preferred Stock as
               filed with the Secretary of State of the state of Delaware on
               August 14, 2000, as amended.**(4)
4.1            Form of Warrant issued to InRoad, Inc.**(3)
4.2            Warrant issued to Stratos Product Development, LLC.**(3)
4.3            Stock purchase warrant, dated as of August 15, 2000, issued to
               Castle Creek Technology Partners, LLC.**(4)
4.4            Stock restriction and registration rights agreement, dated April
               4, 2000 among Voxware, Inc., Verbex Acquisition Corporation,
               InRoad, Inc. and Stratos Product Development LLC.**(3)
10.1           Voxware, Inc. 1994 Stock Option Plan.**(2)
10.2           Form of Voxware, Inc. Stock Option Agreement.**(2)
10.3           Form of Indemnification Agreement.**(2)
10.4           Securities Purchase Agreement, dated as of August 10, 2000, by
               and between Voxware, Inc. and Castle Creek Technology Partners,
               LLC.**(4)
10.5           Registration Rights Agreement, dated as of August 15, 2000 by and
               between Voxware, Inc. and Castle Creek Technology Partners,
               LLC.**(4)
10.9           Technology Transfer Agreement Effective May 19, 1995, between
               Suat Yeldener Ph.D. and Voxware, Inc.**(2)+
10.20          1996 Employee Stock Purchase Plan.**(2)
10.23          Loan Modification Agreement dated May 9, 2000 between Silicon
               Valley Bank and the Company.**(3) 10.24 Employment Agreement
               dated August 13, 1998, with Bathsheba J. Malsheen.**(5) 10.25
               Employment Agreement dated August 13, 1998, with Nicholas
               Narlis.**(5) 16.1 Letter from Ernst & Young LLP respecting change
               in certifying accountant.**(2) 23.1 Consent of Arthur Andersen
               LLP.*
99             Important Factors Regarding Forward-Looking Statements.*
-----------

*    Filed herewith.
**   Previously filed with the Commission as Exhibits to, and incorporated by
     reference from, the following documents:
     (1)  Filed in connection with the Company's quarterly report on Form 10-Q
          for the quarter ended December 31, 1998.
     (2)  Filed in connection with Registration Statement on Form S-1 (File
          Number 33-08393).
     (3)  Filed in connection with the Company's quarterly report on Form 10-Q
          for the quarter ended March 31, 2000.
     (4)  Filed in connection with the Company's current report on Form 8-K that
          was filed on August 16, 2000.
     (5)  Filed in connection with the Company's annual report on Form 10-K for
          the fiscal year ended June 30, 1998.
+    Confidential treatment has been granted for portions of such document.

                                       29
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        VOXWARE, INC.


                                        By: /s/ Bathsheba J. Malsheen
                                            -----------------------------
                                        President and Chief Executive Officer

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of BATHSHEBA J. MALSHEEN and
NICHOLAS NARLIS, or either of them, his true and lawful attorney-in-fact and
agent with full power of substitution and re-substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Form 10-K Report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

/s/ Bathsheba J. Malsheen    President and Chief Executive     August 31, 2000
---------------------------  Officer and Director (principal
    Bathsheba J. Malsheen    executive officer)


/s/ Nicholas Narlis          Senior Vice President,             August 31, 2000
---------------------------  Chief Financial Officer,
    Nicholas Narlis          Secretary and Treasurer (principal
                             financial officer and principal
                             accounting officer)


/s/ David Levi               Director                          August 31, 2000
---------------------------
    David Levi

/s/ Eli Porat                Director                          August 31, 2000
---------------------------
    Eli Porat



                                       30
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                          <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Voxware, Inc.:

   We have audited the accompanying consolidated balance sheets of Voxware,
Inc. (a Delaware corporation) and subsidiary as of June 30, 2000 and 1999 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 2000. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the 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. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 financial statements referred to above present fairly,
in all material respects, the financial position of Voxware, Inc. and
subsidiary as of June 30, 2000 and 1999 and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000,
in conformity with accounting principles generally accepted in the United
States.

   Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14 (a) 2
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                          Arthur Andersen LLP

Princeton, New Jersey
August 11, 2000 (except with respect to
                Note 10 as to which the date is
                August 15, 2000)

                                      F-2
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 June 30,
                                                             -----------------
                                                               2000     1999
                                                             --------  -------
                                                              (In thousands,
                                                             except share and
                                                             per share data)
<S>                                                          <C>       <C>
                           ASSETS
Current assets:
  Cash and cash equivalents................................. $    502  $ 2,438
  Short-term investments....................................    2,724    2,008
  Accounts receivable, net..................................      982      989
  Inventory, net............................................    1,089      249
  Prepaid expenses and other current assets.................      247      778
  Restricted cash...........................................      --       604
                                                             --------  -------
    Total current assets....................................    5,544    7,066
Property and equipment, net.................................      443      395
Intangible assets, net......................................   11,068    4,680
Other assets, net...........................................      385      451
                                                             --------  -------
                                                             $ 17,440  $12,592
                                                             ========  =======

            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses..................... $    998  $ 2,089
  Deferred revenues.........................................      195      531
                                                             --------  -------
    Total current liabilities...............................    1,193    2,620
                                                             --------  -------
Deferred rent...............................................      194      263
                                                             --------  -------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.001 par value, 10,000,000 shares
   authorized;
   none issued and outstanding..............................      --       --
  Common stock, $.001 par value, 30,000,000 shares
   authorized;
   14,295,777 and 13,381,367 shares issued and outstanding
   at June 30, 2000 and 1999, respectively..................       14       13
  Additional paid-in capital................................   38,730   29,995
  Deferred compensation.....................................     (141)     --
  Unrealized gain (loss) on available-for-sale securities...       (2)       4
  Accumulated deficit.......................................  (22,548) (20,303)
                                                             --------  -------
    Total stockholders' equity..............................   16,053    9,709
                                                             --------  -------
                                                             $ 17,440  $12,592
                                                             ========  =======
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      Year Ended June 30,
                                                    -------------------------
                                                     2000     1999     1998
                                                    -------  -------  -------
                                                     (In thousands, except
                                                        per share data)
<S>                                                 <C>      <C>      <C>
Revenues:
  Product revenues:
    Product sales.................................. $ 1,419  $   791  $   --
    License fees...................................   1,668      705    2,935
    Royalties and recurring revenues...............     488      511    1,918
                                                    -------  -------  -------
      Total product revenues.......................   3,575    2,007    4,853
  Service revenues.................................     226      879    1,029
                                                    -------  -------  -------
      Total revenues...............................   3,801    2,886    5,882
                                                    -------  -------  -------
Cost of revenues:
  Cost of product revenues.........................     799      429      142
  Cost of service revenues.........................      70      542      441
                                                    -------  -------  -------
      Total cost of revenues.......................     869      971      583
                                                    -------  -------  -------
        Gross profit...............................   2,932    1,915    5,299
                                                    -------  -------  -------
Operating expenses:
  Research and development.........................   2,835    2,058    4,726
  Sales and marketing..............................   2,870    2,513    3,844
  General and administrative.......................   2,140    1,691    2,467
  Amortization of purchased intangibles............   1,989      478      --
                                                    -------  -------  -------
    Total operating expenses.......................   9,834    6,740   11,037
                                                    -------  -------  -------
    Operating loss.................................  (6,902)  (4,825)  (5,738)
Interest income....................................     357      539      844
Gain on sale of tax loss carryforwards.............     501      --       --
Gain on sale of assets.............................   3,799      --       --
                                                    -------  -------  -------
Net loss........................................... $(2,245) $(4,286) $(4,894)
                                                    =======  =======  =======
Basic and diluted net loss per common share........ $ (0.16) $ (0.32) $ (0.38)
                                                    =======  =======  =======
Weighted average number of common shares
 outstanding.......................................  13,667   13,330   12,890
                                                    =======  =======  =======
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                            Stockholders' Equity
                          -----------------------------------------------------------------------------------------
                                                                     Accumulated
                            Common Stock    Additional                  Other
                          -----------------  Paid-in     Deferred   Comprehensive Comprehensive Accumulated
                            Shares   Amount  Capital   Compensation     Loss          Loss        Deficit    Total
                          ---------- ------ ---------- ------------ ------------- ------------- ----------- -------
                                                      (in thousands, except share data)
<S>                       <C>        <C>    <C>        <C>          <C>           <C>           <C>         <C>
Balance, June 30, 1997..  12,497,258  $13    $28,488      $ --           $(2)                    $(11,123)  $17,376
 Exercise of common
  stock options.........     701,746  --       1,158        --           --                           --      1,158
 Issuance of common
  stock pursuant to
  Employee Stock
  Purchase Plan.........      74,109  --         189        --           --                           --        189
 Directors' stock based
  compensation expense..      19,411  --          80        --           --                           --         80
Comprehensive loss:
 Net loss...............         --   --         --         --           --          $(4,894)      (4,894)   (4,894)
 Unrealized gain on
  available-for-sale
  securities............         --   --         --         --             4               4          --          4
                                                                                     -------
 Comprehensive loss.....                                                             $(4,890)
                                                                                     =======
Balance, June 30, 1998..  13,292,524   13     29,915        --             2                      (16,017)   13,913
 Exercise of common
  stock options.........      11,000  --          19        --           --                           --         19
 Issuance of common
  stock pursuant to
  Employee Stock
  Purchase Plan.........      77,843  --          61        --           --                           --         61
Comprehensive loss:
 Net loss...............         --   --         --         --           --          $(4,286)      (4,286)   (4,286)
 Unrealized gain on
  available-for-sale
  securities............         --   --         --         --             2               2          --          2
                                                                                     -------
 Comprehensive loss.....                                                             $(4,284)
                                                                                     =======
Balance, June 30, 1999..  13,381,367   13     29,995        --             4                      (20,303)    9,709
 Exercise of common
  stock options.........     220,546  --         305        --           --                           --        305
 Issuance of common
  stock pursuant to
  Employee Stock
  Purchase Plan.........      19,570  --          13        --           --                           --         13
 Directors' stock based
  compensation expense..      24,294  --          40        --           --                           --         40
 Issuance of common
  stock in connection
  with the purchase of
  certain assets of
  InRoad, Inc...........     650,000    1      8,236        --           --                           --      8,237
 Option grants to
  consultants...........         --   --         141       (141)         --              --                     --
Comprehensive loss:
 Net loss...............         --   --         --         --           --          $(2,245)      (2,245)   (2,245)
 Unrealized loss on
  available-for-sale
  securities............         --   --         --         --            (6)             (6)         --        (6)
                                                                                     -------
Comprehensive loss......                                                             $(2,251)
                          ----------  ---    -------      -----          ---         =======     --------   -------
Balance, June 30, 2000..  14,295,777  $14    $38,730      $(141)         $(2)                    $(22,548)  $16,053
                          ==========  ===    =======      =====          ===         =======     ========   =======
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      Year Ended June 30,
                                                   ----------------------------
                                                     2000      1999      1998
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Operating Activities:
  Net loss                                         $ (2,245) $ (4,286) $ (4,894)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization.................     2,265       688       224
   Provision for doubtful accounts...............        15       119       795
   Gain on sale of tax loss carryforwards........      (501)      --        --
   Gain on sale of assets........................    (3,799)      --        --
   Stock based compensation expense..............        40       --         80
Changes in assets and liabilities:
  Accounts receivable............................        (8)      602       773
  Inventory......................................      (761)      (32)      --
  Prepaid expenses and other current assets......       (13)     (496)       41
  Restricted cash................................       604      (604)      --
  Other assets...................................        66      (346)      (36)
  Accounts payable and accrued expenses..........      (887)      526    (1,030)
  Deferred revenues..............................      (336)      280      (258)
  Deferred rent..................................       (69)      (68)       87
                                                   --------  --------  --------
     Net cash used in operating activities.......    (5,629)   (3,617)   (4,218)
                                                   --------  --------  --------
Investing Activities:
  Purchases of short-term investments............   (15,163)  (34,995)  (65,506)
  Sales and maturities of short-term
   investments...................................    14,441    37,377    66,964
  Purchases of property and equipment............      (259)     (156)      (65)
  Proceeds from sale of tax loss carryforwards...       501       --        --
  Proceeds from sale of assets...................     4,146       --        --
  Purchase of certain assets of Inroad, Inc......      (240)      --        --
  Purchase of Verbex Voice Systems, Inc..........       (51)   (5,400)      --
                                                   --------  --------  --------
     Net cash provided by (used in) investing
      activities.................................     3,375    (3,174)    1,393
                                                   --------  --------  --------
Financing Activities:
  Proceeds from exercises of common stock
   options.......................................       305        19     1,158
  Issuance of common stock pursuant to
   Employee Stock Purchase Plan..................        13        61       189
                                                   --------  --------  --------
     Net cash provided by financing activities...       318        80     1,347
                                                   --------  --------  --------
Decrease in cash and cash equivalents............    (1,936)   (6,711)   (1,478)
Cash and cash equivalents, beginning of period...     2,438     9,149    10,627
                                                   --------  --------  --------
Cash and cash equivalents, end of period.........       502     2,438     9,149
Short-term investments, end of period............     2,724     2,008     4,388
                                                   --------  --------  --------
Cash, cash equivalents and short-term
 investments, end of period......................  $  3,226  $  4,446  $ 13,537
                                                   ========  ========  ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
 TRANSACTIONS:
  Unrealized gain (loss) on short-term
   investments...................................  $     (6) $      2  $      4
                                                   ========  ========  ========
  Intangible assets recognized from InRoad
   transaction...................................  $  8,404  $    --   $    --
                                                   ========  ========  ========
  Purchase accounting adjustment related to
   inventory acquired
   from Verbex...................................  $    (79) $    --   $    --
                                                   ========  ========  ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

   Voxware, Inc.'s (the "Company") primary business is the development,
marketing and selling of industrial voice-based solutions for distribution and
logistics in e-commerce, retail, direct-to-consumer, wholesale and business-to-
business operations. Products are sold direct to consumers, as well as through
third party partners such as consultants, value added resellers (VARs) and
system integrators. The Company's solutions enable workers to perform, through
speech input of data, routine logistics tasks such as picking, receiving,
returns processing, cycle counting, cross-docking and order entry. Solutions
are available for all major market industry sectors, including consumer goods
manufacturers, consumer packaged goods, direct to consumer (e-commerce and
catalog), food and grocery, retail, third party logistics providers and
wholesale distribution. Products are also deployed in package handling, mail
sorting, manufacturing inspection and military combat applications. The Company
has two major speech-recognition product lines: software and portable devices
used for various mobile industrial and warehouse applications and stationary
voice-based devices primarily used for warehouse receiving and package sorting
applications. Both types of devices are based on the Company's proprietary
speech recognition technology.

   In addition to the industrial voice-based solutions business, the Company
also licenses its digital speech coding technologies and products on a limited
basis to customers in the multimedia applications and consumer devices markets.
Although the assets relating to the speech and audio coding business were sold
to Ascend (a subsidiary of Lucent Technologies), the sale did not include the
Company's rights and obligations under its then existing license agreements. In
addition, with the consent of Ascend, the Company may continue to license our
speech coding technologies for uses that are not competitive with Ascend. While
the Company will continue to take advantage of favorable opportunities to
license our speech coding technologies, it does not dedicate significant
resources to the development, marketing or licensing of speech coding
technologies.

   The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets. Since its inception, the Company
has incurred significant losses and, as of June 30, 2000, the Company had an
accumulated deficit of $22,548,000. In addition, 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 by the Company's value-added resellers that incorporate
the Company's products into third-party customers' systems, 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.

   As discussed in Note 10, subsequent to year end the Company sold 4,000
shares of Series A Convertible Preferred Stock and received proceeds of
$3,840,000, net of transaction costs. Management of the Company believes that
the cash, cash equivalents and short-term investments on hand as of June 30,
2000, plus the proceeds from the Series A Convertible Preferred Stock sale,
will be sufficient to fund operations for the next twelve months.

                                      F-7
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Summary of Significant Accounting Policies

 Principles of Consolidation

   The accompanying consolidated financial statements include the financial
statements of Voxware, Inc. and its wholly-owned subsidiary, Verbex Acquisition
Corporation. All significant intercompany balances and transactions have been
eliminated in consolidation.

 Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 Revenue Recognition

   The Company generates revenues from products and services. Product revenues
consist of product sales, license fees, and royalties and recurring revenues.
Product sales represent shipments of portable and stationary voice-based
products and solutions for various industrial and warehouse markets. Revenues
from product sales are generally recognized upon shipment, provided there are
no significant post-delivery obligations. The Company began shipping voice-
based products subsequent to its acquisition of substantially all of the assets
of Verbex Voice Systems, Inc. ("Verbex"), which occurred on February 18, 1999.
License fees are generally derived from licensing the Company's voice-based
software applications acquired in the Verbex transaction and from licensing the
Company's speech compression technologies to customers in the multimedia and
consumer devices markets. License fees are generally recognized upon shipment
of the underlying technologies, provided that there are no significant post-
delivery obligations, persuasive evidence of an arrangement exists, pricing is
fixed or determinable, the payment is due within one year and collection of the
resulting receivable is deemed probable. Royalties and recurring revenues
include royalties, which are generally based on a percentage of licensees'
sales or units shipped, and pre-determined periodic license fees. Royalty
revenues are recognized at the time of the customer's shipment of products
incorporating the Company's technology. Recurring product license fees are
generally recognized at the inception of the renewal period, provided that
there are no significant post-delivery obligations, persuasive evidence of an
arrangement exists, pricing is fixed or determinable, the payment is due within
one year and collection of the resulting receivable is deemed probable. Service
revenues from customer maintenance support, including the amounts bundled with
initial or recurring revenues, are recognized over the term of the maintenance
support period, which is typically one year. Service revenues from engineering
fees are recognized upon customer acceptance or over the period in which
services are provided if customer acceptance is not required. The Securities
and Exchange Commission has issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition and Views on Selected Revenue Recognition Issues"
which is effective December 2000. The Company does not expect a material change
to its accounting for revenues as a result of adopting the provisions of SAB
101.

 Research and Development

   Research and development expenditures are charged to operations as incurred.
Pursuant to Statement of Financial Accounting Standards 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

                                      F-8
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

available for general release to customers. To date, the establishment of
technological feasibility of our product and general release of such product
have substantially coincided. As a result, costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant and, therefore, we have not
capitalized any such costs.

 Net Loss Per Share

   The Company has presented net loss per common share pursuant to Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share" and the
Securities and Exchange Commission Staff Accounting Bulletin No. 98.

   Basic and diluted loss per common share was computed by dividing net loss
applicable to common stockholders by the weighted average number of shares of
common stock outstanding. Stock options (2,738,250 outstanding as of June 30,
2000) have not been included in the diluted loss per common share calculation,
since the impact is anti-dilutive due to the Company's losses.

 Cash, Cash Equivalents and Short-Term Investments

   Cash and cash equivalents consist of investments in highly liquid short-term
instruments, with maturities of 90 days or less from the date of purchase.
Short-term investments consist primarily of high-grade United States
Government-backed securities and corporate obligations with maturities between
90 and 365 days from the date of purchase. The Company's entire short-term
investment portfolio is classified as available-for-sale and is stated at fair
value as determined by quoted market values. Changes in the net unrealized
holding gains and losses are included as a separate component of stockholders'
equity.

   The following table details the Company's investments as of June 30, 2000
and 1999:

<TABLE>
<CAPTION>
                                                     June 30, 2000
                                         --------------------------------------
                                                     Gross      Gross
                                         Amortized Unrealized Unrealized  Fair
                                           Cost      Gains      Losses   Value
                                         --------- ---------- ---------- ------
                                                     (in thousands)
<S>                                      <C>       <C>        <C>        <C>
U.S. Government Agencies................  $1,497     $ --       $  (1)   $1,496
Corporate obligations...................   1,580       --          (1)    1,579
                                          ------     -----      -----    ------
                                          $3,077     $ --       $  (2)   $3,075
                                          ======     =====      =====    ======
Included in cash and cash equivalents...  $  351     $ --       $ --     $  351
Included in short-term investments......   2,726       --          (2)    2,724
                                          ------     -----      -----    ------
                                          $3,077     $ --       $  (2)   $3,075
                                          ======     =====      =====    ======
</TABLE>

<TABLE>
<CAPTION>
                                                     June 30, 1999
                                         --------------------------------------
                                                     Gross      Gross
                                         Amortized Unrealized Unrealized  Fair
                                           Cost      Gains      Losses   Value
                                         --------- ---------- ---------- ------
                                                     (in thousands)
<S>                                      <C>       <C>        <C>        <C>
U.S. Government Agencies................  $  --      $ --       $ --     $  --
Corporate obligations...................   4,275         5         (1)    4,279
                                          ------     -----      -----    ------
                                          $4,275     $   5      $  (1)   $4,279
                                          ======     =====      =====    ======
Included in cash and cash equivalents...  $2,271     $ --       $ --     $2,271
Included in short-term investments......   2,004         5         (1)    2,008
                                          ------     -----      -----    ------
                                          $4,275     $   5      $  (1)   $4,279
                                          ======     =====      =====    ======
</TABLE>

                                      F-9
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company has not experienced any significant realized gains or losses on
its investments during the years ended June 30, 2000 and 1999. For purposes of
determining gross realized gains and losses, the cost of short-term investments
sold is based upon specific identification. As of June 30, 2000 and 1999, all
short-term investments were due within one year.

 Accounts Receivable

   Accounts receivable as of June 30, 2000 and 1999 consisted of the following:

<TABLE>
<CAPTION>
                                                                   June 30,
                                                                 --------------
                                                                  2000    1999
                                                                 ------  ------
                                                                      (in
                                                                  thousands)
   <S>                                                           <C>     <C>
   Accounts receivable.......................................... $1,126  $1,350
   Less--allowance for doubtful accounts........................   (144)   (361)
                                                                 ------  ------
   Accounts receivable, net..................................... $  982  $  989
                                                                 ======  ======
</TABLE>

 Inventory

   Inventory is stated at lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. Inventory, net as of June 30, 2000 and 1999
consisted of the following:

<TABLE>
<CAPTION>
                                                                    June 30,
                                                                  -------------
                                                                   2000   1999
                                                                  ------  -----
                                                                      (in
                                                                   thousands)
   <S>                                                            <C>     <C>
   Raw materials................................................. $  595  $ 226
   Work-in process...............................................    286     63
   Finished goods................................................    398    229
   Less--Inventory Reserve.......................................   (190)  (269)
                                                                  ------  -----
   Inventory, net................................................ $1,089  $ 249
                                                                  ======  =====
</TABLE>

 Property and Equipment

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

 Long-Lived Assets

   The Company reviews the recoverability of its long-lived assets on a
periodic basis whenever events and circumstances have occurred that indicate
the remaining balance may not be recoverable. The assessment for potential
impairment is based primarily on the Company's ability to recover the carrying
value of its long-lived assets from expected future cash flows from its
operations on an undiscounted basis. The Company does not believe that any such
events or changes in circumstances have occurred. The amount of impairment of
goodwill and other intangibles would be determined as part of the long-lived
asset grouping being evaluated utilizing undiscounted net income over the
remaining life of the asset. Where goodwill is identified with assets subject
to an impairment loss, the carrying amount of the identified goodwill would be
eliminated before making any reduction of the carrying amounts of the impaired
long-lived assets and identifiable intangibles.

                                      F-10
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Warranty

   The Company's standard warranty policy generally allows customers or end-
users to return defective products for repair, replacement or refund of
purchase price, provided that notification of the defect is provided within 90
days from delivery to the customer or end-user in the case of software and one
year from the delivery in the case of hardware. Substantially all components,
parts and subassemblies purchased by the Company are covered by warranty by the
manufacturer for periods ranging from 30 days to one year.

 Loss Contingencies

   In accordance with Statement of Financial Accounting Standards No. 5 ("SFAS
5"), the Company's policy is to accrue an estimated loss if it is both probable
that one or more future events will occur confirming the fact of the loss, and
the amount of the loss can be reasonably estimated. In the case of legal
claims, it is the Company's policy to accrue probable estimated losses from
legal claims upon receiving notice of such claims.

 Acquisition of Verbex Voice Systems, Inc. and Intangible Assets

   On February 18, 1999, the Company acquired substantially all of the assets
of Verbex for a total of $5,422,000, which consists of $4,800,000 paid upon
closing, a purchase price adjustment of $272,000, which was paid in October
1999 and transaction costs of $350,000. Upon payment in October 1999, the
purchase price adjustment was released from an account that was established at
the closing of the Verbex transaction. As of June 30, 2000, the escrow balance
was released from restricted cash. The acquisition was accounted for under the
purchase method of accounting, whereby the purchase price is allocated to the
assets acquired and liabilities assumed based on their fair market values at
the acquisition date. The excess of purchase price over the fair value of net
assets acquired was assigned to identifiable intangibles and goodwill.
Intangible assets acquired from Verbex include capitalized software and
underlying intellectual property rights, value added reseller agreements and
relationships, customer lists and engineering workforce. These intangibles and
goodwill are being amortized over four years, which represents the estimated
economic life of these assets. Verbex's results of operations have been
included in the Company's consolidated financial statements from the date of
the acquisition.

   The following table lists the assets that were acquired and liabilities that
were assumed as a result of the Verbex acquisition:

<TABLE>
<CAPTION>
                                                      Year Ended June 30, 1999
                                                      ------------------------
                                                           (in thousands)
   <S>                                                <C>
   Assets acquired:
     Accounts receivable.............................          $  456
     Inventory.......................................             218
     Prepaid expenses and other current assets,
      property and equipment and other assets........              68
     Intangible assets...............................           5,158
                                                               ------
                                                                5,900
                                                               ------
   Liabilities assumed:
     Accounts payable................................            (131)
     Accrued expenses................................            (352)
     Deferred revenues...............................             (17)
                                                               ------
                                                                (500)
   Price paid in cash (includes purchase price
    adjustment and transaction costs)................          $5,400
                                                               ======
</TABLE>

                                      F-11
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following unaudited pro forma condensed combined statements of
operations data for Voxware and Verbex for the years ended June 30, 1999 and
1998 gives effect to the transaction as if it occurred July 1, 1998:

<TABLE>
<CAPTION>
                                                                Year Ended
                                                                 June 30,
                                                              ----------------
                                                               1999     1998
                                                              -------  -------
                                                              (in thousands)
   <S>                                                        <C>      <C>
   Total revenues............................................ $ 4,603  $ 7,877
   Operating loss............................................  (6,070)  (8,353)
   Net loss..................................................  (5,527)  (7,492)
   Basic and diluted net loss per common share............... $ (0.42) $ (0.58)
                                                              -------  -------
   Weighted average number of common shares outstanding......  13,330   12,890
                                                              =======  =======
</TABLE>

 Purchase of Certain Assets of InRoad, Inc.

   On April 4, 2000, the Company purchased certain assets (primarily
intangible) of InRoad, Inc. for 650,000 shares of common stock valued at
$5,375,000, 375,000 warrants to purchase common stock valued (using the Black-
Scholes pricing model) at $2,861,000, $240,000 in cash, $121,000 in inventory
and $49,000 in transaction costs. Substantially all of the purchase price was
assigned to intangible assets acquired amounting to $8,404,000 including all
industrial and intellectual property rights including patents, trademarks,
licenses, copyrights and proprietary processes. These intangibles are being
amortized over three years, which represents the estimated economic life of
these assets. The asset purchase provided the Company with a voice-based
hardware platform for the new VoiceLogistics product.

 Sale of Assets to Ascend

   On September 21, 1999, the Company's stockholders approved an agreement with
Ascend Communications, Inc. ("Ascend", which is now a wholly owned subsidiary
of Lucent Technologies, Inc.), to sell to Ascend for approximately $5.1 million
in cash substantially all of the Company's assets relating to what has
historically been the Company's primary business of developing and licensing
speech compression technologies and products. Upon closing in September 1999,
the Company received $4,146,000 in cash. The Company had previously received
$204,000 of the purchase price. The remaining $750,000 is being held in escrow
for 18 months (until March 21, 2001) to secure Voxware's indemnification
provisions under the agreement with Ascend. As a result of the sale, the
Company recorded a gain of $3,799,000 during the quarter ended September 30,
1999. Such gain does not include the $750,000 held in escrow. The sale to
Ascend did not include the Company's rights and obligations under its existing
license agreements and, as part of the sale, the Company received a license
back from Ascend to use the technology necessary to service the Company's
existing licensees in the speech compression business. With the consent of
Ascend, the Company may also license the speech coding technologies to new
licensees for uses that are not competitive with Ascend.

Intangible Assets
<TABLE>
<CAPTION>
                                                                   June 30,
                                                                ---------------
                                                                 2000     1999
                                                                -------  ------
                                                                (in thousands)
   <S>                                                          <C>      <C>
     Acquisition of Verbex Voice Systems, Inc.................. $ 5,131  $5,158
     Purchase of certain assets of InRoad......................   8,404     --
                                                                -------  ------
                                                                 13,535   5,158
   Less--Accumulated amortization..............................  (2,467)   (478)
                                                                -------  ------
   Intangible assets, net...................................... $11,068  $4,680
                                                                =======  ======
</TABLE>

                                      F-12
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Amortization expense was approximately $1,989,000, $478,000 and zero for the
years ended June 30, 2000, 1999 and 1998, respectively.

 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). The Company's customer base principally comprises distribution and
logistics companies in e-commerce, retail, direct-to-consumer, wholesale and
business-to-business operations, as well as value-added resellers. The Company
does not typically require collateral from its customers.

 Major Customers

   Two customers accounted for 13% and 14% of revenues for the year ended June
30, 2000. Accounts receivable due from these customers as of June 30, 2000
approximated $25,000 and $250,000, respectively. For the year ended June 30,
1999 two customers accounted for 13% and 12% of revenues.

 Income taxes

   Deferred income tax assets and liabilities are determined based on
differences between the financial statement reporting and tax bases 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 on
deferred income tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.

 Stock-Based Compensation

   The Company accounts for its stock-based compensation in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. The Company has
adopted the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123")
which establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 permits entities to provide pro forma
disclosures of net income (loss) and net income (loss) per share for employee
stock option grants as if the fair value based method of accounting defined by
this standard had been applied (see Note 4).

 Comprehensive Income (Loss)

   The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income (loss). SFAS 130 requires that all items defined as
comprehensive income, including changes in the amounts of unrealized gains and
losses on available-for-sale securities, be shown as a component of
comprehensive income (loss). The only comprehensive income items the Company
has are unrealized gains (losses) on available-for-sale securities and net
loss.

 Segment Information

   The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" during fiscal year 1999. Prior to the
Company's acquisition of Verbex in February 1999, the

                                      F-13
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company had been managed in one operating segment. Since the Verbex
acquisition, the Company has been managed in two operating segments: industrial
voice-based solutions and speech compression technologies. The voice-based
solutions business relates to the Company's current business focus since the
Verbex acquisition. The speech compression technologies business relates to the
Company's business focus prior to the Verbex acquisition. In September 1999,
the Company sold substantially all of the assets related to the speech
compression business to Ascend. In connection with the sale to Ascend, the
Company received a license back from Ascend to service the Company's existing
speech compression licensees, and to continue to license the speech compression
technologies for uses that are not competitive with Ascend, subject to the
consent of Ascend. The Company does not expect to pro-actively market the
speech compression technologies in the future, and expects new licensing
activity relating to the speech compression technologies business to decrease
significantly over time.

2. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                                   June 30,
                                                                 --------------
                                                                  2000    1999
                                                                 ------  ------
                                                                      (in
                                                                  thousands)
   <S>                                                           <C>     <C>
   Equipment.................................................... $  549  $  652
   Leasehold improvements.......................................     92      92
   Furniture and fixtures.......................................    457     432
                                                                 ------  ------
                                                                  1,098   1,176
   Less--Accumulated depreciation...............................   (655)   (781)
                                                                 ------  ------
   Property and equipment, net.................................. $  443  $  395
                                                                 ======  ======
</TABLE>

   Depreciation expense was approximately $243,000, $210,000 and $224,000 for
the years ended June 30, 2000, 1999 and 1998, respectively.

3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

<TABLE>
<CAPTION>
                                                                    June 30,
                                                                   -----------
                                                                   2000  1999
                                                                   ---- ------
                                                                       (in
                                                                   thousands)
   <S>                                                             <C>  <C>
   Accounts payable............................................... $372 $  561
   Accrued compensation and benefits..............................  317    237
   Accrued professional fees......................................  163    117
   Accrued costs related to the Ascend and Verbex transactions
    (see Note 1)..................................................  --     793
   Other accrued expenses.........................................  146    381
                                                                   ---- ------
   Accounts payable and accrued expenses.......................... $998 $2,089
                                                                   ==== ======
</TABLE>

4. STOCKHOLDERS' EQUITY:

 Stock Option Plans

   Pursuant to the 1994 Stock Option Plan, as amended (the "Plan"), the Company
may grant to eligible individuals incentive stock options (as defined in the
Internal Revenue Code) and nonqualified stock options. An aggregate of
4,000,000 shares of common stock have been reserved for issuance under the
Plan. The exercise price for incentive stock options may not be less than 100%
(110% for holders of 10% or more of the combined voting power of all classes of
stock of the Company) of the fair value of the shares on the date of

                                      F-14
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

grant and at least par value for nonqualified stock options. The period during
which an option may be exercised is fixed by the Board of Directors up to a
maximum of ten years (five years in case of incentive stock options granted to
holders of 10% or more of the combined voting power of all classes of stock of
the Company) and options typically vest over a four-year period.

   Additionally, pursuant to the 1998 Stock Option Plan for Outside Directors
(the "Outside Directors Plan") which was approved by the Company's stockholders
in January 1998, the Company has granted a total of 100,000 options at exercise
prices of $0.94 to $3.75 per share. Pursuant to the Outside Directors Plan,
each non-employee director of the Company shall receive an option to purchase
30,000 shares of the Company's common stock (the "Initial Option") on the date
of his or her election or appointment to the Board of Directors at an exercise
price equal to the Company's stock price at the end of the day of his or her
election or appointment to the Board of Directors (the "Initial Grant Date").
In addition, on the date of his or her re-election to the Board of Directors,
if he or she is still a non-employee director on such date and has met certain
other requirements defined in the Outside Directors Plan, he or she shall
receive an option to purchase 10,000 shares of the Company's common stock (the
"Additional Option") on the date of his or her re-election or appointment to
the Board of Directors at an exercise price equal to the Company's stock price
at the end of the day of his or her re-election or appointment to the Board of
Directors (the "Additional Grant Date"). All options granted under the Outside
Directors Plan shall be exercisable as to one-twelfth of the shares issued
under each option on the last day of each of the 12 three-month periods
immediately following the applicable grant date.

   Information relative to the 1994 Stock Option Plan, the Outside Options and
the Outside Directors Plan is as follows:

<TABLE>
<CAPTION>
                                                        Price Per    Aggregate
                                             Shares       Share      Proceeds
                                            ---------  ------------ -----------
   <S>                                      <C>        <C>          <C>
   Outstanding at June 30, 1997............ 1,727,663  $0.50--$7.88 $ 5,720,448
     Granted...............................   845,650  $2.00--$5.69   3,164,213
     Exercised.............................  (701,871) $0.50--$6.00  (1,157,720)
     Canceled..............................  (461,767) $1.00--$7.88  (1,945,115)
                                            ---------  ------------ -----------
   Outstanding at June 30, 1998............ 1,409,675  $0.50--$7.88   5,781,826
     Granted............................... 1,182,500  $0.63--$2.38   1,521,988
     Exercised.............................   (11,000) $1.50--$2.00     (19,000)
     Canceled..............................  (343,100) $1.06--$7.88  (1,317,141)
                                            ---------  ------------ -----------
   Outstanding at June 30, 1999............ 2,238,075  $0.50--$7.88   5,967,673
     Granted............................... 1,448,752  $0.69--$7.69   3,455,439
     Exercised.............................  (220,546) $0.69--$7.50    (305,272)
     Canceled..............................  (728,031) $1.50--$7.88  (2,314,595)
                                            ---------  ------------ -----------
   Outstanding at June 30, 2000............ 2,738,250  $0.50--$7.88 $ 6,803,245
                                            =========  ============ ===========
</TABLE>

   As of June 30, 2000, there were 838,391 options exercisable at an aggregate
exercise price of $2,348,447. As of June 30, 2000, there were 423,462
additional options to purchase common stock available for grant under the 1994
Stock Option Plan. As of June 30, 1999, there were 761,803 options exercisable
at an aggregate exercise price of $2,545,987.

   The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
its stock-based compensation. Accordingly, compensation cost has been computed
based on the intrinsic value of the stock option at the date of grant,

                                      F-15
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

which represents the difference between the exercise price and the fair value
of the Company's stock. As the exercise price of the stock options equaled the
fair value of the Company's stock at the date of option issuance, no
compensation cost has been recorded in the accompanying statements of
operations. Had compensation been determined consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been adjusted to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                                      -------------------------
                                                       2000     1999     1998
                                                      -------  -------  -------
                                                       (in thousands, except
                                                          per share data)
   <S>                                                <C>      <C>      <C>
   Net loss:
     As reported..................................... $(2,245) $(4,286) $(4,894)
     Pro forma....................................... $(3,601) $(5,512) $(5,662)
   Net loss per share:
     As reported..................................... $ (0.16) $ (0.32) $ (0.38)
     Pro forma....................................... $ (0.26) $ (0.41) $ (0.44)
</TABLE>

   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in fiscal years 2000, 1999 and 1998: risk-free interest rates ranging
from 5.7% to 7.1% based on the rate in effect on the date of grant; no expected
dividend yield; expected lives of 8 years for the options; and expected
volatility of 75%.

   SFAS No. 123 method of accounting is not required to be applied to options
granted prior to the fiscal year ended June 30, 1996. The resulting pro forma
compensation cost may not be representative of that expected in future years.
The weighted average fair value of options granted was $1.48, $0.99 and $2.93
for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.

   Information with respect to options outstanding at June 30, 2000 is as
follows:

<TABLE>
<CAPTION>
     Exercise                               Weighted Average
    Price Per              Weighted Average    Remaining       Number of
      Share       Shares    Exercise Price  Contractual Life Vested Shares
    ---------    --------- ---------------- ---------------- -------------
   <S>           <C>       <C>              <C>              <C>
   $0.75--$1.63  1,498,500      $1.17             8.6           452,781
   $2.00--$3.00    139,000      $2.63             8.3            30,313
   $3.08--$3.88    430,000      $3.71             9.3            42,500
   $4.00--$7.88    670,750      $4.61             9.0           312,797
                 ---------      -----             ---           -------
                 2,738,250      $2.48             8.8           838,391
                 =========      =====             ===           =======
</TABLE>

 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 of shares to non-employee directors. Each
calendar year in which the Company holds an Annual Meeting of Stockholders,
each non-employee director will receive shares valued at $10,000 based on the
market price of the Company's common stock, as defined in the plan. In fiscal
1998 as part of this plan, the Company also granted shares to non-employee
directors who had served as directors since the Company's initial public
offering in October 1996. For the year ended June 30, 2000, the Company granted
a total of 24,294 shares of common stock pursuant to this plan and recorded
$40,000 associated compensation expense. The Company did not grant any shares
pursuant to this plan during fiscal 1999 because the Company did not hold an
Annual Meeting of Stockholders during fiscal 1999.

                                      F-16
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Employee Stock Purchase Plan

   In December 1996 the Company adopted an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code and reserved 200,000 shares of common
stock for issuance under the plan. Under this plan, employees are entitled to
purchase shares at 85% of the fair market value. During the years ended
June 30, 2000, 1999 and 1998, the Company issued 19,570, 77,843 and 74,109
shares of common stock, respectively, at average purchase prices of $0.69,
$0.82 and $2.55 per share, respectively, pursuant to the Employee Stock
Purchase Plan. As of June 30, 2000 all 200,000 reserved shares of common stock
have been issued and the plan has been terminated.

5. CREDIT FACILITY:

   The Company has a $2,000,000 revolving line of credit with Silicon Valley
Bank, as amended (the "Credit Facility"). Borrowings under the Credit Facility
will bear interest at the bank's prime lending rate. As amended on May 9, 2000,
the Credit Facility requires the Company to secure all indebtedness with cash
held at the bank's offices in an amount not less than 100% of the outstanding
amount of all indebtedness we owe to the bank. The Credit Facility requires
payment of all outstanding principal, if any, plus all accrued interest on May
8, 2001. In connection with the lease of the office facility, a $225,000
standby letter of credit was outstanding at June 30, 2000 naming the lessor of
the office facility beneficiary of the standby letter of credit in the event of
default on the lease. As required by the Credit Facility, the Company has
secured the $225,000 standby letter of credit with cash that is included in
"other assets" in the June 30, 2000 consolidated balance sheet.

6. 401(k) SAVINGS PLAN:

   Effective January 1997 the Company adopted a 401(k) Savings Plan (the
"401(k) Plan") available to all employees. The 401(k) Plan permits participants
to contribute up to 10% of their base salary to the 401(k) Plan not to exceed
the limits established by the Internal Revenue Code. In addition, the Company
matches 25% of employee contributions on the initial 6% contributed by
employees. Employees vest immediately in all employee contributions and Company
match contributions. In connection with the 401(k) Plan, the Company recorded
compensation expense of approximately $27,000, $33,000 and $52,000 for the
years ended June 30, 2000, 1999 and 1998, respectively.

7. INCOME TAXES:

   As of June 30, 2000, the Company had approximately $20,300,000 of federal
net operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards begin to expire in 2009. As of June
30, 2000, a full valuation allowance has been provided on the net deferred tax
asset because of the uncertainty regarding realization of the deferred asset,
primarily as a result of considering such factors as our limited operating
history, the volatility of the market in which we compete and the operating
losses incurred to date.

                                      F-17
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8. COMMITMENTS AND CONTINGENCIES:

   The Company leases its office facilities and certain equipment under
operating leases with remaining noncancelable lease terms generally in excess
of one year. Rent expense was approximately $301,000, $599,000 and $810,000 for
the years ended June 30, 2000, 1999 and 1998, respectively. Future minimum
rental payments for the Company's office facility and equipment under operating
leases as of June 30, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                  (in thousands)
                                                                  --------------
   <S>                                                            <C>
   Year Ending June 30,
     2001........................................................     $  576
     2002........................................................        561
     2003........................................................        494
     2004........................................................        257
                                                                      ------
                                                                      $1,888
                                                                      ======
</TABLE>

   In July 1998 the Company entered into a sublease agreement under which the
Company subleased approximately 47% of its 18,000 total square feet of office
space in its Princeton, New Jersey facility. Effective June 30, 2000 the
Company has been released from its lease commitment for 9,500 square feet of
the office space in Princeton, New Jersey. The remaining 8,500 square feet of
this space is occupied by the sub-lessee and payments received under the
sublease agreement offset all but $0.30 per square foot of our remaining lease
commitment. The initial term of the sublease agreement will expire on May 31,
2003. The amounts expected to be received under the sublease agreement are not
included in the above schedule.

   The Company has outstanding a $225,000 standby letter of credit in
connection with the Company's office facility lease (see Note 5).

   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 three-year employment and severance agreements with two
officers. The agreements provide for minimum salary levels, adjusted annually
at the discretion of the board of directors. Each of the agreements are
automatically renewable for successive one-year terms, unless terminated by
either party.

9. SEGMENT INFORMATION:

   The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in fiscal year 1999. Prior to the Company's
acquisition of Verbex in February 1999 (Note 1), the Company had been managed
in one operating segment. Since the Verbex acquisition, the Company has been
managed in two operating segments: industrial voice-based solutions and speech
compression technologies. The voice-based solutions business relates to the
Company's current business focus since the Verbex acquisition. The speech
compression technologies business relates to the Company's business focus prior
to the Verbex acquisition. In September 1999, the Company sold substantially
all of the assets related to the speech compression business to Ascend. In
connection with the sale to Ascend, the Company received a license back from
Ascend to service the Company's existing speech compression licensees, and to
continue to license the speech compression technologies for uses that are not
competitive with Ascend, subject to the consent of Ascend. The Company does not
expect to pro-actively market the speech compression technologies in the

                                      F-18
<PAGE>

                          VOXWARE, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

future, and expects new licensing activity relating to the speech compression
technologies business to decrease significantly over time.

   Business segment information for the year ended June 30, 2000 is included in
the table below. Costs associated with corporate and administrative overhead
expenses, are included in the speech compression technologies segment.
Intangible assets and goodwill related to the Verbex acquisition (Note 1), and
the amortization of those assets, are included in the industrial voice-based
products segment.

<TABLE>
<CAPTION>
                                   Voice-Based     Speech Compression
                                 Products Segment Technologies Segment Total
                                 ---------------- -------------------- ------
   <S>                           <C>              <C>                  <C>
   Revenues.....................      $1,786             $2,015        $3,801
   Loss from operations.........      (6,253)              (649)       (6,902)
   Depreciation and
    amortization................       2,037                228         2,265
   Identifiable assets..........      12,773              4,667        17,440
</TABLE>

   Additionally, for the years ended June 30, 2000, 1999 and 1998, revenues
included approximately $400,000, $524,000 and $543,000, respectively, of sales
to customers outside the United States. These sales outside the United States
related to the speech compression technologies segment.

10. SUBSEQUENT EVENT:

   On August 15, 2000 the Company completed a $4,000,000 private placement of
Series A Convertible Preferred Stock and warrants to Castle Creek Technology
Partners, LLC. The Company sold 4,000 shares of Series A Convertible Preferred
Stock, which shares are convertible into shares of common stock, resulting in
proceeds to the Company of approximately $3,840,000, net of transaction costs.
The Company is obligated to redeem the Preferred Stock 30 months from the
closing. The Preferred Stock has a 7% dividend payable in cash or equity, at
the election of the holder, and is convertible into Voxware Common Stock at an
initial conversion price of $3.025 per share, subject to adjustment, as
defined. In addition, Castle Creek has received a warrant to purchase shares of
Common Stock at an initial exercise price of approximately $3.44 per share,
subject to adjustment, as defined. In fifteen months, the exercise price will
be reset to the lesser of the initial exercise price or the market price of the
Company's common stock as of the reset date. The Company has the right to
require conversion of the Preferred Stock, and to redeem the warrant, if its
common stock reaches certain price levels over a specified period of time. The
Preferred stockholders have certain registration rights, as defined.

                                      F-19