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, 2002
                                --------------

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

                         Commission File Number 0-021403

                                  VOXWARE, INC.
                                  ------------
             (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. [x]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant was approximately $798,835 as of October 11, 2002, based upon the
closing  sale  price of the common  stock as quoted on the  Nasdaq OTC  Bulletin
Board.  This amount  excludes an aggregate  of 3,657,129  shares 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 September  30, 2002.  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
October 11, 2002 was 22,823,860.

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


                                  VOXWARE, INC.

                             FORM 10-K ANNUAL REPORT

                       For Fiscal Year Ended June 30, 2002

                                TABLE OF CONTENTS

PART I


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

Item 2.    Properties........................................................17

Item 3.    Legal Proceedings.................................................17

Item 4.    Submission of Matters to a Vote of Security Holders...............18


PART II

Item 5.    Market for the Registrant's Common Equity and Related
           Stockholder Matters...............................................19

Item 6.    Selected Financial Data...........................................20

Item 7.    Management's Discussion and Analysis of Results of Operations
           and Financial Condition...........................................22

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk........33

Item 8.    Financial Statements and Supplementary Data.......................33

Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure..............................................33


PART III

Item 10.   Directors and Executive Officers of the Registrant................34

Item 11.   Executive Compensation............................................35

Item 12.   Security Ownership of Certain Beneficial Owners and Management....40

Item 13.   Certain Relationships and Related Transactions....................40



PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K..41

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


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<PAGE>


                                     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 annual report,  the words  "estimate,  "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify  forward-looking  statements.  These statements  reflect our current
views with respect to future  events and are subject to risks and  uncertainties
that could cause actual results to differ materially from those  contemplated in
these forward-looking statements, including those risks discussed in this annual
report.  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  annual
report,  or to  reflect  the  occurrence  of  unanticipated  events.  You should
carefully  review the risk  factors set forth in other  reports or  documents we
file from time to time with the Securities and Exchange Commission.

ITEM 1.       BUSINESS.

Overview

     Voxware, Inc., a Delaware corporation, was incorporated in 1993. We design,
develop,  market and sell voice-based solutions for the logistics,  distribution
and   package    sorting    industries.    Our   primary    product    offering,
VoiceLogistics(TM),  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(TM)  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(TM)
solution has the ability 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(TM) 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.  License  fees  are  generally  derived  from
licensing 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.

     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 customers.  To date, we have signed agreements with several third
party partners,  and we expect to continue to generate at least 10% of our total
revenues in fiscal year 2003 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

                                       3

<PAGE>

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 on reducing 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.

     Until February 1999, our business was developing and licensing software for
speech  compression  technologies  to be used in multimedia  Websites,  Internet
telephony and consumer devices.  In February 1999, we acquired from Verbex Voice
Systems  ("Verbex")  the assets and  technology on which  VoiceLogistics(TM)  is
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.

Products

     VoiceLogistics(TM),  the Company's  primary  product line, is a voice-based
interface solution for various mobile industrial and warehouse applications. The
VoiceLogistics(TM)  solution is comprised of software, hardware and professional
services for  installation,  implementation,  and maintenance.  The Company also
sells other  voice-based  devices used  primarily  for  warehouse  receiving and
package  sorting  applications  where  mobility is not  required.  Both of these
products are based on the Company's patented speech  recognition  technology and
VoiceXML  voice  browser.  The Company also  generates  revenues from  licensing
speech  compression  technologies  that were developed  prior to the sale of the
assets relating to that business in September 1999.

     VoiceLogistics(TM).    The   VoiceLogistics(TM)    solution   consists   of
standards-based  software and special purpose  wearable  computer  hardware that
utilizes  wireless 802.11B local area networking,  web based  applications,  and
patented speech technology to provide a mobile, networked, interface between the
warehouse management system, workers and the customer's operations and financial
systems.  We believe this  solution is the first  web-based  speech  recognition
system,  deployed  in  commercial  applications,   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
virtually  any external  warehouse  management  system.  The  VoiceLogistics(TM)
solution includes the VoiceLogistics(TM) server software, called Vox Server(TM),
our  patented   noise-robust   Voxware  Integrated   Speech-Recognition   Engine
(VISE(TM))  speech  recognizer  designed  specifically  for high  performance in
industrial   environments,   our  VoiceXML   browser,   called   VoxBrowser(TM),
VoxXchange(TM),   our  new  standard   integration   methodology   to  interface
VoiceLogistics  to virtually any warehouse  management system (WMS) or system of
record, and the  VoiceLogistics(TM)-310  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(TM) application in order to complete their
assigned tasks, while at the same time updating inventory, customer invoices and
financial systems in real-time.

     The  VoiceLogistics(TM)-310  wearable client is a rugged, continuous speech
input/output  device designed for industrial  applications that require mobility
and full 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
waist of the user and is connected by wire to a headset with a  microphone.  The
user speaks into the microphone and the software  processes the speech signal to
determine  what was  spoken.  After the speech has been  recognized,  the system
processes the data or response and transmits the  information  by a wireless LAN
to the system of  record,  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 of record then records
and processes the information, sends

                                       4

<PAGE>

additional  instructions  to the user or takes other action.  Instructions  sent
from the system of record to the user are communicated  through the headset.  In
applications such as receiving and package sorting, the information processed by
the  VoiceLogistics(TM)  system may sometimes be used for other purposes such as
printing a bar code label locally  rather than being  transmitted  by a wireless
link to a system of record.  Although the software "system" is the primary focus
of our product line, we recognize the VoiceLogistics(TM)-310  wearable client is
a critical  component of the system, and as such we continue to research ways to
optimize the performance of the client, and reduce its cost.

     We purchase parts and electronics assemblies 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(TM)  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  subcontract  the  assembly  of PC  board  products  to  local  contract
manufacturers,  but our  manufacturing  and  assembly  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, and 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 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.

                                       5

<PAGE>

     The  following is a description  of target  application  areas,  within and
outside  the  warehousing  market in which we believe our  products  have market
value.

     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(TM)  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
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.

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<PAGE>

     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, 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 both third party partnerships and on direct selling
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 VAR's,  logistics  consultants,  warehouse  management system
("WMS")  vendors and RF system  vendors.  Assuring  that our products are easily
integrated  with  these  vendors'  processes  and  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   VAR's,   logistics
consultants,  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 VAR's,  logistics consultants and 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 ended 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 year
ended June 30, 2000, and royalty  revenues,  if received,  will be recognized in
the fiscal  quarters  in which they are  reported  to us by ITT.  As of June 30,
2002, no royalties have been recognized.  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  currently  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 compression  technologies business and sales of our voice-based solutions
through  VARs and systems  integrators.  We also sell our  products  directly to
customers.  For the fiscal  year ended June 30,  2002,  94% of our  revenue  was
derived  from  our  voice-based  solutions  business  and  6%  from  our  speech
compression  business.  For the  year  ended  June  30,  2002,  three  customers
accounted  for 65% of our total  revenues.  For the  fiscal  year ended June 30,
2001, 59% of our revenue was derived from our voice-based solutions business and
41% from our speech  compression  business.  For the year  ended June 30,  2001,
three  customers  accounted  for  37% 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.

                                       7

<PAGE>

     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 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.  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  decibels  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(TM)  product  line is based  on our  patented,
proprietary Voxware Integrated Speech Engine (VISE(TM)) speaker-dependent speech
recognition  technology,  which is a continuous  speech  recognizer,  and highly
noise-tolerant.  Users of products  based on our VISE(TM)  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(TM)
product  line  and all of our  other  voice-based  products  sold to  industrial
customers are based on our VISE(TM) technology. Our VoiceLogistics(TM)  computer
incorporates an embedded version of our VISE(TM) 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
application  in March 2001,  our  VoiceLogistics(TM)  solution  also employs our
patent-pending  invention  of systems and methods  for using  standard  Internet
protocols in conjunction  with VoiceXML web pages to remotely  program  portable
voice devices, such as our  VoiceLogistics(TM)  computer,  that direct and guide
users through defined tasks and work.

     In  addition to our  VISE(TM)  speaker-dependent  technology,  prior to our
acquisition of Verbex, Verbex had developed  FlexVISE(TM),  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(TM), however we may examine the feasibility of including

                                       8
<PAGE>

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.

     Companies that build competitive  voice-based  systems comprise a source of
competition  for  Voxware.  To date,  we are  aware of only one  small,  private
company that currently  directly sells 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,
Inc.  also  indirectly  sells  voice-based  systems  within  the  logistics  and
distribution market to resellers who also compete against us.

     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.),
and  Psion  Teklogix,  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, 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,  which was held in escrow for 18 months to secure Voxware's
indemnification provisions under the sale of assets agreement, was released from
restriction  as of March 21, 2001. 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(TM)  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  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

                                       9
<PAGE>

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

Employees

     As of June 30, 2002,  we had 39  full-time  employees,  consisting  of 4 in
manufacturing,  23 in research and development,  7 in sales and marketing, and 5
in general and  administrative.  Twenty-six  of our employees are located at our
Cambridge,  Massachusetts's facility, and 6 are located at our corporate offices
in  Lawrenceville,  New Jersey.  The  remainder of or employees  work at various
other  locations.  None of our employees is  represented  by a labor union or is
subject to a  collective  bargaining  agreement.  We believe  that our  employee
relations are good.

Risk Factors

     We  operate  in a  rapidly  changing  business  environment  that  involves
substantial risk and uncertainty. The following discussion addresses some of the
risks and  uncertainties  that could cause,  or  contribute  to causing,  actual
results to differ  materially from  expectations.  We caution all readers to pay
particular  attention to the descriptions of risks and  uncertainties  described
below  and in other  sections  of this  report  and our other  filings  with the
Securities and Exchange Commission.

     We do not presently know of any additional risks and uncertainties that are
currently deemed material and which may also impair our business  operations and
financial  results.  If any of the following risks actually occur, our business,
financial  condition  or results of  operations  could be  materially  adversely
affected.  In such case, the trading price of our Common Stock could decline and
we may be forced to consider additional alternatives.

     This Annual  Report on Form 10-K also contains  forward-looking  statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking  statements as a result of certain
factors, including the risks described below and elsewhere in this Annual Report
on Form 10-K.

     If we continue to incur operating  losses, we may be unable to continue our
operations. We have incurred losses since we started our company in August 1993.
As of June  30,  2002,  we had an  accumulated  deficit  of  $47,834,000.  If we
continue to incur operating losses and fail to become a profitable  company,  we
may  be  unable  to  continue  our   operations.   We  incurred  net  losses  of
approximately  $2,245,000  in  fiscal  2000,  $15,669,000  in  fiscal  2001  and
$3,993,000  in fiscal  2002.  In  addition,  we expect to  continue to incur net
losses in at least the near term quarters.  Our future profitability  depends on
our ability to obtain  significant  customers  for our  products,  to respond to
competition,  to introduce new and enhanced products and to successfully  market
and support our  products.  We cannot assure you that we will achieve or sustain
significant sales or profitability in the future.

     If we are  unable to raise  additional  capital in the  future,  we will be
unable to continue our product development, marketing and business generally. In
the  future,  we will  need to  raise  substantial  additional  capital  to fund
operations, including product development and marketing. Funding from any source
may not be  available  when needed or on  favorable  terms.  If we cannot  raise
adequate funds to satisfy our capital requirements, we may have to limit, delay,
scale-back  or  eliminate  product  development  programs or  marketing or other
activities. We might be forced to sell or license our technologies. Any of these
actions  might  harm our  business.  We cannot  assure  you that any  additional
financing  will be available  or, if available,  that the  financing  will be on
terms  favorable to us. If financing is obtained,  the financing may be dilutive
to our  current  stockholders.  We  believe  that  unless  we are able to secure
additional financing,  our cash and cash equivalents and short-term  investments
will not be adequate to meet our cash  requirements over the next twelve months.
The Company's  independent certified public accountants included a going concern
modification in their audit report for the year ended June 30, 2002.

     There is a  substantial  doubt  about our  ability to  continue  as a going
concern.  We incurred  net losses of  approximately  $2,245,000  in fiscal 2000,
$15,669,000  in fiscal  2001 and  $3,993,000  in fiscal  2002.  Our  ability  to
generate  positive cash flows from operations will have a significant  impact on
the  period  through  which  our  existing  cash  will  be  sufficient  to  fund
operations.  Based on our plan,  which  included the merger with ISPsoft and the
resulting  cash  requirements  for  operations,  we  believe  that our  existing
available cash may not be adequate to satisfy current and planned operations for
the next 12 months.  Additionally,  we expect that we will  require  substantial

                                       10
<PAGE>

additional capital to fund operations.  All of these factors raise a substantial
doubt  as  to  our  ability  to  continue  as a  going  concern.  The  Company's
independent public auditors included a going concern modification in their audit
report for the year ended June 30, 2002. If we cannot  sufficiently  improve our
cash flow or raise more  funds at  acceptable  terms,  we could be  required  to
further  reduce our capital  expenditures,  reduce our  workforce  and  possibly
explore additional alternatives.

     We rely  substantially  on key  customers.  Our  customer  base  is  highly
concentrated.  For the year ended June 30, 2002,  three customers  accounted for
65% of our total  revenues.  We believe  that a  substantial  portion of our net
sales  will  continue  to be  derived  from  sales  to a  concentrated  group of
customers. However, the volume of sales to a specific customer is likely to vary
from period to period, and a significant customer in one period may not purchase
our products in a subsequent  period.  In general,  there are no ongoing written
commitments  by customers to purchase our products.  Our net sales in any period
generally  have been and likely will  continue  to be in the near term,  derived
from a relatively small number of sales transactions. Therefore, the loss of one
or more  major  customers  could  materially  adversely  affect  our  results of
operations.

     If our speech  recognition  products  are not adopted for use in our target
markets,  it will be difficult  for us to generate  revenues  and  profits.  The
speech  industry is  relatively  new and rapidly  evolving.  Accordingly,  it is
difficult to accurately  predict  demand and market  acceptance for our recently
introduced  products.  The speech  industry  currently  has a limited  number of
proven  products  and popular  perceptions  about the use of speech  recognition
products (including  reliability,  cost, ease-of-use and quality) may impact the
growth of the market for such products. While we believe that speech recognition
technology  offers  significant  advantages over competing  products for a broad
range of warehouse and  industrial  applications,  we cannot assure you that the
market for  voice-based  products will grow  significantly  or that our products
will become widely accepted.  Therefore, it is difficult to predict the size and
future growth rate, if any, of this market.  If the market for our products does
not develop or if our new products do not achieve market acceptance,  our future
financial results will be adversely affected.

     If our  VoiceLogistics(TM)  family of  products  is not  successful  in the
market,  we  will  not be able  to  generate  substantial  revenues  or  achieve
profitability.  Our  success is  substantially  dependent  on the success of our
VoiceLogistics(TM) family of products. Sales of our older generation voice-based
products  accounted for approximately 47%, 58% and 8% of our net revenue for the
fiscal years ended 2000, 2001 and 2002, respectively.  In addition, 53%, 42% and
6% of our net revenues in fiscal 2000, 2001 and 2002 respectively were licensing
revenues from our prior business of licensing speech  compression  technologies.
Since we sold our speech  compression  business in September 1999, we expect our
revenues from licensing  speech  compression  technologies  to decrease.  If our
VoiceLogistics(TM)  products are  accepted by the market,  these  products  will
account  for a  large  percentage  of our  net  revenue  in the  future.  If our
VoiceLogistics(TM) products are unsatisfactory,  or if we are unable to generate
significant  demand for these products,  or we fail to develop other significant
products, our business will be materially and adversely affected.

     If we are unsuccessful in managing our recently acquired business,  we will
be unable to grow the business and  generate  revenues and profits.  In February
1999, we acquired from Verbex the assets and technology relating to our business
of  selling  speech   recognition-based   products  for  the   warehousing   and
manufacturing  markets and other industrial  markets. In September 1999, we also
sold the assets  relating to our prior  business of licensing  speech coding and
audio compression technologies. We therefore have very limited operating history
and  experience  in our primary line of  business.  In  particular,  most of our
senior management,  including Dr. Bathsheba J. Malsheen, our President and Chief
Executive  Officer,  have been operating the Verbex business only since February
1999. Accordingly, we cannot assure you that our management will be effective in
operating our business in order to generate substantial  revenues,  or operating
or net income.

     If we do not develop or acquire and introduce new and enhanced  products on
a timely  basis,  our  products  may be rendered  obsolete.  The markets for our
speech  recognition  products  and  technologies  are  characterized  by rapidly
changing technology. The introduction of products by others based on new or more
advanced  technologies  could  render our products  obsolete  and  unmarketable.
Therefore,  our ability to build on our  existing  technologies  and products to
develop and introduce new and enhanced  products in a cost  effective and timely
manner will be a critical  factor in our ability to grow and compete.  We cannot
assure you that we will develop new or enhanced  products  successfully and in a
timely manner.  Further, we cannot assure you that new or enhanced products will
be  accepted by the  market.  Our  failure to develop new or enhanced  products,
including our failure to develop or acquire the  technology  necessary to do so,
would have a material adverse effect on our business.

                                       11
<PAGE>

     If our competitors  introduce better or cheaper products,  our products may
not be  profitable  to sell or to continue to develop.  The business in which we
engage is highly  competitive.  Success is influenced by advances in technology,
product  improvements  and new product  introductions,  as well as marketing and
distribution  capabilities,  and price  competition.  Failure  to keep pace with
product  and  technological  advances  could  adversely  affect our  competitive
position and prospects for growth. Our products compete with those being offered
by larger,  traditional  computer industry  participants who have  substantially
greater financial,  technical, marketing and manufacturing resources than us. We
cannot  assure you that we will be able to compete  successfully  against  these
competitors or that competitive pressures faced by us would not adversely affect
our business or operating results.

     If  we  cannot  integrate  our  speech  recognition   products  with  other
components  of  customer  systems,  we may not be able  to  sell  our  products.
Although   state-of-the-art   speech  recognition  technology  is  important  to
generating sales in our target markets, other components of a voice-based system
are also necessary. Our products must be easily integrated with customers' asset
management  and  information   systems.   The  ability  to  incorporate   speech
recognition  products into customers' systems quickly and without excessive cost
or disruption will be a key factor in our success. We do not now possess all the
necessary  components for system  integration.  Acquisitions,  joint ventures or
other strategic relationships may be required for us to develop or obtain access
to the necessary components to achieve market penetration.  We cannot assure you
that our efforts will be successful and, to the extent we are unsuccessful,  our
business may be materially adversely affected.

     There are a number of factors,  which may cause substantial  variability in
our quarterly operating results. Our revenue, gross profit, operating income and
net income may vary  substantially  from  quarter to quarter  due to a number of
factors.  Many factors, some of which are not within our control, may contribute
to fluctuations in operating results. These factors include the following:

     o    market acceptance of our new products;

     o    timing and levels of purchases by customers;

     o    new product and service introductions by our competitors or us;

     o    market  factors  affecting  the  availability  or costs  of  qualified
          technical personnel;

     o    timing  and  customer  acceptance  of  our  new  product  and  service
          offerings;

     o    length of sales cycle; and

     o    industry and general economic conditions.

     If our  third-party  partners  do not  effectively  market and  service our
products, we will not generate significant revenues or profits from sales of our
products. We expect to utilize third parties,  such as consultants,  value added
resellers, or VARs, and system integrators,  to sell and/or assist us in selling
our  products.  To  date,  we have  signed  agreements  with  several  of  these
third-party  partners.  We  believe  that  the  establishment  of a  network  of
third-party  partners  with  extensive  and  specific  knowledge  of the various
applications critical in the industrial market is important for us to succeed in
that market.  Some  third-party  partners  also  purchase  products from us at a
discount  and  incorporate  them into  application  systems for  various  target
markets,  and/or consult us in the  development  of application  systems for end
users.  For the  foreseeable  future,  we may sell fewer  products  if we cannot
attract  and  retain  third-party  partners  to sell and  service  our  products
effectively  and that provide timely and  cost-effective  customer  support.  An
increasing  number of  companies  compete for access to the types of partners we
use.  Our  current  arrangements  with  third-party  partners  generally  may be
terminated  by either party at any time upon 30 days prior  written  notice.  We
cannot  assure you that our partners  will  continue to purchase and re-sell our
products  or  provide  us  with  adequate  levels  of  support.  If our  partner
relationships  are terminated or otherwise  disrupted our operating  performance
and financial results will be adversely affected.

     If we  cannot  attract  and  retain  management  and other  personnel  with
experience in the areas of our business focus, we will not be able to manage and
grow our business.  We have been  developing and selling our speech  recognition
products and  technologies  only since February  1999.  Since that time, we have
been hiring personnel with skills and experience relevant to the development and
sale of these  products  and  technologies.  If we cannot  continue to hire such
personnel and to retain any personnel hired, our ability to operate our business

                                       12
<PAGE>

profitably  will be materially  adversely  affected.  Competition  for qualified
personnel  is intense and we cannot  assure you that we will be able to attract,
assimilate or retain qualified personnel.

     If we cannot protect our proprietary  rights and trade secrets or if we are
found to be  infringing  on the patents and  proprietary  rights of others,  our
business  would be  substantially  harmed.  Our  success  depends in part on our
ability to protect the  proprietary  nature of our products,  preserve our trade
secrets and operate  without  infringing the  proprietary  rights of others.  If
others  obtain  and copy our  technology  or  others  claim  that we are  making
unauthorized use of their proprietary technology, we may get involved in lengthy
and costly disputes to resolve  questions of ownership of the technology.  If we
are found to be  infringing  on the  proprietary  rights of others,  we could be
required to seek licenses to use necessary technology. We cannot assure you that
licenses of third-party patents or proprietary rights would be made available to
us on acceptable  terms, if at all. In addition,  the laws of certain  countries
may not protect our intellectual property. To protect our proprietary rights, we
seek patents and we enter into confidentiality agreements with our employees and
consultants with respect to proprietary rights and unpatented trade secrets.  We
cannot assure you that patent  applications  in which we hold rights will result
in the issuance of patents.  We cannot  assure you that any issued  patents will
provide significant  protection for our technology and products. In addition, we
cannot  assure  you  that  others  will  not  independently   develop  competing
technologies  that are not  covered by our  patents.  We cannot  assure you that
confidentiality  agreements  will  provide  adequate  protection  for our  trade
secrets,  know-how,  or  other  proprietary  information  in  the  event  of any
unauthorized  use or  disclosures.  Any  unauthorized  disclosure and use of our
proprietary technology would have a material adverse effect on our business.

     The price of our common stock has been highly  volatile due to factors that
will continue to affect the price of our stock.  Our common stock closed as high
as $0.33 and as low as $0.05 per share  between  July 1, 2001 and June 30, 2002.
Historically,  the  over-the-counter  markets for securities  such as our common
stock have experienced extreme price  fluctuations.  Some of the factors leading
to this volatility include:

     o    fluctuations in our quarterly revenue and operating results;

     o    announcements of product releases by us or our competitors;

     o    Announcements  of  acquisitions  and/or  partnerships  by  us  or  our
          competitors; and

     o    increases  in  outstanding  shares of common  stock upon  exercise  or
          conversion of derivative securities

     Certain factors may continue to affect the price of our common stock in the
future.  If the trading price of our common stock falls, our stockholders  could
experience  substantial  dilution  as a  result  of the  terms  of our  Series B
Preferred  Stock,  Series C Preferred  Stock and warrants  originally  issued in
private placements in August 2000 and April 2001, as amended in August 2001.

     We issued 4,000  shares of our Series A Preferred  Stock and a common stock
purchase warrant (the "2000 Warrant") to Castle Creek Technology  Partners,  LLC
("Castle  Creek") in a private  placement on August 15,  2000.  As of August 28,
2001 Castle  Creek held 3,635 of such shares.  On August 29, 2001,  all 3,635 of
such Series A Preferred  Stock were  converted  into the same number of Series B
Preferred  Stock  pursuant to the terms of an exchange  agreement (the "Exchange
Agreement")  between us and Castle  Creek.  The number of shares of common stock
issuable by us upon  conversion of the Series B Preferred  Stock and exercise of
the 2000 Warrant can increase  substantially in certain events.  If these events
were to occur,  we would not receive any additional  payment from the holders of
the Series B Preferred Stock and the 2000 Warrant for the additional shares. Any
increase  in the  number  of shares of common  stock  issuable  may  result in a
decrease in the value of the outstanding shares of common stock.

     In April 2001, we issued  714,000 shares of common stock and a common stock
purchase  warrant (the "2001  Warrant") to purchase  2,142,000  shares of common
stock to Castle  Creek.  Two hundred  thousand  shares of the common  stock were
subsequently given as a gift by Castle Creek to a non-profit organization. As of
August 28, 2001, Castle Creek had sold an additional  475,000 of such shares. On
August 29,  2001,  the 2001  Warrant was  cancelled  and a new warrant (the "New
Warrant")  was issued to Castle  Creek to  purchase  2,142,000  shares of common
stock,  pursuant  to the  Exchange  Agreement.  The  securities  issued in these
transactions  are  subject  to  anti-dilution  protection  in the event we issue
securities  prior to specified  dates at a price below the purchase price of the
shares, which is $0.34 per share. The anti-dilution protections set forth in the
agreements  which we and Castle Creek  entered into in April 2001, as amended by
the Exchange Agreement, require us to issue to Castle Creek additional

                                       13
<PAGE>


warrants  to  purchase  shares of our common  stock any time we issue our common
stock (or securities  convertible into our common stock) at a price below $0.34.
Such additional warrants,  if issued, will have a term of ten years, an exercise
price of $0.01 per share and will be  exercisable  only to the  extent  that the
number of shares of common stock issuable upon such exercise,  together with the
number of shares of common  stock  then  owned by Castle  Creek  does not exceed
4.99% of our then outstanding shares of common stock. In addition, the number of
shares of common stock which we must issue  pursuant to additional  warrants may
increase substantially in the event we fail to maintain the effectiveness of the
registration  statement on Form S-2 declared effective on August 3, 2001 and the
registration  statement on Form S-2 declared  effective on September 6, 2001, or
adequately update either  registration  statement.  The sale of shares to Castle
Creek in April 2001 reset the conversion  price of the Series A Preferred  Stock
to $0.34.

     The Series B Preferred Stock is currently convertible into 1,483,078 shares
of our common stock (as a result of a limitation on  conversions in the Exchange
Agreement) and the 2000 Warrant is currently  exercisable  for 727,273 shares of
our  common  stock.  If  conversions  of the Series B  Preferred  Stock were not
limited  by the  Exchange  Agreement,  such  shares  would be  convertible  into
17,187,500 shares of common stock, at the current  conversion price of $0.16 per
share.  The number of shares of common stock which we must issue upon conversion
of the Series B Preferred  Stock may  increase  substantially  in the  following
events:

     o    if we do not allow  conversion  of the  shares  of Series B  Preferred
          Stock or we fail to  deliver  a stock  certificate  for  common  stock
          within the required time periods after we receive  notice of an intent
          to convert the Series B Preferred Stock; and

     o    if we fail to maintain the effectiveness of our registration statement
          on Form S-3 declared  effective on  September  15, 2000 or  adequately
          update such registration statement.

     The number of shares of common  stock which we must issue upon  exercise of
the 2000 Warrant may increase  substantially in the event we issue securities at
a price  below  the  exercise  price of the  2000  Warrant,  which is  currently
$0.1255, or at prices below the prevailing market price at the time of issuance.

     We issued  1,865  shares of our Series C Preferred  Stock and common  stock
purchase  warrants (the  "December 2001  Warrants") to certain  existing and new
investors in a private  placement on December 12, 2001.  The number of shares of
common stock issuable by us upon  conversion of the Series C Preferred Stock can
increase  substantially  in certain  events.  If these events were to occur,  we
would not  receive  any  additional  payment  from the  holders  of the Series C
Preferred Stock for the additional  shares. Any increase in the number of shares
of  common  stock  issuable  may  result  in a  decrease  in  the  value  of the
outstanding shares of common stock.

     The Series C  Preferred  Stock is  currently  convertible  into  14,661,365
shares  of our  common  stock  and the  December  2001  Warrants  are  currently
exercisable  for 6,402,384  shares of our common stock.  The number of shares of
common stock which we must issue upon conversion of the Series C Preferred Stock
may increase substantially in the following events:

     o    if we do not allow  conversion  of the  shares  of Series C  Preferred
          Stock or we fail to  deliver  a stock  certificate  for  common  stock
          within the required time periods after we receive  notice of an intent
          to convert the Series C Preferred Stock; and

     o    if we issue  securities at a price below the  conversion  price of the
          Series C Preferred  Stock,  which is currently  $0.1255,  or at prices
          below the prevailing market price at the time of issuance.

     In connection with the Series C private  placement,  Castle Creek agreed to
forgo its rights under the 2001  Securities  Purchase  Agreement with respect to
additional  warrants and to forgo any reduction in the conversion  price for the
Series B  Preferred  Stock  which  would  otherwise  result  from  such  private
placement.

     The perceived risk of dilution or any actual dilution  occasioned by Series
B Preferred  Stock,  the Series C Preferred  Stock,  the 2000  Warrant,  the New
Warrant or the December 2001 Warrants may cause our  stockholders  to sell their
shares,  which would  contribute to the downward  movement in stock price of the
common stock.  In addition,  the  significant  downward  pressure on the trading
price of the common  stock could  encourage  investors to engage in short sales,
which would  further  contribute to the downward  spiraling  price of the common
stock.

                                       14
<PAGE>


     The  perceived  risk of dilution or any actual  dilution  occasioned by the
conversion of Series B Preferred  Stock or the Series C Preferred  Stock, or the
exercise of the 2000  Warrant,  the New Warrant or the  December  2001  Warrants
could also make it difficult to obtain additional financing. New investors could
either  decline to make an investment  in Voxware due to the potential  negative
effect  of  the  dilution  on a  potential  investment  or  require  that  their
investment  be on terms at least as favorable  as the terms of the  transactions
with Castle Creek.

     Future  sales of our common  stock in the  public  market  could  adversely
affect the price of our common stock. Sales of substantial amounts of our common
stock in the public market that are not currently freely  tradable,  or even the
potential for such sales, could impair the ability of our stockholders to recoup
their investment or make a profit. As of October 11,2002, these shares include:

     o    approximately  72,403  shares of common  stock owned by our  executive
          officers and directors;

     o    approximately 7,716,544 shares of common stock which may be sold under
          various  prospectuses  filed  under  the  Securities  Act of 1933,  as
          amended (the "Act");

     o    approximately  6,362,544  shares issuable to the selling  stockholders
          upon the  exercise of the  December  2001  Warrants  which may be sold
          under a prospectus filed under the Act;

     o    approximately   14,361,365   shares  of  common  stock  issuable  upon
          conversion  of the Series C Preferred  Stock which may be sold under a
          prospectus filed under the Act;

     o    approximately 3,082,371 shares of common stock potentially issuable as
          dividends  on the Series C  Preferred  Stock which may be sold under a
          prospectus filed under the Act;

     o    up to 1,483,078 shares of common stock issuable upon conversion of the
          Series B Preferred Stock (as a result of a limitation on conversion in
          the Exchange  Agreement) issued in August 2001 which may be sold under
          a prospectus filed under the Act;

     o    approximately  3,599,158 shares issuable to warrant holders and option
          holders which may be sold under a prospectus filed under the Act; and

     o    additional shares that may be issuable under anti-dilution and penalty
          clauses contained in agreements with certain stockholders.

     If the  holders of the Series B  Preferred  Stock,  the Series C  Preferred
Stock and the 2000  Warrant  elect to have the  Series B  Preferred  Stock,  the
Series C Preferred Stock and the 2000 Warrant assumed by a potential acquirer of
Voxware, the acquirer could be deterred from completing the acquisition.

     The Series B Preferred  Stock,  the Series C  Preferred  Stock and the 2000
Warrant  permit the holders to elect to have their  shares of Series B Preferred
Stock, Series C Preferred Stock and the 2000 Warrant remain outstanding after an
acquisition of Voxware,  and to have the acquirer  assume all of our obligations
to the  holders.  This could  deter a  potential  acquirer  from  completing  an
acquisition of Voxware.

     Among our  obligations  which an acquirer  might be forced to assume  which
would act as a deterrent are:

     o    the price adjustment  provisions which could have an adverse effect on
          the market value of the acquirer's outstanding securities;

     o    the  obligation  to register the re-sale of the common stock  issuable
          upon  conversion of the Series B Preferred  Stock and the 2000 Warrant
          which could  result in the sale of a  substantial  number of shares in
          the market;

     o    the  obligation to pay  dividends on the Series B Preferred  Stock and
          Series C Preferred Stock;

     o    the  obligation  to pay the  holders of Series B  Preferred  Stock and
          Series C Preferred  Stock the amount  invested plus accrued  dividends
          before  any  other   stockholder   receives  any  payment  if  we  are
          liquidated;

                                       15
<PAGE>


     o    the  obligation  to seek the  consent  of the  holders of the Series B
          Preferred  Stock before we can issue  securities  which have senior or
          equal   rights  as  the  Series  B  Preferred   Stock,   sell  all  or
          substantially all of our assets, or take other actions with respect to
          the Series B Preferred Stock or securities which have less rights than
          the Series B Preferred Stock; and

     o    the  obligation  to seek the  consent  of the  holders of the Series C
          Preferred  Stock before we can issue  securities  which have senior or
          equal   rights  as  the  Series  C  Preferred   Stock,   sell  all  or
          substantially all of our assets, or take other actions with respect to
          the Series C Preferred Stock or securities which have less rights than
          the Series C Preferred Stock.

Our common stock is considered "a penny stock" and may be difficult to sell. The
Securities  and  Exchange  Commission  ("SEC")  has  adopted  regulations  which
generally  define "penny stock" to be an equity security that has a market price
of less than $5.00 per share or an exercise  price of less than $5.00 per share,
subject to specific exemptions.  Presently, the market price of our common stock
is substantially  less than $5.00 per share and therefore may be designated as a
"penny stock" according to SEC rules.  This  designation  requires any broker or
dealer selling these securities to disclose certain  information  concerning the
transaction,  obtain a written  agreement  from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict  the  ability of  brokers  or dealers to sell our common  stock and may
affect the ability of investors  to sell their  shares.  In addition,  since our
common stock is traded on the NASD OTC  Bulletin  Board,  investors  may find it
difficult to obtain accurate quotations of our common stock.

                                       16
<PAGE>


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.  We entered into a Sublease  Agreement in February 2002,  under
which  we  subleased  to a third  party  approximately  34% of the  space in the
facility.  The initial term of that Sublease  Agreement  will expire on June 30,
2002, and thereafter shall automatically renew from month to month.

     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 was  scheduled  to expire on May 31,  2003.  Total  payments
under  this lease  consisted  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 was due to expire on May 31, 2003.  Effective  June 30,
2000, we were 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 was 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.  Effective January 31, 2002, we and our sub-lessee concurrently were
released from this lease  commitment for the remaining 8,500 square feet of this
space.

     Our  principal  facility,  which is  located in  Cambridge,  Massachusetts,
contains  approximately  9,535 square feet of office space.  We lease this space
for research and development,  customer support,  professional services, product
marketing,  product engineering,  and final assembly and testing. Total payments
under  this  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.

     We believe that existing facilities are adequate for operations through the
fiscal year ending June 30, 2003.


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.

                                       17

<PAGE>



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

     Our annual meeting of stockholders  was held on May 1, 2002.  Three matters
were submitted to a vote of the stockholders. These matters were:

     1.   To elect one  director  to serve  until  the next  annual  meeting  of
          stockholders or until their respective  successor 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  4,000,000  shares  to an  aggregate  of
          8,000,000 shares.

     3.   To approve an amendment to the Company's  Certificate of Incorporation
          to  increase  the  number of  authorized  shares  of  common  stock by
          120,000,000 to 180,000,000.

     David B.  Levi was  elected  as a  Director  of the  Company.  The terms of
Bathsheba J.  Malsheen,  Ph.D.  and Eli Porat as Directors  extended  beyond the
meeting and they continued as Directors after the meeting.

     The  proposals  and  results of the vote of the  stockholders  taken at the
meeting by ballot and proxy were as follows:

     1.   The  results  of the vote  taken at the  meeting  with  respect to the
          election of the  nominees  for the Board of  Directors  of the Company
          were as follows:

           Nominee                   For                         Withheld
         -------------         -----------------             ---------------
          David B. Levi        17,752,705 Votes              1,265,315 Votes

     2.   The  proposal to amend the  Company's  1994 Stock  Option Plan was not
          adopted due to less than 50% of the outstanding shares of common stock
          voted on the issue.

     3.   A proposal to amend the  Company's  Certificate  of  Incorporation  to
          increase  the  number  of  authorized  shares  of  common  stock  from
          60,000,000   shares  to   180,000,000   shares  was  approved  by  the
          stockholders with the following vote:

          FOR 15,295,435 Votes   AGAINST 3,598,017 Votes   ABSTAIN 124,568 Votes

                                       18
<PAGE>


                                     PART II

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

Market Information

     Our common  stock was traded on the National  Market  segment of The Nasdaq
Stock Market  through  February 28, 2001.  Since March 1, 2001, our common stock
has  traded on the Nasdaq  OTC  Bulletin  Board  under the  symbol  "VOXW."  The
following  table sets forth the high and low sale prices as quoted on The Nasdaq
Stock Market and on the Nasdaq OTC Bulletin Board for our two most recent fiscal
years.

                                                          High          Low
                                                          ----          ---

FISCAL YEAR ENDED JUNE 30, 2001
Quarter ended September 30, 2000                       $  4.375     $  1.969
Quarter ended December 31, 2000                        $  3.000     $  0.500
Quarter ended March 31, 2001                           $  1.406     $  0.375
Quarter ended June 30, 2001                            $  0.825     $  0.250

FISCAL YEAR ENDED JUNE 30, 2002
Quarter ended September 30, 2001                       $  0.340     $  0.140
Quarter ended December 31, 2001                        $  0.270     $  0.060
Quarter ended March 31, 2002                           $  0.190     $  0.100
Quarter ended June 30, 2002                            $  0.140     $  0.050

     As of June 30, 2002, there were  approximately 150 holders of record of our
common stock.  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.

     On August 29, 2001,  the Company  entered into an Exchange  Agreement  (the
"Exchange Agreement") with Castle Creek Technology Partners, LLC ("Castle Creek"
or the "Investor") which modified the terms of the private placements  described
below that the  Company had  entered  into with the  Investor in August 2000 and
April 2001.

     On August 15, 2000, the Company sold to the Investor 4,000 shares of Series
A  Preferred  Stock,  $0.001 par value (the  "Series A  Preferred  Stock") and a
Warrant (the "2000 Warrant") to purchase 727,273 shares of Common Stock,  $0.001
par value (the "Common  Stock") for an aggregate  purchase  price of $4 million,
pursuant to the terms of a Securities  Purchase  Agreement (the "2000 Securities
Purchase  Agreement").  The  number  of shares of  Common  Stock  issuable  upon
conversion of the Series A Preferred Stock was limited to 2,850,413 shares.

     On April 19,  2001,  the Company  sold to the  Investor  714,000  shares of
Common Stock and a Warrant (the "2001 Warrant") to purchase  2,142,000 shares of
Common Stock for an aggregate purchase price of $242,000,  pursuant to the terms
of a Securities Purchase Agreement (the "2001 Securities  Purchase  Agreement").
The Common  Stock was sold at a price of $0.34 per share.  The  Company  and the
Investor  also  entered  into  a  Registration   Rights   Agreement  (the  "2001
Registration  Rights Agreement")  pursuant to which the Company agreed to file a
Registration  Statement  with the SEC  relating  to the  shares of Common  Stock
purchased  pursuant  to the  2001  Securities  Purchase  Agreement.  Since  this
registration  statement  was not  declared  effective by the SEC by the 90th day
following the closing of the 2001 Securities Purchase Agreement, the Company was
obligated  to issue to the  Investor a warrant to  purchase  708,656  additional
shares of Common Stock of the Company (the "Remedy Warrant"). The exercise price
of the Remedy  Warrant is $0.01 per share.  During the year ended June 30, 2002,
the entire remedy warrant was exercised and the Company received $7,000 in gross
proceeds.

     Pursuant to the 2001 Securities Purchase Agreement,  Castle Creek exercised
three  purchase  warrants to  purchase  714,000  shares of common  stock each on
December 21, 2001, February 8, 2002, and April 19, 2002, respectively. The price
of all three warrant  exercises was $0.13 per share,  resulting in cash proceeds
of  $278,000.  Simultaneously,  the Company  applied  the  proceeds to retire an
aggregate  of 251  shares of  Series B  Preferred.  No  additional  warrants  to
purchase common stock are outstanding  pursuant to the 2001 Securities  Purchase
Agreement.

                                       19
<PAGE>

     By execution of the Exchange Agreement, the Company agreed to the following
modifications to the private placements:

     First,  all of the  outstanding  shares of Series A  Preferred  Stock  were
exchanged for the same number of shares of Series B Preferred Stock,  $0.001 par
value  (the  "Series  B  Preferred   Stock")  upon  the   effectiveness  of  the
registration  described  below.  As of the  date of  execution  of the  Exchange
Agreement, there were 3,635 shares of Series A Preferred Stock outstanding.  The
rights,  preferences  and  privileges  of the  Series B  Preferred  Stock are as
described in the certificate of  designations  filed with the Secretary of State
of the State of Delaware on August 29,  2001,  as amended (the  "Certificate  of
Designations"). The rights, preferences and privileges of the Series B Preferred
Stock are substantially similar to those of the Series A Preferred Stock, except
that they are amended in order to include the  anti-dilution  protection for the
Series A Preferred Stock which was afforded by the applicable Additional Warrant
provisions  in  the  2001  Securities  Purchase  Agreement.   In  addition,  the
limitation on conversion of the Series B Preferred Stock was eliminated from the
Certificate of Designations,  and by the Exchange  Agreement the Investor agreed
to limit the aggregate number of shares issuable upon conversion of the Series B
Preferred  Stock to  3,956,997.  Series A Preferred  Stock had  previously  been
converted into 1,043,003 shares of Common Stock.

     Second,  the  2001  Warrant  was  cancelled  and a new  warrant  (the  "New
Warrant") was issued,  the terms of which are substantially  similar to the 2001
Warrant  except that it does not contain the provision of the 2001 Warrant which
required that the  Company's  right to require the Investor to exercise the 2001
Warrant be  conditioned,  among other  things,  on the  Company's  Common  Stock
trading at a minimum market price.

     Third,  the 2000  Warrant  was amended to  eliminate  the  provision  which
required  a minimum  exercise  price for the  exercise  of the 2000  Warrant  to
purchase shares in excess of a specified number.

     Finally,  the 2001 Registration Rights Agreement was amended to require the
registration  of the shares of Common  Stock  issuable  upon  conversion  of the
Series B  Preferred  Stock and upon  exercise  of the New Warrant and the Remedy
Warrant. Such agreement also was amended to obligate the Company to register the
shares of Common  Stock  issuable  upon the  exercise  of the  Additional  Share
Warrants, if issued.

     On December 12, 2001, the Company completed a $1,765,000  private placement
of Series C Preferred and common stock warrants to various accredited investors.
On  February  1,  2002,  the  Company  also  received  $100,000  in cash from an
additional  accredited  investor in connection with this private  placement.  In
total, the Company issued 1,865 shares of Series C Preferred Stock, which shares
are  convertible  into  shares of common  stock,  resulting  in  proceeds to the
Company of approximately  $1,572,000,  net of transaction  costs. In addition to
the cash  transaction  costs,  the Company  issued  warrants to acquire  458,165
shares of common stock to  investment  advisors as finder's  fees.  The exercise
price for the  warrants  issued as finder's  fees is $0.1255 per share,  and the
warrant expires in five years. Using the Black-Scholes option-pricing model, the
Company determined the fair value of the warrants to be $350,000. The Company is
obligated to redeem the Series C Preferred Stock 36 months from the closing. The
Series C  Preferred  Stock has a 7% dividend  payable in cash or equity,  at the
election of Voxware, and are convertible into Voxware common stock at an initial
conversion price of $0.1255 per share, subject to adjustment,  as defined in the
transaction  documents.  In addition,  the investors  have received  warrants to
purchase  5,944,219  shares of common stock at an exercise  price of $0.1255 per
share. The Series C Preferred  stockholders have certain registration rights, as
defined in the transaction agreements.

     The  securities  issued in the  private  placements  were  offered and sold
pursuant  to  an  exemption  from  the  registration  requirements  provided  by
Regulation D under the Securities Act of 1933, as amended.


ITEM 6.       SELECTED FINANCIAL DATA.

     The selected statement of operations data for the year ended June 30, 2002,
and the selected  balance sheet data as of June 30, 2002, have been derived from
the financial statements of the Company,  which have been audited by WithumSmith
& Brown,  PC  independent  certified  public  accountants,  and which  financial
statements are included  elsewhere in this Form 10-K. The selected  statement of
operations  data for the years  ended June 30, 2000 and 2001,  and the  selected
balance  sheet data as of June 30,  2000 and 2001,  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, 1998 and 1999, and the balance sheet data as of June
30,  1998 and 1999,  have been  derived  from the  Company's  audited  financial
statements not included  herein.  The selected  statement of operations data set
forth

                                       20
<PAGE>


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>
                                                   1998           1999            2000          2001           2002
                                                   ----           ----            ----          ----           ----
                                                                   (In thousands, except per share data)

Statement of Operations Data:
   Revenues:
     Product revenues:
<S>                                             <C>             <C>            <C>            <C>            <C>
       Product sales.........................   $    --         $  791         $  1,419       $ 1,020        $ 2,994
      License fees...........................     2,935            705            1,668           336            389
      Royalties and recurring revenues.......     1,918            511              488           387            233
        Total product revenues...............   -------        -------          -------       -------        -------
                                                  4,853          2,007            3,575         1,743          3,616
     Service revenues........................     1,029            879              226           302            885
                                                -------        -------          -------       -------        -------
             Total revenues..................     5,882          2,886            3,801         2,045          4,501
                                                -------        -------          -------       -------        -------
   Cost of revenues:
        Cost of product revenues.............       142            429              799         1,185          1,997
        Cost of service revenues.............       441            542               70           348            420
                                                -------        -------          -------       -------        -------
             Total cost of revenues..........       583            971              869         1,533          2,417
                                                -------        -------          -------       -------        -------
             Gross profit....................     5,299          1,915            2,932           512          2,084
                                                -------        -------          -------       -------        -------
   Operating expenses:
        Research and development.............     4,726          2,058            2,835         3,317          1,728
        Sales and marketing..................     3,844          2,513            2,870         3,263          1,166
        General and administrative...........     2,467          1,691            2,140         2,647          1,946
        Amortization of purchased intangibles        --            478            1,989         4,099          1,298
        Asset impairment charge..............        --             --               --         4,902             --
                                                -------        -------          -------       -------        -------
             Total operating expenses........    11,037          6,740            9,834        18,228          6,138
                                                -------        -------          -------       -------        -------
             Operating loss..................    (5,738)        (4,825)          (6,902)      (17,716)        (4,054)
   Interest income...........................       844            539              357           234             11
   Gain on write down of warrants to fair
   value.....................................         --            --               --           784             23
   Gain on sale of tax loss carryforwards....         --            --              501           279             27
   Gain on sale of assets....................         --            --            3,799           750             --
                                                 -------        -------          -------       -------        -------
   Net loss..................................  $ (4,894)      $ (4,286)        $ (2,245)     $(15,669)       $ (3,993)

   Accretion of preferred stock to redemption
   value.....................................  $     --       $     --         $     --      $   (652)       $ (1,749)
   Warrants issued to preferred stockholders
     treated as a dividend...................  $     --       $     --         $     --      $     --        $   (480)
   Beneficial conversion feature treated as
     a dividend..............................  $     --       $     --         $     --      $ (2,913)       $    (82)
                                                 -------        -------          -------       -------        -------
   Net loss applicable to common shareholders  $ (4,894)      $ (4,286)        $  (2,245)    $(19,234)       $ (6,304)
                                                ========        =======          ========      =======        =======
   Basic and diluted net loss applicable to
     common stockholders per common share....  $  (0.38)      $  (0.32)        $   (0.16)    $  (1.32)       $  (0.34)
                                                ========        =======          ========      =======        =======
   Shares used in computing basic and diluted
     net loss applicable to common stockholders
  per common share...........................    12,890         13,330            13,667       14,517          18,575
                                                ========        =======          ========      =======        =======
</TABLE>


<TABLE>
<CAPTION>


                                                                                   June 30,
                                                     ------------------------------------------------------------------
                                                       1998           1999         2000         2001         2002
                                                       ----           ----         ----         ----         ----
                                                                              (In thousands)
Balance Sheet Data:
   Cash, cash equivalents and short term
<S>                                              <C>             <C>           <C>           <C>         <C>
     investments...............................  $  13,357       $  4,446      $  3,226      $  578      $    6
   Working capital (deficit)...................     13,743          4,446         4,351         573        (386)
   Total assets................................     15,557         12,592        17,440       5,813       3,191
   Series A mandatorily redeemable convertible
     preferred stock...........................         --             --            --       3,193          --
   Series B mandatorily redeemable convertible
     preferred stock...........................         --             --            --          --       2,900
   Series C mandatorily redeemable convertible
     preferred stock...........................         --             --            --          --       1,299
   Total stockholders' equity (deficit)........     13,913          9,709        16,053         285      (3,475)
</TABLE>


     On February 18, 1999, the Company acquired  substantially all of the assets
of Verbex. On April 4, 2000, the Company purchased certain assets of InRoad Inc.
On September 21, 1999, the Company sold to Ascend  Communications  substantially
all of the Company's assets relating to the business of developing and licensing
speech compression technology and products.


                                       21
<PAGE>


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

     This  report  contains  forward-looking  statements.  Such  statements  are
subject to certain  factors that may cause  Voxware's plans to differ or results
to vary form those expected, including the risks associated with: Voxware's need
to raise  additional  capital in order to meet the Company's  cash  requirements
over the next twelve months and continue as a going  concern;  Voxware's need to
introduce  new and enhanced  products  and services in order to increase  market
penetration,  and the risk of  obsolescence  of its products and services due to
technological  change;  Voxware's  need to attract and retain key management and
other personnel with experience in providing  integrated  voice-based  solutions
for  e-logistics,  specializing  in the supply chain  sector;  the potential for
substantial  fluctuations in Voxware's  results of operations;  competition from
others;   Voxware's  evolving   distribution  strategy  and  dependence  on  its
distribution  channels;  the  potential  that  voice-based  products will not be
widely accepted; and a variety of risks set forth from time to time in Voxware's
filings with the  Securities  and Exchange  Commission.  Voxware  undertakes  no
obligation  to  publicly  release  results  of  any  of  these   forward-looking
statements  that may be made to reflect events or  circumstances  after the date
hereof, or to reflect the occurrences of unexpected results.


Overview

     Voxware designs,  develops,  markets and sells voice-based products for the
logistics,  fulfillment,  distribution, and package and mail sorting industries.
Until February 1999, our business was  developing,  marketing and selling speech
compression technologies and products to be used in websites, Internet telephony
and consumer  devices.  In February  1999 we acquired from Verbex the assets and
technology  on which our  current  voice-based  products  are  based.  Since our
acquisition of Verbex, we have  significantly  curtailed our speech  compression
technology  business,  and in September  1999 we sold  substantially  all of the
assets relating to that business.  Our solutions are designed  specifically  for
use in warehouses, distribution centers and other industrial settings, to enable
workers to perform, through an interactive speech interface, the least automated
logistics and fulfillment tasks such as picking, receiving,  returns processing,
cycle counting,  cross-docking and order entry, more efficiently and effectively
than with alternative technologies or methods. Voxware solutions are designed to
be used in the  logistics  and  fulfillment  operations  of  most  major  market
industry  sectors,  including  consumer goods  manufacturers,  consumer packaged
goods, direct to consumer  (e-commerce and catalog),  food and grocery,  retail,
third party logistics providers and wholesale  distribution.  Voxware's products
are  also  deployed  in  package  handling,   mail  sorting  and  manufacturing,
inspection and military combat  applications.  Revenues are generated  primarily
from product sales, licenses and development services.  Product sales consist of
portable  devices and software used for various mobile  industrial and warehouse
applications;  stationary  voice-based  devices,  primarily  used for  warehouse
receiving and package sorting applications;  and accessories that complement our
product offerings,  including  microphones,  headsets and computer hardware.  We
still  generate  some  license  fees and royalty  and  recurring  revenues  from
licensing our former speech compression products. Professional services consists
of  providing   technical   resources  and  assistance   for   customer-specific
applications. Revenues from product sales are generally recognized when products
are  deployed  for their  intended  use,  or when they are shipped to a specific
third party partner.

     Software product revenues are generally recognized upon shipment,  provided
persuasive evidence of an arrangement exists,  pricing is fixed or determinable,
the payment is due within one year, and  collection of the resulting  receivable
is deemed probable. If an acceptance period is required, revenues are recognized
upon  customer  acceptance.  Royalty  revenues are  recognized  in the period of
customer shipment.  Service revenues consist of customer maintenance support and
engineering fees. Customer  maintenance support revenues are recognized over the
term of the support period, which typically lasts for one year. Engineering fees
are generally recognized upon customer acceptance or upon delivery,  if customer
acceptance  is not  required.  The products and services are sold  separately as
well as combined.  The Company  combines  software,  hardware  and  professional
services  for  installation,  implementation  and  maintenance  as  part  of its
industrial voice-based solutions.

     The  products and services  are sold  separately  as well as combined.  The
Company combines software,  hardware and professional services for installation,
implementation and maintenance as part of its industrial voice-based solution.

     The Company  entered into and completed its initial  solution  arrangements
during 2001.  Based on the Company's  limited  experience  with  implementation,
installation  and  customer  acceptance,  solution  revenue  for  the  hardware,
software and  professional  services,  has been recorded upon the  completion of
installation and customer acceptance.

                                       22
<PAGE>


     During 2002, the Company entered into solution  arrangements with customers
that resulted in or are expected to result in losses.  The Company accrues these
losses when it is probable and can be reasonably estimated. As of June 30, 2002,
the Company evaluated such contracts and no losses on such contracts existed.

     The sale to Ascend of the assets  relating  to the speech and audio  coding
business  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 licensing  activity relating to the speech coding
technologies had 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 fiscal year ended
June 30, 2002,  revenues related to the speech coding business  accounted for 6%
of total  revenues for the year,  while revenue from our  voice-based  solutions
accounted for 94% of the fiscal year's  revenues.  While we may continue to take
advantage of favorable  opportunities to license our speech coding  technologies
in the future, we are not dedicating  significant  resources to the development,
marketing or licensing of our speech coding technologies.


Results of Operations

Fiscal 2002 Versus Fiscal 2001

Revenues

     Voxware  recorded  revenues of $4,501,000  for the year ended June 30, 2002
compared  to  revenues  of  $2,045,000  for the year  ended June 30,  2001.  The
$2,456,000  increase in total  revenues  reflects an increase in product  sales,
license fees and service fees, offset by a decrease of $154,000 in royalties and
recurring  revenues.  During  the  fiscal  year  ended  June 30,  2002,  Voxware
recognized  $4,232,000  (94%) of  total  revenue  from  the sale of  voice-based
solution  products  compared to $1,195,000  (58%) of total  revenues  during the
prior  fiscal  year  ended June 30,  2001.  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, 2002
approximated  $269,000(6%)  of total  revenues  versus  $850,000  (42%) of total
revenues for the year ended June 30, 2001.

     Total product  revenues  increased  $1,873,000 to $3,616,000  during fiscal
year ended June 30, 2002 from $1,743,000 in the prior fiscal year ended June 30,
2001. The increase in total product revenues  reflects an increase of $1,974,000
in product  sales or  $2,994,000  recognized  in fiscal year ended June 30, 2002
compared to $1,020,000 of product sales recognized in the fiscal year ended June
30, 2001.  During fiscal year ended June 30, 2002,  Voxware  recognized  license
fees of $389,000  compared to $336,000  during  fiscal year ended June 30, 2001,
resulting in a  $53,000 increase.  The  increase in product  revenues for fiscal
year 2002 is reflective of our change in business focus towards the development,
marketing and sale of our  VoiceLogistics(TM)  system.  VoiceLogistics(TM)  is a
voice-based  solution  set  of  software,  hardware  and  professional  services
designed  specifically  for use in  warehouses,  distribution  centers and other
industrial settings to enable workers to perform typical logistics tasks such as
picking, receiving, returns processing, cycle counting and order entry through a
speech  interface.  The Company has focused its efforts on developing the market
for this product and has not aggressively pursued  opportunities with its speech
compression business.  Royalties and recurring revenues are primarily related to
the Company's speech compression  business that was sold to Ascend, as discussed
previously.  The decrease in these revenues represents the decline in use of our
speech  coding  products  and  we  anticipate  that  revenues  from  the  speech
compression  business will continue to decline. We believe the factors discussed
in the "Overview" above are indicative of future revenues.  For the fiscal years
ended June 30, 2002 and 2001, 83% and 59% of the Company's product revenues were
attributable to product sales,  respectively,  11% and 19% were  attributable to
license fees,  respectively,  and 6% and 22% were  attributable to royalties and
recurring revenues, respectively.

     Service  revenues  were  primarily  attributable  to  customer  maintenance
support,   fees  for  engineering   services   relating  to  our  speech  coding
technologies  business,  and  professional  service fees relating to voice-based
solutions.  For the fiscal year ended June 30, 2002,  service  revenues  totaled
$885,000, reflecting an increase of $583,000 from

                                       23

<PAGE>

service  revenues  of  $302,000  for the fiscal  year ended June 30,  2001.  The
increase  in  service  revenues  is  primarily   attributable  to  the  customer
maintenance  support  revenues  related to our  VoiceLogitics  product suite and
professional service fees.


Cost of Revenues

     Cost of revenues  increased  $884,000 from  $1,533,000  for the fiscal year
ended June 30, 2001 to $2,417,000  for the fiscal year ended June 30, 2002.  The
increase  in cost of  revenues  is  attributable  to  increases  in fixed  costs
associated with manufacturing as a percentage of cost of revenues.

     Cost of product revenues  increased  $812,000 from $1,185,000 in the fiscal
year ended June 30, 2001 to  $1,997,000  in the fiscal year ended June 30, 2002.
Such costs reflect materials, labor and overhead associated with the sale of our
voice-based  products.  As of June 30,  2002 and 2001,  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 professional services,  including employee
compensation and travel expenditures. Cost of service revenues increased $72,000
from  $348,000  in the fiscal year ended June 30, 2001 to $420,000 in the fiscal
year  ended  June  30,  2002.  The  increase  in cost of  service  revenues  was
reflective of our  professional  services fees charged for the  installation  of
VoiceLogistics in locations.

Operating Expenses

     Total operating expenses decreased by $4,387,000 (47%) to $4,840,000 in the
fiscal  year ended June 30, 2002 from  $9,227,000  in the fiscal year ended June
30,  2001,  excluding  amortization  and  impairment  of  purchased  intangibles
totaling  $4,099,000 and $4,902,000,  respectively,  for the year ended June 30,
2001, compared to $1,298,000 and $0 for the year ended June 30, 2002. A decrease
in staff and the  allocation of customer  support,  information  technology  and
professional  services  to cost of revenues  attributed  to cost  reductions  in
operations.  As of June 30, 2002 headcount totaled 39 compared to 49 at June 30,
2001.

     Research   and   development   expenses   primarily   consist  of  employee
compensation  and  equipment  depreciation  and lease  expenditures  related  to
product research and development.  Voxware's  research and development  expenses
decreased  $1,589,000 (48%) to $1,728,000 in the fiscal year ended June 30, 2002
from $3,317,000 in the fiscal year ended June 30, 2001. The decrease in research
and  development  expenses is due to efficiences and reductions in cost of sales
as a  percentage  of sales.  As of June 30,  2002,  the  Company's  research and
development team comprised 23 compared to 27 at June 30, 2001.

     Sales and marketing  expenses  primarily  consist of employee  compensation
(including direct sales commissions), travel expenses and trade shows. Sales and
marketing expenses  decreased  $2,097,000 (64%) to $1,166,000 in the fiscal year
ended June 30, 2002 from  $3,263,000 in the fiscal year ended June 30, 2001. The
decrease in sales and marketing  expenses  resulted from a reductions in Company
overhead and achievement of business  objectives.  Our sales and marketing staff
decreased  30% over the prior year period  ended June 30,  2001,  as we combined
sales personnel to strategically manage business  opportunities.  As of June 30,
2002, our sales and marketing  personnel  comprised 7 compared to 10 at June 30,
2001.

     General  and   administrative   expenses  consist   primarily  of  employee
compensation  and fees for insurance,  rent,  office  expenses and  professional
services.  General  and  administrative  expenses  decreased  $701,000  (26%) to
$1,946,000 in the fiscal year ended June 30, 2002 from  $2,647,000 in the fiscal
year ended June 30, 2001.  As of June 30, 2002,  the general and  administrative
staff was 5,  compared  to 8 at June 30,  2001.  The  decrease  in  general  and
administrative  expenses is due to the allocation of costs  associated  with the
Information Technology department to cost of sales.

     Amortization  of purchased  intangibles  totaled  $1,298,000 for the fiscal
year ended June 30, 2002  compared to  $4,099,000  in fiscal year ended June 30,
2001. The amortization is attributable to the intangibles  generated in the 1999
acquisition of Verbex and the April 2000 Inroad transaction. The intangibles for
the Verbex  transaction are being amortized over a four-year  period and for the
InRoad  transaction  were  amortized over a three-year  period.  The decrease in
amortization  expense is a result of a full year of  amortization  of the InRoad
transaction  intangibles.  The Company  recorded a charge for the  impairment of
InRoad goodwill and purchased intangible assets as of June

                                       24
<PAGE>

30,  2001.  During the fourth  quarter of fiscal  2001,  the  Company  planned a
redesign of the hardware  product that will most likely  result in the phase-out
of the InRoad  technology  that makes up a large  portion of the  VoiceLogistics
hardware. This decision,  combined with the company's recurring operating losses
and negative cash flow, limited capital availability and significantly depressed
stock price, resulted in a significant indicator of impairment. Pursuant to SFAS
No. 121, the Company  evaluated the  recoverability  of the  Company's  acquired
long-lived assets, including goodwill and identifiable  intangibles.  During the
fourth quarter of fiscal 2001, the Company determined that the undiscounted cash
flow projections for the hardware  component of the Verbex business segment (the
hardware  platform  for the  VoiceLogistics  product  as  influenced  by  InRoad
Technology)  were  lower than the  carrying  value of the  related  identifiable
intangible assets.  Accordingly,  the Company adjusted the carrying value to the
discounted cash flows of the assets to zero,  resulting in a non-cash impairment
charge of  approximately  $4,902,000.  This had no impact on the Company's  cash
position.

Interest Income

     Interest  income  decreased  $223,000  to $11,000 for the fiscal year ended
June 30,  2002 from  $234,000  for the  fiscal  year ended  June 30,  2001.  The
decrease is  primarily  related to the decrease in  Voxware's  total cash,  cash
equivalents and short-term  investments  portfolio balance.  As of June 30, 2002
Voxware's cash, cash equivalents and short-term  investments  portfolio  totaled
$6,000 compared to $561,000 at June 30, 2001.

Income Taxes

     As of June 30,  2002,  we had  approximately  $27,000,000  of  federal  net
operating loss carryforwards which will begin to expire in 2009 if not utilized.
As of June 30, 2002, 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 Writedown of Warrants to Fair Value

     On August 15, 2000, the Company completed a $4,000,000 private placement of
Series A Preferred Stock and Warrants to Castle Creek Technology Partners,  LLC.
The Company allocated the proceeds,  net of cash and non-cash transaction costs,
to the  Series A  Preferred  and  Warrants  sold to  Castle  Creek  based on the
relative  fair  value of each  instrument.  The fair value of the  warrants  was
determined  based on the  Black-Sholes  option-pricing  model. As a result,  the
Company  allocated  approximately  $807,000 to the warrants as of September  30,
2000.  The  warrants  are   classified  as  a  liability  in  the   accompanying
consolidated  balance  sheets because the warrants give the holder the choice of
net cash  settlement  at a time when  other  shareholders  would not have such a
choice (upon a merger or change in control,  as  defined).  As of June 30, 2002,
the outstanding warrants are subject to variable accounting and were adjusted to
the fair value of the  warrants  based upon the  closing  stock price as of that
date. As a result,  the Company  adjusted the warrants to zero  representing the
fair market value as of June 30,  2002,  using the  Black-Sholes  option-pricing
model and recorded a gain on the write down of warrants to fair value of $23,000
and $784,000 for the year ended June 30, 2002 and 2001, respectively.

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  and  received   determination   letters  to  sell  up  to  approximately
$14,900,000  of its New  Jersey  State net  operating  loss  carryforwards.  The
Company sold $0 and $7,480,000 in fiscal year 2002 and 2001, respectively,  of
its New Jersey state net operating  losses which,  upon sale,  provided  Voxware
none and $279,000 in cash. Voxware also received a determination letter from the
State of New  Jersey  to sell  $33,000  of its New  Jersey  State  research  and
development  credits which,  upon the sale in December 2002 provided  $27,000 in
cash in fiscal year  2002.These  amounts were  recorded as a gain on sale of tax
loss carryforwards in the accompanying Statements of Operations.

                                       25

<PAGE>


Gain on Sale of Assets

     During the quarter ended September 30, 1999, the Company completed the sale
of  substantially  all of the assets  relating to our speech  coding  technology
business  for  $5,100,000,  of which  $750,000  had 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, 2001, we recorded a gain on the sale
of speech coding assets totaling  $750,000,  which reflects the release from the
Ascend escrow  account.  Total  proceeds  received to date totaling  $5,100,000,
including the $750,000 from the Ascend Escrow account  released from restriction
as of  March  21,  2001,  less  transaction  costs  of  $517,000  and  equipment
transferred to Ascend totaling $34,000.

Asset Impairment Charge

     Periodically,  the Company evaluates the recoverability of the net carrying
value of its intangible assets by comparing the carrying values to the estimated
future undiscounted cash flows. A deficiency in these cash flows relative to the
carrying  amounts  is an  indication  of  the  need  for  a  write-down  due  to
impairment.  The impairment  write-down was the difference  between the carrying
amounts and the fair value of these assets.  Losses on impairment are recognized
by a charge to earnings (loss).  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 and 375,000  warrants to purchase common stock valued using
the  Black-Scholes  pricing model.  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.  As of June 30, 2001,  these
intangibles  have been  fully  amortized  or  written  off.  The asset  purchase
provided  the  Company  with  a  voice-based   hardware  platform  for  the  new
VoiceLogistics(TM) product.


     As a result  of  management's  analysis,  and  using  the best  information
available,  in the fourth  quarter of the fiscal year ended June 30,  2001,  the
Company  recorded  an assets  impairment  charge  related  to the  goodwill  and
intangible assets related to the prior acquisitions of certain assets of InRoad.
Additionally,  during the fourth  quarter of 2001,  management  determined  that
approximately  $4,902,000 of costs incurred had limited future value. As such, a
charge  related to the write off of these  assets is included in  impairment  of
intangible  assets in the  consolidated  statements of  operations  for the year
ended June 30, 2001. As of June 30, 2002,  management has evaluated the carrying
value of remaining  intangibles  (principally related to the Verbex acquisition)
and has concluded that an impairment charge is not required.


Fiscal 2001 Versus Fiscal 2000

Revenues

     Voxware  recorded  revenues of $2,045,000  for the year ended June 30, 2001
compared  to  revenues  of  $3,801,000  for the year  ended June 30,  2000.  The
$1,756,000  decrease in total  revenues  reflects a decrease  in product  sales,
license fees and  royalties  and  recurring  revenues,  offset by an increase in
service revenues from VoiceLogistics(TM).  During the fiscal year ended June 30,
2001,  Voxware  recognized  $1,195,000  (58%) of total  revenue from the sale of
voice-based  solution  products  compared to $1,786,000  (47%) of total revenues
during the prior  fiscal  year ended June 30,  2000.  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, 2001  approximated  $850,000 (42%) of total revenues versus $2,015,000 (53%)
of total revenues for the year ended June 30, 2000.

     Total product  revenues  decreased  $1,832,000 to $1,743,000  during fiscal
year ended June 30, 2001 from $3,575,000 in the prior fiscal year ended June 30,
2000. The decrease in total product revenues  reflects a decrease of $399,000 in
product  sales or  $1,020,000  recognized  in fiscal  year ended  June 30,  2001
compared to $1,419,000 of product sales recognized in the fiscal year ended June
30, 2000.  During fiscal year ended June 30, 2001,  Voxware  recognized  license
fees of $336,000  compared to $1,668,000 during fiscal year ended June 30, 2000,
resulting in a $1,332,000 decrease.  The decrease in product revenues for fiscal
year 2001 is reflective of our change in business focus towards the development,
marketing and sale of our  VoiceLogistics(TM)  system.  VoiceLogistics(TM)  is a
voice-based  solution  set  of  software,  hardware  and  professional  services
designed  specifically  for use in  warehouses,  distribution  centers and other
industrial settings to enable workers to perform typical logistics tasks

                                       26
<PAGE>

such as picking, receiving,  returns processing,  cycle counting and order entry
through a speech  interface.  The Company has focused its efforts on  developing
the market for this product and has not aggressively pursued  opportunities with
its speech compression business.  Royalties and recurring revenues are primarily
related to the Company's speech compression business that was sold to Ascend, as
discussed  previously.  The decrease in these revenues represents the decline in
use of our speech  coding  products and we  anticipate  that  revenues  from the
speech compression business will continue to decline. For the fiscal years ended
June 30,  2001 and 2000,  59% and 40% of the  Company's  product  revenues  were
attributable to product sales,  respectively,  19% and 47% were  attributable to
license fees,  respectively,  and 22% and 13% were attributable to royalties and
recurring revenues, respectively.

     Service  revenues  were  primarily  attributable  to  customer  maintenance
support,   fees  for  engineering   services   relating  to  our  speech  coding
technologies  business,  and  professional  service fees relating to voice-based
solutions.  For the fiscal year ended June 30, 2001,  service  revenues  totaled
$302,000,  reflecting  an increase of $76,000 from service  revenues of $226,000
for the fiscal year ended June 30,  2000.  The  increase in service  revenues is
primarily  attributable to the decline in customer  maintenance support revenues
related to our speech compression  technologies,  offset by professional service
fees relating to our voice-based logistics products.

Cost of Revenues

     Cost of revenues increased $664,000 from $869,000 for the fiscal year ended
June 30,  2000 to  $1,533,000  for the  fiscal  year ended  June 30,  2001.  The
increase  in cost of  revenues  is  attributable  to  increases  in fixed  costs
associated with manufacturing as a percentage of cost of revenues.

     Cost of product  revenues  increased  $386,000  from $799,000 in the fiscal
year ended June 30, 2000 to  $1,185,000  in the fiscal year ended June 30, 2001.
Such costs reflect materials, labor and overhead associated with the sale of our
voice-based  products.  As of June 30,  2001 and 2000,  Voxware's  manufacturing
staff,  comprised  of four  individuals,  and is  included  in  cost of  product
revenues.

     Cost of services  revenues  consists  primarily of the expenses  associated
with customer maintenance support and professional services,  including employee
compensation  and  travel  expenditures.  Cost  of  service  revenues  increased
$278,000  from $70,000 in the fiscal year ended June 30, 2000 to $348,000 in the
fiscal year ended June 30, 2001.  The  increase in cost of service  revenues was
partially  offset by a decrease  in service  revenues  for  support  and related
maintenance   contracts  associated  with  the  speech  compression   technology
business.

Operating Expenses

     Total operating  expenses  increased by $1,382,000 (18%) from $7,845,000 in
the fiscal year ended June 30, 2000 to  $9,227,000 in the fiscal year ended June
30,  2001,  excluding  amortization  and  impairment  of  purchased  intangibles
totaling  $4,099,000 and $4,902,000,  respectively,  for the year ended June 30,
2001,  compared to $1,989,000 for the year ended June 30, 2000. This increase is
due to  the  addition  of  several  departments  to  provide  VoiceLogistics(TM)
customers  with a full  service  product  offering.  These  departments  include
Information  Technology,  Customer Service and Professional Service departments.
As of June 30, 2001 headcount totaled 49 compared to 39 at June 30, 2000.

     Research   and   development   expenses   primarily   consist  of  employee
compensation  and  equipment  depreciation  and lease  expenditures  related  to
product research and development.  Voxware's  research and development  expenses
increased  $482,000 (17%) from $2,835,000 in the fiscal year ended June 30, 2000
to $3,317,000  in the fiscal year ended June 30, 2001.  The increase in research
and  development  expenses  is due to  costs  associated  with the  addition  of
customer  support and  professional  services teams.  These teams will become an
integral part of our  VoiceLogistics  product  offering and a greater portion of
cost of sales. As of June 30, 2001, the Company's  research and development team
comprised 27 compared to 17 at June 30, 2000.

     Sales and marketing  expenses  primarily  consist of employee  compensation
(including direct sales commissions), travel expenses and trade shows. Sales and
marketing  expenses  increased $393,000 (14%) from $2,870,000 in the fiscal year
ended June 30, 2000 to  $3,263,000  in the fiscal year ended June 30, 2001.  The
increase in sales and marketing  expenses  resulted from a 40% increase in trade
show attendance, speaking engagements and the achievement of sales and marketing
objectives.  Our sales and  marketing  staff  decreased  20% over the prior year
period  ended June 30, 2000,  as we combined  sales  personnel to  strategically
manage business

                                       27
<PAGE>

opportunities.  As of June 30, 2001, our sales and marketing personnel comprised
10 compared to 12 at June 30, 2000.

     General  and   administrative   expenses  consist   primarily  of  employee
compensation  and fees for insurance,  rent,  office  expenses and  professional
services.  General and  administrative  expenses  increased  $507,000 (24%) from
$2,140,000  in the fiscal year ended June 30, 2000 to  $2,647,000  in the fiscal
year ended June 30, 2001.  As of June 30, 2001,  the general and  administrative
staff was 8,  compared  to 6 at June 30,  2000.  The  increase  in  general  and
administrative  expenses  is due to costs  associated  with the  addition  of an
Information Technology department.

     Amortization  of purchased  intangibles  totaled  $4,099,000 for the fiscal
year ended June 30, 2001  compared to  $1,989,000  in fiscal year ended June 30,
2000. The amortization is attributable to the intangibles  generated in the 1999
acquisition of Verbex and the April 2000 Inroad transaction. The intangibles for
the Verbex  transaction are being amortized over a four-year  period and for the
InRoad  transaction  over a  three-year  period.  The  increase in  amortization
expense is a result of a full year of  amortization  of the  InRoad  transaction
intangibles. The Company recorded a charge for the impairment of InRoad goodwill
and purchased  intangible  assets as of June 30, 2001. During the fourth quarter
of fiscal 2001, the Company planned a redesign of the hardware product that will
most likely  result in the  phase-out of the InRoad  technology  that makes up a
large portion of the VoiceLogistics  hardware. This decision,  combined with the
company's  recurring  operating  losses and negative cash flow,  limited capital
availability and significantly  depressed stock price, resulted in a significant
indicator of  impairment.  Pursuant to SFAS No. 121, the Company  evaluated  the
recoverability of the Company's acquired  long-lived assets,  including goodwill
and  identifiable  intangibles.  During the fourth  quarter of fiscal 2001,  the
Company  determined that the undiscounted cash flow projections for the hardware
component  of the  Verbex  business  segment  (the  hardware  platform  for  the
VoiceLogistics(TM)  product as influenced by InRoad  Technology) were lower than
the carrying value of the related identifiable  intangible assets.  Accordingly,
the Company  adjusted the  carrying  value to the  discounted  cash flows of the
assets to zero,  resulting  in a  non-cash  impairment  charge of  approximately
$4,902,000. This had no impact on the Company's cash position.

Interest Income

     Interest  income  decreased  $123,000 to $234,000 for the fiscal year ended
June 30,  2001 from  $357,000  for the  fiscal  year ended  June 30,  2000.  The
decrease is  primarily  related to the decrease in  Voxware's  total cash,  cash
equivalents and short-term  investments  portfolio balance.  As of June 30, 2001
Voxware's cash, cash equivalents and short-term  investments  portfolio  totaled
$578,000 compared to $3,226,000 at June 30, 2000.

Income Taxes

     As of June 30,  2001,  we had  approximately  $29,572,000  of  federal  net
operating loss carryforwards which will begin to expire in 2009 if not utilized.
As of June 30, 2001, 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 Writedown of Warrants to Fair Value

     On August 15, 2000, the Company completed a $4,000,000 private placement of
Series A Preferred Stock and Warrants to Castle Creek Technology Partners,  LLC.
The Company allocated the proceeds,  net of cash and non-cash transaction costs,
to the  Series A  Preferred  and  Warrants  sold to  Castle  Creek  based on the
relative  fair  value of each  instrument.  The fair value of the  warrants  was
determined  based on the  Black-Sholes  option-pricing  model. As a result,  the
Company  allocated  approximately  $807,000 to the warrants as of September  30,
2000.  The  warrants  are   classified  as  a  liability  in  the   accompanying
consolidated  balance  sheets because the warrants give the holder the choice of
net cash  settlement  at a time when  other  shareholders  would not have such a
choice (upon a merger or change in control,  as  defined).  As of June 30, 2001,
the  outstanding  warrants were adjusted to the fair value of the warrants based
upon the closing stock price as of that date. As a result,  the Company adjusted
the warrants to $23,000, representing the fair market value as of June 30, 2001,
using the  Black-Sholes  option-pricing  model and  recorded a gain on the write
down of warrants to fair value of $784,000 for the year ended June 30, 2001.

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

                                       28
<PAGE>

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  and  received   determination  letters  to  sell  up  to
approximately   $14,900,000   of  its  New  Jersey  State  net  operating   loss
carryforwards. The Company sold $7,480,000

and  $7,420,000  in fiscal year 2001 and 2000,  respectively,  of its New Jersey
state net  operating  losses which,  upon sale,  provided  Voxware  $279,000 and
$501,000  in cash.  These  amounts  were  recorded as a gain on sale of tax loss
carryforwards in the accompanying Statements of Operations.

Gain on Sale of Assets

     During the quarter ended September 30, 1999, the Company completed the sale
of  substantially  all of the assets  relating to our speech  coding  technology
business  for  $5,100,000,  of which  $750,000  had 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, 2001, we recorded a gain on the sale
of speech coding assets totaling  $750,000,  which reflects the release from the
Ascend escrow  account.  Total  proceeds  received to date totaling  $5,100,000,
including the $750,000 from the Ascend Escrow account  released from restriction
as of  March  21,  2001,  less  transaction  costs  of  $517,000  and  equipment
transferred to Ascend totaling $34,000.

Asset Impairment Charge

     Periodically,  the Company evaluates the recoverability of the net carrying
value of its intangible assets by comparing the carrying values to the estimated
future undiscounted cash flows. A deficiency in these cash flows relative to the
carrying  amounts  is an  indication  of  the  need  for  a  write-down  due  to
impairment.  The  impairment  write-down  would be the  difference  between  the
carrying  amounts and the fair value of these assets.  Losses on impairment  are
recognized  by a charge  to  earnings  (loss).  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.  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. As of June
30,  2001,  these  intangibles  have been fully  amortized.  The asset  purchase
provided  the  Company  with  a  voice-based   hardware  platform  for  the  new
VoiceLogistics(TM) product.

     As a result  of  management's  analysis,  and  using  the best  information
available,  in the fourth  quarter of the fiscal year ended June 30,  2001,  the
Company  recorded  an assets  impairment  charge  related  to the  goodwill  and
intangible assets related to the prior acquisitions of certain assets of InRoad.
Additionally,  during the fourth  quarter of 2001,  management  determined  that
approximately  $4,902,000 of costs incurred had limited future value. As such, a
charge  related to the write off of these  assets is included in  impairment  of
intangible  assets in the  consolidated  statements of  operations  for the year
ended June 30, 2001.

Liquidity and Capital Resources

     As of June 30, 2002, we had a total of $6,000 in cash and cash  equivalents
In December 2001 and February 2002, the Company completed a private placement of
$1,865,000 of Series C Convertible  Preferred Stock,  which resulted in proceeds
to the Company of approximately  $1,566,000,  net of transaction costs. In March
2001, we received  $750,000 from the Ascend escrow account after  fulfillment of
indemnification  obligations.   Voxware  also  received  $27,000  and  $279,000,
respectively,  in December  2001 and 2000 from the sale of New Jersey  State net
operating losses. 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  $3,660,000,  net of transaction costs.
In addition,  on April 19, 2001 the Company  consummated a private  placement of
shares of common  stock and common  stock  warrants to Castle  Creek  Technology
Partners  pursuant  to the  terms of a  Securities  Purchase  Agreement.  Net of
transaction  costs, the Company  received  $276,000.  Since  inception,  we have
primarily financed our operations through the sale of equity securities.

     Cash of $5,629,000,  $7,109,000 and $1,851,000 was used to fund  operations
for the years ended June 30,  2000,  2001 and 2002,  respectively.  Cash used in
operating  activities  for fiscal  2002  primarily  consists  of the net loss of
$3,993,000,  offset by amortization  and depreciation  $1,570,000.  Cash used in
operating  activities in 2001 primarily  consists of the net loss of $15,669,000
and the gain on the write-down of warrants, sale of tax loss

                                       29

<PAGE>

carryforwards  and assets of  $784,000,  $279,000  and  $750,000,  respectively,
offset by amortization and depreciation of $4,413,000,  stock-based compensation
expense of $15,000  and the asset  impairment  charge of  $4,902,000.  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 for the purchase of substantially  all of the assets in February 1999. In
fiscal 2001, cash provided by investing activities totaled $3,279,000 due to the
sale  of  $2,707,000  of  short-term  investments,  carryforwards  and  $750,000
received  from the Ascend  escrow  account,  offset by $457,000 of property  and
equipment  purchases,  $279,000 from the sale of net  operating  loss. In fiscal
2002, cash provided by investing activities totaled $29,000.

     For the  years  ended  June 30,  2000,  2001 and  2002,  cash  provided  by
financing activities totaled $318,000, $3,888,000 and $1,267,000,  respectively.
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. In fiscal 2001, $276,000 was provided by the private placement of
common stock and common stock warrants,  $3,660,000,  net of transaction  costs,
from  the  issuance  of  Series  A  Convertible  Preferred  Stock  and  warrants
consummated in August 2001 and offset by $48,000 from the repurchase of Series A
Preferred  Stock.  In fiscal  2002,  $1,566,000  was provided by the issuance of
Series C Convertible Preferred Stock and Warrants consummated in December 2001.

     The Company has  authorized  10,000,000  shares of  Preferred  Stock with a
$0.001 par value per share. On August 29, 2001, all of the outstanding shares of
Series  A  Mandatorily   Redeemable   Convertible  Preferred  Stock  ("Series  A
Preferred")  were  exchanged  for Series B  Mandatorily  Redeemable  Convertible
Preferred  Stock  ("Series B  Preferred").  The  Company  also  issued  Series C
Mandatorily  Redeemable  Convertible  Preferred  Stock ("Series C Preferred") in
December 2001 and February  2002.  The Series B Preferred and Series C Preferred
shares  have a stated  value of $1,000 per  share.  As of June 30,  2002,  2,750
shares of Series B Preferred and 1,840 shares of Series C Preferred  were issued
and outstanding.

     On August 15, 2000 the Company completed a $4,000,000  private placement of
Series A Preferred  and a warrant (the  "Warrant")  to purchase  common stock to
Castle Creek. The Company sold 4,000 shares of Series A Preferred,  which shares
are  convertible  into  shares of common  stock,  resulting  in  proceeds to the
Company of approximately $3,660,000,  net of cash transaction costs. The Company
is obligated  to redeem the Series A Preferred  30 months from the closing.  The
Series A Preferred has a 7% dividend payable in cash or equity,  at the election
of the  holder,  and is  convertible  into  Voxware  common  stock at an initial
conversion  price of $3.025 per share,  subject to  adjustment,  as defined.  In
addition,  Castle Creek received a Warrant to purchase  727,273 shares of common
stock at an initial exercise price of approximately $3.44 per share,  subject to
adjustment  set forth in the  Warrant.  The  Company  has the  right to  require
conversion of the Series A Preferred,  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.

     The Company  allocated the proceeds,  net of cash and non-cash  transaction
costs,  to the Series A Preferred  and Warrant sold to Castle Creek based on the
relative fair value of each instrument. The fair value of the Series A Preferred
was  determined  based on a discounted  cash flow analysis and the fair value of
the Warrant was determined based on the Black-Sholes  option-pricing model. As a
result, the Company initially allocated approximately $2,774,000 and $807,000 to
the  Series  A  Preferred  and  Warrant,  respectively.  After  considering  the
allocation  of the proceeds to the Series A Preferred  and Warrant,  the Company
determined that the Series A Preferred contained a beneficial conversion feature
(BCF). The Company  recorded the BCF in the amount of approximately  $1,244,000,
in a manner similar to a dividend  during the quarter ended  September 30, 2000.
The Warrant has been classified as a liability in the accompanying  consolidated
balance  sheet  because  the  Warrant  gives the  holder  the choice of net cash
settlement at a time when other  shareholders would not have such a choice (upon
a merger or change in control, as defined). As of June 30, 2002, the outstanding
Warrant was  adjusted  to the fair value of the  Warrant  based upon the closing
stock price as of that date.  As a result,  the Company  adjusted the Warrant to
zero,  representing  the  fair  market  value  as of June 30,  2002,  using  the
Black-Sholes  option-pricing model, and recorded a gain on the write down of the
Warrant to fair value of $23,000 for the period ended June 30, 2002.

     The Series B Preferred are  convertible  into shares of common stock on the
date of issuance.

     On April 19, 2001, the Company consummated a private placement of shares of
common stock and a common stock warrant to Castle Creek pursuant to the terms of
a Securities  Purchase  Agreement  (the "Purchase  Agreement").  Pursuant to the
private placement, the Company sold 714,000 shares (the "Common Shares") of


                                       30

<PAGE>

common  stock and a warrant to purchase an  additional  2,142,000  shares of its
common stock (the "Purchase Warrant"). The Common Shares were sold at a price of
$.34 per share. The exercise price of the Purchase Warrant is $1.25 per share in
the case of an  optional  exercise  by Castle  Creek,  or 80% of the then market
value (as defined in the Purchase  Warrant) of the common stock in the case of a
mandatory exercise required by the Company. Net

proceeds to the Company from the private placement were approximately  $276,000.
Pursuant to the terms of the  Purchase  Agreement,  the Company  used $48,200 of
such proceeds to repurchase 46 shares of the Company's  Series A Preferred  from
Castle  Creek.  The balance of the  proceeds was used by the Company for general
working capital purposes.

     On August 29, 2001 the Company  issued  708,656  remedy  warrants to Castle
Creek.  These remedy  warrants  allow Castle Creek to purchase  shares of common
stock at $0.01 per share and expire on August 28, 2011. Using the  Black-Scholes
option-pricing  model,  the  Company  determined  the fair  value of the  remedy
warrants  to be  $139,000.  The  Company  recorded  the  issuance  of the remedy
warrants as a Preferred  Stock dividend  during the quarter ended  September 30,
2001.  Through  June 30,  2002,  Castle  Creek  exercised  708,656 of the remedy
warrants, resulting in gross proceeds of $7,087.

     In August of 2001, the Company  exchanged its Series A Preferred for shares
of Series B Preferred.  As the term,  rights and preferences of the Series B are
substantially  similar  to  those of the  Series  A, the  Company  recorded  the
exchange based upon the carrying value of the Series A Preferred.

     The Company has accreted the Series A Preferred  and is accreting  Series B
Preferred to their redemption values using the effective interest method through
the redemption period of 30 months. Accordingly, the Company recorded $1,382,000
and  $652,000  of  accretion  during  the years  ended  June 30,  2002 and 2001,
respectively.

     In  addition,  pursuant  to the terms of the August 2000 Series A Preferred
transaction,  any reset of the conversion  price is treated as a dividend to the
holder of the Series A Preferred. Since the conversion price adjustment was part
of the August 2000 transaction,  a contingent BCF existed at the August 15, 2000
commitment  date.  The contingent BCF was recorded upon resetting the conversion
price to $0.34 on April 19, 2001 and the dividend was recorded.

     In August 2000, the  contingent BCF was measured at zero. As a result,  the
dividend was calculated based on the difference  between the reduced  conversion
price ($0.34) and the fair value of the common stock issuable upon conversion of
the Series A Preferred as of April 19,  2001.  The charge for the BCF is limited
to the carrying value of the Series A Preferred after the initial  allocation of
the cash proceeds received from the Series A Preferred and the Warrant. At April
19, 2001, the Company  recorded a $1,669,000  dividend charge for the contingent
BCF.  Through  August 31,  2001,  the Series A holders  converted  319 shares of
Series A Preferred into 1,043,003 shares of common stock at an exercise price of
$0.34. Through June 30, 2002, Castle Creek elected to convert shares of Series B
Preferred into shares of common stock as follows:

                                            Shares
                          --------------------------------------------
               Date        Series B Preferred              Common
                          ---------------------       ----------------
    November 8, 2001                 40                       271,826
    November 19, 2001                50                       340,208
    November 26, 2001                40                       272,653
    November 29, 2001                75                       511,497
    December 11, 2001               106                       724,462
    June 21, 2002                    50                       312,500
                          ---------------------       ----------------
                                    361                     2,433,146


     For all transactions  through June 2002, each share of Series A or Series B
Preferred,  plus the  applicable  dividend,  converted  into a number  of common
shares at conversion  prices ranging from $0.16 per share to $0.34 per share. At
the August 2001 conversion,  the conversion price was re-adjusted to the average
of the five  lowest  closing  bid  prices  during  the last ten days  before the
conversion  ($0.19).  The  conversion  price was again  re-adjusted  to $0.16 in
accordance  with the August 2000 agreement.  Per the August 2000 agreement,  any
reset of the conversion price would result in a BCF limited as defined above. As
the limit was reached on the April 2001 BCF, no BCF was recorded in  conjunction
with the August 2001 or October 2001 resets.

     On December 12, 2001, the Company completed a $1,765,000  private placement
of Series C Preferred and common stock warrants to purchase  5,944,219 shares of
common stock to various accredited  investors.  On February 1, 2002, the Company
also  received  $100,000  in cash  from an  additional  accredited  investor  in
connection

                                       31
<PAGE>

with this private placement. In total, the Company issued 1,865 shares of Series
C Preferred, which shares are convertible into shares of common stock, resulting
in proceeds  to the  Company of  approximately  $1,566,000,  net of  transaction
costs. In addition to the cash transaction costs, the Company issued warrants to
investment  advisors as finder's fees to acquire  458,165 shares of common stock
as of June 30, 2002. The exercise price for the warrants issued as finder's fees
is  $0.1255  per  share,  and the  warrants  expire  in five  years.  Using  the
Black-Scholes option-pricing model, the Company determined the fair value of the
warrants  to be  $350,000.  The  Company  is  obligated  to redeem  the Series C
Preferred 36 months from the closing.  The Series C Preferred have a 7% dividend
payable in cash or equity, at the election of Voxware,  and are convertible into
Voxware  common  stock at an  initial  conversion  price of  $0.1255  per share,
subject to adjustment, as defined in the transaction documents. In addition, the
investors have received warrants to purchase 5,944,219 shares of common stock at
an  exercise  price of $0.1255  per share and expire five years from the date of
closing.  The Series C Preferred  stockholders have certain registration rights,
as defined in the transaction agreements.

     The Company  allocated the proceeds,  net of cash and non-cash  transaction
costs,  to the Series C Preferred and the additional  purchase  warrants sold to
investors based on the relative fair value of each instrument. The fair value of
the Series C Preferred was determined  based on a discounted  cash flow analysis
and the fair value of the additional  purchase  warrants was determined based on
the  Black-Scholes  option-pricing  model.  As a result,  the Company  allocated
approximately  $1,220,000  and  $350,000  to the  Series  C  Preferred  and  the
additional purchase warrants, respectively. The warrants have been classified as
additional paid-in capital in the accompanying consolidated balance sheet.

     The Company is accreting the Series C Preferred to their  redemption  value
using the effective  interest method through the redemption period of 36 months.
Accordingly,  the Company  recorded  $367,000 of accretion during the year ended
June 30, 2002.

     The Series C Preferred are  convertible  into shares of common stock on the
date of issuance. After considering the allocation of the proceeds to the Series
C Preferred and the additional  purchase  warrants,  the Company determined that
the Series C  Preferred  contained  a BCF.  The  Company  recorded  the BCF as a
reduction of the Series C and an increase to additional  paid-in  capital in the
amount of approximately  $350,000. In accordance with Emerging Issues Task Force
00-27, the BCF is being amortized over the redemption  period of 36 months using
the effective  interest  method,  and is being recorded in a manner similar to a
dividend  during  the period  ended  June 30,  2002.  As a result,  the  Company
recorded approximately $82,000 as a BCF treated as a dividend during the quarter
ended June 30, 2002.

     On February 7, 2002 and March 12, 2002,  Castle Creek exercised 100,000 and
108,656,  respectively of remedy  warrants.  These  exercises  resulted in gross
proceeds  of  $2,087.  As of  June  30,  2002,  there  were no  remedy  warrants
outstanding.

     On February 8, 2002,  Castle Creek exercised a purchase warrant to purchase
714,000 shares of common stock in connection  with the April 19, 2001 Securities
Purchase  Agreement.  The exercise price was $0.13 per share,  resulting in cash
proceeds of $93,000.  Simultaneously,  the Company applied the proceeds received
to retire 84 shares of Series B  Preferred.  As of June 30,  2002,  there was an
additional  purchase warrant to purchase the remaining  714,000 shares of common
stock under the April 19, 2001 Securities Purchase Agreement.

     The Company has only a limited  operating  history upon which an evaluation
of the Company and its prospects can be based.  The Company's  prospects must be
considered  in  light  of  the  risks,  expenses  and  difficulties,  frequently
encountered  by  companies  in the  early  stage  of  development,  particularly
companies in new and rapidly evolving markets. Since its inception,  the Company
has incurred  significant  losses and, as of June 30,  2002,  the Company had an
accumulated  deficit of  $47,834,000,  including  $2,401,000  from  accretion of
preferred  stock  to  redemption   value  and  $2,995,000  from  the  beneficial
conversion  feature  as a result of the Castle  Creek and Series C  transactions
consummated in August 2000, April 2001, and December 2001.  Management  believes
that  unless  the  Company  is  able  to  secure  additional  financing  in  the
short-term, its cash and cash equivalents and short-term investments will not be
adequate to meet the Company's  cash  requirements  over the next twelve months.
These factors raise substantial doubt about the Company's ability to continue as
a going  concern.  The  accompanying  consolidated  financial  statements do not
include any adjustments  relating to the  recoverability  and  classification of
assets carrying amounts or the amount and  uncertainty.  The Company has minimal
cash on hand as of September 30, 2002 and management is in current  negotiations
to  secure  all or at least a portion  of its  financing  required  for the next
twelve  months.  There  can  be no  assurance  that  the  negotiations  will  be
successful and result in

                                       32
<PAGE>

financing for the Company.  If such financing is not obtained,  the Company will
have to curtail a significant portion or all of its operations.


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

     The Company does not usually utilize  derivative  financial  instruments in
our  investment  portfolio.  However,  in  conjunction  with the August 2000 and
December 2001 private  placement  transactions,  the Company  issued  derivative
financial  instruments  in the  form  of  warrants,  which  are  indexed  to the
Company's own stock. The value of the warrants  fluctuates with the market value
of the Company's common stock.

ITEM 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.

                                       33
<PAGE>

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

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

            Name               Age      Offices with the Company          Class
            ----               ---      ------------------------          -----

Bathsheba J. Malsheen, Ph.D..  51   President, Chief Executive Officer
                                    and Director                            III
Nicholas Narlis..............  42   Senior Vice President, Chief Financial
                                    Officer, Secretary and Treasurer
David B. Levi (1)(2).........  69   Director                                 II
Eli Porat (1)(2).............  56   Director                                  I

     (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.

     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
and 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. (pending purchase by Polycom, 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 the Company  since August  1998.  Mr.
Porat is CEO and Director of Tvia, Inc., a leading provider of broadband gateway
semiconductor  solutions  for  the  broadband  digital  TV and  Internet-enabled
markets.  Mr. Porat has served as Executive CEO of Open Grid, a leader in mobile
business  solutions  focusing on the travel and  conference  industries,  and 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 DSP Group, 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

                                       34
<PAGE>

supplier of core device,  server and desktop  technologies for wireless and wire
line  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 Berkley.

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.

ITEM 11.      EXECUTIVE COMPENSATION.

     The following table provides information concerning compensation paid to or
earned  for the  fiscal  years  ended June 30,  2002,  2001,  and 2000 the Chief
Executive  Officer of Voxware  and the next most  highly  compensated  executive
officer during the fiscal year ended June 30, 2002.

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                       Long Term
                                               Annual Compensation 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.................    2002       $163,875          --            --            $ ---
   President and                                2001       $231,109       $ 87,209         --            $ ---
   Chief Executive Officer (2)                  2000       $209,376       $102,521      300,000          $ ---

Nicholas Narlis.............................    2002       $138,806          --            --            $ ---
  Senior Vice President, Chief Financial,       2001       $170,088       $ 63,750         --            $2,551
  Officer, Secretary and Treasurer              2000       $155,000       $ 71,875      200,000          $2,362
</TABLE>
--------

(1)  All Other  Compensation  for Mr.  Narlis  consists  of  $1,099,  $2,551 and
     $2,362,  in Voxware  contributions  to Mr. Narlis' account under our 401(k)
     Plan in fiscal 2002, 2001 and 2000, respectively.

(2)  Dr.  Malsheen  joined  Voxware in  October  1996,  and became an  executive
     officer in May 1997.

                        Option Grants in Last Fiscal Year

     No stock options were granted to the Named Executive officers during fiscal
2002.

     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, 2002.

<TABLE>
<CAPTION>

                          Fiscal Year-End Option Values

                                                   Number of Securities            Value of Unexercised
                                              Underlying Unexercised Options  In-the-Money Options at Fiscal
                                                                                       Year-End (1)
                                              ------------------------------- --------------------------------
Name                                          Exercisable     Unexercisable   Exercisable     Unexercisable
----                                          ------------    -------------   ------------    -------------
<S>                                             <C>             <C>              <C>              <C>
Bathsheba J. Malsheen, Ph.D...............      810,000         150,000          $ --             $ --

Nicholas Narlis...........................      383,125         96,875           $ --             $ --
</TABLE>

(1)  Based on the  difference  between  $0.05,  which was the closing  price per
     share on June 30, 2002, and the exercise price of the option.

                                       35
<PAGE>

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 $184,680,
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 $153,090.

     Each of the foregoing employment agreements is 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  re-election  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 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

                                       36
<PAGE>

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.  Since  April_,  2001,  all  non-employee
directors  have  volunteered to not be paid for attending any regular or special
meeting of any committee of the Board of Directors until further notice.


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  2002 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 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
               2002.

          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

                                       37
<PAGE>

               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

     CEO  Compensation.  In determining  the  compensation  payable to our Chief
Executive Officer,  the Compensation  Committee considered the CEO's performance
in fiscal 2002 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, 2002, 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

                                       38

<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.


                               [GRAPHIC OMMITTED]

                                       39
<PAGE>


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 June 30, 2002,  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.,  Lawrenceville  Office
Park, 168 Franklin Corner Road, Princeton, New Jersey 08648.


                                            Number of Shares    Percentage of
                                           Beneficially Owned       Shares
Name and Address of Beneficial Owner            (1)(2)        Beneficially Owned
------------------------------------       ------------------ ------------------
Castle Creek Technology Partners, LLC(3)....   4,441,427             11.3%
Bathsheba J. Malsheen, Ph.D.(4).............     847,125              2.2%
Nicholas Narlis(5)..........................     402,750              1.2%
David B. Levi(6)............................     112,192              6.1%
Eli Porat(7)................................      84,711                *
Scorpion Nominees Limited...................   7,808,766             19.9%
All Directors and Executive Officers
as a group (4 persons)......................   3,773,631             10.0%

--------
 *Less than 1% of outstanding shares of our common stock.
(1)  Number of shares  beneficially owned is determined by assuming that options
     or other common stock equivalent that are held by such person or group (but
     not those held by any other person or group) 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  1,483,078  shares of common stock issuable upon the conversion of
     the Series B Preferred Stock without any price adjustments,  727,273 shares
     of common stock  issuable upon the  conversion of the 2000 Warrant  without
     any price  adjustments,  2,231,076  shares of common  stock  issuable  upon
     conversion of Series C Preferred and warrants.
(4)  Includes  838,125  shares of our common stock issuable upon the exercise of
     stock  options.
(5)  Includes  398,750  shares of our common stock issuable upon the exercise of
     stock  options.  Includes  55,777  shares of  common  stock  issuable  upon
     conversion of Series B Preferred Stock and warrants.
(6)  Includes  67,083  shares of our common stock  issuable upon the exercise of
     stock options.
(7)  Includes  70,417  shares of our common stock  issuable upon the exercise of
     stock  options.  Includes  2,231,076  shares of common stock  issuable upon
     conversion of Series B Preferred Stock and warrants.
(8)  Includes  1,808,766  shares of common stock  issuable  upon  conversion  of
     Series B Preferred Stock and warrants.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     None.

                                       40

<PAGE>

                                     PART IV

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

     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, 2000,  2001 and 2002,  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
                    Years Ended June 30, 2000, 2001 and 2002
                                 (in thousands)

Allowance for doubtful accounts:



                             Balance at   Charged
                             Beginning    to Costs                   Balance at
                             of Period  and Expenses   Deductions  End of Period
                             ---------  ------------   ----------  -------------
Year ended June 30, 2000       $ 361       $ 15          $ 232         $ 144
                               =====       ====          =====         =====


Year ended June 30, 2001       $ 144       $ --          $ --          $ 144
                               =====       ====          ====          =====


Year ended June 30, 2002       $ 144       $ --          $ 50           $ 94
                               =====       ====          ====           ====


Inventory reserves:



                             Balance at   Charged
                             Beginning    to Costs                   Balance at
                             of Period  and Expenses   Deductions  End of Period
                             ---------  ------------   ----------  -------------
Year ended June 30, 2000       $ 190       $ --           $ --          $ 190
                               =====        ====          ====          =====


Year ended June 30, 2001       $ 190       $ 116          $ 150         $ 156
                               =====       =====          =====         =====


Year ended June 30, 2002       $ 156       $ 100           $ 13         $ 243
                               =====       =====           ====         =====



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

     3. CONTROLS AND PROCEDURES. Not applicable.

                                       41
<PAGE>


     4.  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)
     3.4  Certificate  of  Designations,  Preferences  and  Rights  of  Series B
          Convertible  Preferred  Stock, as filed with the Secretary of State of
          the state of Delaware on August 29, 2001.**(6)
     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)
     4.5  Common Stock Purchase  Warrant,  dated as of April 19, 2001, issued to
          Castle Creek Technology Partners, LLC.**(7)
     4.6  Form of Warrant issued to  Institutional  Finance Group,  Inc.,  dated
          August 15, 2000.**(9)
     4.7  Form of 10% Convertible Debenture dated October 2, 2002.*
     4.8  Shareholders Agreement dated October 2, 2002 among the Company,
          Voxware, NV and the Shareholders of Voxware NV.*
     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)
    10.10 Exchange  Agreement,  dated as of August 29,  2001 by and  between the
          Company and Castle Creek Technology  Partners,  LLC, together with the
          form  of  New  Warrant  and  Remedy   Warrant   attached  as  exhibits
          thereto.**(6)
    10.11 Securities  Purchase  Agreement,  dated as of April 19,  2001,  by and
          between  the  Company  and  Castle  Creek  Technology  Partners,  LLC,
          together  with the form of  Additional  Share  Warrant  as an  exhibit
          thereto.**(7)
    10.12 Registration  Rights  Agreement,  dated as of April 19,  2001,  by and
          between  the  Company  and  Castle  Creek  Technology  Partners,  LLC,
          together with the form of Remedy Warrant as an exhibit thereto.**(7)
    10.13 The Company's 1998 Stock Option Plan for Outside Directors.**(8)
    10.14 Plan to Pay Non-Employee Directors an Annual Retainer.**(8)
    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)
    23.1  Consent of WithumSmith + Brown, PC.*

                                       42
<PAGE>

-----------
*    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.
(6)  Filed in connection with the Company's  registration  statement on Form S-2
     (File Number 33-68646).
(7)  Filed  inconnection  with the Company's current report on Form 8-K that was
     filed on April 20, 2001.
(8)  Filed in connection with the Company's  registration  statement on Form S-8
     (File Number 33-33342).
(9)  Filed in connection with the Company's  registration  statement on Form S-3
     (File  Number  33-51358).
+    Confidential treatment has been granted for portions of such document.

     5. REPORTS ON FORM 8-K. On August 28, 2002 and August 30, 2002, the Company
filed a Form 8-K and Form 8-K/A, respectively,  reporting on Item 4 of Form 8-K,
Change  in  Registrant's  Certifying  Accountant.   Such  reports  reported  the
Company's dismissal of Arthur Andersen LLP as the Company's independent auditors
and the engagement of WithumSmith + Brown, PC as the Company's new auditors


                                       43

<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:


<TABLE>

<S>                       <C>                                         <C>
/s/Bathsheba J. Malsheen   President, Chief Executive Officer and     October 15, 2002
-------------------------  Director (principal executive officer)
   Bathsheba J. Malsheen


/s/Nicholas Narlis         Senior Vice President, Chief Financial     October 15, 2002
-------------------------  Officer, Secretary and Treasurer
   Nicholas Narlis        (principal financial officer and principal
                           accounting officer)

/s/David B. Levi           Director                                   October 15, 2002
-------------------------
   David B. Levi

/s/Eli Porat               Director                                   October 15, 2002
-------------------------
   Eli Porat
</TABLE>
                                       44

<PAGE>

                                 CERTIFICATIONS

      I, Bathsheba J. Malsheen, Ph.D., certify that:
      ---------------------------------------------
     1.   I have reviewed this annual report on Form 10-K of Voxware, Inc.;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report; and

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report.


Date: October 15, 2002
                                         /s/ Bathsheba J. Malsheen
                                         -------------------------
                                         Bathsheba J. Malsheen, Ph.D.
                                         President, Chief Executive Officer and
                                         Director
                                         (principal executive officer)



      I, Nicholas Narlis, certify that:
      ---------------------------------
     1.   I have reviewed this annual report on Form 10-K of Voxware, Inc.;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report; and

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report.

Date: October 15, 2002
                                   /s/ Nicholas Narlis
                                   -------------------------------------------
                                   Nicholas Narlis
                                   Senior Vice President, Chief Financial
                                   Officer, Secretary and Treasurer
                                   (principal financial and accounting officer)



                                       45
<PAGE>


                          VOXWARE, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Certified Public Accountants.......................  F-2
Consolidated Balance Sheets...............................................  F-4
Consolidated Statements of Operations.....................................  F-5
Consolidated Statements of Stockholders' Equity (Deficit).................  F-6
Consolidated Statements of Cash Flows.....................................  F-7
Notes to Consolidated Financial Statements................................  F-9

                                      F-1

<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Voxware, Inc.:

     We have audited the  accompanying  consolidated  balance  sheet of Voxware,
Inc. and subsidiary as of June 30, 2002 and the related consolidated  statements
of operations,  stockholders'  equity (deficit) and cash flows for the year then
ended.  These  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 audit.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  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  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of Voxware, Inc.
and  Subsidiary  as of June  30,  2002  and the  consolidated  results  of their
operations  and their cash flows for the year then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
that raises  substantial doubt about its ability to continue as a going concern.
Management's  plans in regard to these matters are also described in Note 1. The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.

     Our audit was 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
for the year ended June 30, 2002 is presented for purposes of complying with the
Securities and Exchange  Commission's  rules and is not a part of the basic 2002
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.


/s/ WithumSmith + Brown, PC


Princeton, New Jersey
October 14, 2002

                                      F-2
<PAGE>


The  following  report is a copy of a previously  issued  Report of  Independent
Public Accounants. This report relates to the prior years' financial statements.
This report has not been reissued by Arthur Andersen LLP.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Voxware, Inc.:

     We have audited the  accompanying  consolidated  balance sheets of Voxware,
Inc. (a Delaware  corporation)  and  subsidiary as of June 30, 2001 and 2000 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three  years in the  period  ended  June 30,  2001.  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, 2001 and 2000 and the results of their  operations and their cash
flows  for each of the  three  years in the  period  ended  June  30,  2001,  in
conformity with accounting principles generally accepted in the United States.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
that raises  substantial doubt about its ability to continue as a going concern.
Management's  plans in regard to these matters are also described in Note 1. The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.

     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
September 28, 2001

                                      F-3
<PAGE>


<TABLE>
<CAPTION>

                          VOXWARE, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS


                                                                            June 30,
                                                                 --------------------------------
                                                                 ---------------  ---------------
                                                                       2002            2001
                                                                 ---------------  ---------------
                                                                        (In thousands, except
                                                                      share and per share data)

                                  ASSETS
Current assets:
<S>                                                                 <C>             <C>
  Cash and cash equivalents....................................     $     6         $    561
  Short-term investments.......................................          --               17
  Accounts receivable, net.....................................       1,315              849
  Inventory, net...............................................         678            1,098
  Prepaid expenses and other current assets....................          82              360
                                                                  ----------      ------------
     Total current assets......................................       2,081            2,885
Property and equipment, net....................................         297              584
Intangible assets, net.........................................         769            2,066
Other assets, net .............................................          44              278
                                                                  ----------      ------------
                                                                   $  3,191         $  5,813
                                                                  ==========      ============
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable and accrued expenses.......................    $  2,080         $  1,743
  Deferred revenues...........................................         387              569
                                                                 ----------      ------------
      Total current liabilities...............................       2,467            2,312

Commitments and contingencies

Warrants to purchase common stock.............................          --               23

Series A mandatorily  redeemable  convertible  preferred stock
  (liquidation value $0 and $3,811,140, respectively).........          --            3,193

Series B mandatorily  redeemable  convertible  preferred stock
  (liquidation value $2,894,375 and $0, respectively)..........      2,900               --

Series C mandatorily  redeemable  convertible  preferred stock
  (liquidation value $1,839,904 and $0, respectively)..........      1,299               --

Stockholders' equity (deficit):
  Common stock, $.001 par value, 180,000,000 and 60,000,000
   shares authorized; 21,573,860 and 15,770,687 shares issued
   and outstanding at June 30, 2002 and 2001, respectively.....         21               16
     Additional paid-in capital................................     44,338           42,070
     Deferred compensation.....................................         --               (1)
     Accumulated deficit.......................................    (47,834)         (41,800)
                                                                  ----------      ------------
        Total stockholders' equity (deficit)...................     (3,475)             285
                                                                  ----------      ------------
                                                                  $  3,191         $  5,813
                                                                  ==========      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                          VOXWARE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                    Year Ended June 30,
                                                                       ------------------------------------------------

                                                                             2002             2001             2000
                                                                        -------------    -------------   ---------------
                                                                             (In thousands, except per share data)
Revenues:
   Product revenues:
<S>                                                                       <C>               <C>              <C>
     Product revenues...........................................          $  2,994          $ 1,020          $ 1,419
     License fees...............................................               389              336            1,668
     Royalties and recurring revenues...........................               233              387              488
                                                                      ---------------  --------------   ---------------
        Total product revenues..................................             3,616            1,743            3,575
   Service revenues:
        Service revenues........................................               885              302              226
                                                                      ---------------  --------------   ---------------
   Gross revenue                                                             4,501            2,045            3,801
Cost of revenues:
   Cost of product revenues.....................................             1,997            1,185              799
   Cost of service revenues.....................................               420              348               70
                                                                      ---------------  --------------   ---------------
     Total cost of revenues.....................................             2,417            1,533              869
                                                                      ---------------  --------------   ---------------
                Gross profit....................................             2,084              512            2,932
                                                                      ---------------  --------------   ---------------
Operating expenses:
   Research and development.....................................             1,728            3,317             2,835
   Sales and marketing..........................................             1,166            3,263             2,870
   General and administrative...................................             1,946            2,647             2,140
   Amortization of purchased intangibles........................             1.298            4,099             1,989
   Asset impairment charge......................................                --            4,902                --
                                                                      ---------------  --------------   ---------------
    Total operating expenses....................................             6,138           18,228             9,834
                                                                      ---------------  --------------   ---------------
     Operating loss.............................................            (4,054)         (17,716)           (6,902)
Interest income.................................................                11              234               357
Gain on write down of warrants to fair value....................                23              784                --
Gain on sale of tax loss carryforwards..........................                27              279               501
Gain on sale of assets..........................................                --              750             3,799
                                                                      ---------------  --------------   ---------------
Net loss........................................................         $  (3,993)        $(15,669)         $ (2,245)
                                                                      ===============  ==============   ===============
Accretion of preferred stock to redemption value................            (1,749)            (652)               --
                                                                      ===============  ==============   ===============
Beneficial conversion feature treated as a dividend.............               (82)          (2,913)               --
                                                                      ===============  ==============   ===============
Warrants issued to preferred stockholders treated as a dividend.              (480)              --                --
                                                                      ===============  ==============   ===============
Net loss applicable to common shareholders......................          $ (6,304)       $ (19,234)         $ (2,245)
                                                                      ===============  ==============   ===============
Basic and diluted net loss per share applicable to common
shareholders....................................................          $  (0.34)       $   (1.32)         $  (0.16)
                                                                      ===============  ==============   ===============
Weighted average number of common shares outstanding............            18,575           14,517            13,667
                                                                      ===============  ==============   ===============
</TABLE>





   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                          VOXWARE, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                   Stockholders Equity
                                        ----------------------------------------------------------------------------
                                                                                 Accumulated
                                                          Additional                Other
                                       Common Stock        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, 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)   $ 6,053
  Directors' stock based compensation
   expense...........................    34,483      --         10       --            --                            --         10
  Conversion of Series A Preferred
   Stock.............................   726,427       1        246       --            --                            (4)       247
  Sale of common stock...............   714,000       1        227       --            --                                      224
   Beneficial conversion feature
    treated as a dividend............        --      --      2,913       --            --                        (2,913)
   Warrants granted as finders fee
    for sale of Series A Preferred
    Stock............................        --      --         79       --            --                            --         79
   Accretion of preferred stock to
    redemption value.................        --      --         --       --            --                          (652)      (652)
   Repurchase of Series A............        --      --         --       --            --                           (14)       (14)
   Amortization of deferred
    compensation.....................        --      --         --        5            --                            --          5
   Option grants to consultants......        --      --       (135)     135            --                            --         --
Comprehensive loss:
   Net loss..........................        --      --         --       --            --         $(15,669)     (15,669)    (15,669)
   Realized loss on available-for-sale
    securities.......................        --      --         --       --             2                2           --           2
                                                                                                  ---------
   Comprehensive loss................        --      --         --       --                       $(15,667)          --         --
                                                                                                  ==========
Balance, June 30, 2001............... 15,770,687   $ 16   $ 42,070    $  (1)                                   $ (41,800)   $  285
   Directors' stock based compensation
    expense..........................                                                                                            1
Amortization of Beneficial conversion
   feature............................               --                                                               82        82
Conversion of Series B Preferred
   Stock.............................. 2,749,722      2         25                                                 1,089         1
Conversion of Series C Preferred
   Stock.............................    202,792     --        283                                                             286
Sale of common stock.................. 2,850,656      3                                                                        286
Beneficial conversion feature treated
   as a dividend......................                         349                                                             349
   Warrants issued to preferred
    shareholders......................                         138                                                  (139)     (139)
Accretion of preferred stock to
   redemption value...................                                                                            (1,750)   (1,750)
Sale of Prefered Stock and Warrants...                         394                                                    70       454
Repurchase of Series A................
Amortization of deferred Compensation...
Option grants to consultants..........
Comprehensive loss:
   Net loss...........................                                                              (3,993)
   Realized loss on available-for-sale
    securities........................                                                              ---------
   Comprehensive loss.................                                                              (3,993)       (3,993)   (3,993)
                                                                                                    ---------   --------- ---------
Balance, June 30, 2002............... 21,573,860     21     44,338                     --           (3,993)      (47,834)   (3,475)
              === =====               ==========     ==     ======                                  ======       =======    ======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

<TABLE>
<CAPTION>

                          VOXWARE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                                                Year Ended June 30,
                                                                               ------------------------------------------------
                                                                                   2002             2001             2000
                                                                               --------------   --------------  ---------------
Operating Activities:
<S>                                                                             <C>              <C>              <C>
   Net loss........................................................             $ (3,993)        $ (15,669)       $ (2,245)
   Adjustments to reconcile net loss to net cash used in operating
   activities:
     Depreciation and amortization................................                 1,570             4,413           2,265
     Provision for doubtful accounts..............................                    --                --              15
     Gain on write-down of warrants to fair value.................                   (23)             (784)             --
     Gain on sale of tax loss carryforwards.......................                   (27)             (279)           (501)
     Gain on sale of assets.......................................                    --              (750)         (3,799)
     Stock based compensation expense.............................                     1                15              40
     Asset impairment charge......................................                    --             4,902              --
   Changes in assets and liabilities:
     Accounts receivable..........................................                  (466)              133              (8)
     Inventory....................................................                   420                (9)           (761)
     Prepaid expenses and other current assets....................                   278              (113)            (13)
     Restricted cash..............................................                    --                --             604
     Other assets, net............................................                   234               107              66
     Accounts payable and accrued expenses........................                   337               745            (887)
     Deferred revenues............................................                  (182)              374            (336)
     Deferred rent................................................                    --              (194)            (69)
                                                                               --------------   --------------  ---------------
        Net cash used in operating activities.....................                (1,851)           (7,109)         (5,629)
                                                                               --------------   --------------  ---------------
Investing Activities:
   Purchases of short-term investments............................                    --                --         (15,163)
   Proceeds from sales and maturities of short-term investments...                    17             2,707          14,441
   Purchases of property and equipment............................                   (15)             (457)           (259)
   Proceeds from sale of tax loss carryforwards...................                    27               279             501
   Proceeds from sale of assets...................................                    --               750           4,146
   Purchase of certain assets of Inroad, Inc......................                    --                --            (240)
   Purchase of Verbex Voice Systems, Inc..........................                    --                --             (51)
                                                                               --------------   --------------  ---------------
        Net cash provided by (used in) investing activities.......                    29             3,279           3,375
                                                                               --------------   --------------  ---------------
Financing Activities:
   Proceeds from issuance of short-term debt......................                    50                --              --
   Proceeds from exercise of warrants.............................                    97                --              --
   Proceeds from issuance of Series C Convertible Preferred stock
       and Warrants, net of expenses .............................                 1,694                --              --
   Retirement of Series B Covnertible Preferred Stock.............                  (524)               --              --
   Proceeds from exercises of common stock options................                    --                --             305
   Proceeds from private placement of common stock and warrants...                    --               276              --
   Issuance of common stock pursuant to Employee Stock Purchase
       Plan.......................................................                    --                --              13
   Proceeds from issuance of Series A convertible preferred stock
       and warrants...............................................                    --             3,660              --
   Repayment of short-term debt...................................                   (50)              (48)             --
                                                                               --------------   --------------  ---------------
        Net cash provided by financing activities.................                 1,267             3,888             318
                                                                               --------------   --------------  ---------------
Increase (decrease) in cash and cash equivalents..................                  (555)               59          (1,936)
Cash and cash equivalents, beginning of period....................                   561               502           2,438
                                                                               --------------   --------------  ---------------
Cash and cash equivalents, end of period..........................                     6               561             502
Short-term investments, end of period.............................                    --                17           2,724
                                                                               --------------   --------------  ---------------
Cash, cash equivalents and short-term investments, end of period..              $      6         $     578        $  3,226
                                                                               ==============   ==============  ===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
     Unrealized gain (loss) on short-term investments.............              $     --         $      --        $     (6)
                                                                               ==============   ==============  ===============
         Intangible assets recognized from InRoad transaction.....              $     --         $      --        $  8,404
                                                                               ==============   ==============  ===============
     Purchase accounting adjustment related to inventory acquired
                from Verbex.......................................              $     --         $      --        $    (79)
                                                                               ==============   ==============  ===============
</TABLE>

                                      F-7
<PAGE>

<TABLE>
<S>                                                                             <C>              <C>              <C>
         Accretion of Preferred Stock to redemption value.........              $  1,749         $     652        $     --
                                                                               ==============   ==============  ===============
         Conversion of Series A Preferred Stock...................              $     85         $     247        $     --
                                                                               ==============   ==============  ===============
         Conversion of Series B Preferred Stock...................              $    968         $      --        $     --
                                                                               ==============   ==============  ===============
         Conversion of Series C Preferred Stock...................              $     25                --        $     --
                                                                               ==============   ==============  ===============
         Exchange of Series A for Series B preferred stock,
                including $38 of accretion to redemption value....              $  3,231         $      --        $     --
                                                                               ==============   ==============  ===============
         Warrant to acquire common stock for finders fee..........              $     36         $      79        $     --
                                                                               ==============   ==============  ===============
         Warrant issued to preferred stockholders treated as a
                dividend..........................................              $    480         $      --        $     --
                                                                               ==============   ==============  ===============
         Beneficial conversion feature treated as a dividend......              $     82         $   2,913        $     --
                                                                               ==============   ==============  ===============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-8
<PAGE>




1.   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Background and Liquidity

     Voxware,  Inc.'s  (the  "Company")  primary  business  is the  development,
marketing and sale of industrial  voice-based  solutions  for  distribution  and
logistics  in  e-commerce,   retail,  and   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 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'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.

     Going Concern

     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,  2002,  the Company had an
accumulated  deficit of $47,834,000,  including  $4,902,000 from the loss on the
asset impairment  charge of intangibles,  $2,401,000 from accretion of preferred
stock to redemption value and $2,999,000 from the beneficial  conversion feature
as a result of the Castle  Creek  transactions  consummated  in August  2000 and
April  2001.  Management  believes  that  unless  the  Company is able to secure
additional financing,  its cash and cash equivalents and short-term  investments
will not be  adequate  to meet the  Company's  cash  requirements  over the next
twelve months. These factors raise substantial doubt about the Company's ability
to  continue  as  a  going  concern.  The  accompanying  consolidated  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of asset carrying  amounts or the amount and  classification  of
liabilities that might result from the outcome of the  uncertainty.  The Company
has minimal cash on hand as of September  30, 2002 and  Management is in current
negotiations  to secure a portion of its financing  required for the next twelve
months.  There can be no assurance that the negotiations  will be successful and
result in financing  for the Company.  If such  financing is not  obtained,  the
Company will have to curtail significant portions or all of its operations.

                                       F-9

<PAGE>


     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.

Fourth Quarter Adjustments

     In the fourth quarter of fiscal 2002, the Company  recognized  accretion of
$992,102 on its Series B mandatorily  redeemable convertible preferred stock. Of
this amount,  approximately  $200,000 pertains to each of the first,  second and
third quarters of 2002.

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. The products and
services are sold separately as well as combined. The Company combines software,
hardware  and  professional   services  for  installation,   implementation  and
maintenance as part of its industrial  voice-based  solutions ("the  solution").
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 or completion
of  the  implementation,  if  applicable,  provided  there  are  no  significant
post-delivery  obligations.  The Company  began  shipping  voice-based  products
subsequent to its acquisition of substantially all of the assets of Verbex Voice
Systems, Inc. ("Verbex"),  which occurred on February 18, 1999. License fees are
generally derived from licensing the Company's voice-based software applications
acquired in the Verbex  transaction,  and from  licensing the  Company's  speech
compression  technologies  to customers in the multimedia  and consumer  devices
markets.  License fees are generally  recognized upon delivery or implementation
of the underlying  technologies,  provided persuasive evidence of an arrangement
exists,  pricing is fixed or  determinable,  the payment is due within one year,
and collection of the resulting receivable is deemed probable.  If an acceptance
period is required, revenues are recognized upon customer acceptance.  Royalties
and  recurring  revenues  include  royalties,  which  are  generally  based on a
percentage of licensees'  sales or units shipped,  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 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 Company entered into and completed its
initial  solution  arrangements  during  2001.  Based on the  Company's  limited
experience with implementation,  installation and customer acceptance,  solution
revenue for the hardware,  software and professional services, has been recorded
upon the completion of installation and customer acceptance.

     During 2001, the Company entered into solution  arrangements with customers
that resulted in or are expected to result in losses. Them Company accrues these
losses when they become known.

     The Securities and Exchange Commission has issued Staff Accounting Bulletin
No.  101  ("SAB  101"),  "Revenue  Recognition  and  Views on  Selected  Revenue
Recognition  Issues" which was effective December 2000. The Company did not have
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

                                      F-10
<PAGE>


feasibility has been established, at which time such costs are capitalized until
the  product is  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

     Basic net loss per share was computed by dividing the net loss available to
common  shareholders by the weighted average number of common shares outstanding
for the fiscal years ended June 30, 2002,  2001 and 2000.  Due to the  Company's
net  losses  for the years  ended June 30,  2002,  2001 and 2000,  the effect of
including  common stock  equivalents  in the  calculation  of net loss per share
would be anti-dilutive. Therefore, outstanding common stock equivalents have not
been included in the  calculation  of net loss per share and as a result,  basic
net loss per share is the same as diluted net loss per share for the years ended
June 30, 2002,  2001 and 2000.  All common stock  equivalents  consist of common
stock options and warrants to acquire common stock.  As of June 30, 2002,  stock
options and warrants to acquire  common stock  (3,599,149  shares) have not been
included in the diluted  loss per common share  calculation  since the impact is
anti-dilutive.

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  in 2000 was  classified  as  available-for-sale,  and was
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, 2002
and 2001:

                                       June 30, 2002
                      ------------------------------------------------------
                                      Gross         Gross
                       Amortized    Unrealized    Unrealized
                          Cost        Gains         Losses      Fair Value
                          ----        -----         ------      -----------
                                         (in thousands)

Corporate obligations  $   --       $   --         $  --         $   --
                      =======================================================

                                       June 30, 2001
                      -------------------------------------------------------
                                      Gross         Gross
                       Amortized    Unrealized    Unrealized
                          Cost        Gains         Losses      Fair Value
                          ----        -----         ------      -----------

Corporate obligations      $ 17         $--          $--           $ 17
                       ==========    =========     =========     =========

     The Company has not experienced any significant realized gains or losses on
its  investments  during the years ended June 30, 2002 and 2001. 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, 2001, all short-term
investments  were due  within  one  year.  As of June 30,  2002,  there  were no
short-term investments.

Accounts Receivable

     Accounts  receivable  as of  June  30,  2002  and  2001  consisted  of  the
following:

                                                         June 30,
                                                   --------------------------
                                                      2002            2001
                                                   -----------    -----------
                                                         (in thousands)

 Accounts receivable............................   $  1,409         $  993
 Less--allowance for doubtful accounts..........        (94)           (144)
                                                   ----------      ----------
 Accounts receivable, net.......................   $  1,315         $   849
                                                   ==========      ===========


                                      F-11

<PAGE>

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, 2002 and
2001, consisted of the following:


                                                         June 30, 2002 2001
                                                         -------------------
                                                            (in thousands)

Raw materials.......................................     $ 630         $ 810
Work-in process.....................................       152           108
Finished goods......................................       139           336
      Less - Inventory Reserve......................      (243)         (156)
                                                         -------      --------
Inventory, net......................................     $ 678       $ 1,098
                                                         ========     =========

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 (See Note 2)

     The Company  accounts  for  possible  impairment  of  long-lived  assets in
accordance  with  Statement of Financial  Accounting  Standards  (SFAS) No. 121,
"Accounting for Impairment of Long-Lived  Assets and for Long-Lived Assets to be
Disposed  Of;  SFAS  No.121   requires  that   long-lived   assets  and  certain
identifiable  intangibles  to be held and used by the  Company be  reviewed  for
possible  impairment on a periodic basis whenever events and circumstances  have
occurred that indicate the remaining balance may not be recoverable.  If changes
in circumstances  indicate that the carrying amount of an asset that the Company
expects to hold and use may not be  recoverable,  future cash flows  expected to
result from the use of the asset and its disposition  must be estimated.  If the
undiscounted  value of the future cash flows is less than the carrying amount of
the asset, an impairment will be recognized.

     In July 2001, the FASB issued SFAS No. 141 , "Business Combinations" ("SFAS
141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method.  Under SFAS 142,  goodwill and intangible  assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators are apparent.) However, separable intangible
assets  that  are not  deemed  to have  indefinite  lives  will  continue  to be
amortized over their useful lives. The Company considers its intangibles  assets
to have  finite  lives and will  continue  to  amortize  such  assets over their
remaining  useful  lives.  As such,  the Company does not expect the adoption of
SFAS 141 and 142 to have a material  effect on comparative  periods'  results of
operations or financial position.

Warranty

     The Company's  standard  warranty  policy on the Company's  legacy  product
line,  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  delivery in the case of  hardware.
Substantially  all  non-VoiceLogistics   components,  parts  and  sub-assemblies
purchased by the Company are covered by warranty by the manufacturer for periods
ranging from 30 days to one year.

     The Company's standard warranty policy on the  VoiceLogistics  product line
generally  upon first use in a production  environment  and extends for a twelve
month period that covers all manufacturer  defects (the "Warranty Period").  The
Company accrues  warranty costs based on historical  experience and management's
estimates.

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

                                      F-12

<PAGE>

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.

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

     Three  customers  accounted  for 47%,  11% and 7% of revenues  for the year
ended June 30, 2002. Accounts receivable due from these customers as of June 30,
2002  approximated 47%, 11% and 8%,  respectively.  For the years ended June 30,
2001 and 2000,  three customers  accounted for 13%, 12% and 12% of 2001 revenues
and two customers accounted for 13% and 14% of 2000 revenues, respectively.

Income taxes

     Deferred  income  tax  assets  and  liabilities  are  determined  based  on
differences  between the financial  statement  reporting and tax basis of assets
and  liabilities and are measured using the enacted tax rates and laws that will
be in effect when the  differences  are expected to reverse.  The measurement of
deferred income tax assets is reduced,  if necessary,  by a valuation  allowance
for any tax  benefits  that are not  expected  to be  realized.  The  effect  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 loss and net 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 6).

Comprehensive 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 had
were unrealized gains (losses) on available-for-sale  securities and net loss in
prior years.

Recent Accounting Pronouncements

     In June  2001,  the  FASB  issued  SFAS No.  143,  "Accounting  for  Assets
Retirement  Obligations."  ("SFAS 143"). SFAS 143 addresses financial accounting
and  reporting  for  obligations  associated  with the  retirement  of  tangible
long-lived  assets and the associated assets retirement costs. SFAS 143 requires
that the fair  value  of a  liability  for an  asset  retirement  obligation  be
recognized  in the period in which it is  incurred if a  reasonable  estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived  asset.  SFAS 143 is effective for
the first quarter in the fiscal year ending June 30, 2003.  The Company does not
expect the  adoption  of this  pronouncement  to have a  material  impact on its
consolidated results of operations or financial position.

                                      F-13
<PAGE>


     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  for the Disposal of Long-lived  Assets" (SFAS 144").  This Statement
addresses  financial  accounting  and reporting for the impairment of long-lived
assets and for  long-lived  assets to be disposed of. SFAS 144  supersedes  FASB
Statement No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-lived Assets to be Disposed of." However,  SFAS 144 retains the fundamental
provisions  of  Statement  No.121 for (a)  recognition  and  measurement  of the
impairment  of long  -lived  assets to be held and used and (b)  measurement  of
long-lived assets to be disposed of by sale. SFAS 144 is effective for the first
quarter in the fiscal year ending June 30, 2003. The Company does not expect the
adoption of this  pronouncement  to have a material  impact on its  consolidated
results of operations or financial position.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities"  ("SFAS 146").  SFAS 146 addresses
financial  accounting and reporting  costs  associated with the exit or disposal
activities and nullifies EITF Issue No 94-3, "Liability  Recognition for Certain
Employee  Termination  Benefits and Other Costs to Exit and Activity  (including
Certain Costs Incurred in a Restructuring)", It applies to costs associated with
an exit  activity  that does not involve an entity newly  acquired in a business
combination  or with a disposal  activity  covered by SFAS 144. A liability  for
costs  associated  with an exit or disposal  activity  shall be  recognized  and
measured  initially  at its fair value in the period in which the  liability  is
incurred.  SFAS  146 is  effective  for  exit or  disposal  activities  that are
initiated  after  December 31, 2002. The Company does not expect the adoption of
this Statement to have a material impact its consolidated  results of operations
or financial position.

2.  ACQUISITIONS AND RELATED INTANGIBLES:

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 December 31, 1999, the escrow balance
was released from  restricted  cash. The acquisition was accounted for under the
purchase  method of accounting,  whereby the purchase price was 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.

Purchase and Impairment 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 andproprietary  processes.  These assets were
being  amortized  over three years,  which  represents  the  original  estimated
economic life of these assets.

     During the fourth quarter of fiscal 2001, the Company planned a redesign of
the hardware product that will most likely result in the phase-out of the inroad
technology that makes up a large portion of the VoiceLogistics  hardware.  It is
believed that the only remaining  portion of the InRoad hardware product will be
the casing for the  hardware  unit.  All  internal  hardware  structure  will be
modeled  off of a new  platform  and will  utilize  different  technology.  This
business decision,  combined with the Company's  recurring  operating losses and
negative cash flows,  limited capital  availability and significantly  depressed
stock price, resulted in a significant indicator of impairment. Pursuant to SFAS
No. 121, the Company  evaluated the  recoverability  of the  Company's  acquired
long-lived assets, including goodwill and identifiable  intangibles.  During the
fourth quarter of fiscal 2001, the Company determined that the undiscounted cash
flow projections for the hardware  component of the Verbex business segment (the
hardware  platform  for the  VoiceLogistics  product  as  influenced  by  InRoad
technology)  were  lower than the  carrying  value of the  related  identifiable
intangible assets.  Accordingly,  the Company adjusted the net carrying value of
these assets to zero,  resulting in a non-cash  impairment loss of approximately
$4,902,000.  The asset purchase provided the Company with a voice-based hardware
platform for the VoiceLogistics product.


                                      F-14
<PAGE>

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, which was held in escrow
for 18 months to secure Voxware's indemnification  provisions, was released from
restriction on March 21, 2001. As a result of the sale,  the Company  recorded a
gain of $750,000  and  $3,799,000  during the years ended June 30, 2001 and June
30, 2000, respectively.  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
                                                            June 30,
                                                     ------------------------
                                                     2002               2001
                                                     ----               ----
                                                          (in thousands)
------------------------------------------------------------------------------
  Acquisition of Verbex Voice Systems, Inc....... $  5,131            $  5,131
  Purchase of certain assets of InRoad, Inc......       --               8,404
  Asset impairment charge........................       --              (4,902)
                                                  ---------           ---------
                                                     5,131               8,633
  Less--Accumulated amortization.................   (4,362)             (6,567)
                                                  ---------           ---------
  Intangible assets, net......................... $    769            $  2,066
                                                  ========             ========
-------------------------------------------------------------------------------

     Amortization   expense  was   approximately   $1,298,000,   $4,099,000  and
$1,989,000 for the years ended June 30, 2002, 2001 and 2000, respectively.

3.   PROPERTY AND EQUIPMENT:

                                                              June 30,
                                                    ---------------------------
                                                     2002               2001
                                                     ----               ----
                                                          (in thousands)
-------------------------------------------------------------------------------
  Equipment.....................................  $   919              $   924
  Leasehold improvements........................      448                  526
  Furniture and fixtures........................       80                  105
                                                 ---------           ---------
                                                    1,447                1,555
  Less--Accumulated depreciation................   (1,150)                (971)
                                                  ---------           ---------
  Property and equipment, net...................  $   297              $   584
                                                  ========             ========
-------------------------------------------------------------------------------

     Depreciation expense was approximately $272,000,  $316,000 and $243,000 for
the years ended June 30, 2002, 2001 and 2000, respectively.

4.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

                                                              June 30,
                                                    ---------------------------
                                                     2002               2001
                                                     ----               ----
                                                          (in thousands)
-------------------------------------------------------------------------------
  Accounts payable - trade......................  $ 1,382              $   713
  Accrued compensation and benefits.............      181                  291
  Accrued professional fees.....................      194                  297
  Other accrued expenses........................      323                  442
                                                  ---------           ---------
  Accounts payable and accrued expenses.........  $ 2,080              $ 1,743
                                                  ========             ========
-------------------------------------------------------------------------------

                                      F-15

<PAGE>


5.   SERIES  A,  SERIES  B  AND  SERIES  C  MANDATORILY  REDEEMABLE  CONVERTIBLE
     PREFERRED STOCK AND WARRANTS TO PURCHASE COMMON STOCK

     The Company has  authorized  10,000,000  shares of  Preferred  Stock with a
$0.001 par value per share. On August 29, 2001, all of the outstanding shares of
Series  A  Mandatorily   Redeemable   Convertible  Preferred  Stock  ("Series  A
Preferred")  were  exchanged  for Series B  Mandatorily  Redeemable  Convertible
Preferred  Stock  ("Series B  Preferred").  The  Company  also  issued  Series C
Mandatorily  Redeemable  Convertible  Preferred  Stock ("Series C Preferred") in
December 2001 and February  2002.  The Series B Preferred and Series C Preferred
shares  have a stated  value of $1,000 per  share.  As of June 30,  2002,  2,750
shares of Series B Preferred and 1,840 shares of Series C Preferred  were issued
and outstanding.

     On August 15, 2000 the Company completed a $4,000,000  private placement of
Series A Preferred and a warrant (the "Warrant") to purchase common stock Castle
Creek Technology  Partners,  LLC ("Castle Creek"). The Company sold 4,000 shares
of Series A Preferred, which shares are convertible into shares of common stock,
resulting in proceeds to the Company of  approximately  $3,660,000,  net of cash
transaction  costs. The Company is obligated to redeem the Series A Preferred 30
months from the  closing.  The Series A Preferred  has a 7% dividend  payable in
cash or equity,  at the election of the holder,  and is convertible into Voxware
common  stock at an initial  conversion  price of $3.025  per share,  subject to
adjustment, as defined. In addition, Castle Creek received a Warrant to purchase
727,273  shares of common stock at an initial  exercise  price of  approximately
$3.44 per share, subject to adjustment set forth in the Warrant. The Company has
the right to require  conversion  of the Series A  Preferred,  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.

     The Company  allocated the proceeds,  net of cash and non-cash  transaction
costs,  to the Series A Preferred  and Warrant sold to Castle Creek based on the
relative fair value of each instrument. The fair value of the Series A Preferred
was  determined  based on a discounted  cash flow analysis and the fair value of
the Warrant was determined based on the Black-Sholes  option-pricing model. As a
result, the Company initially allocated approximately $2,774,000 and $807,000 to
the  Series  A  Preferred  and  Warrant,  respectively.  After  considering  the
allocation  of the proceeds to the Series A Preferred  and Warrant,  the Company
determined that the Series A Preferred contained a beneficial conversion feature
(BCF). The Company  recorded the BCF in the amount of approximately  $1,244,000,
in a manner similar to a dividend  during the quarter ended  September 30, 2000.
The Warrant has been classified as a liability in the accompanying  consolidated
balance  sheet  because  the  Warrant  gives the  holder  the choice of net cash
settlement at a time when other  shareholders would not have such a choice (upon
a merger or change in control, as defined). As of June 30, 2002, the outstanding
Warrant was  adjusted  to the fair value of the  Warrant  based upon the closing
stock price as of that date.  As a result,  the Company  adjusted the Warrant to
zero,  representing  the  fair  market  value  as of June 30,  2002,  using  the
Black-Sholes  option-pricing  model and recorded a gain on the write down of the
Warrant  to  fair  value  of  $23,000  for  the  period  ended  June  30,  2002,
respectively.

     The Series B Preferred are  convertible  into shares of common stock on the
date of issuance.

     On April 19, 2001, the Company consummated a private placement of shares of
common stock and a common stock warrant to Castle Creek pursuant to the terms of
a Securities  Purchase  Agreement  (the "Purchase  Agreement").  Pursuant to the
private  placement,  the Company  sold 714,000  shares (the "Common  Shares") of
common  stock and a warrant to purchase an  additional  2,142,000  shares of its
common stock (the "Purchase Warrant"). The Common Shares were sold at a price of
$.34 per share. The exercise price of the Purchase Warrant is $1.25 per share in
the case of an  optional  exercise  by Castle  Creek,  or 80% of the then market
value (as defined in the Purchase  Warrant) of the common stock in the case of a
mandatory exercise required by the Company. Net proceeds to the Company from the
private  placement  were  approximately  $276,000.  Pursuant to the terms of the
Purchase  Agreement,  the Company used $48,200 of such proceeds to repurchase 46
shares of the Company's Series A Preferred from Castle Creek. The balance of the
proceeds was used by the Company for general working capital purposes.

     On August 29, 2001 the Company  issued  708,656  remedy  warrants to Castle
Creek.  These remedy  warrants  allow Castle Creek to purchase  shares of common
stock at $0.01 per share and expire on August 28, 2011. Using the  Black-Scholes
option-pricing  model,  the  Company  determined  the fair  value of the  remedy
warrants  to be  $139,000.  The  Company  recorded  the  issuance  of the remedy
warrants as a Preferred  Stock dividend  during the quarter ended  September 30,
2001.  Through  June 30,  2002,  Castle  Creek  exercised  708,656 of the remedy
warrants, resulting in gross proceeds of $7,087.

                                      F-16
<PAGE>

     In August of 2001, the Company  exchanged its Series A Preferred for shares
of Series B Preferred.  As the term,  rights and preferences of the Series B are
substantially  similar  to  those of the  Series  A, the  Company  recorded  the
exchange based upon the carrying value of the Series A Preferred.

     The Company has accreted the Series A Preferred  and is accreting  Series B
Preferred to their redemption values using the effective interest method through
the redemption period of 30 months. Accordingly, the Company recorded $1,382,000
and  $652,000  of  accretion  during  the years  ended  June 30,  2002 and 2001,
respectively.

     In  addition,  pursuant  to the terms of the August 2000 Series A Preferred
transaction,  any reset of the conversion  price is treated as a dividend to the
holder of the Series A Preferred. Since the conversion price adjustment was part
of the August 2000 transaction,  a contingent BCF existed at the August 15, 2000
commitment  date.  The contingent BCF was recorded upon resetting the conversion
price to $0.34 on April 19, 2001 and the dividend was recorded.

     In August 2000, the  contingent BCF was measured at zero. As a result,  the
dividend was calculated based on the difference  between the reduced  conversion
price ($0.34) and the fair value of the common stock issuable upon conversion of
the Series A Preferred as of April 19,  2001.  The charge for the BCF is limited
to the carrying value of the Series A Preferred after the initial  allocation of
the cash proceeds received from the Series A Preferred and the Warrant. At April
19, 2001, the Company  recorded a $1,669,000  dividend charge for the contingent
BCF.  Through  August 31,  2001,  the Series A holders  converted  319 shares of
Series A Preferred into 1,043,003 shares of common stock at an exercise price of
$0.34. Through June 30, 2002, Castle Creek elected to convert shares of Series B
Preferred into shares of common stock as follows:

                                              Shares
                        ------------------------- ------------------------
 Date                     Series B Preferred            Common
                        ------------------------- ------------------------
 November 8, 2001                  40                    271,826
 November 19, 2001                 50                    340,208
 November 26, 2001                 40                    272,653
 November 29, 2001                 75                    511,497
 December 11, 2001                106                    724,462
 June 21, 2002                     50                    312,500
                        ------------------------- ------------------------
                                  361                  2,433,146


     For all  transactions  through  June 30,  2002,  each  share of Series A or
Series B Preferred,  plus the  applicable  dividend,  converted into a number of
common  shares at  conversion  prices  ranging from $0.16 per share to $0.34 per
share. At the August 2001  conversion,  the conversion  price was re-adjusted to
the  average of the five  lowest  closing  bid  prices  during the last ten days
before the conversion  ($0.19).  The conversion  price was again  re-adjusted to
$0.16 in accordance with the August 2000 agreement.  As stipulated in the August
2000 agreement,  any reset of the conversion price would result in a BCF limited
as defined  above.  As the limit was  reached on the April 2001 BCF,  no BCF was
recorded in conjunction with the August 2001 or October 2001 resets.

     On December 12, 2001, the Company completed a $1,765,000  private placement
of Series C Preferred and common stock warrants to purchase  5,944,219 shares of
common stock to various accredited  investors.  On February 1, 2002, the Company
also  received  $100,000  in cash  from an  additional  accredited  investor  in
connection  with this  private  placement.  In total,  the Company  issued 1,865
shares of Series C Preferred, which shares are convertible into shares of common
stock, resulting in proceeds to the Company of approximately $1,566,000,  net of
transaction costs. In addition to the cash transaction costs, the Company issued
warrants to investment  advisors as finder's fees to acquire  458,165  shares of
common stock as of June 30, 2002. The exercise price for the warrants  issued as
finder's fees is $0.1255 per share, and the warrants expire in five years. Using
the Black-Scholes option-pricing model, the Company determined the fair value of
the  warrants to be  $350,000.  The Company is  obligated to redeem the Series C
Preferred 36 months from the closing.  The Series C Preferred have a 7% dividend
payable in cash or equity, at the election of Voxware,  and are convertible into
Voxware  common  stock at an  initial  conversion  price of  $0.1255  per share,
subject to adjustment, as defined in the transaction documents. In addition, the
investors have received warrants to purchase 5,944,219 shares of common stock at
an  exercise  price of $0.1255  per share and expire five years from the date of
closing.  The Series C Preferred  stockholders have certain registration rights,
as defined in the transaction agreements.

     The Company  allocated the proceeds,  net of cash and non-cash  transaction
costs,  to the Series C Preferred and the additional  purchase  warrants sold to
investors based on the relative fair value of each instrument. The fair value

                                      F-17
<PAGE>

of the  Series C  Preferred  was  determined  based on a  discounted  cash  flow
analysis and the fair value of the additional  purchase  warrants was determined
based on the  Black-Scholes  option-pricing  model.  As a  result,  the  Company
allocated  approximately  $1,220,000  and $350,000 to the Series C Preferred and
the  additional  purchase  warrants,   respectively.   The  warrants  have  been
classified  as  additional  paid-in  capital  in the  accompanying  consolidated
balance sheet.

     The Company is accreting the Series C Preferred to their  redemption  value
using the effective  interest method through the redemption period of 36 months.
Accordingly,  the Company recorded  $367,000 of accretion during the fiscal year
ended June 30, 2002.

     The Series C Preferred are  convertible  into shares of common stock on the
date of issuance. After considering the allocation of the proceeds to the Series
C Preferred and the additional  purchase  warrants,  the Company determined that
the Series C  Preferred  contained  a BCF.  The  Company  recorded  the BCF as a
reduction of the Series C and an increase to additional  paid-in  capital in the
amount of approximately  $350,000. In accordance with Emerging Issues Task Force
00-27, the BCF is being amortized over the redemption  period of 36 months using
the effective  interest  method,  and is being recorded in a manner similar to a
dividend during the year ended June 30, 2002. As a result,  the Company recorded
approximately  $82,000 as a BCF treated as a dividend during the year ended June
30, 2002.

     During the year ended June 30,  2002,  Castle  Creek  exercised  708,656 of
remedy  warrants.  These exercises  resulted in gross proceeds of $7,087.  As of
June 30, 2002, there were no remedy warrants outstanding.

     On February 8, 2002,  Castle Creek exercised a purchase warrant to purchase
714,000 shares of common stock in connection  with the April 19, 2001 Securities
Purchase  Agreement.  The exercise price was $0.13 per share,  resulting in cash
proceeds of $93,000.  Simultaneously,  the Company applied the proceeds received
to retire 84 shares of Series B Preferred.

     On April 19, 2002,  Castle Creek  exercised a purchase  warrant to purchase
714,000 shares of common stock in connection  with the April 19, 2001 Securities
Purchase  Agreement.  The exercise  price was $0.13 per share  resulting in cash
proceeds of $92,820.  Simultaneously,  the Company applied the proceeds received
to retire 83 shares of Series B Preferred.

6.   STOCKHOLDERS' EQUITY (DEFICIT):

Authorized Number of Shares

     In May, 2002, the Company's stockholders approved an increase in the number
of  authorized  shares of common  stock  from 60 million  shares to 180  million
shares.

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 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 cases 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 120,000  options at exercise
prices of $0.40 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


                                      F-18
<PAGE>


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 Option Plans is as follows:

<TABLE>
<CAPTION>
                                                                                    Price                 Aggregate
                                                                   Shares         Per Share               Proceeds
                                                                 ----------     --------------           -----------
<S>                                                             <C>             <C>     <C>              <C>
Outstanding at June 30, 1999 (261,803 exercisable)...........    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 (838,391 exercisable)...........    2,738,250      $ 0.50--$ 7.88            6,803,245
                                                                                $ 0.40--$ 3.84              863,233
               Granted.......................................      482,500
               Exercised.....................................           --      $ 0.40--$ 7.50                  --
               Canceled......................................     (457,500)     $ 0.40--$ 7.88            (776,493)
                                                                 ----------      --------------          ----------
Outstanding at June 30, 2001(1,527,000 exercisable)..........    2,763,250      $ 0.40--$ 7.88         $  6,889,985
               Granted.......................................       70,000      $ 0.15                       27,572
               Exercised.....................................           --      $           --                   --
               Canceled......................................     (311,375)     $ 0.15--$ 7.88            (557,211)
                                                                 ----------      --------------          ----------
Outstanding at June 30, 2002 (1,819,313 exercisable).........    2,451,875      $ 0.15--$ 7.88         $  6,360,346
</TABLE>

     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,  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>
                                                                              June 30,
                                                       ---------------------------------------------------------
                                                          2002                  2001                   2000
                                                          ----                  ----                   ----
                                                                  (in thousands, except per share data)
Net loss applicable to common shareholders:
<S>                                                     <C>                 <C>                   <C>
     As reported......................................  $  (6,304)          $    (19,234)         $    (2,245)
     Pro forma........................................     (6,437)               (19,188)              (3,601)
Net loss per share:
     As reported......................................  $   (0.34)          $      (1.32)         $     (0.16)
     Pro forma.........................................     (0.35)                 (1.32)               (0.26)
</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 2001,  2000 and 1999:  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 $1.42,  $2.49 and $1.48
for the fiscal years ended June 30, 2002, 2001 and 2000, respectively.


                                      F-19
<PAGE>

     Information  with  respect to options  outstanding  at June 30,  2002 is as
follows:

                                    Weighted    Weighted Average
                                     Average        Remaining       Number of
Exercise Price Per Share  Shares  Exercise Price  Contractual Life Vested Shares
------------------------ -------  --------------- ---------------- -------------

$  0.15--$ 1.63         1,422,500     $1.14           7.4          1,087,948
$  1.90--$ 3.00           142,000     $2.62           6.9             92,177
$  3.08--$ 3.88           432,000     $3.75           7.5            255,938
$  4.00--$ 7.88           589,875     $4.65           7.2            514,500
Total                   2,451,875     $2.46           7.2          1,950,563

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 years  ended June 30,  2002 and 2001,  the
Company granted a total of zero and 34,483 shares, respectively, of common stock
pursuant to this plan and recorded  zero and $10,000,  respectively,  associated
compensation expense.

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 were entitled to
purchase shares at 85% of the fair market value. During the years ended June 30,
2000 and 1999,  the Company  issued  19,570 and 77,843  shares of common  stock,
respectively,  at  average  purchase  prices  of  $0.69  and  $0.82  per  share,
respectively,  pursuant to the  Employee  Stock  Purchase  Plan.  No shares were
issued  during the year ended 2001.  As of June 30, 2000,  all 200,000  reserved
shares of common stock had been issued and the Plan had been terminated.

7.   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.  Effective  January 1, 2002, the Company  suspended the Company match
until further notice.

     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 $26,000, $38,000 and $27,000 for the years
ended June 30, 2002, 2001 and 2000, respectively.

8.   INCOME TAXES:

     As of June 30, 2002, the Company had  approximately  $27 million 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, 2002, a full  valuation  allowance has been provided on the net deferred tax
asset because of the uncertainty  regarding realization of the deferred asset as
a result of the operating losses incurred to date.

                                      F-20
<PAGE>



9.   COMMITMENTS AND CONTINGENCIES:

     The  Company  leases its office  facilities  and  certain  equipment  under
operating leases with remaining  non-cancelable  lease terms generally in excess
of one year. Rent expense was approximately $451,000,  $606,000 and $301,000 for
the years  ended June 30,  2002,  2001 and 2000,  respectively.  Future  minimum
rental  payments  for  the  Company's  office  facilities  and  equipment  under
operating leases as of June 30, 2002 are as follows:

                                                           (in thousands)
             Year Ending June 30,
                  2003..............................            $ 360
                  2004..............................              258
                                                              ----------
                                                                $ 618

     In February 2002, the Company entered into a sublease agreement under which
the Company subleased 34% of its approximately 4,000 total square feet of office
space in its current Princeton, New Jersey facility.

     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 previous Princeton,  New Jersey facility.  Effective June 30, 2000,
the Company had been released from its lease commitment for 9,500 square feet of
that  office  space in, and  effective  January 31,  2002,  the Company has been
released  from  its  lease  commitment  for the  remaining  office  space in the
previous Princeton, New Jersey facility.

     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  is
automatically  renewable for successive  one-year  terms,  unless  terminated by
either party.

10.   SEGMENT INFORMATION:

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

     Business segment  information for the years ended June 30, 2002 and 2001 is
included in the table below.  Costs associated with corporate and administrative
overhead expenses, are included in the speech compression  technologies segment.
Intangible  assets and goodwill related to the Verbex  acquisition (Note 2), and
the  amortization  of those assets,  are included in the industrial  voice-based
products segment.

                                      F-21
<PAGE>
                                                      Speech
                                      Voice-Based   Compression
                                        Products    Technologies
                                         Segment      Segment         Total
                                       -----------  -----------   -----------
                                          2002          2002          2002
                                          ----          ----          ----


Revenues.............................  $  4,243      $   268      $  4,501
Loss from operations.................    (2,967)      (1,087)       (4,054)
Depreciation and amortization........     1,527           43         1,570
Identifiable assets..................     2,048        1,143         3,191

                                          2001         2001          2001
                                          ----          ----          ----
Revenues............................. $   1,195      $   850      $  2,045
Loss from operations.................   (17,615)        (101)      (17,716)
Depreciation and amortization........     4,308          105         4,413
Asset impairment charge..............     4,902           --         4,902
Identifiable assets..................     1,232        4,581         5,813


     For the years ended June 30, 2002,  2001 and 2000,  revenue  related to the
voice-based product segments included approximately $4,232,000,  $94,000 and $0,
respectively,  of sales to customers  outside the United  States.  For the years
ended June 30, 2002, 2001 and 2000,  revenues included  approximately  $303,000,
$82,000 and $400,000,  respectively, of sales to customers related to the speech
compression technologies segment outside the United States.

11.   SUBSEQUENT EVENTS (UNAUDITED):

     Pursuant to the terms of the August  2000  Series A  Preferred  Transaction
(see Note 4),  Castle  Creek  elected to convert  additional  shares of Sereis A
Preferred  into shares of common stock.  Each share of Series A Preferred,  plus
the  applicable  dividend,  converted  int o a  number  of  common  shares  at a
conversion  price of $0.16 per share. The following table details the subsequent
conversions:

                                                 Shares
                           ---------------------------------------------
                              Series B                     Common
    Date                      Preferred
   -------                 ---------------     -------------------------

  July 8, 2002                   50                       312,000
  July 22, 2002                  50                       312,500
  August 7, 2002                 50                       312,500
  September 13, 2002             50                       312,500
  October 13, 2002               43                       273,851


     On  October  2,  2002,  the  Company  issued  a series  of 10%  Convertible
Debentures due July 1, 2003 (the "Debentures") in the aggregate principal amount
of 300.699,32  Euro.  The proceeds of the  Debentures are to be used to fund the
Company's  capital  investment  in  Voxware  NV,  a  limited  liability  company
organized under Belgian law, founded by Creafund NV ("Creafund") and the Company
on July 1, 2002 and to fund the  operational  expenses of Voxware NV,  excluding
expenses or invoices generated by the Company (other than the acquisition of the
Company's  voiced based  solutions).  Voxware NV was  established  to market the
Company's  products in Europe.  The holders of the  Debentures own two-thirds of
the equity of Voxware NV and the Company owns the remaining one-third of equity.

     The Debentures are mandatorily  convertible into shares of capital stock of
the Company issued upon the closing of a Qualifying Fundraising (as specifically
defined in the debentures).  A Qualifying Fundraising requires the execution, on
or before  November 30,  2002,  of  subscription  agreements  providing  for the
issuance of at least U.S.$2,500,000 of equity of the Company, and the closing of
such financing by February 28, 2003. In the event the

                                      F-22
<PAGE>


subscription  agreements are not executed by November 30, 2002 or the Qualifying
Fundraising is not  consummated by February 28, 2003, each of the holders of the
Debentures has the right,  at any time prior to the close of business on July 1,
2003,  to convert  any or all of the  outstanding  principal  amount and accrued
interest of the Debenture  into shares of preferred  stock of the Company,  with
new  rights,  preferences  and  privileges  senior  to  the  Company's  existing
preferred  stock.  The conversion price for such senior preferred stock shall be
33% of the average share price for the Company's common stock for the 30 trading
days prior to the date of the  exercise  of the  conversion  option,  or, if the
Company's  securities are not listed or traded on a stock exchange,  a regulated
market or the OTC-BB,  33% of the intrinsic value of the Company's equity on the
date of the exercise of the conversion  option,  as determined by an independent
expert.

     In the event the subscription agreements for the Qualifying Fundraising are
not  executed  by  November  30,  2002  or  the  Qualifying  Fundraising  is not
consummated by February 28, 2003, the Debentures are redeemable at the option of
the Debenture holders. The redemption price is one hundred percent (100%) of the
principal amount so redeemed, plus accrued and unpaid interest.

     Simultaneously with the execution of the Debentures,  the Company, Creafund
and the other  holders  of  equity in  Voxware  NV (which  parties  are also the
holders of the Debentures)  executed a Shareholders  Agreement pursuant to which
Creafund and the other equity holders have the option to convert their shares of
Voxware NV into shares of capital  stock of the Company  issued upon the closing
of a  Qualifying  Fundraising.  In the  event  subscription  agreements  for the
Qualifying  Fundraising  are not executed by November 30, 2002 or the Qualifying
Fundraising  is not  consummated  by February  28, 2003,  the equity  holders of
Voxware NV (other than the  Company)  have the right to convert  their shares of
Voxware NV into  shares of  preferred  stock of the  Company,  with new  rights,
preferences and privileges senior to the Company's existing preferred stock. The
conversion  price for such  senior  preferred  stock shall be 33% of the average
share price for the Company's  common stock for the 30 trading days prior to the
date of the exercise of the conversion option,  or, if the Company's  securities
are not listed or traded on a stock exchange,  a regulated market or the OTC-BB,
33% of the intrinsic  value of the Company's  equity on the date of the exercise
of the conversion  option, as determined by an independent  expert. The exchange
rights described in this paragraph expire on December 31, 2004. The value of the
shares of Voxware NV for purposes of  determining  the exchange  ratios is based
upon the net sales of Voxware NV.

     The Company has granted  Voxware NV a royalty  free  license to  distribute
Voxware's  voice-based  solutions for the  logistics,  distribution  and package
sorting  industries  in Europe on mutually  acceptable  commercially  reasonable
terms.  In the event that the  Qualifying  Financing  is not  consummated,  such
license shall convert to a royalty-bearing  license on such terms and conditions
as mutually agreed upon by the parties to the Shareholders Agreement.

                                      F-23