AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2003
REGISTRATION STATEMENT NO. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. ___)
VOICE DIARY INC.
(Name of small business issuer in its charter)
Delaware 5731-9902 72-1629948
-------- ---------- ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Code Number)
200 Robbins Lane
Jericho, NY 11753
(516) 939-0400
-----------------
(Address and telephone number of principal executive offices)
200 Robbins Lane
Jericho, NY 11753
(516) 939-0400
-----------------
(Address of principal place of business or intended principal place of business)
Arie Hinkis, President
200 Robbins Lane
Jericho, NY 11753
(516) 939-0400
-----------------
(Name, address and telephone number of agent for service)
Copies to:
----------
Shustak Jalil & Heller
545 Madison Avenue
New York, NY 10022
(212) 688-5900
-----------------
(name, address, and telephone of Voice Diary's legal counsel)
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
1
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE (1) PRICE REGISTRATION FEE
- --------------------------- ----------------- ------------------- --------------------- -------------------
Class A Common stock, par
value $.01 per share to
be sold by us 2,400,000 $1.25 $3,000,000 $242.70
- --------------------------------------------------------------------------------------------------------------
Class A Common stock, par
value $.01 per share to be
issued by us upon
conversion of 2,400 outstanding
Class B Common Stock (2) 1,618,885 -- -- --
- --------------------------------------------------------------------------------------------------------------
Class A Common stock, par value
$.01 per share to be issued by
us upon exercise of options
to be offered to employees and
suppliers under a stock
option plan (3) 1,000,000 -- -- --
- --------------------------------------------------------------------------------------------------------------
Sub Total 5,018,885
- --------------------------------------------------------------------------------------------------------------
Class A Common stock, to
be sold by certain
selling stockholders 2,726,470 $1.25 $3,408,087.50 $275.71
- --------------------------------------------------------------------------------------------------------------
TOTALS 7,745,355 $6,408,087.25 $518.41
- --------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee under
the Securities Act.
(2) No conversion price applies when Class B Common Stock is converted to Class
A Common Stock.
(3) The exercise price of the options is not determined yet as no allocation of
options was made.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
2
SUBJECT TO COMPLETION, DATED May 15, 2003
PRELIMINARY PROSPECTUS
VOICE DIARY INC.
2,400,000 SHARES OF CLASS A COMMON STOCK TO BE OFFERED BY US
2,726,470 SHARES OF CLASS A COMMON STOCK TO BE OFFERED BY SELLING STOCKHOLDERS
$1.25 PER SHARE
1,618,885 SHARES OF CLASS A COMMON STOCK TO BE ISSUED BY
US UPON CONVERSION OF 2,400 OUTSTANDING
CLASS B COMMON STOCK
1,000,000 SHARES OF CLASS
A COMMON STOCK TO BE ISSUED BY US UPON EXERCISE OF OPTIONS TO BE OFFERED TO
EMPLOYEES AND SUPPLIERS UNDER A STOCK OPTION PLAN
We are offering these shares through our officers and directors without the
use of a professional underwriter. We will not pay commissions on stock sales.
The offering is made on a best efforts basis. We may however enlist the services
of an underwriter and may pay commission on sales of up to 10%. We will not
receive proceeds from the sale of any of the shares of common stock being
offered by our selling stockholders.
There is no trading market for our common stock. Management determined the
offering price of the common stock to be registered by this prospectus. The
offering price may not reflect the market price of our shares after the
offering. If a market were to develop, it would most likely be on the NASDAQ
OTCBB or the "pink sheets." Our common stock would not satisfy the listing
criteria of any national securities exchange or the NASDAQ listings.
-----------------------------
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" STARTING ON PAGE 8.
------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- -------------------------------------------------------------------------------------------------------------------
PRICE TO PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
DISCOUNTS AND COMPANY (1) STOCKHOLDERS (2)
COMMISSIONS
- -------------------------------------------------------------------------------------------------------------------
Common stock per share $1.25 $0.00 $3,000,000 $3,408,087.50
- -------------------------------------------------------------------------------------------------------------------
Total $1.25 $0.00 $3,000,000 $3,408,087.50
- -------------------------------------------------------------------------------------------------------------------
(1) Before deductions for offering costs, including printing, filing, legal,
accounting and transfer fees estimated at $64,000.00.
(2) Proceeds to be obtained by the selling stockholders will not inure to our
benefit. Selling stockholders will be responsible for any related
commissions, taxes, attorney's fees and related charges in connection with
the offer and sale of the Shares. The selling stockholders may sell their
common stock through one or more brokers/dealers, and such brokers/dealers
may receive compensation in the form of commissions.
The date of this Prospectus is ______________, 2003
3
TABLE OF CONTENTS (to be revised for final draft)
Item 1. Front of Registration Statement and Outside Front Cover of Prospectus. ......................... 1
Item 2. Inside Front and Outside Back Cover Pages of Prospectus........................................ 3
Item 3. Summary Information and risk factors .......................................................... 5
Item 4. Use of Proceeds............................................................................... 11
Item 5. Determination of Offering Price............................................................... 11
Item 6. Dilution....................................................................................... 12
Item 7. Selling Security Holders....................................................................... 12
Item 8. Plan of Distribution........................................................................... 13
Item 9. Legal Proceedings.............................................................................. 14
Item 10. Directors, Executive Officers, Promoters and Control Persons.................................. 14
Item 11. Security Ownership of Certain Beneficial Owners and Management................................ 15
Item 12. Description of Securities...................................................................... 16
Item 13. Interest of Named Experts and Counsel.......................................................... 17
Item 14. Disclosure of Commission Position of Indemnification for Securities Act Liabilities............ 17
Item 15. Organization Within Last Five Years............................................................ 18
Item 16. Description of Business........................................................................ 18
Item 17. Management's Discussion and Plan of Operation.................................................. 27
Item 18. Description of Property........................................................................ 33
Item 19. Certain Relationships and Related Transactions................................................. 33
Item 20. Market for Common Equity and Related Stockholder Matters....................................... 34
Item 21. Executive Compensation......................................................................... 34
Item 22. Financial Statements........................................................................... 35
Item 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure........... 35
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS......................................................... 36
Item 24. Indemnification of Directors and Officers...................................................... 36
Item 25. Other Expenses of Issuance and Distribution.................................................... 36
Item 26. Recent Sales of Unregistered Securities........................................................ 36
Item 27. Exhibits....................................................................................... 37
Item 28. Undertakings................................................................................... 38
4
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. IN
THE EVENT THERE HAVE BEEN ANY MATERIAL CHANGES IN OUR AFFAIRS, A POST-EFFECTIVE
AMENDMENT WILL BE FILED. WE RESERVE THE RIGHT TO REJECT ANY ORDER, IN WHOLE OR
IN PART, FOR THE PURCHASE OF ANY OF THE SHARES OFFERED.
UNTIL 90 DAYS AFTER THE FIRST DATE OF SALE TO THE PUBLIC, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION ABOUT US AND OUR FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.
VOICE DIARY INC.
We were incorporated in Delaware on February 26, 2002. Between June 2002
and January 2003, we acquired approximately 99% of the outstanding shares of
Voice Diary Ltd., an Israeli corporation ("VDL"), through a purchase of shares
from the former controlling stockholder of VDL and an exchange of shares of
Voice Diary Inc. with former stockholders of VDL. VDL began operations in
October 1993 and has been in the development stage. (Unless otherwise indicated,
references to us include VDL.)
We are developing and marketing a line of personal digital assistants
("PDAs") which have a voice user interface and provide to the user a full range
of personal information management applications, including a talking diary,
telephone book, daily pad and other features. The voice user interface was
designed to enable the visually impaired to use PDA technology by removing
obstacles to use inherent in conventional display-based products. Our latest
model is called the IMP and it was released in December 2001.
Our principal executive offices are located at 200 Robbins Lane, Jericho,
New York 11753. Our telephone number is (516) 939-0400.
THE OFFERING
Common stock* offered by us.................................... 5,018,885 shares
(Includes 2,400,000 shares to be offered to the public, 1,000,000 shares to be
offered to employees and suppliers under a stock option plan and the
registration of 1,618,885 shares of Class A Common Stock to be issued upon
conversion of the Class B Common Stock.)
Common stock* offered by selling stockholders...................2,726,470 shares
Common Stock* outstanding
Before the offering
Class A Common Stock ........................2,726,470 shares
Class B Common Stock ............................2,400 shares
After the offering
Class A Common Stock ........................7,745,355 shares
Class B Common Stock ............................2,400 shares
Estimated net proceeds to the Company ................................$2,936,000
* All references throughout this registration statement to "Common Stock" refer
to our Class A Common Stock, unless otherwise noted as Class B Common Stock.
5
USE OF PROCEEDS
GROSS OFFERING ................................. $ 3,000,000
SEC Registration Fee ......................... 518
Filing Expense ............................... 2,500
Legal & Consulting Fees ...................... 15,000
Accounting Fees .............................. 25,000
Blue Sky Fees ................................ 7,500
Printing ..................................... 1,000
Transfer Agent ............................... 3,000
Miscellaneous ................................ 9,482
LESS OFFERING EXPENSE TOTAL .................... $ 64,000
NET PROCEEDS ................................... $ 2,936,000
PLANNED USES:
R&D and Engineering Expenses ................... $ 900,000
Product design, patents, trademarks, etc ....... $ 300,000
Marketing and Sales Expenses ................... $ 750,000
General and Administrative Expenses ............ $ 300,000
Debt payments for subsidiary ................... $ 300,000
Working Capital ................................ $ 386,000
TOTAL PROCEEDS FOR PLANNED USES AND
WORKING CAPITAL ................................ $ 2,936,000
Proposed NASDAQ OTC BB Symbol "VDIL".
6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The table below contains summary historical financial data. The historical
financial data for the year ended December 31, 2002 was derived from our audited
financial statements appearing elsewhere in this prospectus and should be read
in conjunction with those financial statements and the notes to those
statements.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31, 2001 YEAR ENDED DECEMBER 31, 2002
---------------------------- ----------------------------
Statement of Operations Data:
Revenues $ 109,963 $ 34,002
Cost of Revenues $ 81,036 $ 59,409
Research and Development Expenses $ 174,116 $ 142,581
Marketing, General and Administrative Expenses $ 86,978 $ 329,136
Net Loss $ 231,087 $ 609,511
CONSOLIDATED BALANCE SHEET DATA:
Balance Sheet Data AS ADJUSTED (1)
---------------
Working Capital (deficit) $ (606,875) $ (454,757)(2) $2,581,243
Total Assets $ 224,742 $ 63,925 $2,999,925
Shareholders' equity (defiency) $ (705,475) $ (477,271)(2) $2,558,729
(1) As adjusted to give effect to the sale of 2,400,000 shares of common stock
offered hereby for $2,936,000 after deducting the estimated offering expenses.
(2) Includes an amount of $100,000 paid in capital for share issuance on May 9,
2003 allocated to two individuals who own a company that has previously provided
bridge financing to us, as discussed in Item 26.
7
RISK FACTORS
You should carefully consider the risks described below in addition to the
other information in this prospectus before making an investment decision.
Investment in the securities offered here involve certain risks and is suitable
only for investors who can afford a complete loss of their investment.
YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
As of the date of this registration statement, there is no public market
for our common stock. There can be no assurance that a meaningful trading market
will develop. We make no representation about the value of our common stock.
Following this offering, the market price for our common stock may be
volatile depending on various factors, including the general economy, stock
market conditions, announcements by us or our competitors, fluctuations in our
operating results or for undeterminable reasons. There can be no assurance that
an active trading market will develop after the offering or, if developed, that
it will be sustained and you may lose all or part of your investment.
WE ARBITRARILY SET THE OFFERING PRICE OF THE COMMON STOCK IN THIS OFFERING.
We arbitrarily set the offering price of the shares in this offering. The
price bears no relation to our book value, net worth, assets or any other
financial criteria. In no event should the offering price be regarded as an
indicator of any future market price of our securities. You may lose all or part
of your investment if the offering price is higher than the future market price
of our shares.
THERE IS A SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN
DUE TO RECURRING LOSSES AND WORKING CAPITAL SHORTAGES.
The report of our independent auditors on our December 31, 2002 financial
statements included an explanatory paragraph indicating that there is
substantial doubt about our ability to continue as a going concern due to
recurring losses and working capital shortages. Our ability to continue as a
going concern will be determined by our ability to obtain additional funding.
WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
At present, we have sufficient capital to continue operations for one
month. We require $100,000 to sustain our operations until September 2003. To
date, we have relied heavily on external financing to fund our operations.
External financing will be required to cover the costs of this offering, Our
operating expenses and future expansion. We cannot assure you that financing
whether from external sources or related parties will be available if needed or
on favorable terms. The sale of our common stock to raise capital may cause
dilution to our existing shareholders. Our inability to obtain adequate
financing will result in the need to curtail business operations. Any of these
events would be materially harmful to our business and may result in a lower
stock price.
EVEN IF WE SUCCEED IN RAISING OPERATING CAPITAL, WE HAVE NO ASSURANCE THAT OUR
RESEARCH AND DEVELOPMENT EFFORTS WILL YIELD VIABLE NEW PRODUCTS.
Some other company, possibly with greater financial resources than us,
could market a product that would render next models in our line of PDAs
obsolete. We cannot be assured that our research and development efforts will
result in the development of products on timely basis or at all. Any failures in
our research and development could result in significant delays in product
development and have a material adverse effect on us.
THREE OF OUR CURRENT SHAREHOLDERS WILL CONTINUE TO CONTROL THE MAJORITY OF THE
OUTSTANDING SHARES OF THE COMPANY AFTER THIS OFFERING.
8
Upon completion of the offering, three of our current shareholders will
control over 50% of our outstanding common stock. The current shareholders will
continue to control our policies and affairs and all corporate actions requiring
shareholder approval, including election of directors and approval of
significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control of the company.
ONE OF OUR DIRECTORS FUNCTIONS AS OUR PRESIDENT, CHIEF FINANCIAL OFFICER AND
SECRETARY.
Arie Hinkis is the sole officer of our company. As we grow, we anticipate
adding outside directors and additional full-time employees. However, daily
control of the company is currently vested in a single individual, and
consequently the company's internal control lacks the customary system of checks
and balances.
LOSS OF ARIE HINKIS COULD ADVERSELY AFFECT OUR BUSINESS.
Our future success depends on the skills, experience and efforts of Arie
Hinkis, our director President, Chief Financial Officer and Secretary. The loss
of Mr. Hinkis' services could have a material adverse impact on our business,
operating results and financial condition. Our business operations are
significantly dependent upon the abilities and continued participation of Mr.
Hinkis. There can be no assurance that we would be able to locate or employ
qualified personnel to replace Mr. Hinkis, should his services be discontinued.
WE MAY BE UNABLE TO HIRE AND RETAIN SKILLED PERSONNEL WE NEED TO SUCCEED.
Qualified personnel are in great demand throughout the software industry.
Our success depends in large part upon our ability to attract, train and retain
highly skilled employees, particularly marketing personnel, software engineers
and other senior personnel. Our failure to attract and retain the highly-trained
technical personnel that are integral to our product development, professional
services and support teams may limit the rate at which we can develop new
products or product enhancements.
CLASS A STOCKHOLDERS WILL EXPERIENCE DILUTION UPON THE CONVERSION OF THE
OUTSTANDING CLASS B SHARES.
Presently, there are 2,400 shares of Class B common stock outstanding which
are convertible into 24% of the outstanding Class A common stock at the time of
conversion. Conversion of all the Class B Common Stock at once will be to such
amount of Class A Common Stock that represents 24% of the Class A Common Stock
after the conversion. This means that the conversion of the full amount of the
Class B Common Stock will dilute by 24% the Class A Common Stock.
FUTURE SALES BY EXISTING STOCKHOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
If any of our three main stockholders sell a large number of our common
stock, the market price of the common stock could decline significantly. These
sales could make it more difficult for us to raise funds through equity
offerings in the future at a time and price that we think is appropriate.
Further, the perception in the public market that our existing stockholders
might sell share of common stock could depress the market price of the common
stock. Immediately after this offering, 5,126,470 shares of Class A common stock
will be outstanding. Of these shares, 2,726,470 shares presently held by our
shareholders will be available for resale in the public market without
restriction immediately following this offering.
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY.
Prior to this offering, there was no public market for our common stock and
there can be no assurance that an active trading market for our common stock
will develop. As a result, this could adversely affect our shareholders' ability
to sell our common stock in short time periods, or possibly at all. Our common
stock has experienced, and is likely to experience in the future, significant
price and volume fluctuations which could adversely affect the market price of
our common stock without regard to our
9
operating performance. In addition, we believe that factors such as quarterly
fluctuations in our financial results and changes in the overall economy or the
condition of the financial markets could cause the price of our common stock to
fluctuate substantially.
WE WILL NOT PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we intend to retain any earnings to finance the
development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. Any future determination to pay dividends
will be at the discretion of the board of directors and will be dependent upon
then existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that the board of directors considers relevant.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS.
If appropriate opportunities arise, we may acquire or make investments in
complementary businesses, technologies, services or products. The process of
integrating any acquired business, technology, service or product into our
business and operations may result in unforeseen operating difficulties and
expenditures. Integration of an acquired company also may consume significant
management resources that would otherwise be employed in the ongoing development
of our business. In addition, we may not realize the anticipated benefits of any
acquisition. We may be unable to successfully identify, negotiate or finance
future acquisitions or integrate any acquisitions with our current business.
Future acquisitions could result in potentially dilutive issuances of equity
securities or the incurrence of debt, contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
harm our business and financial results.
PENNY STOCKS ARE SUBJECT TO SPECIFIC REGULATIONS AND CAVEATS.
We are not listed on any stock exchange at this time. If we become listed,
our stock may be deemed to be a "penny stock" which are subject to various
regulations involving certain disclosures to be given to you prior to the
purchase of any penny stock. These disclosures require you to acknowledge that
you understand the risks associated with buying penny stocks and that you can
absorb the entire loss of your investment. Penny stocks are low price securities
that do not have a very high trading volume. Because of this, the price is
likely to be volatile and you may not be able to buy or sell the shares when you
want.
WE MAY BE EXPOSED TO INTERNATIONAL BUSINESS AND CURRENCY FLUCTUATIONS.
We are dependent on international sales for our revenue and, as a result,
we face the risks of international business and associated currency
fluctuations, which could adversely affect our operating results. These risks
include potential regulation of our technology by foreign governments, general
geopolitical risks associated with political and economic instability, changes
in diplomatic and trade relationships, and foreign laws affecting our industry
generally. Our risks of doing business abroad also include our ability to
develop and maintain distribution relationships on favorable terms. To the
extent we are unable to favorably develop and maintain distribution agreements
or make alternative arrangements, any future revenue may be decreased from our
international operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21C of the
Securities Exchange Act of 1934, including statements concerning our possible or
assumed future results of operations and those preceded by, followed by or that
include the words "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes,"
10
"estimates," "predicts," "potential," or "continue" or the negative of such
terms and other comparable terminology. Investors should understand that the
factors such as the risk factors discussed in this section, material changes in
economic conditions in the markets we serve; competition from others; and other
risks and uncertainties described throughout this prospectus, could affect our
future results and could cause actual results to differ materially from those
expressed in such forward-looking statements.
ITEM 4. USE OF PROCEEDS.
The net proceeds from the sale of the 2,400,000 shares of Class A common
stock offered by us at the price of $1.25 are estimated to be $2,936,000 after
deducting our legal, accounting and transfer agent expenses and filing fees,
which are estimated to be $64,000.00.
PROCEEDS
Gross proceeds $3,000,000.00
Estimated accounting, legal and 64,000.00
associated expenses of offering
Net proceeds $2,936,000.00
The use of the proceeds from this offering is to develop, manufacture and
market a line of cellular PDAs for niche markets. The following table presents
the how the proceeds from the present offering will be allocated to the main
expense budget items.
- --------------------------------------------------------------------------------------------------
R&D and Engineering Expenses 30% of proceeds
- --------------------------------------------------------------------------------------------------
Products design, patents, trademarks, etc. 10% of proceeds
- --------------------------------------------------------------------------------------------------
Marketing and Sales Expenses 25% of proceeds
- --------------------------------------------------------------------------------------------------
General and Administrative Expenses 10% of proceeds
- --------------------------------------------------------------------------------------------------
Debt payments for subsidiary (1) 10% of proceeds but not more than $300,000
- --------------------------------------------------------------------------------------------------
Working Capital All unallocated proceeds
- --------------------------------------------------------------------------------------------------
(1) Debt payments for subsidiary are related to debts incurred by the subsidiary
before it was purchased by us. For information on debt to banks and related
interest see the financial reports. See also the "Quantitative and Qualitative
Disclosures About Market Risk" section of the Management Discussion regarding
our plan to meet our debts.
The following are examples as to how the proceeds from this offering will
be divided among the budgetary items, under different scenarios as to the amount
raised. The offering is made on a best efforts basis.
- ----------------------------------------------------------------------------------------------------------
Amount Raised $: 3,000,000 2,000,000 1,000,000 500,000
- ----------------------------------------------------------------------------------------------------------
Offering Expenses 64,000 64,000 64,000 64,000
- ----------------------------------------------------------------------------------------------------------
R&D and Engineering Expenses 900,000 600,000 300,000 150,000
- ----------------------------------------------------------------------------------------------------------
Products design, patents, trade marks, etc. 300,000 200,000 100,000 50,000
- ----------------------------------------------------------------------------------------------------------
Marketing and Sales Expenses 750,000 500,000 250,000 125,000
- ----------------------------------------------------------------------------------------------------------
General and Administrative Expenses 300,000 200,000 100,000 50,000
- ----------------------------------------------------------------------------------------------------------
Debt payments for subsidiary 300,000 200,000 100,000 50,000
- ----------------------------------------------------------------------------------------------------------
Working Capital 386,000 236,000 86,000 11,000
- ----------------------------------------------------------------------------------------------------------
The proceeds from the sale of the 2,726,470 shares of Class A common stock
by the selling stockholders will go directly to them. None of those proceeds
will be available to us.
ITEM 5. DETERMINATION OF OFFERING PRICE.
11
We considered the total $2.7 million in investments and research and
development grants received from inception to date. The price, however, has no
relation to our book value, net worth, assets or other financial criteria and
cannot be considered as indicative of the future market price of our securities.
The selling stockholders may sell all or part of their shares at prices
related to the prevailing market prices of our common stock at the time. The
price per share is likely to be based on the bid price for our common stock on
the dates of specific sales, unless shares are sold in private transactions.
Consequently, we currently cannot make a determination of the price.
Item 6. Dilution.
DILUTION TABLE
("Shares" refer to Class A Common Stock)
Money Received For Shares Net Tangible Book Value Per
Number of Shares Before Offering Before Offering Share Before Offering
-------------------------------- --------------- ---------------------
2,726,470 $2,148,593 -$0.105
Pro-Forma
Total Number of Shares After Total Amount of Money Net Tangible Book Value
Offering Received For Shares(1) Per Share After Offering
---------------------------- ---------------------- ------------------------
7,745,355 $2,936,000 $0.379
Pro-Forma Increase
Public Offering Per Share Attributed To Pro Forma Dilution to Public After
Price Per Share Shares Offered Hereby Offering (Your Dilution)
--------------- --------------------- ----------------------------------
$1.25 $0.484 $0.871
(1) Net of offering costs.
ITEM 7. SELLING SECURITY HOLDERS.
The following table sets forth (i) the number of outstanding shares
beneficially owned by the selling stockholders prior to the offering; (ii) the
aggregate number of shares offered by each such stockholder pursuant to this
prospectus; and (iii) the amount and the percentage of the class to be owned by
such security holder after the offering is complete.
- --------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
NAME OF BENEFICIAL OWNER OF NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY
CLASS A COMMON STOCK SHARES BENEFICIALLY OWNED NUMBER OF BENEFICIALLY OWNED OWNED AFTER THE
OFFERED * BEFORE THE OFFERING SHARES OFFERED AFTER THE OFFERING OFFERING
- --------------------------------------------------------------------------------------------------------------------
Arie Hinkis (1) 1,416,518 61,921 1,618,885 24
- --------------------------------------------------------------------------------------------------------------------
Seed Money Holding (Voice Diary) 421,607 421,607 None 0
LP (2)
- --------------------------------------------------------------------------------------------------------------------
Voice Diary Options, LP (3) 72,000 72,000 None 0
- --------------------------------------------------------------------------------------------------------------------
Robogroup T.E.K. Ltd. (4) 126,154 126,154 None 0
- --------------------------------------------------------------------------------------------------------------------
Gabriel Sharir (5) 25,181 25,181 None 0
- --------------------------------------------------------------------------------------------------------------------
Nathan Tarter (6) 1,346,405 1,346,405 None 0
- --------------------------------------------------------------------------------------------------------------------
Ofer Yonach (7) 673,202 673,202 None 0
-------
- --------------------------------------------------------------------------------------------------------------------
Total 2,726,470
- --------------------------------------------------------------------------------------------------------------------
(1) The "before offering" column includes 61,921 shares owned by Mr. Hinkis,
421,607 shares of Class A Common Stock owned by Seed Money Holding (Voice
Diary) LP ("SMH"), of which Mr. Hinkis is the sole general partner, and
72,000 shares of Class A Common Stock owned by Voice Diary Options LP
("VDO"), of which Mr. Hinkis is the sole general partner, (the limited
partners of SMH and VDO were stockholders of VDL who transferred their
shares in VDL to SMH and VDO which in turn exchanged the VDL
12
shares for shares in us), and an aggregate of 860,990 shares of Class A
Common Stock which may be issued to Mr. Hinkis upon conversion of an
aggregate of 2,400 shares of Class B Common Stock owned by Mr. Hinkis.
Share holdings for Mr. Hinkis in the "after offering" column above includes
the updated amount of 1,618,885 Class A Common Stock which may be issued to
Mr. Hinkis upon conversion of his Class B Common Stock after the offered
shares are sold.
(2) Mr. Hinkis is the general partner of SMH and is entitled to receive 2% of
any SMH cash distributions to its limited partners.
(3) Mr. Hinkis is the general partner of VDO and is entitled to receive 2% of
any VDO cash distributions to its limited partners.
(4) Mr. Hinkis was a director of Robogroup T.E.K. Ltd. until January 2000.
Until October 2000, Rafael Aravot, Robogroup's chief executive officer, was
a director of VDL. Robogroup T.E.K Ltd. is traded on NASDAQ and TASE (Tel
Aviv Stock Exchange) under the symbol ROBO.
(5) Mr. Sharir is the chief operations officer of VDL.
(6) Mr. Tarter is the chief executive officer and a director of Nir Or Israel
Ltd. that provided us with bridge loans since July 2002. See the discussion
of Liquidity under Item 17. Mr. Tarter is a director of the Company.
(7) Mr. Ofer Yonach is a limited partner of SMH and is entitled to 7.92% of the
SMH sale of our shares. He is a director and was chief financial officer of
Nir Or Israel Ltd.
(8) Mr. Hinkis is, since September 2002, VP Finance, Human Resources and
Business Development of Nir Or Israel Ltd. Since January 2003 Mr. Hinkis'
salary has been paid directly by Nir Or. Before that, payments for Mr.
Hinkis services were made to VDL.
*All stockholder's addresses are care of Voice Diary: 200 Robbins Lane, PO Box
30, Jericho, New York 11753.
We do not know when or in what amounts a selling stockholder may offer
shares for sale. The selling stockholders may not sell any or all of the shares
offered by this prospectus. Because the selling stockholders may offer all or
some of the shares pursuant to this offering, and because there are currently no
agreements, arrangement or understandings with respect to the sale of any of the
shares, we cannot estimate the number of the shares that will be held by the
selling stockholders after completion of this offering.
We intend to seek qualification or advise the selling stockholders of the
availability of an exemption from qualification for sale of the shares in those
states that the shares will be offered. That qualification or exemption is
necessary to resell the shares in the public market and only if the shares are
qualified for sale or are exempt from qualification in the states in which the
selling stockholders or proposed purchaser resides. If no exemptions are
available, there are no assurances that the states in which we will seek
qualification will approve of the share re-sales.
ITEM 8. PLAN OF DISTRIBUTION.
We are offering the right to subscribe for 5,018,885 shares, including
2,400,000 shares to be offered to the public at $1.25 per share by us, 1,000,000
shares to be offered to employees and suppliers under a stock option plan and
the registration of 1,618,885 shares of Class A Common Stock to be issued upon
conversion of the Class B Common Stock, and 2,726,470 shares at $1.25 being sold
by selling stockholders. There is no minimum dollar amount that must be sold and
your funds will be immediately used by us. Therefore, once your funds are
accepted by us, they will not be returned to you. No compensation is to be paid
by any person for the offer and sale of the shares.
As of the date of this prospectus, we have not retained a broker/dealer for
the sale of our securities. In the event we retain a broker/dealer who may be
deemed an underwriter, we will file an amendment to this registration statement.
13
The selling stockholders will pay all commissions, transfer fees, and other
expenses associated with the sale of securities by them. The Shares offered
hereby are being registered by us, and we paid the expenses of the preparation
of this prospectus. We have not made any underwriting arrangements with respect
to the sale of shares offered hereby. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. In addition, any shares that qualify for sale pursuant to
Rule 144 of the Securities Act of 1933, as amended, may be sold under Rule 144
rather than pursuant to this prospectus.
ITEM 9. LEGAL PROCEEDINGS.
As of date of this document there were no legal actions pending against us
or any of our officers or directors in their fiduciary capacities, nor, to our
knowledge, was any litigation threatened. However, four demands were raised
against VDL that may evolve into court procedures.
The first is a demand made by a subcontractor, to whom VDL owes $49,500.
The debt is included in our financial statements under "accrued expenses". The
subcontractor had the option to convert the debt into stock options of VDL but
notified us in December 2002 that it decided not to do so and is now demanding
that the debt be settled during 2003. We offered to settle the debt commencing
in February 2004. We are presently negotiating the exact terms of the repayment
arrangement.
The second demand was made by the Chief Scientist of the Ministry of
Industry and Trade in Israel (the "Chief Scientist") concerning its claim to
repayment of part of the grants received by VDL during 1998. See Note 8B to the
Company's Consolidated Financial Statements of December 31, 2002. The Chief
Scientist threatens to use its power under the Tax Collection Law to collect
from VDL the sum it demands. If the Chief Scientist carries out its threat, we
will seek court injunction because we believe that the claim is not rightfully
based. We believe that the issue will be settled outside court.
The third demand is by our subcontractor Reshef Technologies Ltd. VDL owes
Reshef about $30,000 for manufacturing. We intended to pay this debt in two
installments. However we were not able to raise the necessary money and the
checks we gave to Reshef bounced. Reshef has threatened to go to court and
demand liquidation of VDL. We intend to negotiate an installment agreement with
Reshef. We believe the issue will be settled outside court.
Finally VDL has a debt of approximately $32,000 to the Israeli Tax
Authority for withholding tax collected from employees that we failed to
transfer to the Tax Authority. Our CEO was summoned for interrogation to the Tax
Authority and he may face criminal charges. The Tax Authority may try to place a
lien on monies entitled to VDL in banks and customers.
We estimate that costs resulting from these procedures will be nominal.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Each of our directors is elected by the stockholders to a term of one (1)
year and serves until his or her successor is elected and qualified. The
executive officers are appointed by and serve at the will of the board of
directors to serve until the earlier of their resignation or removal with or
without cause by the board of directors. The board of directors has no
nominating, auditing, or compensation committees.
The following table sets forth certain information regarding our executive
officers and directors as of the date of this registration statement:
- --------------------------------------------------------------
Name and Address Age Position(s)
- --------------------------------------------------------------
Arie Hinkis 55 President, Director,
Chief Financial Officer and
Secretary
- --------------------------------------------------------------
Nathan Tarter 55 Director
- --------------------------------------------------------------
14
Mr. Hinkis has been Chief Executive Officer of VDL since January 1997 and was
elected President and a Director of Voice Diary Inc in March 2002. From July
1991 until January 2000, Mr. Hinkis was director of Robogroup T.E.K. Ltd who is
a shareholder in Voice Diary. Since September 2002 Mr. Hinkis is Vice President
VP Finance, Human Resources and Business Development of Nir Or Israel Ltd.
Until January 2003 Nir Or paid VDI for services rendered by Mr. Hinkis to Nir
Or. Since January 2003 Mr. Hinkis is being paid directly by Nir Or.
BACKGROUND OF DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
ARIE HINKIS, President, Chief Financial Officer, Secretary and director. Mr.
Hinkis was born and raised in Israel. He is an Israeli citizenship and has spent
most of his career in Israel. Following the offering, Mr. Hinkis plans to spend
a considerable part of his time in the USA. Mr. Hinkis has been CEO of Voice
Diary Ltd. since 1997 and became President of the Company at its formation in
2002. From 1993 to 1996, he was the founder and manager of a venture capital
investment fund. He served as President of Miromit Ashkelon Metalworks Ltd, a
public company traded on the Tel Aviv Stock Exchange, from 1990 through 1992.
Between 1985 and 1989, Mr. Hinkis was President of Yotam Financing Technological
Ventures Ltd which provided investment banking services to young,
technology-oriented companies. His prior experience includes serving as
president of a holding company with investments in several computer companies,
co-founder and co-president of the company that distributes the trading
information from the Tel Aviv Stock Exchange and the Tel Aviv Stock Exchange
manager of MIS operations. During 1975 Mr. Hinkis was a student in the
University of Paris under scholarship from the French government. He was in
military service from 1969-1974 and retired ranking captain. Mr. Hinkis holds
B.SC. and M.Sc. degrees in Mathematics from the Hebrew University in Jerusalem
and B.A. degree from the Open University in Tel Aviv.
NATHAN TARTER, DIRECTOR. Mr. Tarter was born in Germany and immigrated to Israel
in 1949 were he is a citizen and were he spent most of his career. In 1966 he
received his Practical Engineering degree. After serving as an instructor for
communication and navigation systems at the Israeli Air Force, Mr. Tarter was
for 16 years an instructor at the Tel Aviv University School for Electronic
Practical Engineers and a self employed R&D designer of complex electronic
systems. In 1986 he founded Nir Or Israel Ltd., a company that develops airborne
and military electronic systems. Mr. Tarter is an expert in RF engineering,
Electro-Mechanical systems including servo controls, Video Systems, Laser
Control Systems. During his career he personally designed, developed and
delivered over 250 products for airplanes, tanks, electronic warfare and medical
systems.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of the date of this
offering with respect to the beneficial ownership of our common stock by all
persons known by us to be beneficial owners of more than 5% of any such
outstanding classes, and by each director and executive officer, and by all
officers and directors as a group. Unless otherwise specified, the named
beneficial owner has, to our knowledge, either sole or majority voting and
investment power.
- ------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER AMOUNT OF SHARES
TITLE OF CLASS SHARES(1) POSITION HELD BY OWNER(2) PERCENT OF CLASS
- -------------------------------------------------------------------------------------------------------------------
Class A Common stock Arie Hinkis (3) President, 1,416,518 shares 39.49%
Secretary, Chief
Financial Officer,
Director
- --------------------------------------------------------------------------------------------------------------------
Class A Common stock Nathan Tarter Director 1,346,405 shares 49.38%
- --------------------------------------------------------------------------------------------------------------------
Class A Common stock Ofer Yonach 673,202 shares 24.69%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class A Common stock Seed Money Holding LP 421,607 shares 15.46%
- --------------------------------------------------------------------------------------------------------------------
Class A Common stock Executive officers and 2,762,923 shares 77.02%
directors as a group
- --------------------------------------------------------------------------------------------------------------------
15
(1) The address for all beneficial owners and management is care of Voice Diary
Inc., 200 Robbins Lane, PO Box 30, Jericho, NY 11753.
(2) Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of
1934. Under Rule 13d-3(d), shares not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable within 60
days are deemed outstanding for the purpose of calculating the number and
percentage owned by a person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. We believe
that each individual or entity named has sole investment and voting power
with respect to the shares of Common Stock indicated as beneficially owned
by them (subject to community property laws where applicable) and except
where otherwise noted.
(3) Includes 61,921 shares owned by Mr. Hinkis, 421,607 shares of Class A
Common Stock owned by Seed Money Holding (Voice Diary) LP ("SMH"), of which
Mr. Hinkis is the sole general partner, and 72,000 shares of Class A Common
Stock owned by Voice Diary Options LP ("VDO"), of which Mr. Hinkis is the
sole general partner, (the limited partners of SMH and VDO were
stockholders of VDL who transferred their shares in VDL to SMH and VDO
which in turn exchanged the VDL shares for shares in VDI), and an aggregate
of 860,990 shares of Class A Common Stock which may be issued to Mr. Hinkis
upon conversion of an aggregate of 2,400 shares of Class B Common Stock
owned by Mr. Hinkis. The number of shares issuable to Mr. Hinkis upon
conversion of his Class B Common Stock, after the offering shares are sold
will increase to 1,618,885 Class A Common Stock. The calculation for
conversion of the Class B shares is set forth under Item 12. Description of
Securities.
ITEM 12. DESCRIPTION OF SECURITIES.
Our authorized capital stock consists of 20,000,000 shares of Class A
common stock, par value $0.01 per share, and 10,000 shares of Class B common
stock, par value $0.01 per share. The holders of our common stock:
o Have equal ratable rights to dividends from funds legally available
therefore, when, as and if declared by our board of directors - each share
of Class A stock participates in dividends as one share of a single class
and each share of Class B stock participates in dividends as the whole
number of shares of Class A stock into which such shares of Class B stock
are convertible;
o Are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon liquidation, dissolution or
winding up of our affairs - each share of Class A stock entitles its holder
to one vote and each share of Class B stock entitles its holder to such
number of votes as shall equal the number of whole shares of Class A stock
into which such Class B shares are convertible;
o Do not have preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions or rights; and
o Are entitled to one vote per share on all matters on which stockholders may
vote.
o Class B stockholders have the right to appoint one director.
All 2,726,470 shares of Class A common stock and all 2,400 share of Class B
common stock now outstanding are fully paid for and non-assessable and all
shares of Class A common stock which are the subject of this offering, when
issued, will be fully paid for and non-assessable.
CONVERSION OF CLASS B STOCK
16
Each share of Class B common stock is convertible at any time at the option
of the holder for no additional consideration into the number of shares of Class
A common stock equal to the quotient obtained by dividing (1) the number of
shares of Class A common stock outstanding at the close of business on the day
immediately preceding the date the conversion notice is received by the Company
by (2) 7600. Therefore, prior to the offering, the 2,400 outstanding shares of
Class B common stock would be convertible into 860,990 shares of Class A common
stock. If all 2,400,000 shares of Class A common stock registered by the Company
in this offering are sold, the Class B common stock would be convertible into
1,618,885 shares of Class A common stock. The conversion calculation will yield
different results based upon the number of outstanding Class A common stock on
the date prior to the conversion notice.
NON-CUMULATIVE VOTING
Holders of our common stock do not have cumulative voting rights. This
means that the holders of more than 50% of the outstanding shares, voting for
the election of directors, can elect all of the directors to be elected, if they
so choose, and, in such event, the holders of the remaining shares will not be
able to elect any of our directors.
CASH DIVIDENDS
As of the date of this prospectus, we have not paid any cash dividends to
stockholders. The declaration of any future cash dividend will be at the
discretion of our board of directors and will depend upon our earnings, if any,
our capital requirements and financial position, our general economic
conditions, and other pertinent conditions. It is our present intention not to
pay any cash dividends in the foreseeable future, but rather to reinvest
earnings, if any, in our business operations.
PREFERRED STOCK
There are no shares of preferred stock outstanding. We can issue shares of
preferred stock with such designations, voting and other rights and preferences
as our board of directors may determine.
TRANSFER AGENT
Upon completion of this offering, Continental Stock Transfer and Trust
Company, 17 Battery Place, New York, NY 10004, will be the transfer agent and
registrar for our common stock.
ITEM 13. INTEREST OF NAMED EXPERTS AND COUNSEL.
The consolidated financial statements included in this prospectus have been
audited by Brightman Almagor & Co., Independent Auditors, a member firm of
Deloitte Touche Tohmatsu, as stated in their report appearing herein (which
report includes an explanatory paragraph related to our ability to continue as a
going concern), and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
Brightman Almagor & Co., has no direct or indirect interest in us, nor were
they a promoter or underwriter.
ITEM 14. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES.
Our by laws provide that we shall indemnify our officers, directors,
employees and agents to the fullest extent permitted under the General
Corporation Law of the State of Delaware. However, insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers, and controlling persons pursuant to any provisions
contained in our Certificate of Incorporation, or Bylaws, or otherwise, we have
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
17
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by our director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. ORGANIZATION WITHIN LAST FIVE YEARS.
We were incorporated in Delaware on February 26, 2002. In June and July
2002 we acquired approximately 99% of the outstanding shares of Voice Diary
Ltd., an Israeli corporation ("VDL"), through a purchase of shares from the
former controlling stockholder of VDL and an exchange of shares of Voice Diary
Inc. with former stockholders of VDL. Under generally accepted accounting
principles the transaction was accounted for as a reorganization under common
control and accordingly, the financial statements represent the consolidated
financial position, operating results and cash flows of the Company and the
subsidiary for all periods from inception of the subsidiary. VDL began
operations in October 1993 and has been in the development stage.
ITEM 16. DESCRIPTION OF BUSINESS.
We are developing and marketing a line of personal digital assistants
("PDAs") which have a voice user interface and provide to the user a full range
of personal information management applications, including a talking diary,
telephone book, daily pad and other features. The voice user interface enables
the visually impaired to use PDA technology by removing obstacles to use
inherent in conventional display-based products.
CURRENT PRODUCTS
We have developed and are marketing a hand-held voice PDA called the "IMP"
specifically designed for blind and visually impaired people. The IMP is used to
make recordings of personal information. The recordings are stored in one of
several "compartments":
o NOTEPAD. In this compartment the recordings are stored one after the other.
The user can browse the Notepad by pressing 3 to move down the list and 1
to move up the list. The list is browsed cyclically. Pressing ENTER will
play the current recording (with the first recording being the default
recording) reached by browsing with the 1/3 keys. If pressed during play,
ENTER will pause the play and when pressed again it will resume the
playing. Pressing 5 will announce Notepad and the number of recordings in
Notepad. When a recording is played its number in the list is announced
first. By pressing the MOVE key a recording is selected to be moved or
copied. The user can then browse to another recording and after pressing
MOVE again the selected recording is moved just before the current
recording. To copy, the user needs to press CODE MOVE. MOVE is used to
reprioritize the Notepad recordings. To erase a recording the user needs to
press the ERASE key, after he plays the recording, and then ENTER for
confirmation. Erased recordings are stored in the ERASED MEMOS compartment
and can be moved out as long as the Memory Recycle procedure was not
executed. This procedure is used to truly erase the memory. The Memory
Recycle procedure is needed because the IMP uses Flash memory, which,
unlike RAM memory, cannot be erased byte by byte but in blocks of 128k
bytes. The number of recordings the IMP can hold is 1,000 and the length of
the recoding time is 90 minutes. A new recording is always added at the end
of the list. Pressing CODE ERASE followed by ENTER will erase the entire
Notepad.
o DAILYPAD. The IMP can hold up to 60 Dailypad compartments. A Dailypad is
like the Notepad with an additional feature that it is associated with a
date. The date can be any date from 1950 to 2049. The date is announced
when pressing 5 together with the announcement DAILYPAD and the number of
recordings in the Dailypad. In the
18
Dailypad associated with the date of the real date the announcement also
includes the word TODAY. All of the Notepad functions discussed above are
similarly applicable to Dailypad. In addition the user can browse from one
Dailypad to the next by pressing 6 and browse to the previous Dailypad by
pressing 4. When browsing from one Dailypad to another the IMP will
identify the new Dailypad by announcing Dailypad, the date (without the
year), TODAY, if applicable, and the number of recordings in the Dailypad,
if any. If there is no recording in the Dailypad of a certain date it is
not taking up any space in the database, even though it can be browsed. To
browse only through the Dailypads that contain recordings, the user needs
to press ESCAPE followed by either 4 or 6. MOVE, COPY and ERASE operate
like in Notepad, with the additional feature that recordings can be moved
or copied from any Dailypad to any Dailypad or the Notepad. After playing a
recording, if the ALARM key is pressed, the recording becomes a DAY HEADER.
It will be placed at the beginning of the list and be played automatically
upon browsing into the Dailypad. This feature is used to alarm to user as
to a certain engagement that may be conflicting other engagements. When a
memo is moved or copied to a Dailypad it will be placed at the beginning of
the list, or just after the Daily headers, if any. Dailypads can be
accessed directly and not through browsing, by pressing the ESCAPE TIME
keys and entering the desired Dailypad date.
o DIARY. The IMP's diary is a virtual structure that can be browsed minute by
minute from January 1, 1950 to December 31, 2049. The keys 2 and 8 are used
to browse backward and forward in any specific day, in steps ranging from
one minute to 4 hours. The keys 4 and 6 are used to browse from day to day.
To make a recording in Diary the user browses to the day and minute where
he wants the recording to be made and, like in all other compartments,
makes the recording by pressing the RECORD key. To browse the Diary through
the recordings the user uses the 1 or 3 keys. The combination ESCAPE 4 or 6
is used to browse to the days where there are recordings. To avoid tedious
browsing, the user can use the combination ESCAPE TIME to enter the exact
date-time point where he wants to be positioned. In any date-time position
the user can record several recordings. The recording can have an Alarm
attached that goes off when the time arrives or at a set time before.
Snooze and duration features are also available. Move and Copy of
recordings in the Diary and between the Diary and the Dailypads or the
Notepad is available. ERASE and UNDO work similarly as in the other
compartments.
o REPETITION. This compartment is used to store recurring recordings of the
Diary. The user can decide if the recoding is transparent so that browsing
the diary will not reveal it (this is good for medication alarms) or opaque
(for recurring meetings). The need for a separate compartment for recurring
recordings stems from the fact that the amount of memory of the IMP is
small compared to the memory available in PC and the recordings themselves
are much longer, so that duplicating recordings is not an option.
o PHONEBOOK. The Phonebook is organized in folders. Each folder has an
associated keyword. The user enters the keyword to the IMP in a special
recording session called TRAINING. The user is prompted to say the keyword
and then to repeat it. The Phonebook can be browsed using the 4 and 6 keys
to browse through the folders and the 2 and 8 keys to browse through
sub-folders of each folder. When a folder is reached through browsing the
IMP announces the keyword associated with this folder. The user can enter
recordings to the folder and browse through them. Other operations on
recordings are executed similarly as in other compartments. MOVE, COPY and
ERASE operations can be executed on folders as well as recordings. To
retrieve a folder the user can press the FIND key and utter its keyword.
The software implemented in the IMP, except the Voice Recognition and Voice
Compression software, was developed by us. This software is not patented. The
IMP uses a DSP component manufactured by DSP Group for Voice Compression and
Voice Recognition. This component is now obsolete. See below in regard to
inventory of this component that we may have access to and our plans to replace
it.
19
The IMP can communicate with a personal computer ("PC") for back-up and
software update. The IMP features include:
|_| Talking-Diary |_| Talking Daily Pads
|_| Talking Phonebook with voice recognition |_| Move and Undo commands
|_| Multiple Talking-Alarms |_| Talking-Calendar-Clock
|_| Talking-Calculator with advanced functions |_| Superb audio quality
|_| Special ergonomic design (form, keys & operation)
The IMP includes a rechargeable battery pack and has a 90-minute recording
memory, a carrying case, a PC connection cable and a charger.
The IMP was launched in December 2001. It is the third model in the line of
Voice Electronic Organizers developed and sold by us. The first model was
launched in November 1997. It was bulkier and had only 1MB Flash memory that
allowed for only 10 minutes of recording time. We sold 1,000 units of this
model. In April 1998 we started shipping our second model that had the same
bulky shape but 2MB Flash memory that allowed for 30 minutes of recording time.
We sold 2,000 units of the second model. The IMP has a smaller form that fits
better in the hand, and 4MB of Flash memory that allows for 90 minutes of
recording time. However, due to its smaller format, the sound quality of the IMP
is less than that of the older models. We have sold approximately 1,500 units of
the IMP to date. Of all versions of our voice organizers we have sold, about
1,600 where sold in the US, 750 in the UK, 500 in Israel, 250 in Holland, 70 in
Australia, 25 in Belgium, and the rest in some 20 countries around the world, in
quantities ranging from 1 to 10 per country. Most sales (over 80%) were made to
distributors that specialize in selling products to the visually impaired. In
certain countries, such as Australia and Israel, such distributors are stores or
organizations that serve the blind community. Most of our distributors are
selling directly to the end user. Since the release of the IMP we have offered
customers using the older models of the Voice Diary line, the right to trade in
their units for the newer IMP. We have attempted to sell the traded in units at
a reduced price to customers in third world countries, such as India, but so far
with limited success.
PLANNED PRODUCTS
The next model in the Voice Diary line that we plan to develop is called
TOTAL. It will incorporate a cellular phone and a removable flash disk. These
added capabilities will enable the user to make telephone calls, send voice mail
through the Internet or other voice paging services, and make long recordings
(lectures, court sessions, meetings) and edit the recordings with operations
such as cut and paste. Using the flash disk, the user will be able to import
from the PC or the Internet information and entertainment products, such as MP3
music and talking books. (The incorporation of a Text To Speech engine will
enable the TOTAL to play text material in addition to recorded material.) Our
goal in developing the TOTAL is to offer a product with communication and
entertainment capabilities. We believe that there will be a much greater demand
for a product with such capabilities, and with our Voice User Interface, than
for the IMP, which is just a PDA. Our belief in the increased sales potential of
the TOTAL as compared to the IMP is based on our observation, which we have not
substantiated by any objective survey, that sales of cellular telephones and MP3
players greatly exceed sales of PDAs. In the design of the TOTAL we will use new
engines for Voice Recognition and Voice Compression, purchased from other
companies. In this way we will bypass the obsolete component that we use for the
voice processing functions. We have not yet identified providers for the new
voice processing engines nor have we defined yet the components that will be
used to run these engines. Also we do not know at this stage what the financial
arrangement will be in regard to using the new engine technology and in
particular if we will have to pay a licensing fee and or a per unit fee.
To develop the TOTAL we believe we will need to invest about $500,000. At
this time we have no commitments for additional financing and there can be no
assurance we will have the funds necessary to develop the TOTAL. We do not
foresee any technical barrier in the development of the TOTAL. However, we know
that our TOTAL will need to be approved as a cellular telephone by cellular
service providers and possibly by communication authorities in the various
countries such as the Federal Communication Commission in the United States. We
have little experience in dealing with the granting of such approvals. We intend
to use for the TOTAL cellular engines provided by major corporations that have
received for their products required approvals, but we still have not contracted
any such provider.
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We anticipate that the TOTAL will be sold mainly by cellular service
providers with or without support from distributors of products to the blind and
visually impaired.
We also envision the adaptation of the TOTAL to serve the elderly. This
model of the TOTAL, called GOLDEN, will have fewer, larger buttons for greater
ease of use, and a remote monitoring feature to help program the unit by a
relative or an emergency service. The reason we have for introducing the GOLDEN
is because we believe that the elderly market will favor our Voice User
Interface over the graphic user interface implemented in products that are
designed for the general public.
To bring the GOLDEN to the market we will need an investment of $250,000 in
addition to the investment necessary for the introduction of the TOTAL. At this
time we have no commitments for additional financing and there can be no
assurance that we will have the funds necessary to develop the GOLDEN. We
anticipate that the GOLDEN will be sold mainly through cellular service
providers or providers of caring services for the elderly. We do not foresee any
technical barrier in the development of the GOLDEN.
PLANNED SERVICES
If we can introduce the TOTAL, we plan to establish a service for the
distribution of content to its users. Such distribution of content will be made
through several means: mail (sending flash disc with the content); libraries,
particularly those that serve the visually impaired, who will use PC to download
such content; Internet downloads to PCs from where the content will be
downloaded either by local communication or using a flash disk drive; or
directly to the TOTAL using its wireless communication abilities. As part of our
distribution service, we intend to operate a voice portal accessible through the
Internet, from a PC and directly from the TOTAL. From the portal, users will be
able to download content using their PCs or a TOTAL. The portal will not be used
as a starting point for Internet browsing, but rather as a central location for
obtaining voice and audio content. The portal will be designed to be accessible
by the visually impaired.
We intend to acquire rights for content distribution from third party
organizations that have such rights. We intend to pay for such rights on a "per
use" basis with no down payments. We intend to provide the content under a
subscription arrangement that will require users to pay an annual fee, and a
"per item" fee. Generating income from subscribers is the main reason for our
plan to establish the content distribution service.
We hope to obtain additional revenues from advertisements in our
distribution channels, a percentage from the communication fees paid to the
wireless communication operator, and a commission from the e-business generated
through our channels. To establish a content distribution business we think that
we will need an investment of $1 million. We currently do not have any
commitments for additional investment in the Company and there can be no
assurance that we will be able to establish our content distribution service. We
have not yet contacted any content provider and we do not know if our business
model as to the way we can acquire content distribution rights is valid.
PLANNED PC MODEL
We plan to develop a voice organizer for the PC with features similar to
those of the IMP. This product will be a stand alone product but will also
operate as backup and synchronization base for those users who will own an IMP
or a TOTAL, enabling them to synchronize automatically their hand-held unit with
the PC counterpart. To achieve this goal we will need to make sure that the new
Voice Recognition and Voice Compression engines we intend to implement with the
TOTAL are compatible with the PC environment. We believe that the budget for the
development of a first version of the PC model, first free standing and later
TOTAL compatible, will require an investment of $200,000. We will achieve
several goals with the development of the PC version. This version could serve
to introduce our hand held device. It could serve also as a training station and
a reference model with HELP features for users of our hand held units. Finally
it could become a preferred product to the general community of the PC users
increasing our exposure. At first we intend to distribute the PC version for
free from our web site, but later we may require some payment for it and thus we
may generate an additional source of income.
POSSIBLE PALM PILOT MODEL
We may consider in the future developing a version of our PC model to work
on the Palm Pilot or similar PDAs.
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POSSIBLE SALES OF SOFTWARE TO OEM
We may consider in the future adapting our software to common cellular
telephones if approached by manufacturers of such products. The reason we
believe that this direction might be advantageous to us is that we may generate
substantial licensing fees and royalties in such transactions.
TECHNOLOGY
Our technology consists of our software and our know-how in developing
Voice PDA. We use a DSP component that comes with software for Voice Recognition
and Voice Compression. We pay for this component per piece and we pay no
licensing fee. The component that we use is now obsolete. See below in regard to
inventory of this component that we may have access to and our plans to replace
it. As we stated, we plan to replace this component in our next models.
INTELLECTUAL PROPERTY
We have rights to a patent in Israel with respect to a Voice Organizer for
the blind. The patent contains a block diagram of a possible product but no
reference to the software or actual electronic design. We currently do not own
or license any other patents. We may seek patent protection on our technology
where appropriate.
We have a registered trademark in Israel for our logo and design.
BUSINESS STRATEGY
We develop and market the Voice Diary line of voice PDAs, including the
newly released IMP, which is tailored and ergonomically designed to the needs of
the visually impaired. The IMP provides the full range of personal information
management, including a talking diary, phonebook, daily pads and other features.
We plan to incorporate wireless capabilities (cell-phone or two-way
messaging/e-mailing voice paging) to our platform, with a vision to expand and
become the major provider of wireless mobile computing handsets and related
services in the specific niche markets where we operate.
We intend to expand to niche markets adjacent to the visually impaired
market, which are likewise under-served by brand-name providers of consumer
electronics and IT services, such as the fast growing market of the elderly.
Central to our product vision is the voice user interface, an alternative
paradigm to the prevailing graphic user interface ("GUI") used in conventional
display-based products. The GUI is a recognized obstacle in the way for many
user groups (e.g., visually impaired, the elderly and children) to adapt and use
new technology products and services. Voice Diary offers an approach that
removes this obstacle and serves the needs of many.
Our technology consists of our ability to provide complete hardware and
software systems that answer needs specifically identified by the people in the
addressed niche. We do not get involved in the development of generic technology
(such as voice processing engines). Instead, we implemented in our products, a
component sold by another company that provides for Voice Recognition and Voice
Compression.
We may complement growth in our proprietary line by acquisition of
companies with complementary products and services, a market presence and stable
cash flow.
We operate globally in the sense that we have offices in the United States
and in Israel and have active distributors in the United States, United Kingdom,
Holland, Australia and Israel. We seek to raise money in the United States
through public and private offerings and seek strategic partners in Europe, the
United States and South East Asia. Of our accumulated revenues of $670,321, 40%
were achieved in the United States, 30% in the United Kingdom, 15% in Israel,
and the balance in other countries.
We manufacture our products through subcontractors that provide electronic
assembly and mechanical assembly work, including packaging. There are many
subcontractors who can qualify for the production of the IMP.
We market our products to distributors who mostly sell our products
directly to the end user.
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We conducted our research and development activity by a team of software
and hardware engineers operating at our subsidiary, VDL, based in Israel. At
present we have dissolved our R&D operation. When we will raise enough money to
develop our next products we intend to do most of the R&D work through
subcontractors. We will maintain a small group of software engineers for
maintenance of our software system.
INDUSTRY ANALYSIS
We operate in two industries: the PDA industry and the industry of
assistive technology that provides technology-based products and services to
disabled people.
Today the PDA industry is merging with two other industries: the cellular
phone industry and the hand held music players. Most manufacturers in these
industries are large companies that sell in large quantities. As a result of the
demand, semiconductor manufacturers have developed components that simplify the
design of the mainstream PDAs, cellular phones and hand held music players.
These new components are now generally available, and at affordable costs. Thus
small companies can now develop niche market products similar to mainstream
products. This is what we intend to do for the market of the visually impaired
and other niches.
The assistive technology industry was spurred in the United States by the
Americans with Disabilities Act (the "ADA"). This legislation is a conscious
attempt to make technology accessible to people who cannot use mainstream
products because of personal handicaps. Thus, the assistive technology industry
fills a social need to bring the disabled into the mainstream and integrate them
into productive life. For this reason the purchasing of assistive technology
products like the IMP is subsidized by governments and charity organizations all
around the world. We are making use of this approach by bringing to the
attention of the administration the availability of our products and its
usefulness to the visually impaired.
COMPETITION
We believe that we have only one direct competitor, a French company named
Parrot SA. This company already offers several generations of competitive PDAs
for the blind and visually impaired and we believe that this company currently
has an approximately 90% market share.
We believe that the advantages of Parrot's product, called Voice Mate, are
that it can use 400 voice recognizable keywords, compared to 127 with the IMP,
and such keywords can be linked to diary entries and not only to Phonebook
entries. Also, some users believe that the Voice Recognition of the Voice Mate
is better than the IMP. The Voice Mate allows for periodic repetition
recordings, for example every second Tuesday, which the IMP does not. The Voice
Mate can turn on quicker than the IMP if you lock the ON key of the IMP or if
the IMP is in its DEEP SLEEP mode, which is used for energy saving. The IMP uses
rechargeable batteries and needs to be charged every other day even if not used
at all, to keep it working. The Voice Mate uses regular batteries that last
between two weeks and two months depending on use. Many users seem to prefer the
Voice Mate for this reason. The Voice Mate supports all the major European
languages (for prompts) and the user does not need to download a new language
version to move from one language to the other. The IMP supports only English,
Hebrew, Cantonese and Hungarian, and the user needs to download the language
prompts.
We believe that the IMP has significant advantages over the Voice Mate. The
sound of the IMP is louder and clearer. Its shape is smaller and more ergonomic.
It uses a standard connector to the earphone. The IMP is more robust. The Voice
Mate has parts (like the screen and the batteries compartments doors) that more
easily get broken. In the Phonebook folders of the IMP a user can store many
entries in free format while the Voice Mate allows only for Phone numbers in a
rigid order (home, work, etc.). A user can undo erase operations with the IMP.
The IMP has a back up battery for the clock which the Voice Mate does not. IMP's
communication with the PC seems to be less "temperamental", to quote a user's
observation. The Voice Mate does not have a Dailypad system and you can not
browse the Diary to find the place to make a recording. Rather, you make a
recording and insert its date and time.
The Company has various non-direct competitors, such as companies which
market digital voice event recorders. In addition, companies like Philips,
Hewlett-Packard, Casio, Compaq and others have added voice recording capability
to their PDAs, but they remain text and graphic machines and therefore
inappropriate for people with sight problems.
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We believe that the disabled market in general and the blind and visually
impaired market in particular are unattractive markets for large companies like
Palm or Nokia because the market is small and products need special design.
However, there can be no assurance that such companies, with greater resources
than Voice Diary, may not enter the market. In the market of the blind and
visually impaired there are portable computers type of products generally known
as Braille and Speak. Some of the newer versions of these products are
introduced as PDA. Their size and price tag (about 10 times the price of the
IMP, which sells for $229) places them as we believe in a separate category than
our products.
Nokia recently introduced a Voice User Interface on its 9290 cellular
telephone. The software is called TALX and is provided by a third party
manufacturer. The price of this unit is about three times the price of the IMP.
Because of this reason and reasons of ease of use, we believe that this product
does not pose a threat to the IMP. We further believe that our concept of
building the TOTAL with a VUI software that is designed from the beginning for
the visually impaired will prove more user friendly than the approach of the
TALX that is built around the basically GUI approach of the standard PC
software.
THE MARKET
We estimate the potential market for our product to be 25 million blind and
visually impaired people in the developed world. Additionally there is a
possibility of sales to people in Third World countries of refurbished products.
We are planning to perform further market research in the second half of 2003 to
learn in detail the market potential and most desirable operating specifications
for our new products.
We believe the market for our products is continually growing, mainly due
to advances in medical treatment that prolong life expectancy. In the United
States, the baby boomer generation is now entering the age group targeted by us.
Thus, the market potential for our devices is expected to grow.
It is now a major concern worldwide to make sure that the IT revolution
will not increase the gap between the able and the disabled. Many countries have
enacted legislation aimed at this concern. The purchase of products for the
disabled is often partly supported by public grants. In addition, in some cases
there is an obligation on the part of an employer to buy any assistive
technology product that can assist a disabled person to do a job. This practice
is especially implemented in government offices. The U.S. government runs an
Access to Work program, which may pay for special aids that are shown to be
justified. Aids for the disabled are also sometimes tax deductible. An important
recent move is President Bush's "New Freedom Initiative" that includes:
|_| Increased budgets for developing and implementing assistive technologies.
|_| Increased funding for the IDEA, a program that helps students with
disabilities.
|_| Aid to states to guarantee low-interest loans for people with
disabilities to buy computers and other equipment enabling them to work
from home.
|_| Providing resources to promote ADA compliance and to help small businesses
hire people with disabilities.
Many of the users of Voice Diary received financial support for their
purchase.
In Western Europe and Japan, public help to people with disabilities for
purchasing products is similar to that in the United States. Furthermore, social
assistance, reimbursement policies and awareness of the disabled are more
developed, in particular in the Scandinavian and other northern European
countries, as well as in Spain (an historic remnant of the multitude of crippled
survivors of the Spanish Civil War in the 1930s). In such locations assistive
technology can be financed via insurance or social welfare or health
legislation.
DISTRIBUTION CHANNELS
The blind and visually impaired market is characterized by the close
relationship between users, including distributors who are often themselves
blind.
Direct sales activity is done through local distributors, assisted by our
personnel. We have active distributors, operating with us for several years. We
do not sign distribution agreements with our distributors. However, we have
promised them that we will not nominate another distributor in their territories
as long as they have inventory of our product. Distributors generally pay at
least one third of any
24
order before shipment and the balance in one or two payments 3 months apassrt.
We do not have any price protection arrangements. We give a one year warranty on
our products.
In the United States we use a single distributor, New York-based
Independent Living Aids ("ILA"), which is one of the larger U.S. catalog
distributors for the blind and visually impaired. ILA also provides us with
office space.
Some of our distributors are specialized catalog sellers, providing the
blind and visually impaired with the special products they need, otherwise not
available through regular retail outlets.
We intend to conduct marketing activity to raise customer awareness,
education, promotion, advertisement and public relations through various
channels, such as:
|_| The large number of national and regional organizations and associations
for the blind and visually impaired in the United States, Europe and
elsewhere. Practically every blind person, especially in the United
States, is associated in at least one of these organizations.
|_| State and federal agencies for the blind and visually impaired.
|_| Special clinics that treat vision impairments.
|_| Exhibitions. There are numerous exhibitions worldwide for the disabled
in general, and for the blind and visually impaired in particular. In
the United States, for example, there are some four to six annual
nation-wide exhibitions, two to four regional exhibitions and many local
ones. The organizers are generally the various dedicated organizations.
|_| Research institutes and universities that provide programs on disabilities.
|_| Radio programs. Radio is an especially powerful means for blind and visually
impaired.
|_| Publications. Of special interest are the popular and proliferating
large font issues of publications, like the Readers Digest. Advertising
in such publications will afford access not only to the blind and
visually impaired, but also to elderly people.
|_| Word of Mouth. This is very important in the market of the blind and
visually impaired since such people tend to communicate very strongly
among themselves.
SALES
Due to their physical challenges, the blind and visually impaired need
special products to assist them in their lives, such as calendars, clocks and
watches, temperature measuring devices, scales, computers, browsers, Braille
displays, and other products. Since such products are not available through
regular retail outlets, special marketing channels exist that distribute
products to this market. These include catalog companies and stores. The catalog
companies usually sell low end products like canes and watches, while the stores
usually sell high-end products such as computer systems.
We will try to cooperate strategically with large corporations that
specialize in this field and whose sales forces sell expensive equipment on a
head-to-head basis. We believe that it would be advantageous for both sides to
add our family of products to the product line of such large corporations.
We will also consider the option of direct sales through the Internet. One
of the main considerations in this regard is to avoid competing with local
distributors.
Notwithstanding distributors' operations, software upgrades will be made
available to end-customers directly through the Internet.
Selling through renowned retail outlets could promote widespread
distribution. However, this option will be chosen only if the deal with such
outlets permits a high enough margin for us, and there are no conditions which
could lead to financially harmful outcomes (such as maintaining high stocks in
stores).
We plan to sell the TOTAL and GOLDEN devices by cellular service providers
with or without the support of the traditional distributors to the blind and
visually impaired. The markup of cell phones by the service providers is usually
negligible, as their main income is from the service. As such service providers
are constantly seeking new customers, the TOTAL will give them an added value of
a specific niche market. Cellular service providers usually provide installment
plans to their customers to finance purchased products.
We intend to remain in touch with end-users in order to provide the
software upgrades (a new concept in the cell phone industry) as well as various
specific content.
25
For the GOLDEN, we plan to use different distribution channels, specialized
in the elderly market. We are also considering a paging functionality for the
TOTAL, mainly as a voice e-mail service, taking advantage of the big success of
two-way messaging / e-mailing products.
ENVIRONMENTAL COMPLIANCE
We do not anticipate that we will become subject to environmental laws and
regulations since we do not intend to conduct manufacturing operations.
BACKLOG AND SEASONALITY
We generally do not have any backlog of unfilled orders. We do not believe
that our business will be seasonal.
MANUFACTURING OPERATIONS
We manufacture the IMP in Israel through subcontractors controlled from the
operations office of VDL in Yoqneam, Israel. Because the development of the IMP
was supported by grants provided by the State of Israel, we are required by law
to manufacture the IMP in Israel. We believe that the TOTAL and the GOLDEN, as
well as any model designed based on them, will be free from such restrictions.
However, we plan that because of our presence in Israel we will continue to
manufacture our future products there, as long as the quantities manufactured
will be less than 10,000 per batch.
We planned to manufacture 2,200 units in runs of 550 units each. The first
run was completed in January 2003 and most of the units produced in this run
were sold.. The second run was due to commence during the third quarter of 2003.
The manufacturing of the 2,200 units is done by Reshef Technologies Ltd
("Reshef"). Each future run will start only after we pay for the previous run
and after we initiate its start. We have no commitment to complete the
manufacturing of the additional 1,650 units. There is no written agreement
between us and Reshef. For each run we pay Reshef approximately $60 per unit
upon receiving the units produced.
Reshef holds an inventory of most of the components necessary for the
production of the 1,650 units plus approximately 14,000 pieces of two main
components of the IMP that have become obsolete. Thus, we will not be able to
manufacture more than 14,000 IMP units in addition to the 1,650 we plan to
manufacture in 2003 and 2004. We have no commitment to purchase the components
from Reshef and Reshef has no commitment to provide us with these components.
The obsolete components will not be used in the design of the TOTAL and its
derivative the GOLDEN.
In February 2003 Reshef closed its manufacturing plant firing all the
plant's employees. The inventory Reshef holds for the manufacturing of our
product is held at the plant that was closed down. Thus it is possible that
Reshef will not be able to provide us with components for the next manufacturing
runs of our products. Since some components that are held by Reshef are not
available elsewhere, there is the risk that we will not be able to manufacture
the Voice Diary IMP in its present design. Our ability to redesign the unit
around generally available components is not assured since we do not have at
present the funds necessary to carry out such an undertaking.
Reshef is a subsidiary of Aryt Industries Ltd., which was a major
shareholder in VDL until June 2002. We became the major shareholder of VDL after
we purchased Aryt's share in VDL. Prior to this transaction, existing loans that
Aryt gave to VDL were replaced by an agreement of VDL to pay Aryt royalties on
its sales. More information on the history of the relations between VDL, Aryt
and Reshef, is provided in the Management Discussion and Analysis, Background
section below.
RESEARCH AND DEVELOPMENT
We spent $142,581 during 2002, and $174,116 during 2001 on research and
development. Because of our low volume of sales there is no correlation between
our R&D expenditure and our sales and we do not include in our pricing a special
percentage to allocate for R&D budget.
REPORTS TO SECURITY HOLDERS
We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended. In accordance with those regulations, we file periodic
reports, proxy statements and other information with the Securities and Exchange
Commission. Our reports, proxy statements and other information can be inspected
and copied at the SEC's Public Reference Room at 450 Fifth Street N.W.,
26
Washington D.C. 20549. You can obtain information on the operations of the
Public Reference Room by calling the SEC at (800) SEC-0330. Information also is
available electronically on the Internet at http://www.sec.gov.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon oral or written request of such person, a copy of
any or all documents which are incorporated by reference in this prospectus,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Written requests for such
documents should be directed to Voice Diary, Inc., 200 Robbins Lane, PO Box 30,
Jericho, New York 11753. Telephone requests may be directed to us at (516)
939-0400.
We intend to furnish our shareholders with annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three quarters of each year.
ITEM 17. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION.
This section must be read in conjunction with audited financial statements
included in this registration statement.
PLAN OF OPERATION
Our plan for 2003 consists of two main efforts. First, to raise money
through a public offering and get our shares quoted on the OTC BB and later
traded on the BBX as it becomes available. Second, to win major orders for our
planned TOTAL and GOLDEN cellular PDA products for the visually impaired and the
elderly, respectively. Upon completion of our public offering we will start our
R&D for the TOTAL and GOLDEN. We will try to bring these products to the market
within 12 months. Meanwhile, we will attempt to acquire synergistic business
with better cash flow than ours. If we are successful with our plans to develop
and market the TOTAL and the GOLDEN we will develop a distribution service for
voice and audio content to our customers.
With our existing means we cannot sustain our operation any longer than
one month. To sustain our operation until September 2003 we need $100,000. This
sum includes the offering expenses for this offering. We are in advanced
negotiations with a group of investors to provide us with such funds. If the
negotiations fail we will most likely not be able to continue operating.
If our attempt to raise money through this offering fails, our plan of
operation will not materialize and our future will be in jeopardy.
PURCHASE OF VDL
We were incorporated in the state of Delaware on February 26, 2002. To date
we acquired approximately 99% of the outstanding shares of Voice Diary Ltd., an
Israeli corporation ("VDL"), through a purchase of shares from the former
controlling stockholder of VDL and an exchange of shares of Voice Diary Inc.
with former stockholders of VDL. The shareholders of VDL transferred their
shares in VDL for limited partnership interests in Seed Money Holding (Voice
Diary) Limited Partnership ("SMH") and Voice Diary Options Limited Partnership
("VDO"). SMH and VDO exchanged its shares in VDL for shares of Voice Diary. The
balance of the outstanding shares of VDL are held by an ex-employee, the wife of
an ex-employee and two former investors. All were offered the opportunity to
swap their shares for shares of Voice Diary but declined or did not respond to
the offer.
CRITICAL ACCOUNTING POLICIES
Under generally accepted accounting principles the purchase and exchange
transactions were accounted for as a reorganization under common control and
accordingly, the financial statements represent the consolidated financial
position, operating results and cash flows of the Company and the subsidiary for
27
all periods from inception of the subsidiary. VDL began operations in October
1993 and has been in the development stage. (Unless otherwise indicated,
references to the Company herein include VDL.)
STOCK-BASED COMPENSATION
VDL accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and the FASB interpretations thereof. Pursuant to those
accounting pronouncements, VDL records compensation for share options granted to
employees at the date of grant based on the difference between the exercise
price of the options and the market value of the underlying shares at that date.
Due to the terms of the grants, the fair value of the compensation in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation" approximates the
values computed in accordance with APB No. 25. VDL accounts for stock-based
compensation to non-employees in accordance with SFAS No. 123.
Under both accounting pronouncements, as part of the necessary
computations, management is required to estimate the fair value of the
underlying shares. Fair value has generally been determined by management as the
price at which the Company's shares were issued at the most recent prior
placement of the Company's common stock. The timing of the grant and measurement
of stock-based awards could have a material effect on the Company's results of
operations and financial position.
REVENUE RECOGNITION
The Company is developing a line of products based on personal digital
assistant technology. The Company's revenues currently derive solely from a low
volume of consumer product sales at standard terms which are recognized, in
accordance with generally accepted accounting principles, upon shipment of its
products to the customer provided that persuasive evidence of an arrangement
exists, title has transferred, the price is fixed, collection of resulting
receivables is probable and there are no remaining significant obligations.
Future results of operations may be affected by the nature of the products that
may be developed and marketed in the future by the Company and by the terms to
be included in the sales agreements. Such matters may have a significant impact
on the timing of the Company's revenue recognition at each reporting date.
DEVELOPMENT STAGE ENTERPRISE AND GOING CONCERN ISSUE
The Company is in the development stage and has not generated significant
revenues. The Company's financial statements have been prepared assuming that it
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit at December 31, 2002 of $2,525,864 and a
working capital deficit at December 31, 2002 of $454,757. that raise substantial
doubt about its ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon the successful
completion of the Company's development program and, ultimately, the attainment
of profitable operations which are contingent upon future events, including
maintaining adequate financing to fulfill its development activities, and
achieving a level of sales adequate to support the Company's expense structure.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
BACKGROUND
From our inception until 1998, we were financed by an aggregate of
approximately $780,000 in equity investments made by a group of investors.
During this period we also received about $639,000 in grants for our research
and development program from the Chief Scientist of the Ministry of Industry and
Trade of Israel ("the Chief Scientist"). In return for the grants, VDL is
required to pay royalties to the Chief Scientist equaling 3.5% of sales until an
amount equal to the grant has been paid. VDL also received an aggregate of
approximately $60,000 in unconditional grants from the Fund for the
Encouragement of Export (the "Marketing Fund"). See Note 8 to the Company's
Consolidated Financial Statements for information concerning disputes between
VDL and the Chief Scientist and the payback of part of the Marketing Fund grant.
Towards the end of the first quarter of 1999 we were in a financial crisis that
necessitated the dismissal of all our employees. The reason for the financial
crisis was that our Founder and former President decided to leave the company on
September 1998 and made what we considered to be
28
unreasonable demands for severance and other payments. His claims were settled
in court in mid 1999, but before the court settlement was reached the former
President blamed us for misconduct in our dealings with the Office of the Chief
Scientist. This caused all grants from the Chief Scientist to stop and made
investors reluctant to continue investing in the Company. The dispute with the
Chief Scientist has not yet been settled. The Chief Scientist's demand is that
we pay back about $40,000 of the grants we received in 1998. We claim that this
demand is unjustified and that actually the Chief Scientist owes us money under
our 1998 undertaking. See Item 9 regarding a possible litigation between us and
the Chief Scientist.
During 1999 and 2000 VDL managed to survive through the collaboration of
its ex-employees and subcontractors that helped in preserving the Company's
knowledge and in the development of a new model in its series of PDAs, the Voice
Diary IMP. VDL issued warrants to purchase VDL stock to its ex-employees and
subcontractors as payment for their support. Altogether seven ex-employees and
subcontractors received shares. Five holders of these warrants exercised their
warrants in January 2003. The two others gave up their warrants. One of them may
be suing the company as discussed in Item 9, Legal Matters.
VDL started marketing in November 1997 and during the period from November
1997 to March 1999 accumulated revenues from sales of about $0.45 million. From
March 1999 to June 2001 VDL had sales of $5,000 only due to lack of inventory
and the financial crisis that prevented any marketing activity or manufacturing.
In the beginning of 2000 VDL entered into a subcontracting agreement with
Aryt Industries Ltd. ("Aryt") for the manufacturing of the IMP, through Aryt's
subsidiary, Reshef Technologies Ltd. ("Reshef"), with Reshef providing a credit
line of $150,000 to cover manufacturing costs. Under this agreement, VDL sold to
Reshef VDL's entire inventory of components at its full value of about $40,000.
This amount was deducted from the cost of revenues. In the beginning of 2002 the
credit line was replaced by a subcontracting agreement under which Aryt
undertook to cover the costs of components and manufacturing of the IMP, up to
an amount of $425,000. In June 2002 the subcontracting agreement was terminated
and a manufacturing understanding was reached with Reshef under which Reshef
will manufacture for VDL 2,200 IMP units in batches of 550 and VDL will pay for
each batch upon receipt. The price per unit is approximately $60. As we
discussed in the section on Manufacturing Operation above, some recent
developments with Reshef may risk our agreement with it. Also see Item 9
regarding our failure to pay Reshef for the first run of production and the
possible court motions that Reshef may use against us.
During 2000 and 2001, Aryt provided VDL with a loan of $ 350,000 to cover
R&D costs required to finish the development and engineering of the IMP. In the
first quarter of 2002 the loan was increased to $650,000. For its financial
accommodations to VDL, VDL issued to Aryt an aggregate of 3,471,652 shares of
common stock of VDL.
Since December 2001, when VDL renewed its manufacturing and marketing
activities until December 2002 we had revenues from sales of IMP of about
$142,000.
In June 2002, following a financial crisis in Aryt, Aryt and Voice Diary
agreed, in connection with our acquisition of VDL, that all of Aryt's shares of
VDL be transferred to Voice Diary Inc. for $1.00 and the loans and all other
debts payable by VDL to Aryt and Reshef be extinguished.
In 2002 we had additional other income from outsourcing several of our
employees. We also received loans from Nir Or since July 2002 (see below in the
liquidity section).
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Voice Diary Inc. should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001
Our revenues decreased by approximately $75,961 (approximately 69%) in the
fiscal year ended December 31, 2002 ("FY 2002") over the fiscal year ended
December 31, 2001 ("FY 2001"). The reason for this decrease is that our sales of
the IMP commenced in December 2001 and during most of 2002 our
29
distributors had inventory from their purchase in December 2001. Another reason
is that we had some technical problems with the first units that we shipped and
there were many returns of units to the distributors. These problems portrayed
negatively on our customers and subdued the early enthusiasm for the IMP. During
2002 we were able to fix all the problems that we encountered earlier and in
2003 we made new shipments to our distributors.
In 2002 our gross loss was $25,407. In 2001 we had gross profit of $29,000.
The decrease in profit was due to the decrease in sales that was not accompanied
by a decrease in the fixed costs of manufacturing.
Research and development expenses decreased by approximately $32,000
(approximately 18%) in FY 2002 over FY 2001 primarily due to closing down most
of our R&D activity in the second half of 2002 due to the financial crisis of
Aryt.
Marketing, general and administrative expenses increased by approximately
$242,000 (approximately 278%) in FY 2002 compared to the previous year primarily
due to the fact that we have expanded our marketing activity in an effort to
introduce the IMP aggressively to the market.
In FY 2002 we had net financial expenses of approximately $142,000. Most of
the expenses ($98,000) were related to amortization of a discount on the debt to
Aryt. In 2001 we had financial expenses of $24,000 and financial income of
$25,000 due to changes in the exchange rate in United States dollars for Israeli
new shekels.
Our net loss in FY 2002 increased by approximately $378,000 (approximately
164%) from FY 2001. The increase is primarily due to the increase in marketing,
general and administrative expenses and the increase in financial expenses.
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
Our revenues increased by approximately $104,200 (approximately 1,703%) in
the fiscal year ended December 31, 2001 ("FY 2001") over the fiscal year ended
December 31, 2000 ("FY 2000") due to the commencement of sales of the IMP in
December 2001.
The gross profit as a percentage of sales was approximately 26% in FY 2001
as compared to a gross loss as a percentage of sales of approximately 229% in FY
2000. The increase in FY 2001 was due to a reduction in component costs and
increased sales in FY 2001.
Research and development expenses increased by approximately $94,400
(approximately 118%) in FY 2001 over FY 2000 primarily due to expenses incurred
in developing the IMP.
Marketing, general and administrative expenses decreased by approximately
$48,900 (approximately 36%) in FY 2001 compared to the previous year primarily
due to the fact that FY 2000 expenses include non-cash expenses (relating to the
issuance of warrants to employees and subcontractors). Marketing expenses in the
fiscal year ending December 31, 2002 are anticipated to increase as the IMP
marketing plan is implemented.
In FY 2001 we had net financial income of approximately $1,100 as compared
to net financial expenses of $117,542 in FY 2000. The decrease in net financial
expenses in FY 2001 was due to changes in the exchange rate in United States
dollars for Israeli new shekels.
Our net loss in FY 2001 decreased by approximately $113,500 (approximately
33%) from FY 2000. The decrease was primarily due to an increase in revenues and
decreased net financial expenses.
LIQUIDITY
We have limited financial resources to continue our operations. Ultimately,
our ability to continue as a going concern will depend upon our ability to
achieve and maintain profitability in the sale of our products. Our independent
certified public accountants, stated in their report on our financial statements
as of December 31, 2002, December 31, 2001 and December 31, 2000 and for certain
periods then ended, that our recurring losses from operations, negative working
capital and shareholders' deficiency raise substantial doubt about our ability
to continue as a going concern.
30
We had a deficit in working capital of $454,757 as of December 31, 2002. We
plan to meet our obligations by entering into installment arrangements, by
arrangements deferring payments until future financing is obtained or by
settlements with creditors.
Our ability to finance the manufacturing of our products was met mostly by
the arrangement we made with Reshef. It was complemented by the arrangement we
have with our distributors that payments for shipments are made in two or three
equal installments, with the first being made in advance and other installments
made 3 months apart. These arrangements should have enabled us to pay for
manufacturing. However, since our ability to rely on Reshef as our manufacturer
has been jeopardized as explained above, we may be unable to continue to
manufacture the IMP.
Since our disengagement from Aryt has severed our main source of financing
in recent years, we have taken several steps to reduce expenses. We have reduced
the number of our employees from 10 to 1. Still, with our existing means we
cannot sustain our operation any longer than one month. To sustain our operation
until September 2003 we need $100,000. This sum includes the offering expenses.
We are in advanced negotiations with a group of investors to provide us with
these funds. If these negotiations fail, we will most likely not be able to
continue operating. We have no assurance that we will be able to raise the
necessary funds to keep on going. Because of our strict budget we had to delay
payments of salaries for March and April,
Since July 1, 2002 we have obtained an aggregate of about $100,000 (of
which about $37,600 was received after March 31, 2003 in bridge loan financing
from an Israeli company called Nir Or Israel Ltd. ("Nir Or") which is a
developer and manufacturer of electronic systems for defense applications. The
loan was provided under an oral agreement with the lenders. The loan from Nir Or
was finalized on May 9, 2003 and turned into paid in capital for shares
allocated to the owners of Nir Or, as explained in Item 26. On September 1,
2002, after we started receiving loans from Nir Or, Arie Hinkis, a director and
Chief Executive Officer of our company became Vice President of Nir Or for
Finance, Human Resources and Business Development. Since January 2003 his salary
is being paid directly by Nir Or. Before that, Nir Or paid us for Mr. Hinkis'
services.
We also negotiated with Nir Or with respect to an acquisition by us through
a share swap of two small Israeli companies that are being held by the two
shareholders of Nir Or. This plan was abandoned. We intend to seek other
opportunities to purchase a promising business through a share swap arrangement.
We are committed to pay royalties on sales of the IMP to two parties at the
following annual rates: (1) to the Chief Scientist - 3.5% until payments total
payment of about $640,000; and (2) to Aryt - 10% for 3 years or until total
payments aggregate of $250,000; thereafter, 6% of sales for two years or until
the payments by VDL total $500,000; and thereafter 1% of sales for two more
years or until total payments by VDL of an aggregate of $751,000. These
commitments place a heavy burden on the Company's cash flow.
CAPITAL RESOURCES
As of the date of this report we have no material commitments for capital
expenditures. However, we do have significant debt service and royalty
commitments, as discussed above and herein. To meet these obligations, to
finance our negative cash flow from operations and to provide for the
development of new models in the Voice Diary line, we will seek to raise money
through the sale of our equity in private or public transactions. If we will not
be able to raise money through the sales of our equity, we are facing the risk
of being unable to continue our operations.
In August 2001 we received a loan in the amount of approximately $102,000
from the Bank for the Development of Industry in Israel Ltd. ("BDII"). The loan
is payable in 36 equal monthly payments of $2,800 starting in September 2002.
The loan bears interest at the rate of Libor plus 4% per annum paid monthly.
BDII holds a lien on substantially all the assets of VDL. We are now in default
on six payments. We have recently asked the bank to permit us to pay only the
interest on the loan for six months and resume full payment thereafter. Our
request was declined but the bank indicated that there is a possibility to
extinguish the debt by an immediate payment of about 60%. We will enter into
negotiations with the bank if we will raise sufficient amount of money to
execute this possibility. BDII, which is controlled by the government of Israel,
has recently stopped regular operation due to severe losses.
31
In August 2001 we received a loan from United Mizrahi Bank Ltd ("United
Mizrahi"). The balance of the loan as of December 31, 2002 was about $11,322.
The loan is payable in 8 monthly payments of about $ 1,500 each. The loan bears
interest at the Israeli Prime Interest Rate plus 1.5% per annum. The loan is
partially secured by a deposit in the amount of about $5,500. The Israeli Prime
Interest Rate is defined below on the next page. We also have an over draft of
about $8,500 secured by post dated checks of Nir Or to the same amount held at
United Mizrahi. These checks are part of the monies we received from Nir Or as
more fully explained in. Item 19: Certain Relationships and Related
Transactions. In February 2001 we reached a settlement with Israel Discount Bank
Ltd ("IDB"). The settlement finalized a law suit filed by IDB on a debt of about
$22,000 that we were in default of payment. Under this settlement we still have
to pay monthly principal payments of $630 during 2003 and a final principal
amount of $840 in January 2004. Interest will be paid with the final principal
payment in January 2004. The loan is not secured.
VDL has a debt of approximately $32,000 to the Israeli Tax Authority for
withholding tax collected from employees that we failed to transfer to the Tax
Authority. Our CEO was summoned for interrogation to the Tax Authority and he
may face criminal charges. The Tax Authority may try to place a lien on monies
entitled to VDL in banks and customers.
With our existing means we cannot sustain our operation any longer than one
month. To sustain our operation until September 2003 we need $100,000. This sum
includes the offering expenses. We are in advanced negotiations with a group of
investors to provide us with these funds. If these negotiations fail we will
most likely not be able to continue operating.
Disclosures About Contractual Obligations as of December 31, 2003
Payments Due by Period
-----------------------------------------------
Contractual
Obligations Total 1-3 Years 4-5 Years After 5 Years
- ------------- -------- ---------- --------- -------------
Long-Term Debt $113,347 $113,347 $ -- $ --
Operating Lease $11,000 $11,000
Royalties (1) $751,000 $250,000 $250,000 $251,000
(1) Based on sales volume. See "Background" above.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect our results of operations and
financial condition. Our policy is not to use financial instruments for trading
purposes or other speculative purposes. We do not use any derivative contracts
or other financial instruments to manage risk.
We are exposed to foreign exchange risk to the extent of adverse
fluctuations in the U.S. dollar. Based on historical U.S. currency movement, we
do not believe that reasonably possible near-term changes in the U.S. dollar of
10% will result in a material effect on our future earnings, financial position
or cash flows.
We are exposed to financial risks resulting from changes in the exchange
rate between the U.S. dollar and the Israeli new shekel, changes in the prime
interest rate in Israel and changes in the London Interbank Offered Rate
("LIBOR"). About 85% of our revenues are received in U.S. dollars. About 75% of
our debt is linked to the U.S. dollar exchange rate and bears interest based on
LIBOR. Most of our expenses (other than salaries) are linked to the U.S. dollar
exchange rate. The effect of currency exchange rate fluctuations on our
financial results are included in financial expenses (income) net.
32
The following table provides information about our debt obligations which
are sensitive to changes in interest rates at December 31, 2002. The information
is the principal cash flows and weighted interest rates by expected maturity
dates.
LONG-TERM DEBT (IN U.S. DOLLARS)
2003 2004 2005
--------------- ---------------- ---------------
Variable rate (in U.S. dollars) 40,534 33,845 20,046
Interest rate LIBOR + 4% LIBOR + 4 LIBOR + 4%
Fixed rate (in new Israeli shekels) 11,322
Interest rate* IP+1.5%
Variable rate (in new Israeli shekels) 7,600
Interest rate 6.85
------ ------ ------
59,456 33,845 20,046
====== ====== ======
*IP-Israel Prime Interest Rate set from time to time by the Bank of Israel. On
December 31, 2002 the IP was 10.4% per annum.
EMPLOYEES
We employ at present only one full time employee who is the Operations
Manager of VDL. He is working out of our Israeli office. Our President was
recently granted a working visa in the United States and if we are able to raise
money in the United States to finance our future plans he will be spending about
half of his time in the United States running our local operations there.
ITEM 18. DESCRIPTION OF PROPERTY.
We lease approximately 400 square feet of office space in the Shaar Yoqneam
Industrial Park, Yoqneam, Israel for approximately $350 per month. The original
term of the lease has expired and we intend to negotiate a new lease for the
premises.
Under oral arrangements with our US distributor we are provided marketing
offices in Jericho, New York on a rent-free basis. This arrangement may be
terminated immediately at any time.
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since January 1, 2001 we have entered into several transactions with our
former controlling stockholder, Aryt. On June 30, 2002 Aryt sold us Aryt's
entire investment in VDL for $1.00 and also entered into an agreement with us
under which we agreed to pay to Aryt royalties from the sale of VDL's products
up to an aggregate amount of $751,000 in exchange for the cancellation of all
the loans and all other debts payable by VDL to Aryt and Reshef, a subsidiary of
Aryt. On June 30, 2002 Aryt and us also agreed that an agreement entered into on
February 13, 2002 which provided for a one year credit line of $425,000 from
Aryt to VDL be terminated.
For additional information concerning transactions between Aryt and the
Company, see the "Management's Discussion and Analysis or Plan of Operations"
contained in Item 6 and Notes 8A, 9 and 17 of Notes to the Company's
Consolidated Financial Statements contained in Item 22.
Since July 1, 2002 we have obtained an aggregate of $100,000 (of which
about $52,000 was received after December 31, 2002) in bridge loan financing
from an Israeli company called Nir Or Israel Ltd ("Nir Or") which is a developer
and manufacturer of electronic systems for defense applications. The
33
loan was provided under an oral agreement with the lenders. On May 9, 2003 we
signed share purchase agreements with Nathan Tarter and Mr. Ofer Yonach, who are
the owners of Nir Or. Under these agreements we allocated to Mr. Tarter
1,346,405 Class A Common Shares and Mr. Yonach 673,202 Class A Common Shares.
The shares were allocated for a price of approximately $0.05 per share. The
parties and Nir Or agreed in a separate agreement that the loan will become
payments for said shares on behalf of Messrs Tarter and Yonach.
On October 1, 2002, after we started receiving loans from Nir Or, Arie
Hinkis, director and President of our company also became Vice President of Nir
Or for Finance, Human Resources and Business Development. Since January 2003 his
salary is being paid directly by Nir Or.
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
As of the date of this registration statement, there is no public market
for our common stock. This registration statement is a step toward enhancing the
public market for our common stock which may increase the liquidity of our
shares. However, there can be no assurance that a meaningful trading market will
develop. We make no representation about the value of our common stock.
HOLDERS
As of the date of this registration statement, we have 2,726,470 shares of
$0.01 par value Class A common stock issued and outstanding held by 7
shareholders of record and 2,400 shares of $0.01 par value Class B common stock
issued and outstanding held by 1 shareholder of record.
DIVIDENDS
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we intend to retain any earnings to finance the
development and expansion of its business, and we do not anticipate paying any
cash dividends on our common stock. Any future determination to pay dividends
will be at the discretion of the board of directors and will be dependent upon
then existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that the board of directors considers relevant.
ITEM 21. EXECUTIVE COMPENSATION.
The following summary compensation table shows the compensation paid during
the last three fiscal years to the Company's chief executive officer. No
executive officer received salary and bonus during the fiscal year ended
December 31, 2002 in an aggregate amount which exceeded $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
OTHER ANNUAL AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION RESTRICTED STOCK
- --------------------------- ---- -------- ------------ ----------------
Arie Hinkis 2002 $98,221 $ 0 0
President and 2001 $33,280 $ 0 0
Chief Executive Officer 2000 $0 $ 0 $ 45,000(1)
(1) In 2000 and 1999, VDL issued to Mr. Hinkis warrants to purchase an
aggregate of 233,990 ordinary shares of VDL. These warrants were
subsequently exchanged for an aggregate of 2,400 preferred shares of VDL
and which were in turn exchanged for an aggregate of 2,400 shares of Class
B Stock of the Company.
34
EMPLOYMENT AND MANAGEMENT AGREEMENTS
Arie Hinkis is employed by Voice Diary Inc. pursuant to an employment
agreement dated July 3, 2002. The agreement provides that Mr. Hinkis will be
paid a salary at the rate of $40,000 per year plus a bonus to be determined in
the sole discretion of the Board of Directors (Mr. Hinkis is the sole member of
the Board of Directors). From the formation of Voice Diary Inc. until now, Mr.
Hinkis did not receive any payment from us. The amount accrued for his salary is
included in our financial reports under "Accrued Expenses". Mr. Hinkis is
employed by VDL pursuant to an employment agreement dated March, 2001 which
agreement was amended in December 2001. Under such amended agreement Mr. Hinkis
is paid a monthly salary of 20,000 Israeli new shekels (approximately $4,193)
and provided certain fringe benefits including the use of an automobile leased
by us. The employment agreement does not have a stated term. In January 2003 Mr.
Hinkis became an employee of Nir Or and stopped receiving salary from VDL.
DIRECTORS' COMPENSATION
We currently have only one director who is also an employee, and is not
paid separately for his services as a director. We do not currently have any
formal policy as to the compensation we would offer independent directors.
2003 STOCK OPTION PLAN
In May 2003, the our stockholders approved the 2003 Stock Option Plan (the
"Plan") for the grant of stock options and stock purchase rights to employees
and to service providers and incentive stock options to employees. The maximum
aggregate number of shares subject to the Plan is 1,000,000 shares of Class A
common stock. The options are subject to the provisions of Section 102 of the
Israeli Tax Ordinance, or Section 3(i) of the Ordinance, as applicable. The
options and rights and the underlying shares are subject to certain limitations
as detailed in the Plan. The stock purchase rights agreement may grant us a
repurchase option exercisable upon termination of the purchaser's service with
the Company. In the case of certain mergers or acquisitions, unvested options
will fully vest, in the event that the successor company will refuse to assume
or substitute the award.
The Company has not yet granted any options or rights under this plan.
ITEM 22. FINANCIAL STATEMENTS.
The following financial statements are included as part of this
registration statement:
1. Audited Consolidated Financial Statements as of the year ended December 31,
2002.
2. Interim Condensed Consolidated Unaudited Financial Statement as of the
quarter ended March 31, 2003.
ITEM 23. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We have had no changes in or disagreements with our independent accountant.
Brightman Almagor & Co., a member firm of Deloitte Touche Tohmatsu, has been our
independent auditors since inception.
35
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT F3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2002 and 2001 F4
Consolidated Statements of Operations for the years ended December 31, 2002, 2001
and 2000 and the cumulative period from October 1, 1993 (date of commencement of
operations) to December 31, 2002 F5
Statement of Shareholders' Deficiency for the period from October 1, 1993 (date of
commencement of operations) to December 31, 2002 F6 - F8
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001
and 2000 and the cumulative period from October 1, 1993 (date of commencement of
operations) to December 31, 2002 F9 - F10
Notes to the Consolidated Financial Statements F11 - F30
F2
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
VOICE DIARY INC.
We have audited the accompanying consolidated balance sheets of Voice Diary Inc.
(a development stage company) ("the Company") and its subsidiary as of December
31, 2002 and 2001, and the related consolidated statements of operations,
shareholders' deficiency, and cash flows for each of the three years in the
period ended December 31, 2002 and for the cumulative period from October 1,
1993 (date of commencement of operations) to December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 the 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 consolidated financial position of the Company and
its subsidiary as of December 31, 2002 and 2001, and their consolidated results
of operations and cash flows for each of the three years in the period ended
December 31, 2002 and for the cumulative period from October 1, 1993 to December
31, 2002, 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's recurring losses from operations, working
capital deficit and shareholders' deficiency raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Brightman Almagor & Co.
Certified Public Accountants
Member firm of Deloitte Touche Tohmatsu
Haifa, Israel
March 26, 2003
F3
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31
2 0 0 2 2 0 0 1
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 13,019 $ 117,805
Trade accounts receivable 3,309 65,970
Other receivables and prepaid expenses (Note 3) 10,004 29,363
----------- -----------
26,332 213,138
----------- -----------
FIXED ASSETS, NET (Note 4) 37,593 11,604
----------- -----------
$ 63,925 $ 224,742
=========== ===========
CURRENT LIABILITIES
Short-term bank borrowings and current portion of long term debt $ 71,554 $ 44,330
Short-term loans from Related Party (Note 15) -- 357,672
Trade accounts payable 37,447 197,249
Accrued expenses 220,886 180,542
Related parties -- 4,929
Bridge loan 47,975 --
Other payables (Note 5) 103,227 35,291
----------- -----------
481,089 820,013
----------- -----------
LONG TERM LIABILITIES
Long term loans from banks (Note 6) 53,891 108,443
Liabilities for severance pay (Note 7) 6,216 1,761
----------- -----------
60,107 110,204
----------- -----------
COMMITMENTS & CONTINGENCIES (Note 8)
SHAREHOLDERS' DEFICIENCY (Note 9)
Share capital:
Shares of Class A Common Stock $0.01 par value
(Authorized -10,000,000 shares as of December 31, 2002 and 2001
Issued and Outstanding - 634,863 shares as of December 31, 2002 and 736,531 6,349 7,365
shares as of December 31, 2001)
Shares of Class B Common Stock $ 0.01 par value
(Authorized - 10,000 shares, Issued and Outstanding - 2,400 shares as of December
31, 2002 and 2001) 24 24
Additional paid-in capital 2,042,220 1,203,489
Deficit accumulated during the development stage (2,525,864) (1,916,353)
----------- -----------
(477,271) (705,475)
----------- -----------
----------- -----------
$ 63,925 $ 224,742
=========== ===========
March 26, 2003
--------------------
Approval date of the
financial statements
The accompanying notes are an integral part of the financial statements.
F4
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
------------------------------------------- -----------------
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
REVENUES (NOTE 10) $ 34,002 $ 109,963 $ 5,778 $ 640,963
Cost of revenues (Note 11) 59,409 81,036 19,062 581,242
----------- ----------- ----------- ---------
GROSS PROFIT (LOSS) (25,407) 28,927 (13,284) 59,721
Operating costs and expenses
Research and development
expenses (Note 12) 142,581 174,116 79,700 1,114,694
Marketing, general and
administrative expenses
(Note 13) 329,136 86,978 135,831 1,143,429
----------- ----------- ----------- ----------
OPERATING LOSS (497,124) (232,167) (228,815) (2,198,402)
Financial expenses (Note 14) 142,327 24,132 117,542 388,710
Financial income (582) (25,212) -- (30,162)
Other income, net (Note 16) (29,358) -- (1,756) (31,086)
----------- ----------- ----------- -----------
LOSS FOR THE PERIOD $ (609,511) $ (231,087) $ (344,601) $(2,525,864)
=========== =========== =========== ===========
LOSS PER SHARE:
Basic and diluted $ (0.96) $ (0.36) $ (1.76)
=========== =========== ===========
Number of shares used in
computing basic and
diluted loss per share 637,263 637,263 195,951
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F5
VOICE DIARY INC.
A DEVELOPMENT-STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIENCY
NUMBER OF SHARES NUMBER OF SHARES DEFICIT
------------------- ------------------ ACCUMULATED
CLASS A CLASS B ADDITIONAL DURING THE TOTAL
COMMON PREFERRED COMMON COMMON SHARE PAID-IN DEVELOPMENT SHAREHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL CAPITAL STAGE DEFICIENCY
------ --------- ------- ------- ------- ---------- ----------- -------------
BALANCE -OCTOBER 1, 1993 (DATE OF
COMMENCEMENT OF OPERATIONS) -- -- -- -- -- -- -- --
Changes in 1993:
Issuance of Common Stock 15,000 $ 527 $ 45,736 $ 46,263
Net income for the year 1,209 1,209
------ --------- ------- ------- ------- ---------- ----------- -------------
BALANCE- DECEMBER 31, 1993 15,000 527 45,736 1,209 47,472
Changes in 1994:
Loss for the year (51,609) (51,609)
------ --------- ------- ------- ------- ---------- ----------- -------------
BALANCE- DECEMBER 31, 1994 15,000 527 45,736 (50,400) (4,137)
Changes in 1995:
Issuance of Common Stock 1,200 39 43,647 43,686
Loss for the year (99,244) (99,244)
------ --------- ------- ------- ------- ---------- ----------- -------------
BALANCE- DECEMBER 31, 1995 16,200 566 89,383 (149,644) (59,695)
Changes in 1996:
Issuance of Common Stock 8,800 273 224,089 224,362
Loss for the year (147,481) (147,481)
------ --------- ------- ------- ------- ---------- ----------- -------------
BALANCE- DECEMBER 31, 1996 25,000 839 313,472 (297,125) 17,186
Changes in 1997:
Issuance of Common Stock 8,160 236 265,789 266,025
Loss for the year (405,106) (405,106)
------ --------- ------- ------- ------- ---------- ----------- -------------
BALANCE- DECEMBER 31, 1997 33,160 -- -- -- $ 1,075 $ 579,261 $(702,231) $ (121,895)
====== ========= ======= ======= ======= ========== =========== =============
The accompanying notes are an integral part of the financial statements.
F6
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIENCY (CONT.)
NUMBER OF SHARES NUMBER OF SHARES DEFICIT
--------------------- ------------------ ACCUMULATED
CLASS A CLASS B ADDITIONAL DURING THE TOTAL
COMMON PREFERRED COMMON COMMON SHARE PAID-IN DEVELOPMENT SHAREHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL CAPITAL STAGE DEFICIENCY
---------- --------- ------- ------- -------- ---------- ----------- -------------
BALANCE- DECEMBER 31, 1997 33,160 -- -- -- $ 1,075 $ 579,261 $ (702,231) $ (121,895)
Changes in 1998:
Issuance of Common Stock 87,480 2,275 199,838 202,113
Issuance of options to employees 3,600 3,600
Loss for the year (278,459) (278,459)
---------- --------- ------- ------- -------- ---------- ----------- ------------
BALANCE- DECEMBER 31, 1998 120,640 3,350 782,699 (980,690) (194,641)
Changes in 1999:
Issuance of Common Stock 7,630 179 21,757 21,936
Issuance of options to a related
party 161,970 161,970
Issuance of options to employees 37,894 37,894
Loss for the year (359,975) (359,975)
---------- --------- ------- ------- -------- ---------- ----------- ------------
BALANCE- DECEMBER 31, 1999 128,270 3,529 1,004,320 (1,340,665) (332,816)
CHANGES IN 2000:
Issuance of Common Stock 213,718 5,238 48,210 53,448
Issuance of Common Stock pursuant
to financing agreement 300,000 7,317 66,722 74,039
Issuance of options for services
rendered 30,145 30,145
Issuance of options to a related
party 45,000 45,000
Issuance of options to employees 5,391 5,391
Issuance of Preferred Stock 2,400 6 -- 6
Loss for the year (344,601) (344,601)
---------- --------- ------- ------- -------- ---------- ----------- ------------
641,988 2,400 -- -- 16,090 1,199,788 (1,685,266) (469,388)
Adjustment due to reorganization
under common control (641,988) (2,400) 736,531 2,400 (8,701) 8,701
---------- --------- ------- ------- -------- ---------- ----------- -----------
BALANCE- DECEMBER 31, 2000 -- -- 736,531 2,400 $ 7,389 $ 1,208,489 $(1,685,266) $ (469,388)
=========== ========== ======== ======== ======== =========== ============ ===========
The accompanying notes are an integral part of the financial statements.
F7
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIENCY (CONT.)
NUMBER OF SHARES NUMBER OF SHARES DEFICIT
ACCUMULATED
CLASS A CLASS B ADDITIONAL DURING THE TOTAL
COMMON PREFERRED COMMON COMMON SHARE PAID-IN DEVELOPMENT SHAREHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL CAPITAL STAGE DEFICIENCY
-------- --------- -------- ------- ------- --------- ------------ -------------
BALANCE- DECEMBER 31, 2000 -- -- 736,531 2,400 $ 7,389 $1,208,489 $(1,685,266) $ (469,388)
Changes in 2001:
Cost related to previous year
issuances (5,000) (5,000)
Loss for the year (231,087) (231,087)
-------- -------- -------- ------- ------- --------- ------------ ----------
BALANCE- DECEMBER 31, 2001 -- -- 736,531 2,400 7,389 1,203,489 (1,916,353) (705,475)
Changes in 2002:
Issuance of Common Stock 65,177 652 64,525 65,177
Issuance of Common Stock 98,249 982 97,267 98,249
pursuant to financing agreement
Waiver of loan by Related Party 649,289 649,289
Waiver of shares by principal
shareholder (265,094) (2,650) 2,650
Issuance of options for services
rendered 25,000 25,000
Loss for the year (609,511) (609,511)
-------- -------- -------- ------- ------- ---------- ------------ ------------
Balance December 31, 2002 -- -- 634,863 2,400 $ 6,373 $2,042,220 $(2,525,864) $ (477,271)
======== ======== ======== ======= ======= ========== ============ =============
F8
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
--------------------------------------- -----------------
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
CASH FLOWS - OPERATING ACTIVITIES
Loss for the period $(609,511) $(231,087) $(344,601) $(2,525,864)
Adjustments to reconcile loss to net
cash used in operating activities (Appendix A) 157,848 67,667 289,949 944,161
--------- --------- --------- ----------
Net cash used in operating activities (451,663) (163,420) (54,652) (1,581,703)
--------- --------- --------- ----------
CASH FLOWS - INVESTING ACTIVITIES
Purchase of fixed assets (33,713) (7,189) -- (156,239)
Proceeds from sale of fixed assets -- -- 1,805 2,503
--------- --------- --------- ----------
Net cash (used in) provided by investing activities (33,713) (7,189) 1,805 (153,736)
--------- --------- --------- ----------
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from long-term loans -- 118,114 30,932 210,858
Repayment of long-term loans (26,128) (4,050) (34,896) (93,505)
Short-term bank credit, net 1,949 (130,947) (49,911) 12,098
Short-term loans from Related Party 291,617 302,200 55,472 649,289
Bridge loan 47,975 -- -- 47,975
Issuance of shares 65,177 -- 57,180 921,743
Costs related to previous year's shares issues -- (5,000) -- --
--------- --------- --------- ----------
Net cash provided by financing activities 380,590 280,317 58,777 1,748,458
--------- --------- --------- ----------
Increase (decrease) in cash and cash equivalents (104,786) 109,708 5,930 13,019
Cash and cash equivalents - beginning of period 117,805 8,097 2,167 --
--------- --------- --------- ----------
Cash and cash equivalents - end of period $ 13,019 $ 117,805 $ 8,097 $ 13,019
========= ========= ========= ==========
The accompanying notes are an integral part of the financial statements.
F9
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
------------------------------------- ---------------
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
APPENDIX A -
- ------------
ADJUSTMENTS TO RECONCILE LOSS TO
NET CASH FROM OPERATING ACTIVITIES
INCOME AND EXPENSE ITEMS NOT
INVOLVING CASH FLOWS:
Depreciation and amortization $ 7,724 $ 2,951 $ 13,503 $ 117,871
Exchange-rate (gain) loss (3,149) (2,567) 277 (4,006)
Liabilities for severance pay 4,455 1,761 -- 6,216
Gain on sale of fixed assets -- -- (1,757) (1,728)
Non-cash compensation expenses 123,249 -- 150,848 477,561
--------- --------- --------- ---------
132,279 2,145 162,871 595,914
--------- --------- --------- ---------
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable 62,661 (65,737) 66 (3,309)
Decrease (increase) in receivables and other current
assets
19,359 (28,740) 2,027 (10,004)
Decrease in inventories -- -- 40,496 --
Increase (decrease) in trade accounts payable (159,802) 165,901 (5,853) 37,447
Increase (decrease) in payables and other current
liabilities 103,351 (5,902) 90,342 324,113
--------- --------- --------- ---------
25,569 65,522 127,078 348,247
--------- --------- --------- ---------
--------- --------- --------- ---------
$ 157,848 $ 67,667 $ 289,949 $ 944,161
========= ========= ========= =========
Appendix B -
Non cash transactions
Waiver of loan by principal shareholder
in exchange for rights to royalties $ 649,289 $ -- $ -- $ 649,289
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 13,485 $ 12,605 $ 36,398 $ 140,006
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
F10
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. GENERAL
Voice Diary Inc. ("the Company") was incorporated in the State of Delaware
on February 26, 2002. In June and July 2002, the Company acquired
approximately 99% of the outstanding shares of Voice Diary Ltd., an Israeli
corporation ("the Subsidiary"), through an exchange of shares of the
Company with former shareholders of the Subsidiary. Under generally
accepted accounting principles, the transaction was accounted for as a
reorganization under common control and accordingly, the financial
statements represent the consolidated financial position, operating results
and cash flows of the Company and the Subsidiary for all periods from
inception of the subsidiary. The Subsidiary began its operations in October
1, 1993 and has been in the development stage since then.
The Company, through its Subsidiary, is developing and marketing a line of
personal digital assistants ("PDAs") which have a voice user interface and
provide the user with a full range of personal information management
applications, including a talking diary, telephone book, daily pad and
other advanced features. The voice user interface enables the visually
impaired to use PDA technology by removing obstacles to use inherent in
conventional display-based products.
B. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. The Company's accumulated deficit as of December 31,
2002 of $2,525,864 and working capital deficit as of December 31, 2002 of
$454,757 raise substantial doubt about its ability to continue as a going
concern.
In addition, in the second half of 2002 the Company operations were carried
out with a significantly reduced staff.
The ability of the Company to continue as a going concern is dependent upon
the successful completion of the Company's development program and,
ultimately, the attainment of profitable operations which are contingent
upon future events, including maintaining adequate financing to fulfill its
development activities, and achieving a level of sales adequate to support
the Company's expense structure.
The Company plans to meet its obligations by entering into installment
arrangements, by arrangements deferring payments until future financing is
obtained and/or by settlements with creditors.
F11
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL (CONT.)
C. OTHER RISK FACTORS
1. The Company's sales have been to a small number of main customers
(see Note 10).
2. In accordance with a subcontracting agreement between Reshef (a
subsidiary of Aryt -Subsidiary's former parent company) and the
Subsidiary, Reshef agreed to manufacture 2,200 Voice Diary IMP
units for the Subsidiary. In February 2003 Reshef closed its
manufacturing plant. It is possible that Reshef will not carry
out the next manufacturing runs of the Subsidiary's products or
furnish the components to the Subsidiary for assembly.(see Note
8E).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America.
B. PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the financial
statements of the Company and its wholly owned Subsidiary in Israel,
after elimination of material intercompany transactions and balances.
C. FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSLATION
The currency of the primary economic environment in which the
operations of the Company and its Subsidiary are conducted is the U.S.
dollar ("dollar"). Therefore, the Company uses the dollar as its
functional and reporting currency. Certain of the dollar amounts in
the financial statements may represent the dollar equivalent of other
currencies, and may not necessarily be exchangeable for dollars.
Transactions and balances denominated in dollars are presented at
their dollar amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth in
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation," of the Financial Accounting Standards Board
("FASB"). Transaction gains and losses are reflected in net financing
expenses.
F12
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
D. DEVELOPMENT STAGE COMPANY
Since its inception, the Company's efforts have been devoted to
research and development. The financial statements are therefore
presented in accordance with the principles of SFAS No. 7 of the
FASB - "Accounting and Reporting by Development-Stage
Enterprises."
E. USE OF ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires that management
make estimates and assumptions that affect the reported amounts
of assets and liabilities as well as disclosure of contingent
assets and liabilities at the balance sheet date and the reported
amounts of income and expenses during the reporting period.
Actual results may vary from these estimates.
F. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank demand deposits and
short-term unrestricted deposits having original maturity dates
not exceeding three months from the date of deposit.
G. FIXED ASSETS
1. Fixed assets are presented at cost less depreciation.
2. Annual depreciation is computed based on the straight-line
method over the estimated useful lives of the assets, as
follows:
Years
-----
Fixtures 10
Office furniture 10
Computer equipment and software 3
Management reviews fixed assets for impairment when circumstances
or events indicate that the carrying amount of the asset may not
be recoverable. If the sum of undiscounted cash flows is less
than the carrying amount, an impairment loss is recognized at an
amount by which the carrying amount of the asset exceeds its fair
value based on discounted cash flows.
F13
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
H. REVENUE RECOGNITION
The Company recognizes revenue upon the shipment of its
products to the customer provided that persuasive evidence
of an arrangement exists, title has transferred, the price
is fixed, collection of resulting receivables is probable
and there are no remaining significant obligations.
I. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as
incurred.
J. DEFERRED INCOME TAXES
The Company accounts for income taxes utilizing the asset
and liability method in accordance with SFAS No. 109,
"Accounting for Income Taxes". Current tax liabilities are
recognized for the estimated taxes payable on tax returns
for the current year. Deferred tax liabilities or assets are
recognized for the estimated future tax effects attributable
to temporary differences between the income tax bases of
assets and liabilities and their reported amounts in the
financial statements, and for tax loss carryforwards.
Measurement of current and deferred tax liabilities and
assets is based on provisions of enacted tax laws, and
deferred tax assets are reduced, if necessary, by the amount
of tax benefits, the realization of which is not considered
likely based on available evidence.
K. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist mainly of
cash and cash equivalents, current accounts receivable,
accounts payable and accruals. Due to the relatively short
period to maturity, the fair value of the financial
instruments included in the working capital of the Company
approximates their carrying amounts.
L. NET LOSS PER SHARE
Loss per share has been computed in accordance with SFAS No.
128, "Earnings per Share". Potential securities have been
excluded from the diluted loss per share computation for the
years ended December 31, 2002, 2001, and 2000 due to the
anti-dilutive effect.
F14
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
M. STOCK- BASED COMPENSATION
The Subsidiary accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and the
FASB interpretations thereof. Pursuant to those accounting
pronouncements, the Subsidiary records compensation for share
options granted to employees at the date of grant based on the
difference between the exercise price of the options and the
market value of the underlying shares at that date. Due to the
terms of the grants, the fair value of the compensation in
accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" approximates the values computed in accordance with
APB No. 25. The Subsidiary accounts for stock-based compensation
to non-employees in accordance with SFAS No. 123.
N. EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the FASB issued SFAS No.143, "Accounting for
Asset Retirement Obligations". SFAS No 143 applies to legal
obligations associated with the retirement of tangible long-lived
assets that result from the acquisition, construction,
development or normal operation of a long-lived asset. SFAS No
143 requires that estimated asset retirement costs be measured at
their fair values and recognized as assets and depreciated over
the useful life of the related asset. Similarly, liabilities for
the present value of asset retirement obligations are to be
recognized and accreted as interest expense each year to their
estimated future value until the asset is retired. These
provisions will be applied to existing asset retirement
obligations as of the adoption date as a cumulative effect of a
change in accounting policy. SFAS No. 143 is effective for the
Company's fiscal years beginning January 1, 2003. SFAS No. 143
will not have a material effect on the Company's consolidated
results of operations and financial position.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities". SFAS No. 146 requires that a liability for
costs associated with an exit or disposal activity be recognized
only when the liability is incurred, rather than at the date of
an entity's commitment to an exit plan. SFAS 146 requires that
the liability be initially measured at fair value. SFAS No. 146
is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company believes that the adoption
of SFAS 146 will not have a material effect on the financial
statements.
F15
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
N. EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONT.)
In November 2002, FASB Interpretation No. ("FIN") 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" was issued. This
interpretation requires elaborating on the disclosures that must be
made by a guarantor in its interim and annual financial statements
about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The disclosure
requirements of this Interpretation are effective for statements
issued after December 15, 2002 and its recognition requirements are
applicable for guarantees issued or modified after December 31, 2002.
Management believes that the adoption of FIN 45 will not have a
material effect on the financial statements.
In December 2002, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards Board
("SFAS") No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure -- an amendment of FASB Statement No. 123."
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company is required
to follow the prescribed format and provide the additional disclosures
required by SFAS No. 148 in its annual financial statements for the
year ended December 31, 2002 and must also provide the disclosures in
its quarterly reports containing condensed financial statements for
interim periods beginning with the quarterly period ended March 31,
2003.
F16
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - OTHER RECEIVABLES AND PREPAID EXPENSES
AS OF DECEMBER 31
----------------------
2 0 0 2 2 0 0 1
-------- ---------
Prepaid expenses $ 8,316 $ 4,582
Government institutions 1,688 24,781
--------- ---------
$ 10,004 $ 29,363
========= =========
NOTE 4 - FIXED ASSETS,NET
AS OF DECEMBER 31
----------------------
2 0 0 2 2 0 0 1
--------- ---------
Cost:
Computers and software $ 108,595 $ 99,606
Fixtures 31,099 6,799
Office furniture 2,858 2,434
--------- ---------
142,552 108,839
--------- ---------
Accumulated depreciation:
Computers and software (98,148) (93,477)
Fixtures (5,860) (3,044)
Office furniture (951) (714)
--------- ---------
(104,959) (97,235)
--------- ---------
Net $ 37,593 $ 11,604
========= =========
NOTE 5 - OTHER PAYABLES
AS OF DECEMBER 31
----------------------
2 0 0 2 2 0 0 1
--------- ---------
Employees and payroll accruals $ 67,975 $ 15,103
Customer advances 14,343 --
Fund for the Encouragement of Marketing * 20,188 20,188
Others 721 --
--------- ---------
$ 103,227 $ 35,291
========= =========
* Claim for refund of amounts received by the Subsidiary from the fund by the
Ministry of Industry and Trade.
F17
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG TERM LOANS FROM BANKS
RATE OF AS OF DECEMBER 31
-------- ------------------------
INTEREST 2 0 0 2 2 0 0 1
-------- ------- -------
%
--------
Loans in new Israeli shekels
(Fixed rate) 6.85 $ 7,600 $ 13,134
Loans in new Israeli shekels
(Variable rate) IP*+1.5% 11,322 27,339
Loans in U.S. dollars Libor+4% 94,425 102,151
--------- ---------
113,347 142,624
Less current maturities 59,456 34,181
--------- ---------
$ 53,891 $ 108,443
========= =========
* IP - Israeli Prime Interest Rate, set from time to time by the Bank of Israel.
On December 31, 2002, the IP was 10.4%.
Interest on the fixed rate loan will be paid with the final principal payment in
January 2004.
Interest on the variable rate loan is payable monthly.
Based on the terms of the long-term debt, their fair value approximates the
recorded amounts.
See Note 8C regarding security.
Future payments of long term loans from banks:
2003 $ 59,456
2004 33,845
2005 20,046
---------
$ 113,347
=========
F18
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LIABILITIES FOR SEVERANCE PAY
The Subsidiary is subject to certain Israeli law and labor agreements that
determine the obligations of the Subsidiary to make severance payments to
dismissed employees and to employees leaving employment under certain other
circumstances. The obligation for severance pay benefits, as determined by
Israeli law, is based upon length of service and the employee's most recent
salary. This obligation is funded, in part, by the purchase of managers'
insurance policies from insurance companies.
NOTE 8 - COMMITMENTS & CONTINGENCIES
A. ROYALTIES
1. In accordance with agreements for financing research and
development with the Office of the Chief Scientist of the
Government of Israel ("O.C.S."), the Subsidiary undertook to pay
royalties at a rate of 3.5 % of the revenues from the sale of
products developed under the research and development programs,
up to the amount of the financing received. An accrual for the
aforementioned royalties has been recorded in the financial
statements.
2. In June 30, 2002 the Subsidiary signed an agreement with Aryt
Industries Ltd (Subsidiary's former parent company) ("Aryt") (see
Note 17). The Subsidiary undertook to pay to Aryt royalties from
the sales of the Subsidiary's products up to an aggregate amount
of $751,000, in exchange for the cancellation by Aryt of all of
its rights, title and interest in and to any obligation of the
Subsidiary or any other entity on its behalf. The rate of the
royalties shall be as follows:
- 10% of the sales of the Subsidiary's products, until the
earlier to occur of: (i) the lapse of 3 years following the
date hereof, or (ii) such time as the aggregate sum paid by
the Subsidiary pursuant to the terms amounts to $250,000
(the term during which this 10% royalty rate is applicable
shall be hereinafter referred to as the "First Term").
- 6% of the sales of the Subsidiary's products, commencing at
the end of the First Term and ending on the earlier to occur
of: (i) the lapse of 2 years following the end of the First
Term, or (ii) such time as the aggregate sum paid by
Subsidiary amounts to $500,000 cumulatively (the term during
which this 6% royalty rate is applicable shall be
hereinafter referred to as the "Second Term").
- 1% of the sales of the Subsidiary's products, commencing at
the end of the Second Term and ending on the earlier to
occur of: (i) the lapse of 2 years following the end of the
Second Term, or (ii) such time as the aggregate sum paid by
the Subsidiary amounts to $751,000 cumulatively.
The Subsidiary recorded a provision for the royalties in the financial
statements.
F19
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS (CONT.)
B. According to a decision on August 24, 1999 of the O.C.S., the
Subsidiary was requested to repay an amount of $40,376 (including
interest) to the O.C.S. for amounts received by the Subsidiary in
1998. The Subsidiary recorded a provision in its books for the
full amount of this request.
The Subsidiary has claimed participation by the O.C.S. in
research and development expenses for the period from December
1998 to March 1999. The Subsidiary has not recorded a receivable
in connection with this claim.
C. LIENS
A floating lien has been placed on all the Subsidiary's assets,
securities, notes and other documents in favor of the Israel
Industrial Development Bank Ltd. In addition, a $4,400 deposit is
security for repayment of a loan received from United Mizrahi
Bank Ltd.
D. OPERATING LEASE
The Subsidiary has rented 3 vehicles under an operating lease
agreement, which expires in 2007.
Future payments under operating lease:
2003 $ 26,000
2004 26,000
2005 26,000
2006 26,000
2007 1,900
--------
$105,900
========
F20
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS (CONT.)
E. PURCHASE COMMITMENT
In June 2002, a subcontracting agreement between Reshef (a
subsidiary of Aryt) and the Subsidiary, that was previously
in effect, was replaced by a manufacturing arrangement under
which Reshef will manufacture 2,200 Voice Diary IMP units
for the Subsidiary in batches of 550 units each and the
Subsidiary will pay for each batch upon receipt. The price
per unit is approximately $60. In the first stage, the
Subsidiary ordered the manufacture of a batch of 550 units
out of the total quantity in the manufacturing arrangement.
The cost of the first batch amounts to approximately
$25,000. This first batch of 550 units was supplied to the
Subsidiary subsequent to the balance sheet date. Each supply
of an additional batch of 550 units will be conditional upon
payment by the Subsidiary for the previous batch.
In February 2003 Reshef closed its manufacturing plant and
terminated all of the plant's employees. The components that
Reshef holds for the manufacturing of the Subsidiary's
product is held at the plant that was closed down. It is
possible that Reshef will not carry out the next
manufacturing runs of the Subsidiary's products or furnish
the components to the Subsidiary. Since some components that
are held by Reshef are not available elsewhere, there is the
risk that the Subsidiary will not be able to manufacture the
Voice Diary IMP units in its present design. Subsidiary's
ability to redesign the unit around generally available
components is not assured since at present time the
Subsidiary has no funds necessary to carry out such an
undertaking.
F21
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SHAREHOLDERS' DEFICIENCY
A. General
The total number of shares of the Company at December 31, 2002 is as follows:
AUTHORIZED ISSUED AND OUTSTANDING
---------- ----------------------
Class A Common Stock 10,000,000 634,863
============ ==========
Class B Common Stock 10,000 2,400
============ ==========
Each share has a par value of $0.01. Each share of Class B Common Stock is
convertible at any time at the option of its holder or holders and for no
additional consideration into such number of fully paid and non-assessable
shares of Class A Common Stock as shall equal the quotient obtained by dividing
the number of shares of Class A Common Stock outstanding at the close of
business on the day immediately preceding the date the conversion notice is
received by the Company, by 7,600.
The shares of Class A and Class B Common Stock confer to holders the right to
receive notice to participate and vote in general meetings of the Company and
the right to receive dividends, if declared.
The holders of Class A and Class B Common Stock shall vote and participate
ratably in dividends as a single class. Each share of Class A Common Stock
entitles its holder to one vote and each share of Class B Common Stock entitles
its holder to such number of votes as shall equal the number of whole shares of
Class A Common Stock into which such share of Class B Common Stock is
convertible. Each share of Class A Common Stock participates in dividends as one
share of a single class and each share of Class B Common Stock participates in
dividends as the whole number shares of Class A Common Stock into which such
share of Class B Common Stock is convertible. The shares of Class B Common Stock
have the right to appoint one director.
The Company has not adopted a stock option plan.
F22
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SHAREHOLDERS' DEFICIENCY (CONT.)
A. GENERAL (CONT.)
A summary of the status of the Subsidiary's stock options as of
December 31, 2002, 2001 and 2000, and of changes during the
periods then ended, is presented below:
December 31,
------------------------------------------
Exercise
2 0 0 2 2 0 0 1 2 0 0 0 price
------- ------- ------- --------
Outstanding at beginning of year 42,414 67,595 65,127 $ 0
Granted during year 20,614 -- 236,458 $ 0
Exercised during year -- (25,181) (233,990) $ 0
Forfeited during year (2,866) -- -- $ 0
------ ------- -------- ---
Outstanding at end of year 60,162 42,414 67,595 $ 0
====== ======= ======== ===
Weighted average fair value of
options granted during the year $ 1.21 $ 0.25
====== =======
Subsequent to the balance sheet date the Company issued shares of the
Company in exchange for 59,295 subsidiary's stock options (see Note 18).
B. ISSUANCE OF SHARE CAPITAL AND OPTIONS
1. In June and July 2002, the Company acquired approximately 99% of the
outstanding shares of the Subsidiary. Under generally accepted
accounting principles, the transaction was accounted for as a
reorganization under common control. The shares of Common Stock were
exchanged for shares of Class A Common Stock and shares of Preferred
Stock were exchanged for shares of Class B Common Stock.
2. During the period from its inception through 1998, the Subsidiary
issued 120,640 shares of Common Stock to 29 investors at a price per
share ranging from $3 to $38.
3. On October 17, 1999, the Subsidiary issued 7,630 shares of Common
Stock to three investors in consideration of $21,936.
4. In 1999, the Subsidiary issued 53,990 options to the CEO and 9,937
options to two other employees. The options are convertible to shares
of Common Stock with no exercise price and in consideration for
waiving their salaries for 1999. The value of the options, totaling $
199,864, was estimated by the Subsidiary at a price of $3 per option
based on the last share placement price. That amount was charged to
operations.
5. In 2000, the Subsidiary issued 180,000 options to the CEO and 31,633
options to two additional employees. The options are convertible to
shares of Common Stock for no exercise price and in consideration for
waiving their salaries for 2000. The value of the options, totaling
$50,391, was estimated by the Subsidiary at a price of $0.25 per
options based on the last share placement price. That amount was
charged to operations.
F23
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SHAREHOLDERS' DEFICIENCY (CONT.)
6. On November 1, 2000, the Subsidiary issued 213,718 shares of Common
Stock to two investors in consideration for $53,629.
7. On December 1, 2000, the Subsidiary issued 300,000 shares of Common
Stock to a related party pursuant to a financing agreement in
consideration for a credit line of $150,000. The value of the shares
of Common Stock, totaling $74,039, was estimated by the Subsidiary
using an average price of $0.25 per share and was charged to
operations.
8. On December 1, 2000, the Subsidiary issued 2,400 shares of Preferred
Stock to the CEO in consideration of 233,990 options.
9. During 2000, the Subsidiary issued 24,825 options to suppliers in
consideration or services rendered to the Subsidiary. The options are
convertible to shares of Common Stock with no exercise price. The
value of the options, totaling $30,145, was estimated by the
Subsidiary based on the fair value of the services rendered. That
amount was charged to operations.
10. In February 2002, Aryt Industries Ltd (the Subsidiary's former parent
company) ("Aryt") granted a credit line of $425,000 to the Subsidiary
to be available throughout 2002. In consideration, the Subsidiary
issued 98,249 shares to Aryt. Deferred compensation cost in the amount
of $196,498 was calculated based on the price and number of shares
issued to Aryt in consideration for the credit line. On June 30, 2002
the credit line was terminated and, accordingly, 50% of the
abovementioned amount ($98,249) was charged to operations.
11. On February 13, 2002, the Subsidiary issued 65,177 shares Common Stock
to a related party for consideration of $65,177.
12. On June 30, 2002, Aryt, the Subsidiary's principal shareholder,
decided to waive all of its rights pertaining to its shares of the
Subsidiary and to sell its shareholdings to the Company for total
consideration of $1. On June 30, 2002, Aryt, the Subsidiary's
principal shareholder, waived debt in the amount of $649,289
previously included in short-term loans from Related Party. The amount
has been included in additional paid in capital (see Note 17).
13. In December 2002 the Company acquired 13,946 shares of the Subsidiary
representing 0.37% from the share capital of the Subsidiary for total
consideration of $0.2.
14. In December 2002, the Subsidiary issued 20,614 options to a supplier
in consideration for services rendered to the Subsidiary. The options
are convertible to shares of Common Stock with no exercise price. The
value of the options, totaling $25,000, was estimated by the
Subsidiary based on the fair value of the services rendered. That
amount was charged to operations.
F24
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - REVENUES
A. Main customers:
Year ended December 31
------------------------
2 0 0 2 2 0 0 1
-------- -------
Customers:
A $16,573 $ --
======= =========
B $ -- $ 43,244
======= =========
C $ -- $ 42,290
======= =========
D $ -- $ 17,187
======= =========
B. Data by geographical regions:
Year ended December 31
-------------------------
2 0 0 2 2 0 0 1
------- ---------
Sales distribution, by target market:
Israel $31,640 $ 2,354
U.S.A. 651 43,244
Europe 1,711 60,510
Australia -- 3,855
-------- --------
$34,002 $109,963
======== ========
F25
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COST OF REVENUES
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
--------- ------- -------- ---------------
Materials $ 12,751 $ 63,985 $ 2,936 $ 382,302
Salaries and related expenses 30,924 13,347 9,041 73,475
Sub-contractors -- -- -- 50,783
Non-cash compensation expenses -- -- 5,391 20,025
Other 15,734 3,704 1,555 54,657
-------- --------- -------- ---------
59,409 81,036 18,923 581,242
Decrease in inventory of
work in progress and
finished goods -- -- 139 --
-------- --------- -------- --------
$ 59,409 $ 81,036 $ 19,062 $581,242
======== ========= ======== ========
NOTE 12 - RESEARCH AND DEVELOPMENTS EXPENSES
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
--------- ------- -------- ---------------
Salaries and related expenses $111,051 $ -- $ 6,623 $ 874,319
Sub-contractors 6,221 137,127 3,219 387,921
Materials 10,202 15,000 469 87,598
Non-cash compensation expenses -- -- 30,145 57,004
Other 15,107 21,989 -- 372,958
-------- -------- -------- ---------
142,581 174,116 40,456 1,779,800
Less:
Participation from Government funds -- -- -- (704,350)
Grants received -- -- 39,244 39,244
-------- -------- -------- ---------
$142,581 $174,116 $ 79,700 $1,114,694
======== ======== ========= =========
F26
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
--------------------------------------- ----------------
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
------- -------- ------- --------------
Salaries and related expenses $ 114,923 $ 33,280 $ -- $ 410,351
Advertising and marketing costs 38,842 22,122 2,573 173,922
Depreciation 7,723 2,951 13,503 108,062
Non-cash compensation expenses 25,000 -- 45,000 231,971
Professional services 65,309 14,178 58,692 182,642
Office expenses 9,945 9,457 4,809 138,473
Management fees 33,333 -- -- 81,615
Car maintenance 11,881 3,779 1,827 59,786
Others 22,180 1,211 9,427 92,468
---------- -------- --------- -------------
329,136 86,978 135,831 1,479,290
Less: expenses attributed to
research and development expenses -- -- -- (335,861)
---------- -------- --------- -------------
$ 329,136 $ 86,978 $ 135,831 $ 1,143,429
========== ========= ========= =============
NOTE 14 - FINANCIAL EXPENSES
CUMULATIVE FROM
OCTOBER 1, 1993
(DATE OF
COMMENCEMENT
OF OPERATIONS)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
2 0 0 2 2 0 0 1 2 0 0 0 2 0 0 2
------- ------- ------- ---------------
Financial expenses to banks $ 10,613 $ 15,083 $ 46,758 $ 177,163
Interest to related party * 33,465 9,049 472 42,986
Amortization of debt issuance costs 98,249 -- 70,312 168,561
----------- ---------- --------- ----------
$ 142,327 $ 24,132 $ 117,542 $ 388,710
============ ========== ========= ==========
* Including financial expenses of $ 18,500 connected with obtaining a credit
line.
F27
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES
A. The Subsidiary is assessed under the provisions of the Israeli Income
Tax Law (Inflationary Adjustments) 1985, pursuant to which results for
tax purposes are measured in new Israeli shekels in real terms in
accordance with changes in the Israeli consumer price index.
B. DEFERRED TAXES
UnderStatement No. 109 of the FASB, deferred tax assets are to be
recognized for anticipated tax benefits associated with net operating
loss carryforwards and deductible temporary differences. A valuation
allowance is recorded if it is more likely than not some or all of the
deferred tax assets will not be realized.
As of December 31
2 0 0 2 2 0 0 1
------- --------
Loss carryforwards $658,696 $ 528,243
Other temporary differences 3,907 753
-------- ---------
662,603 528,996
Less: valuation allowance 662,603 528,996
-------- ---------
$ -- $ --
======== =========
The Company has provided for a valuation allowance in respect of all
deferred tax benefits resulting from tax loss carryforwards and other
temporary differences, due to the uncertainty regarding the
realizability of such benefits.
As of December 31, 2002, the Company and the Subsidiary had
carryforward tax losses generated in the U.S. and Israel of
approximately $1,793,413 and $87,616 respectively. The Subsidiary's
carryforward tax losses are denominated in New Israel Shekels and are
linked to the Israeli consumer price index.
C. TAX ASSESSMENTS
Neither the Company nor the Subsidiary has been assessed for tax
purposes since incorporation.
NOTE 16 - OTHER INCOME
In 2002 other income consists of income from consulting services.
F28
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - RELATED PARTY TRANSACTIONS
AS OF DECEMBER 31
--------------------------
2 0 0 2 2 0 0 1
--------- -------
BALANCES OF RELATED PARTIES
Loans from a related party $ -- $ 357,672
============== =============
Payables and other current
liabilities - related parties $ -- $ 4,929
============== =============
YEAR ENDED DECEMBER 31
--------------------------------------------
2 0 0 2 2 0 0 1 2 0 0 0
------- ------- -------
RELATED PARTIES
EXPENSES -
Purchase of materials $ 6,158 $ 50,299 $ --
========= ========= =========
Sub-contractors $ 9,027 $ 8,445 $ --
========= ========= =========
Travel expenses $ 3,837 $ 1,605 $ --
========= ========= =========
Salaries and related expenses $ 59,823 $ 33,280 $ --
========= ========= =========
1. On June 30, 2002, the Company signed an agreement with Aryt Industries
Ltd. (Subsidiary's former parent company) ("Aryt"). Aryt agreed to
sell to the Company its entire investment in the Subsidiary (93.8% of
the outstanding shares of the Subsidiary) for a total amount of $1.
(See Note 9B (12)).
2. In addition, on June 30, 2002, the Subsidiary signed another agreement
with Aryt. The Subsidiary undertook to pay to Aryt royalties on the
sales of the Subsidiary's products up to an aggregate amount of
$751,000 (see Note 8A), in exchange for the cancellation by Aryt of
all of its rights, title and interest in any obligation of the
Subsidiary or any other entity on its behalf including a short term
debt in the amount of $649,289. The short-term debt was cancelled and
recorded to "additional paid-in capital".
3. In February 2002, Aryt granted a credit line of $425,000 to the
Subsidiary, to be available throughout 2002. On June 30, 2002 the
credit line was terminated (see Note 9B(10)).
F29
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUBSEQUENT EVENT
In January 2003, five option holders of the Subsidiary exercised
59,295 options for 59,295 shares of the Subsidiary. The options had no
exercise price. On January 6, 2003 the Company issued 72,000 shares of
Class A Common Stock in consideration for those 59,295 shares of
Subsidiary's Common Stock.
F30
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
---------------- --------------
2 0 0 3 2 0 0 2
---------------- --------------
CURRENT ASSETS
- ---------------
Cash and cash equivalents $ 10,059 $ 13,019
Trade accounts receivable 33,194 3,309
Other receivables and prepaid expenses 12,120 10,004
Inventory 11,777 --
---------------- --------------
67,150 26,332
---------------- --------------
FIXED ASSETS
- ------------
Equipment 142,552 142,552
Less: accumulated deprecation 107,130 104,959
---------------- --------------
35,422 37,593
---------------- --------------
$ 102,572 $ 63,925
================ ==============
CURRENT LIABILITIES
- --------------------
Short-term bank borrowings and current portion of long term debt $ 75,757 $ 71,554
Trade accounts payable 56,985 37,447
Accrued expenses 234,378 220,886
Bridge loan 62,410 47,975
Other payables 96,391 103,227
---------------- --------------
525,921 481,089
---------------- --------------
LONG TERM LIABILITIES
- ---------------------
Long term loans from banks 45,382 53,891
Liabilities for severance pay 6,858 6,216
---------------- --------------
52,240 60,107
---------------- --------------
SHAREHOLDERS' DEFICIENCY
- -------------------------
Common Stock:
Shares of Class A Common Stock $0.01 par value
(Authorized -10,000,000 shares as of March 31, 2003 and December 31, 2002
Issued and Outstanding - 706,863 shares as of March 31, 2003 and 634,863
shares as of December 31, 2002) 7,069 6,349
Shares of Class B Common Stock $ 0.01 par value
(Authorized - 10,000 shares, Issued and Outstanding - 2,400 shares as of
March 31, 2003 and December 31, 2002) 24 24
Additional paid-in capital 2,041,500 2,042,220
Deficit accumulated during the development stage (2,524,182) (2,525,864)
---------------- --------------
(475,589) (477,271)
---------------- --------------
$ 102,572 $ 63,925
================ ==============
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements
G-1
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative from
October 1, 1993
(date of
commencement
Three months ended of operations)
March 31 to March 31
------------------------------------- -------------------
2 0 0 3 2 0 0 2 2 0 0 3
------------------ ---------------- -------------------
Revenues $ 71,611 $ 7,519 $ 712,574
Cost of revenues 37,060 15,210 618,302
------------------ ---------------- -------------------
Gross profit (loss) 34,551 (7,691) 94,272
Operating costs and expenses
Research and development expenses 4,305 67,750 1,118,999
Marketing, general and
administrative expenses 33,602 82,886 1,177,031
------------------ ---------------- -------------------
Operating loss (3,356) (158,327) (2,201,758)
Financial expenses 2,078 99,593 390,788
Financial income -- (200) (30,162)
Other income, net (7,116) -- (38,202)
------------------ ---------------- -------------------
Net income (loss) for the period $ 1,682 $ (257,720) $ (2,524,182)
================= ================= ===================
Earnings (loss) per share:
Basic and diluted $ -- $ (0.08)
================= =================
Weighted average number
of shares used in
computing basic and
diluted loss per share 2,380,799 3,041,041
================= =================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements
G-2
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative from
October 1, 1993
(date of
commencement
Three months ended of operations)
March 31 to March 31
---------------------------------- -----------------
2 0 0 3 2 0 0 2 2 0 0 3
----------------- ---------------- -----------------
CASH FLOWS - OPERATING ACTIVITIES
Net income (loss) for the period $ 1,682 $ (257,720) $ (2,524,182)
Adjustments to reconcile net income (loss)
to net cash used in operating activities (Appendix A) (13,351) (26,648) 930,810
----------------- ---------------- -----------------
Net cash used in operating
Activities (11,669) (284,368) (1,593,372)
----------------- ---------------- -----------------
CASH FLOWS -
INVESTING ACTIVITIES
Proceeds from sale of fixed assets -- -- 2,503
Purchase of fixed assets -- (28,742) (156,239)
----------------- ---------------- -----------------
Net cash used in investing activities -- (28,742) (153,736)
----------------- ---------------- -----------------
CASH FLOWS - FINANCING ACTIVITIES
Repayment of long-term loans (5,993) (2,308) (99,498)
Proceeds from long-term loans -- -- 210,858
Short-term bank credit, net 267 9,856 12,365
Short-term loans from Related Party -- 146,355 649,289
Bridge loan 14,435 -- 62,410
Issuance of shares -- 65,177 921,743
----------------- ---------------- -----------------
Net cash provided by financing activities 8,709 219,080 1,757,167
----------------- ---------------- -----------------
Increase (decrease) in cash and cash equivalents (2,960) (94,030) 10,059
Cash and cash equivalents - beginning of period 13,019 117,805 --
----------------- ---------------- -----------------
Cash and cash equivalents - end of period $ 10,059 $ 23,775 $ 10,059
================= ================= =================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements
G-3
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative from
October 1, 1993
(date of
commencement
Three months ended of operations)
March 31 to March 31
---------------------------------- -----------------
2 0 0 3 2 0 0 2 2 0 0 3
--------------- ------------------ -----------------
Appendix A -
- --------------
Adjustments to reconcile loss to net
cash from operating activities
Income and expense items not
involving cash flows:
Depreciation and amortization $ 2,171 $ 1,336 $ 120,042
Exchange-rate (gain) loss 1,420 (3,264) (2,586)
Liabilities for severance pay 642 5,395 6,858
Gain on sale of fixed assets -- -- (1,728)
Non-cash compensation expenses -- 98,249 477,561
--------------- ------------------ -----------------
4,233 101,716 600,147
--------------- ------------------ -----------------
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable (29,885) 8,119 (33,194)
Decrease (increase) in receivables and other current assets (2,116) 1,725 (12,120)
Increase in inventories (11,777) -- (11,777)
Increase (decrease) in trade accounts payable 19,538 (140,073) 56,985
Increase in payables and other current liabilities 6,656 1,865 330,769
--------------- ------------------ -----------------
(17,584) (128,364) 330,663
--------------- ------------------ -----------------
$ (13,351) $ (26,648) $ 930,810
=============== ================== =================
Appendix B -
- ---------------
Non cash transactions
Waiver of loan by principal
shareholder in exchange for
rights to royalties $ -- $ -- $ 649,289
=============== ================== =================
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 500 $ 1,960 $ 140,506
=============== ================== =================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements
G-4
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
---------------------
Voice Diary Inc. ("the Company") was incorporated in the State
of Delaware on February 26, 2002. In June 2002, the Company
acquired approximately 99% of the outstanding shares of Voice
Diary Ltd., an Israeli corporation ("the Subsidiary"), through
an exchange of shares of the Company with former shareholders
of the Subsidiary. Under generally accepted accounting
principles, the transaction was accounted for as a
reorganization under common control and accordingly, the
financial statements represent the consolidated financial
position, operating results and cash flows of the Company and
the Subsidiary for all periods from inception of the
Subsidiary. The Subsidiary began its operations in 1993 and has
been in the development stage since then.
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company in accordance with
accounting principles generally accepted in the United States
of America for interim financial information. Accordingly, this
form 10-QSB does not include all of the information required by
GAAP for complete financial statements. Management believes
that the accompanying unaudited condensed consolidated
financial statements reflect all adjustments which, in the
opinion of management, are considered necessary for a fair
presentation of the financial condition and results of
operations for the interim periods presented. All adjustments
made were of a normal and recurring nature. Operating results
for the three months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 2003. These unaudited interim consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements and notes there to,
included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2002.
NOTE 2 - GOING CONCERN
-------------
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's accumulated deficit as of March 31, 2003 of
$2,524,182 and working capital deficit as of March 31, 2003 of
$458,771 raise substantial doubt about its ability to continue
as a going concern.
The ability of the Company to continue as a going concern is
dependent upon the successful completion of the Company's
development program and, ultimately, the attainment of
profitable operations which are contingent upon future events,
including maintaining adequate financing to fulfill its
development activities, and achieving a level of sales adequate
to support the Company's expense structure.
The Company plans to meet its obligations by entering into
installment arrangements, deferring payments until future
financing is obtained and/or by settlements with creditors and
by obtaining financing from new investors.
G-5
VOICE DIARY INC.
(A DEVELOPMENT-STAGE COMPANY)
UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In January 2003, FIN 46 "Consolidation of Variable Interest
Entities" was issued. FIN 46 is an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements",
which addresses consolidation by enterprises of variable interest
entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional support from other parties. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an
interest after that date, with respect to variable interest
entities, if any, in which the Company holds a variable interest
acquired before February 1, 2003. The guidance in FIN 46 will be
in effect for the Company's financial statements beginning July 1,
2003. Management does not expect that adoption of FIN 46 will have
material impact on its financial statements.
NOTE 4 - SUBSEQUENT EVENTS
-------------------
1. In May 2003, The Company issued 2,019,604 shares of Class A
common stock to two new shareholders in consideration for
$100,000. These shares represent _74_% of the ownership in the
Company. The financial statements as of March 31, 2003 include a
$62,410 bridge loan from Nir-Or, a company jointly owned and
controlled by the new shareholders, which was assigned,
subsequent to the balance sheet date, to those shareholders for
use as partial offset of the $100,000 consideration. The balance
was paid subsequent to the balance sheet date. Earnings (loss)
per share for all reported periods has been retroactively
adjusted to reflect this issuance.
2. The Company intends to file a Registration Statement on Form SB-2
for the issuance of 2,400,000 shares of Class A Common Stock to
be offered by the Company, and for the offering of 2,726,470
shares of Class A Common Stock by selling stockholders, for the
registration of 1,000,000 shares of Class A Common Stock to be
offered to employees and suppliers under a stock option plan and
the registration of 1,618,885 shares of Class A Common Stock to
be issued upon conversion of the Class B Common Stock
3. On May 13, 2003, the Company's Board of Directors approved the
Company's 2003 Stock Option Plan, for the grant of stock options
and stock purchase rights to employees and to service providers
and incentive stock options to employees ("the plan"). The
maximum aggregate number of shares subject to the plan is
1,000,000 shares of common stock. The options are subject to the
provisions of Section 102 of the Israeli Tax Ordinance, or
Section 3(i) of the Ordinance, as applicable. The options and
rights and the underlying shares are subject to certain
limitations as detailed in the plan. The stock purchase rights
agreement may grant the Company a repurchase option exercisable
upon termination of the purchaser's service with the Company. In
the case of certain mergers or acquisitions, unvested options
will fully vest, in the event that the successor company will
refuse to assume or substitute the award.
The Company has not yet granted any options or rights under this
plan.
G-6
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our by laws provide that we shall indemnify our controlling persons,
officers, directors, employees and agents to the fullest extent permitted under
Section 145 of the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers, and controlling persons
pursuant to any provisions contained in our Certificate of Incorporation, or
Bylaws, or otherwise, we have been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by our director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Voice Diary Inc. in
connection with the sale of the common stock being registered. All amounts are
estimated except the SEC Registration Fee.
- -------------------------------------------------------------------
SEC Registration Fee $ 518
- -------------------------------------------------------------------
EDGAR Conversion Fees $ 2,500
- -------------------------------------------------------------------
Blue Sky Qualification Fees and Expenses $ 7,500
- -------------------------------------------------------------------
Accounting Fees and Expenses $25,000
- -------------------------------------------------------------------
Legal Fees and Expenses $15,000
- -------------------------------------------------------------------
Printing and Engraving $ 1,000
- -------------------------------------------------------------------
Stock Transfer Agent $ 3,000
- -------------------------------------------------------------------
Miscellaneous $ 9,482
- -------------------------------------------------------------------
Total $64,000
- -------------------------------------------------------------------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In 2000, VDL issued 180,000 options to the CEO and 31,633 options to two
additional employees. The options were convertible into shares of Common Stock
for no exercise price and in consideration for waiving their salaries for 2000.
The value of the options, totaling $50,391, was estimated by the company at a
price of $0.25 per option based on the last share placement price. That amount
was charged to operations.
On November 1, 2000, VDL issued 213,718 shares of Common Stock to two
investors in consideration for $53,629.
On December 1, 2000, VDL issued 300,000 shares of Common Stock to a related
party pursuant to a financing agreement in consideration for a credit line of
$150,000. The value of the shares of Common Stock, totaling $74,039, was
estimated by the company using an average price of $0.25 per share and was
charged to operations.
36
On December 1, 2000, VDL issued 2,400 shares of Preferred Stock to the CEO
in consideration of 233,990 options.
During 2000, VDL issued 24,825 options to suppliers in consideration for
services rendered to the Subsidiary. The options were convertible to shares of
Common Stock with no exercise price. The value of the options, totaling $30,145,
was estimated by the Subsidiary based on fair value of the services rendered.
That amount was charged to operations.
In February 2002, Aryt Industries Ltd (VDL's former parent company)
("Aryt") granted a credit line of $425,000 to VDL (now a subsidiary of the
Company) that was available throughout 2002. In consideration, VDL issued 98,249
shares to Aryt.
On June 30, 2002 the credit line was terminated and, accordingly, 50% of
the abovementioned amount ($98,249) was charged to operations.
On February 13, 2002, VDL issued 65,177 shares Common Stock to Aryt for
consideration of $65,177.
On June 30, 2002, Aryt, VDL's principal shareholder, decided to waive all
of its rights pertaining to its shares of VDL and to sell its shareholdings to
the Company for total consideration of $1.00.
On December 2002 the Company acquired 13,946 shares of VDL representing
0.37% from the share capital of VDL for total consideration of $0.2.
On December 2002, VDL issued 20,614 options to supplier in consideration
for services rendered to it. The options were convertible to shares of Common
Stock with no exercise price. The value of the options, totaling $25,000, was
estimated by the VDL based on fair value of the services rendered. That amount
was charged to operations.
On January 2003 all the optionees (except one who gave up his options)
converted their options to shares of VDL and then transferred their shares to
Voice Diary Options Limited Partnership ("VDO"). On January 2003 VDO exchanged
its shares in VDL for 72,000 shares in VDI.
On May 9, 2003, we issued 1,346,405 shares to Nathan Tarter for $66,667,
and 673,202 shares to Ofer Yonach for $33,333 pursuant to Regulation S. Messrs.
Tarter and Yonach are the owners and directors of Nir Or and are non-US citizens
who are accredited investors. See the liquidity section regarding the method of
payment for said shares.
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company.*
3.2 Certificate of Amendment of the Certificate of Incorporation of the Company
3.3 By-laws of the Company.*
4.1 Form of Class A Common Stock Certificate.
5.1 Opinion Regarding Legality.
10.1 Employment Agreement dated July 3, 2002 between Arie Hinkis and the Company.*
10.2 Employment Agreement dated March 14, 2001 between VDL and Arie Hinkis*
10.3 Share Purchase Agreement between the Company and Aryt, dated June 30, 2002.*
37
10.4 Share Purchase Agreement between the Company and Seed Money Holding
(Voice Diary) LP, dated July 2, 2002.*
10.5 Share Purchase Agreement between the Company and Arie Hinkis, dated July 2, 2002 (Class B Common Stock).*
10.6 Loan Agreement between VDL and Bank for the Development of Industry in Israel Ltd., dated September 8, 2001.*
10.7 Royalty Agreement between Aryt and VDL, dated as of June 30, 2002.*
10.8 Share Purchase Agreement between the Company and Robogroup T.E.K. Ltd., dated September 4, 2002.*
10.9 Share Purchase Agreement between the Company and Arie Hinkis, dated July 2, 2002 (Class A Common Stock).*
10.10 Share Purchase Agreement between the Company and Voice Diary Options, LP dated January 6, 2003
10.11 Share Purchase Agreement between the Company and Nathan Tarter, dated May 9, 2003.
10.12 Share Purchase Agreement between the Company and Ofer Yonach, dated May 9, 2003.
10.13 2003 Stock Option Plan
21. Subsidiaries of the Registrant:
Name Jurisdiction of Formation Percentage Ownership
---- ------------------------- --------------------
Voice Diary Ltd. Israel 99.81%
23.1 Consent of Expert
24.1 Consent of Counsel.
- --------------------------------------------------------------------------------------
* Previously filed with our Form 10 filed October 7, 2002, as amended
February 3, 2003
All other Exhibits called for by Rule 601 of Regulation S-B are not applicable
to this filing. Information pertaining to our common stock is contained in our
Certificate of Incorporation, the Amendment to our Certificate of Incorporation
and By-Laws.
Item 28. Undertakings.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of the Registration Fee" table in the
effective registration statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
38
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, as amended, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
B. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this registration statement as of the time it
was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
39
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, on May 15, 2003.
VOICE DIARY, INC.
By:
-----------------------------------
Arie Hinkis
President, Chief Financial Officer,
Secretary and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
May 15, 2003 -----------------------
Nathan Tarter, Director
40
As filed with the SEC on May 15, 2003
SEC Registration No. _____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
REGISTRATION STATEMENT ON FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
VOICE DIARY, INC.
(Consecutively numbered pages __ through __ of this Registration Statement)
41
EXHIBITS
The following exhibits are filed as part of this Registration Statement:
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation of the Company.*
3.2 Certificate of Amendment of the Certificate of Incorporation of the Company
3.3 By-laws of the Company.*
4.1 Form of Class A Common Stock Certificate.
5.1 Opinion Regarding Legality.
10.1 Employment Agreement dated July 3, 2002 between Arie Hinkis and the Company.*
10.2 Employment Agreement dated March 14, 2001 between VDL and Arie Hinkis*
10.3 Share Purchase Agreement between the Company and Aryt, dated June 30, 2002.*
10.4 Share Purchase Agreement between the Company and Seed Money Holding
(Voice Diary) LP, dated July 2, 2002.*
10.5 Share Purchase Agreement between the Company and Arie Hinkis, dated July 2, 2002 (Class B Common Stock).*
10.6 Loan Agreement between VDL and Bank for the Development of Industry in Israel Ltd., dated September 8, 2001.*
10.7 Royalty Agreement between Aryt and VDL, dated as of June 30, 2002.*
10.8 Share Purchase Agreement between the Company and Robogroup T.E.K. Ltd., dated September 4, 2002.*
10.9 Share Purchase Agreement between the Company and Arie Hinkis, dated July 2, 2002 (Class A Common Stock).*
10.10 Share purchase Agreement between the Company and Voice Diary Options LP, dated January 6, 2003.
10.11 Share Purchase Agreement between the Company and Nathan Tarter, dated May 9, 2003.
10.12 Share Purchase Agreement between the Company and Ofer Yonach, dated May 9, 2003.
10.13 2003 Stock Option Plan
21. Subsidiaries of the Registrant:
NAME JURISDICTION OF FORMATION PERCENTAGE OWNERSHIP
---- ------------------------- --------------------
Voice Diary Ltd. Israel 99.81%
23.1 Consent of Expert
24.1 Consent of Counsel.
- ----------------------------------------------------------------------
* Previously filed with our Form 10 filed October 7, 2002, as amended February
3, 2003
All other Exhibits called for by Rule 601 of Regulation S-B are not applicable
to this filing. Information pertaining to our common stock is contained in our
Certificate of Incorporation, the Amendment to our Certificate of Incorporation
and By-Laws.
42