UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2003

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

             For the transition period from __________ to __________


                        Commission file number 000-50029


                                VOICE DIARY INC.
                 (Name of small business issuer in its charter)


             DELAWARE                                        73-1629948
  (State or other jurisdiction of                        (I.R.S. Employer
   incorporation or organization)                       Identification No.)


             200 Robbins Lane, P.O. Box 30, Jericho, New York 11753
               (Address of principal executive offices) (Zip Code)


         Issuer's telephone number, including area code: (516) 939-0400

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

Securities  registered  pursuant  to  Section  12(g) of the Act:  Class A Common
Stock, par value $.01 per share.

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports),  and
(2) has been subject to such filing  requirements  for the past 90 days. YES [X]
NO [_]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B contained  herein,  and none will be  contained,  to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year were: $82,886.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the issuer  computed by  reference  to the price at which the
common  equity  was sold,  or the  average  bid and asked  price of such  common
equity, as of April 1, 2004 (a date within the past 60 days) was $243,623.

At April 1, 2004, the registrant had outstanding  9,047,036  shares of par value
$.01 Class A Common Stock and 744 shares of par value $.01 Class B Common Stock.

Transitional Small Business Disclosure Format (check one): YES [_] NO [X]


<PAGE>


                                TABLE OF CONTENTS

                                     PART I

ITEM 1         DESCRIPTION OF BUSINESS ...................................... 3
ITEM 2         DESCRIPTION OF PROPERTY ...................................... 7
ITEM 3         LEGAL PROCEEDINGS ............................................ 7
ITEM 4         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 7

                                     PART II

ITEM 5         MARKET FOR COMMON EQUITY AND RELATED
                       STOCKHOLDER MATTERS .................................. 9
ITEM 6         MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.... 10
ITEM 7         FINANCIAL STATEMENTS ......................................... 16
ITEM 8         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                 AND FINANCIAL DISCLOSURE ................................... 16

                                    PART III

ITEM 9         DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                       CONTROL PERSONS; COMPLIANCE WITH SECTION
                       16(a) OF THE EXCHANGE ACT............................. 17
ITEM 10        EXECUTIVE COMPENSATION ....................................... 17
ITEM 11        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                       OWNERS AND MANAGEMENT ................................ 18
ITEM 12        CERTAIN RELATIONSHIPS AND RELATED
                       TRANSACTIONS ......................................... 19
ITEM 13        EXHIBITS AND REPORTS ON FORM 8-K ............................. 19
ITEM 14        CONTROLS AND PROCEDURES ...................................... 21
               SIGNATURES ................................................... 22


<PAGE>

                                VOICE DIARY INC.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

      We were  incorporated  in Delaware on February 26, 2002.  In June and July
2002 we acquired  approximately  99.81% 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 VDI 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, a company  registered  in
Israel,  began operations in October 1993 and has been in the development stage.
(Unless otherwise indicated, references to us include VDL.)

DESCRIPTION OF BUSINESS

PRODUCTS

      We develop,  manufacture and market personal digital  assistants  ("PDAs")
targeted to niche markets where mainstream products are not addressing the needs
of the customers.  Our existing products 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 specifically for use by the blind and visually
impaired with the idea to provide these  customers with access to PDA technology
by removing  obstacles  inherent in  conventional  display-based  products.  Our
latest  model,  the IMP,  was  introduced  to the market in December  2001.  Our
products were sold mainly in Israel, US, UK, Holland.  In Israel we sold through
local  organizations for the Blind and directly.  In the other countries we sold
through  distributors  that specialize in selling  products in the market of the
blind and visually impaired.  To date we sold some 4,500 units of our Voice PDAs
for revenues of about $700,000.

      On August 18, 2003,  we signed an  agreement  with Natali (the company for
emergency medical services in Israel) Ltd.  ("Natali"),  an Israeli company that
provides emergency  services to Homecare patients.  Under this agreement we will
provide Natali with 50,000 (the number can be reduced by Natali to 10,000) units
of  a  GSM  cellular  phone  that  has  an  integrated  EKG  (ECG)  device  (the
"CardioGSM"). The value of the order is $15,000,000 and if reduced to 10,000 the
value is  $3,000,000.  The  CardioGSM  will  permit  cardiac  patients  that are
subscribers  to Natali's  services to take their own EKG  wherever  they are and
transmit the results via the  cellular  phone to Natali's  emergency  center for
Doctor's  evaluation.  The  CardioGSM  will also  operate as a regular  cellular
phone.  The price to be paid by Natali  for the  CardioGSM  will be $300 or cost
plus 20%,  whichever is higher.  However,  if the price exceeds $350, Natali can
cancel the order.  Natali can also cancel the order if a third party claims that
the  CardioGSM  infringes its patents.  In such a case the Company  undertook to
hold Natali harmless.


                                       3
<PAGE>


      The first  shipment of 1,000  units has to be  delivered  by December  15,
2004. We intend to negotiate with Natali the postponement of this date. There is
no penalty if we fail to deliver the CardioGSM on time.

      At present we do not have the money to develop the CardioGSM. We intend to
raise the necessary  funds,  about  $1,000,000,  in the second  quarter of 2004.
Based on the  CardioGSM  we intend to  develop a new  Cellular  Voice  PDA,  the
"VoicePilot",  for the blind and visually impaired.  The VoicePilot will replace
our existing products that will be discontinued.

      Following the  introduction  of the CardioGSM we will seek other customers
like Natali in countries  around the world and  especially in the US and Europe.
Following the  introduction of the VoicePilot we will seek  distributors for the
product in Europe and other countries where we do not have  distributors yet. We
may complement growth derived from our product lines by acquisition of companies
with  complementary  products and  services,  a market  presence and stable cash
flow.

COMPETITION

      Mainstream PDAs and Cellular PDAs are offered by major  corporations  like
Nokia,  Palm  Pilot,  Motorola,  Samsung,  Sony and the like.  These  companies,
however,  seem to avoid niche  markets like the market of the blind and visually
impaired or the market of the cardiac patients, and they refrain from developing
products with special user interfaces. Thus we believe that our competition will
not come from major corporations.  In the contrary situation, our opportunity in
the markets that we target may be severely jeopardized.

There are many suppliers of Tele-Homecare equipment among them are:

Aerotel  Systems  Ltd.  (Israel);  Card  Guard  AG   (Switzerland/Israel);   AMD
Telemedicine (USA);  Philips Heartcare  Telemedicine  Services,  a joint venture
between Philips and Shahal from Israel; Schiller AG (Switzerland); Tapuz Medical
Technologies ltd.  (Israel/Austria);  Vitalphone GmbH (Germany).  Card Guard and
Vitalphone  have  products  similar to  CardioGSM  and they are not  alone.  Our
advantage  over  these  companies  is that our  product  will have a voice  user
interface and we have Natali's order.

      To our Voice  PDA we have only one  direct  competitor,  a French  company
named Parrot SA. While we believe that our product is superior to their product,
they were able to be more  successful than us and we believe that they sold four
times the number of units that we sold.  Parrot has another line of products:  a
car kit for hands-free operation of cellular phones.  Because of this background
we believe  that Parrot is in a position to  introduce a product  that  competes
with the VoicePilot.  We will need to make substantial  investments in marketing
to gain from Parrot the Lion's Share in the blind and visually impaired market.

      In the market of the there are  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, we believe, in a different category than our products.


                                       4
<PAGE>

      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 phone and its software is about three times the
expected price of the VoicePilot - less than $300 retail. Because of this reason
and reasons  related  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
VoicePilot  with  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.

      Another  product that competes with the  VoicePilot is the new ALVA Mobile
Phone Organizer, a GSM/PDA for blind people, with Braille output. Its list price
is Euro 6,400 ($ 5,700), almost 20 times the price of the VoicePilot.

      Recently  Microsoft has been  soliciting  beta testers for an  application
called Voice Command,  which would allow a Pocket PC or Smart-phoneer to control
their  device with just their voice.  This voice user  interface is not designed
specifically for the blind and visually  impaired but for the general public. It
could help the visually impaired in using standard equipment,  if that equipment
is  additionally  designed for them, as VDI products are, with  ergonomic  touch
buttons,  high  quality  audio,  and full voice  prompting  among  other  needed
features.

THE MARKETS

      The cardiac  patients market in the US is a $600 million market growing at
an annual rate of 13%. The major factors that affect this increase are the aging
of the population and the trend the medical insurance  industry to increase home
treatment over hospitalization as part of the rehabilitation  process of cardiac
patients.  The American Heart  Association  estimates that 61,800,000  Americans
have  cardiovascular  disease,  which can include high blood pressure,  coronary
heart disease (heart attack and chest pain),  stroke, birth defects of the heart
and blood vessels, and congestive heart failure.

      A conservative  estimate of the market potential for the CardioGSM,  based
on  extrapolating  the potential in the Israeli market as manifested by Natali's
order, is $2.1 billion.

      There are  approximately  10 million blind or visually  impaired people in
the United States;  hence,  our target market of the developed world is assessed
at some 25 million  people.  The number of blind or visually  impaired people in
the third world is relatively  larger. In the US, there are at least 1.5 million
visually  impaired  (including  blind) computer users, and in the Western world,
about 4 million.  These numbers represent the minimal  sub-market-niche of blind
or  visually  impaired  people  who  are  not  "keyboard-frightened"  and can be
convinced of the advantages of the VoicePilot.  Naturally the number of visually
impaired  cell  phones  users  is much  larger.  Approximately  46% of  visually
impaired adult  Americans are employed,  or 4.6 million  people;  hence,  in the
western world: 11 million.  They represent the second  sub-niche  market for the
VoicePilot.  Improved  access to  employment  and support  from  Government  and
private agencies  increase the buying power of the visually impaired to purchase
assistive products like the VoicePilot.

      A  conservative  estimate of the  potential of the  VoicePilot is about $1
billion.


                                       5
<PAGE>


OPERATIONS

      Our R&D will mostly be done in Israel. Our manufacturing will be mostly be
done through  sub-contractors in Israel or in the USA or in the Far East. In the
past we manufactured mostly in Israel.

      We  have  7  employees.   The  following  table  lists  their  titles  and
responsibilities.

------------------------------------ -----------------------------------
Title                                Responsibilities
------------------------------------ -----------------------------------
President, Chief Financial           Strategy, Marketing in the US,
Officer, Director                    Finance, General Management
------------------------------------ -----------------------------------
Chief Technology Officer, Director   Hardware design, Technologies
                                     used in products
------------------------------------ -----------------------------------
Vice President                       Marketing in Europe and the Rest
                                     of the World, Patents, Conformation with
                                     Standards (FDA, FCC, CE, UL, etc.)
------------------------------------ -----------------------------------
Vice President                       R&D Management
------------------------------------ -----------------------------------
Operations Manager                   Purchasing, Manufacturing,
                                     Shipping, Repair
------------------------------------ -----------------------------------
Chief Software Engineer              Software development,
                                     Documentation, Customer Support
------------------------------------ -----------------------------------
Book keeper                          Book keeping, Preparation of
                                     financial reports for auditors
------------------------------------ -----------------------------------


      All the employees  except the  president  are part-time  employees and are
paid  according  to actual  work done and have no base  salary.  This may change
after we raise sufficient funds to proceed with developing the CardioGSM and the
VoicePilot.

REPORTS TO SECURITY HOLDERS

      We will send an annual report including  audited  financial  statements to
stockholders pursuant to the requirements of the Securities Act of 1934.

      The  public  may read and copy any  materials  we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W.,  Washington,  D.C. 20549.
The public may obtain  information on the operation of the Public Reference Room
by calling the SEC at  1-800-SEC-0330.  We are an electronic filer with the SEC,
which  maintains an Internet  site  containing  reports,  proxy and  information
statements,  and other information  regarding  issuers that file  electronically
with the Commission; the address of the SEC web site is http://www.sec.gov.  You
are welcome to access our web site at www.voicediary.com.


                                       6
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY

      Our facilities include an office space of approximately 120 square feet at
Jericho  NY,  a  storage  space  of 200  square  feet at the  same  location,  a
laboratory  in Yoqneam  Israel of about 400 square feet, a storage space in Rosh
Haayein  Israel of about 100 square  feet and an office at the same  premises of
about 120 square feet.

      The lease in Jericho NY is rent free,  under an oral  arrangement with our
US distributor.  This arrangement may be terminated immediately at any time. The
lease in Yoqneam Israel is for  approximately  $350 per month. The original term
of the  lease  has  expired  and we  intend  to  negotiate  a new  lease for the
premises.  We are under  default  of  payment  for the last six  months  and the
landlord  has  threatened  to  evacuate  us.  The  lease in Rosh  Haaein is from
shareholders in the Company,  it is rent-free under an oral  arrangement and can
be terminated at any time.

ITEM 3. LEGAL PROCEEDINGS

      The Israeli Tax  Authority  has sued VDL and our  President  for a debt of
about $15,000 to failure in transmit to the tax  authorities tax deductions from
employees and for failure to report such deductions.

      In  addition,   we  have  been  informed  that  The  Bank  for  Industrial
Development  for Israel  intends to file suite  against  VDL for failing to meet
payments on our $95,000 loan.

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

      On May 13 and 14, 2003 all the  shareholders  consented  in writing to the
following resolutions:

      1. that  Paragraph 4 of the  Company's  Certificate  of  Incorporation  be
amended to increase from 10,000,000 to 20,000,000 the aggregate number of shares
of the Company's Class A Common Stock that are authorized and may be issued;

      2. that  appropriate  officers of the  Company  are  directed to cause the
Company's counsel to prepare and duly file with the state of Delaware an Amended
Certificate of Incorporation incorporating such amendment;

      3. that in  accordance  with Article III,  Section 5 of the By-laws of the
Company, the number of directors of the Company shall be increased to two;

      4. that Nathan Tarter be elected to serve as a director until the next
annual meeting of stockholders of the Company and until his successor is elected
and qualified or until his earlier death, resignation or removal;

      5. that Arie Hinkis be elected to serve as a director until the next
annual meeting of stockholders of the Company and until his successor is elected
and qualified or until his earlier death, resignation or removal;

      6.  that the  2003  Stock  Option  Plan  and the  2003  Key  Employee  and
Consultant Stock Option Agreement be adopted;


                                       7
<PAGE>


      7. that the 2003 Key Employee  and  Consultant  Stock Option  Agreement be
adopted;

      8.  that  Brightman,  Almagor  & Co.,  a member  firm of  Deloitte  Touche
Tohmatsu,   independent  auditors,  be  appointed  to  serve  as  the  Company's
independent  auditor until the next Annual Meeting of the  Stockholders or until
their resignation or removal;

      9. that the company will file a SB-2 Registration Statement; and

      10. that each of the officers of the Company is authorized and empowered,
for and on behalf of the Company and its corporate act and deed, to take any
further action, as he she or they, in his her or their sole discretion, may deem
necessary or advisable in order to carry out the purpose of the foregoing
resolutions.


                                       8
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


      There  is  currently  no  public   trading   market  for  our  stocks.   A
broker-dealer  filed a Form 15C2.11 with the NASD  regarding  our Class A Common
Stock. We hope to be approved for listing on the Over The Counter Bulletin Board
sometime in the second quarter of 2004.

Securities authorized for issuance under equity compensation plans

      In May 2003,  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.  Any agreement we enter into that grants stock purchase
rights 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, if the successor company refuses
to assume or substitute the award.

      The following table summarizes the outstanding  options as of December 31,
2003.

<TABLE>
<CAPTION>
                                                                                           Number of securities
                                                                                         remaining available for
                                     Number of securities to       Weighted average       issuance under equity
                                     be issued upon exercise      exercise price of         compensation plans
                                     of outstanding options,     outstanding options,     (excluding securities
                                       warrants and rights       warrants and rights     reflected in column (a))
                                               (a)                       (b)                       (c)
<S>                                  <C>                         <C>                     <C>
2003 Stock Option Plan                       20,000                     $0.01                    980,000
</TABLE>


DIVIDEND POLICY

         We have not  declared or paid any cash  dividends  on our Common  Stock
since our formation,  and do not presently  anticipate paying any cash dividends
on our Common Stock in the foreseeable future. We currently intend to retain any
future  earnings to finance the expansion and  development of our business.  The
future  payment  of cash  dividends  on the  Common  Stock  will  depend  on our
earnings,  capital requirements and financial position,  applicable requirements
of the Delaware General  Corporation Law, general economic  conditions and other
factors considered relevant by our board of directors.


                                       9
<PAGE>


      There are no  contractual  restrictions  on our ability to declare and pay
dividends.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

FORWARD LOOKING STATEMENTS

      Certain   statements   in  this  report,   including   statements  of  our
expectations,  intentions,  plans and beliefs,  including  those contained in or
implied by "Management's  Discussion and Analysis" and the Notes to Consolidated
Financial Statements,  are "forward-looking  statements",  within the meaning of
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"), that are subject to certain events,  risks and uncertainties  that may be
outside our control. The words "believe", "expect", "anticipate",  "optimistic",
"intend",  "will", and similar expressions identify forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which speak only as of the date on which they are made. The Company
undertakes  no obligation  to update or revise any  forward-looking  statements.
These  forward-looking  statements  include statements of management's plans and
objectives  for  our  future   operations  and  statements  of  future  economic
performance,  information  regarding  our  expansion  and possible  results from
expansion,   our  expected  growth,   our  capital  budget  and  future  capital
requirements,  the  availability of funds and our ability to meet future capital
needs, the realization of our deferred tax assets, and the assumptions described
in this report underlying such  forward-looking  statements.  Actual results and
developments  could differ materially from those expressed in or implied by such
statements  due to a number of factors,  including,  without  limitation,  those
described in the context of such forward-looking  statements,  our expansion and
acquisition  strategy,  our  ability  to  achieve  operating  efficiencies,  our
dependence on network infrastructure,  capacity, telecommunications carriers and
other  suppliers,  industry  pricing and technology  trends,  evolving  industry
standards,  domestic and international  regulatory matters, general economic and
business  conditions,  the strength and financial  resources of our competitors,
our ability to find and retain  skilled  personnel,  the  political and economic
climate in which we conduct  operations and the risk factors described from time
to time in our  other  documents  and  reports  filed  with the  Securities  and
Exchange  Commission  (the  "Commission").  Additional  factors that could cause
actual results to differ materially from the forward-looking statements include,
but are not limited to: 1) our ability to successfully develop,  manufacture and
deliver the  CardioGSM  to Natali Ltd. on a timely  basis and in the  prescribed
condition;  2) our  ability to compete  effectively  with other  companies  that
provide  emergency  homecare  products  to cardiac  patients;  3) our ability to
continue to develop and market products to the blind and visually  impaired;  4)
our ability to raise  sufficient  capital in order to  effectuate  our  business
plan; and 5) our ability to retain our key executives.


                                       10
<PAGE>


CRITICAL ACCOUNTING POLICIES

STOCK-BASED COMPENSATION

      Employee  stock-based  compensation  is accounted for 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, compensation is recorded 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.  Stock-based  compensation  to
non-employees is accounted for 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's  revenues  currently  derive  solely  from a low  volume of
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, 2003 of  $2,736,929  and a
working capital deficit at December 31, 2003 of $346,778 that raise  substantial
doubt about its ability to continue as a going concern.  In addition,  since the
second  half  of  2002,  the  company's   operation  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 financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                       11
<PAGE>

BACKGROUND

      From our inception until November 1997 we developed our first product: the
Voice Diary,  with 10 minutes of recording time. The second model was brought to
the market few months later and it had 30 minutes of recording time.

      During  this  period  and  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 Note 5 for the payback of part of the Marketing
Fund grant.

      Towards the end of the first quarter of 1999 we entered a financial crisis
that  necessitated  in 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.  Upon his leave he made what we  considered  to be
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.

      In  January  2000 VDL  began a  relationship  with  Aryt  Industries  Ltd.
("Aryt"),  which  culminated in Aryt  providing the Company from January 2000 to
March 2002 with loans aggregating  approximately to $0.65 million. VDL allocated
to Aryt shares in consideration  of the loans.  With the funds provided by Aryt,
and the  collaboration of our ex-employees and  subcontractors  in consideration
for options,  we preserved our  knowledge  base and developed a new model in our
line of Voice PDAs,  the IMP.  Sales of the IMP started in December  2001.  From
that date  until  December  2003 we sold  about  1,500  IMPs for an  accumulated
revenue of about $142,000.

      In June 2002,  following a financial  crisis in Aryt, Aryt and VDI agreed,
in connection  with our  acquisition of VDL, that all of Aryt's shares of VDL be
transferred to VDI for $1.00 and the loans and all other debts payable by VDL to
Aryt be extinguished.  In return,  VDL agreed to pay Aryt, on a quarterly basis,
royalties on VDL sales up to an aggregate  amount of $751,000.  The royalty rate
is 10% of sales for 3 years or until payment by VDL of an aggregate of $250,000;
thereafter, 6% of sales for two years or until payment by VDL of an aggregate of
$500,000;  and thereafter 1% of sales for two more years or until payment by VDL
of an aggregate  of  $751,000.  We are late in paying Aryt for the period of the
last quarter of 2002. We also failed to meet to payments to Aryt for  components
supplied  for  manufacturing  of the IMP in the amount of about  $23,000 and for
royalties int the amount of about $10,000.


                                       12
<PAGE>


      From July 2002 to September 2003 several Israeli investors  invested in us
a total of  $200,000 in  consideration  for  4,039,214  shares of Class A Common
Stock. The investment was made pursuant to Regulation S under the Securities Act
of 1933, as amended.  The investors  were led by Ofer Yonach and Nathan  Tarter,
the  principals  of Nir-Or  Israel  Ltd.  ("Nir-Or"),  an Israeli  company  that
develops electronic systems for military and avionic applications. Nathan Tarter
became a  director  in our  Company.  During  the said  period we also  provided
services to Nir-Or for $29,000. It was through our relationship with Nir-Or that
we became  acquainted  with Natali,  an  acquaintance  that matured to the order
agreement that we signed with Natali regarding the supply of CardioGSM.

      In  May  2003,  The  Company  filed  a  registration  statement  with  the
Securities Exchange Commission (the "SEC") to register 2,400,000 shares of Class
A Common Stock to be offered to the public,  2,726,470  shares of Class A Common
Stock to be offered by selling shareholders,  1,000,000 shares of Class A Common
Stock to be issued  pursuant to a stock option plan for employees and suppliers,
and 1,618,885 shares of Class A Common Stock to be issued upon the conversion of
Class  B  Common  Stock.  The  SEC  granted  effectiveness  to the  registration
statement  in June 2003.  The  offering  was closed on December  15,  2003.  The
Company sold to the public  2,297,257  shares of Class A Common Stock at a price
of $0.07.  1656 shares of the Class B Common Stock were converted into 1,618,885
shares of Class A Common Stock.

RESULTS OF OPERATION

      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 this
document.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

      Our revenues increased by $48,884  (approximately 143%) in the fiscal year
ended December 31, 2003 ("FY 2003") over the fiscal year ended December 31, 2002
("FY  2002").  The reason for this  increase was that we had repeat sales of the
IMP.

      In 2003  our  gross  profit  was  $32,178.  In 2002 we had  gross  loss of
$25,407.  The gross  profit  in 2003 was due to the  decrease  in  manufacturing
expenses that resulted from the general decrease in our operating budget.

      Research and development expenses decreased by $131,722 in FY 2003 over FY
2002.  This was a result of our ending all our  research  and  development  work
after the first quarter of 2003.

      Marketing,  general  and  administrative  expenses  decreased  by $140,648
(approximately 43%) in FY 2003 compared to the previous year due to the decrease
in our  marketing  activity  and other  expenses as we downsized  our  operation
because of our financial situation.

      In FY  2003 we had  net  financial  expenses  of  $45,541.  In 2002 we had
financial  expenses of $142,327.  Most of the expenses in FY 2002 ($98,000) were
related to amortization of our debt to Aryt.

      Our net loss in FY 2003 decreased by $398,446  (approximately 65%) from FY
2002.  The decrease is primarily due to the decrease in all our expenses and the
increase in our sales.


                                       13
<PAGE>


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

      Our revenues decreased by approximately $34,000  (approximately 70%) in 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  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 the  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  gross  loss  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 our 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.

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, 2003,  that our  recurring  losses from
operations,   negative  working  capital  and  shareholders'   deficiency  raise
substantial doubt about our ability to continue as a going concern.

      We had a deficit in working  capital of $346,778 as of December  31, 2003.
We plan to meet our obligations by entering into installment arrangements and by
arrangements   deferring  payments  until  future  financing  is  obtained.  Our
operating budget is about $12,000 a month. Our available funds will permit us to
operate  under this  budget  until the end of 2004.  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 we are facing the risk of being  unable to  continue  our
operations.


                                       14
<PAGE>


CAPITAL RESOURCES

      As of the date of this report we have no material  commitments for capital
expenditures.

      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. Since September 2002
we have been in default on our payments.  We have recently learned that the bank
intends to sue VDL and may ask for  receivership.  We plan to negotiate with the
bank for a settlement  under which the debt will be  extinguished  against a one
time payment of 35% of the debt.  We believe that there is a strong  possibility
that  the bank  will  settle  for such an  arrangement  because  BDII,  which is
controlled by the government of Israel,  has recently stopped regular  operation
due to severe losses. The balance of our debt to the bank is $95,000.

      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.  We are in default on our  payments
since September 2003. The balance of our debt to the bank is $15,717.

Disclosures About Contractual Obligations as of December 31, 2003


<TABLE>
<CAPTION>
                                                        Payments Due by Period
                                                        ----------------------

     Contractual                          Less than
     Obligations            Total          1 Year        1-3 Years       4-5 Years     After 5 Years
     -----------            -----          ------        ---------       ---------     -------------
<S>                     <C>            <C>               <C>              <C>             <C>
Long-Term Debt          $110,717       $--               $110,717         $--             $--
Royalties (1)           $751,000       $--               $250,000         $250,000        $251,000
</TABLE>

(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 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.


                                       15
<PAGE>


      The following table provides  information about our debt obligations which
are sensitive to changes in interest rates at December 31, 2003. The information
is the principal  cash flows and weighted  interest  rates by expected  maturity
dates.

  LONG-TERM DEBT (IN U.S. DOLLARS)

                                                    2004
                                      -------------------
   Variable rate (in U.S. dollars)               $95,000
              Interest rate    LIBOR + 4%

     Variable rate (in new Israeli
                          shekels)               $15,717
              Interest rate 6.85%
                                      -------------------

                                                $110,717
                                      ===================

*IP-Israel  Prime Interest Rate set from time to time by the Bank of Israel.  On
December 31, 2003 the IP was 6.7% per annum.

ITEM 7. FINANCIAL STATEMENTS

      The financial statements required by this item begin on page F-1 following
this page.

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

      None.



                                       16
<PAGE>


                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                       CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003




                                       F1

<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)

<TABLE>
<CAPTION>
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                                                                              PAGE
                                                                                              ----
<S>                                                                                        <C>
INDEPENDENT AUDITORS' REPORT                                                                   F3

CONSOLIDATED FINANCIAL STATEMENTS:

 Consolidated Balance Sheets as of December 31, 2003 and 2002                                  F4

 Consolidated Statements of Operations for the years ended December 31, 2003,
 2002 and 2001 and the cumulative period from October 1, 1993 (date of
 commencement of operations) to December 31, 2003                                              F5

 Statement of  Shareholders'  Deficiency for the period from October 1, 1993
(date of commencement of operations) to December 31, 2003                                    F6 - F8

 Consolidated Statements of Cash Flows for the years ended December 31, 2003,
 2002 and 2001 and the cumulative period from October 1, 1993 (date of
 commencement of operations) to December 31, 2003                                            F9 - F10

 Notes to the Consolidated Financial Statements                                             F11 - F27

</TABLE>


                                      F-2
<PAGE>


                          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, 2003 and 2002, and the related consolidated statements of operations,
shareholders' deficiency and cash flows for each of the three years in the
period ended December 31, 2003 and for the cumulative period from October 1,
1993 (date of commencement of operations) to December 31, 2003. 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, 2003 and 2002, and their consolidated results
of operations and their consolidated cash flows for each of the three years in
the period ended December 31, 2003 and for the cumulative period from October 1,
1993 to December 31, 2003, 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
Certified Public Accountants
Member firm of Deloitte
Haifa, Israel

April 14, 2004


                                      F-3
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31
                                                                                      2 0 0 3          2 0 0 2
                                                                                    -----------      -----------
<S>                                                                                 <C>              <C>
CURRENT ASSETS

Cash and cash equivalents                                                           $     3,340      $    13,019
Proceeds fromo public offering (Note 3A)                                                160,500               --
Trade accounts receivable                                                                 1,158            3,309
Other receivables and prepaid expenses (Note 3B)                                          4,526           10,004
Inventory                                                                                 3,168               --
                                                                                    -----------      -----------
                                                                                        172,692           26,332
                                                                                    -----------      -----------

FIXED ASSETS, NET (Note 4)                                                               28,913           37,593
                                                                                    ===========      ===========

                                                                                    $   201,605      $    63,925
                                                                                    ===========      ===========

CURRENT LIABILITIES
Short-term bank borrowings and current portion of long term debt (Note 6)           $   125,541      $    71,554
Trade accounts payable                                                                   58,867           37,447
Accrued expenses                                                                        243,320          220,886
Bridge loan                                                                               8,452           47,975
Other payables (Note 5)                                                                  83,290          103,227
                                                                                        519,470          481,089
                                                                                    -----------      -----------

LONG TERM LIABILITIES
Long term loans from banks (Note 6)                                                          --           53,891
Liabilities for severance pay (Note 7)                                                   11,690            6,216
                                                                                    -----------      -----------
                                                                                         11,690           60,107
                                                                                    -----------      -----------

COMMITMENTS (Note 8)

SHAREHOLDERS' DEFICIENCY  (Note 9)
Share capital:
  Shares of Class A Common Stock $0.01 par value
  (Authorized - 20,000,000 shares as of December 31, 2003 and 10,000,000 shares
  as of December 31, 2002. Issued and Outstanding - 9,047,036 shares as
  of December 31, 2003 and 634,863 shares as of December 31, 2002)                       90,470            6,349
   Shares of Class B Common Stock $ 0.01 par value
   (Authorized - 10,000 shares, Issued and Outstanding - 744 shares as of
   December 31, 2003 and 2,400 shares as of December 31, 2002)                                7               24
Additional paid-in capital                                                            2,320,745        2,042,220
Subscription receivable                                                                  (3,848)              --
Deficit accumulated during the development stage                                     (2,736,929)      (2,525,864)
                                                                                    -----------      -----------

                                                                                       (329,555)        (477,271)
                                                                                    ===========      ===========
                                                                                    $   201,605      $    63,925
                                                                                    ===========      ===========
</TABLE>

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

                                      F-4
<PAGE>


                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     CUMULATIVE FROM
                                                                                     OCTOBER 1, 1993
                                                                                       (DATE OF
                                                                                     COMMENCEMENT
                                                                                     OF OPERATIONS)
                                               YEAR ENDED DECEMBER 31                TO DECEMBER 31,
                                   ---------------------------------------------     ---------------
                                     2 0 0 3          2 0 0 2          2 0 0 1          2 0 0 3
                                   -----------      -----------      -----------      -----------
<S>                                <C>              <C>              <C>              <C>
REVENUES (NOTE 10)                 $    82,886      $    34,002      $   109,963      $   723,849

Cost of revenues (Note 11)              50,708           59,409           81,036          631,950
                                   -----------      -----------      -----------      -----------


GROSS PROFIT (LOSS)                     32,178          (25,407)          28,927           91,899

OPERATING COSTS AND  EXPENSES
 Research and development
  expenses (Note 12)                    10,859          142,581          174,116        1,125,553

 Marketing, general and
  administrative expenses
    (Note 13)                          188,488          329,136           86,978        1,331,917
                                   -----------      -----------      -----------      -----------

 OPERATING LOSS                       (167,169)        (497,124)        (232,167)      (2,365,571)

 Financial expenses  (Note 14)          45,541          142,327           24,132          434,251

 Financial income                           --             (582)         (25,212)         (30,162)

 Other income, net (Note 15)            (1,645)         (29,358)              --          (32,731)
                                   -----------      -----------      -----------      -----------

 LOSS FOR THE PERIOD               $  (211,065)     $  (609,511)     $  (231,087)     $(2,736,929)
                                   ===========      ===========      ===========      ===========

 LOSS PER SHARE:
 Basic and diluted                 $     (0.06)     $     (0.96)     $     (0.36)
                                   ===========      ===========      ===========

 Number of shares used in
   computing basic and
     diluted loss per share          3,764,961          637,263          637,263
                                   ===========      ===========      ===========
</TABLE>

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


                                      F-5
<PAGE>

                                VOICE DIARY INC.
                          A DEVELOPMENT-STAGE COMPANY)
                      STATEMENT OF SHAREHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                        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
                                      ---------------------------------------------------------------------------------------------
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>           <C>           <C>
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)
                                      =============================================================================================
</TABLE>


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

                                      F-6
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                  STATEMENT OF SHAREHOLDERS' DEFICIENCY (CONT.)

<TABLE>
<CAPTION>
                                        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
                                    -----------------------------------------------------------------------------------------------
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>           <C>           <C>
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 Stockpursuant
   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)
                                    ===============================================================================================
</TABLE>


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


                                      F-7
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                  STATEMENT OF SHAREHOLDERS' DEFICIENCY (CONT.)

<TABLE>
<CAPTION>
                                         Number of Shares                                                Deficit
                                       ---------------------                                            accumulated
                                       Class A       Class B                Additional                   during the       Total
                                       Common        Common      Share       paid-in     Subscription   development   Shareholders'
                                        Stock        Stock      Capital       capital      receivable      stage       deficiency
                                    ------------------------------------------------------------------------------------------------
<S>                                 <C>             <C>       <C>           <C>           <C>           <C>           <C>
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        (265,094)                    (2,650)        2,650                                        --
   shareholder

 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)

Changes in 2003:

Issuance of Common Stock                72,000                        720          (720)                                       --

 Issuance of options for
    services rendered                                                             1,000                                     1,000

Regulation S offering                4,039,214                     40,392       159,608                                   200,000

Issuance of Common Stock               384,817                      3,848                      (3,848)                         --

Public issuance of Common Stock      2,297,257                     22,972       137,836                                   160,808

Cost related to issuances                                                       (61,360)                                  (61,360)

Conversion of stock                  1,618,885        (1,656)      16,172       (16,172)                                       --

Waiver of management fees                                                        58,333                                    58,333

Loss for the year                                                                                          (211,065)     (211,065)
                                    ------------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2003            9,047,036           744  $    90,477   $ 2,320,745   $    (3,848)  $(2,736,929)  $  (329,555)
                                    ================================================================================================
</TABLE>


                                      F-8
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           CUMULATIVE FROM
                                                                                           OCTOBER 1, 1993
                                                                                              (DATE OF
                                                                                            COMMENCEMENT
                                                                                           OF OPERATIONS)
                                                           YEAR ENDED DECEMBER 31          TO DECEMBER 31,
                                                  ---------------------------------------  ---------------
                                                    2 0 0 3       2 0 0 2       2 0 0 1       2 0 0 3
                                                  -----------   -----------   -----------   -----------
CASH FLOWS - OPERATING ACTIVITIES
<S>                                               <C>           <C>           <C>           <C>
Loss for the period                               $  (211,065)  $  (609,511)  $  (231,087)  $(2,736,929)

Adjustments to reconcile loss to net
  cash used in operating activities (Appendix A)      107,784       157,848        67,667     1,051,945
                                                  -----------   -----------   -----------   -----------
Net cash used in operating activities                (103,281)     (451,663)     (163,420)   (1,684,984)
                                                  -----------   -----------   -----------   -----------

CASH FLOWS - INVESTING ACTIVITIES

Purchase of fixed assets                                   --       (33,713)       (7,189)     (156,239)
Escrow Deposit                                       (160,500)           --            --      (160,500)
Proceeds from sale of fixed assets                         --            --            --         2,503
                                                  -----------   -----------   -----------   -----------
Net cash used in  investing activities               (160,500)      (33,713)       (7,189)     (314,236)
                                                  -----------   -----------   -----------   -----------


CASH FLOWS - FINANCING ACTIVITIES
Proceeds from long-term loans                              --            --       118,114       210,858
Repayment of long-term loans                          (17,410)      (26,128)       (4,050)     (110,915)
Short-term bank credit, net                            11,587         1,949      (130,947)       23,685
Short-term loans from Related Party                        --       291,617       302,200       649,289
Bridge loan, net                                      (39,523)       47,975            --         8,452
Issuance of shares                                    299,448        65,177            --     1,221,191
Costs related to previous year's shares issues             --            --        (5,000)           --
                                                  -----------   -----------   -----------   -----------
Net cash provided by financing activities             254,102       380,590       280,317     2,002,560
                                                  -----------   -----------   -----------   -----------

Increase (decrease) in cash and cash equivalents       (9,679)     (104,786)      109,708         3,340
Cash and cash equivalents - beginning of period        13,019       117,805         8,097            --
                                                  -----------   -----------   -----------   -----------
Cash and cash equivalents - end of period         $     3,340   $    13,019   $   117,805   $     3,340
                                                  ===========   ===========   ===========   ===========
</TABLE>

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


                                      F-9
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               CUMULATIVE FROM
                                                                                               OCTOBER 1, 1993
                                                                                                   (DATE OF
                                                                                                 COMMENCEMENT
                                                                                                OF OPERATIONS)
                                                                YEAR ENDED DECEMBER 31         TO DECEMBER 31,
                                                      ---------------------------------------  ---------------
                                                        2 0 0 3       2 0 0 2       2 0 0 1       2 0 0 3
                                                      -----------   -----------   -----------   -----------
<S>                                                   <C>           <C>           <C>           <C>
APPENDIX A -
ADJUSTMENTS TO RECONCILE LOSS TO
  NET CASH FROM OPERATING ACTIVITIES
INCOME AND EXPENSE ITEMS NOT
  INVOLVING CASH FLOWS:

Depreciation and amortization                         $     8,680   $     7,724   $     2,951   $   126,551

Exchange-rate (gain) loss                                   5,919        (3,149)       (2,567)        1,913
Liabilities for severance pay                               5,474         4,455         1,761        11,690
Gain on sale of fixed assets                                   --            --            --        (1,728)
Waiver of management fees                                  25,000            --            --        58,333
Non-cash compensation expenses                              1,000       123,249            --       478,561
                                                      -----------   -----------   -----------   -----------
                                                           46,073       132,279         2,145       675,320
                                                      -----------   -----------   -----------   -----------

CHANGES IN OPERATING ASSETS AND LIABILITIES:

Decrease (increase) in trade accounts receivable            2,151        62,661       (65,737)       (1,158)
Decrease (increase) in receivables and other current
  assets                                                    5,478        19,359       (28,740)       (4,526)
Increase in inventories                                    (3,168)           --            --        (3,168)
Increase (decrease) in trade accounts payable              21,420      (159,802)      165,901        58,867
Increase (decrease) in payables and other current
  liabilities                                              35,830       103,351        (5,902)      326,610
                                                      -----------   -----------   -----------   -----------
                                                           61,711        25,569        65,522       376,625
                                                      -----------   -----------   -----------   -----------

                                                      $   107,784   $   157,848   $    67,667   $ 1,051,945
                                                      ===========   ===========   ===========   ===========

APPENDIX B -
NON CASH TRANSACTIONS
Waiver of loan by principal shareholder
  in exchange for rights to royalties                          --   $   649,289            --   $   649,289
                                                      ===========   ===========   ===========   ===========

Waiver of management fees in  previous year           $    33,333            --            --            --
                                                      ===========   ===========   ===========   ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid during the period for:
Interest                                              $     4,903   $    13,485   $    12,605   $   144,909
                                                      ===========   ===========   ===========   ===========
</TABLE>

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

                                      F-10
<PAGE>

                                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,  has  developed  a line  of
            personal  digital  assistants  ("PDAs") with a voice user interface.
            The  products  are  targeted to the market of the Blind and Visually
            Impaired.  In August  2003,  the Company  signed an  agreement  with
            Natali (the company for emergency  medical  services in Israel) Ltd.
            ("Natali"),  an Israeli company that provides  emergency services to
            Homecare  patients.  Under this  agreement  the Company will provide
            Natali  with  50,000 (the number can be reduced by Natali to 10,000)
            units of a GSM  cellular  phone  that has an  integrated  EKG  (ECG)
            device (the  "CardioGSM").  First delivery is scheduled for December
            2004. See C below regarding expected delays in the Company's ability
            to  ship  the  order  by  this  date,   possibly  resulting  in  the
            termination  of the  agreement.  Based on the  CardioGSM the Company
            intends to develop a new Cellular Voice PDA (the  "VoicePilot")  for
            the  blind  and  visually  impaired.  The  VoicePilot  will  replace
            existing products that will be discontinued.

      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,  2003 of  $2,736,929  and
            working  capital  deficit as of December 31, 2003 of $346,778  raise
            substantial doubt about its ability to continue as a going concern.

            In  addition,  since 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.


                                      F-11
<PAGE>


                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - GENERAL (CONT.)

            The  Company  plans  to  meet  its   obligations  by  entering  into
            installment  arrangements  and by  arrangements  deferring  payments
            until future financing is obtained.

      C.    Other risk factors

            1.    The  Company's  sales  have  been  to a small  number  of main
                  customers (see Note 10).

            2.    The Company  does not have the funds  necessary to develop the
                  CardioGSM. The development of this product has not yet started
                  and  unless  an  extension  of  the  first  delivery  date  is
                  obtained, the order from Natali may be terminated.

            3.    The Company intends to discontinue  manufacturing its existing
                  Voice  Diary IMP units and offer  instead  the  VoicePilot.  A
                  delay in the development of the CardioGSM will cause a similar
                  delay in the introduction of the VoicePilot.

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.


                                      F-12
<PAGE>


                                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.

      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.



                                      F-13
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

      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, 2003, 2002, and 2001 due to the anti-dilutive effect.

      M.    Stock- based compensation

            Employee  stock-based  compensation  is accounted  for 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,  compensation
            is recorded  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.  Stock-based  compensation to non-employees is accounted
            for in accordance with SFAS No. 123.


                                      F-14
<PAGE>


                                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

            In January 2003, the FASB issued  Interpretation  No. 46 ("FIN 46"),
            "Consolidation of Variable Interest Entities,  and Interpretation of
            ARB  51."  The  primary  objectives  of this  interpretation  are to
            provide guidance on the identification of entities for which control
            is  achieved   through  means  other  than  through   voting  rights
            ("variable  interest  entities") and how to determine when and which
            business enterprise (the "primary  beneficiary")  should consolidate
            the  variable  interest  entity.  This new model  for  consolidation
            applies to an entity in which  either (i) the equity  investors  (if
            any) do not  have a  controlling  financial  interest;  or (ii)  the
            equity  investment at risk is  insufficient to finance that entity's
            activities  without  receiving  additional   subordinated  financial
            support from other  parties.  In addition,  FIN 46 requires that the
            primary  beneficiary,  as  well  as  all  other  enterprises  with a
            significant  variable interest in a variable  interest entity,  make
            additional  disclosures.  Certain disclosure  requirements of FIN 46
            were  effective  for financial  statements  issued after January 31,
            2003.  In December  2003,  the FASB issued FIN 46 (revised  December
            2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to
            address certain FIN 46  implementation  issues.  The effective dates
            and   impact   of  FIN  46  and  FIN  46-R  are  as   follows:   (i)
            Special-purpose entities ("SPEs") created prior to February 1, 2003.
            The  Company  must apply  either the  provisions  of FIN 46 or early
            adopt the  provisions of FIN 46-R at the end of the first interim or
            annual  reporting  period  ending  after  December  15,  2003.  (ii)
            Non-SPEs  created prior to February 1, 2003. The Company is required
            to  adopt  FIN  46-R  at the  end of the  first  interim  or  annual
            reporting  period  ending after March 15, 2004.  (iii) All entities,
            regardless  of  whether  an SPE,  that were  created  subsequent  to
            January 31,  2003.  The  provisions  of FIN 46 were  applicable  for
            variable  interests in entities obtained after January 31, 2003. The
            adoption  of FIN  46-R  did  not,  and is not  expected  to,  have a
            material impact on the Company's  consolidated  financial  position,
            consolidated results of operations, or liquidity.

NOTE 3 - CURRENT ASSETS

      A.    PROCEEDS FROM PUBLIC OFFERING

            Escrow  deposit of  proceeds  from public  offering  (see Note 9B19)
            pending  the  listing of the  Company's  securities  on the Over The
            Counter Bulleting Board.


      B.    OTHER RECEIVABLES AND PREPAID EXPENSES


                                                      AS OF DECEMBER 31
                                                     -------------------
                                                     2 0 0 3     2 0 0 2
                                                     -------     -------
        Prepaid expenses                             $    33     $ 8,316
        Government institutions                        2,993       1,688
        Others                                         1,500          --
                                                     -------     -------
                                                     $ 4,526     $10,004
                                                     =======     =======


                                      F-15
<PAGE>


                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - FIXED ASSETS, NET


                                                     AS OF DECEMBER 31
                                                  ------------------------
                                                   2 0 0 3        2 0 0 2
                                                  ---------      ---------
     Cost:
     Computers and software                       $ 108,595      $ 108,595
     Fixtures                                        31,099         31,099
     Office furniture                                 2,858          2,858
                                                  ---------      ---------
                                                    142,552        142,552
                                                  ---------      ---------

     Accumulated depreciation:
     Computers and software                        (103,462)       (98,148)
     Fixtures                                        (8,986)        (5,860)
     Office furniture                                (1,191)          (951)
                                                  ---------      ---------
                                                   (113,639)      (104,959)
                                                  ---------      ---------

     Net                                          $  28,913      $  37,593
                                                  =========      =========


NOTE 5 - OTHER PAYABLES

                                                      AS OF DECEMBER 31
                                                    ---------------------
                                                    2 0 0 3       2 0 0 2
                                                    --------     --------
      Employees and payroll accruals                $ 63,102     $ 67,975
      Customer advances                                   --       14,343
      Fund for the Encouragement of Marketing *       20,188       20,188
      Others                                              --          721
                                                    --------     --------
                                                    $ 83,290     $103,227
                                                    ========     ========


* Claim for refund of amounts received by the Subsidiary from the fund by the
Ministry of Industry and Trade.


                                      F-16
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - LONG TERM LOANS FROM BANKS


                                                          AS OF DECEMBER 31
                                             RATE OF     -------------------
                                            INTEREST     2 0 0 3     2 0 0 2
                                            --------     -------     -------
                                               %

         Loans in new Israeli shekels
         (Fixed rate)                          6.85      $15,717      $7,600

         Loans in new Israeli shekels
         (Variable rate)                     IP*+1.5%         --      11,322

         Loans in U.S. dollars               Libor+4%     95,000      94,425
                                                         -------     -------

                                                         110,717     113,347

         Less current maturities**                       110,717      59,456
                                                         -------     -------
                                                         $    --     $53,891
                                                         =======     =======


*     IP - Israeli  Prime  Interest  Rate,  set from time to time by the Bank of
      Israel. On December 31, 2003, the IP was 6.7%.

      Interest  on the fixed  rate  loan is to 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.

**    The  Subsidiary  is in  default  in  its  repayments.  The  Bank  for  the
      Development  of  Industry  in  Israel  Ltd.  ("BDII")  intends  to sue the
      Subsidiary  for such  defaults.  The total amount of the loan ($95,000) is
      presented under short term liabilities.

      The Subsidiary is in default in repayments of loan to the Israel  Discount
      Bank ("IDB").  The total amount of the loan  ($15,717) is presented  under
      short term Liabilities.



                                      F-17
<PAGE>

                                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.  The
      liabilities presented in the balance sheet represent the unfunded amount.

NOTE 8 - COMMITMENTS

      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.


                                      F-18
<PAGE>


                                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 $43,677  (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 Bank for the
            Development of Industry in Israel Ltd. ("BDII").

NOTE 9 - SHAREHOLDERS' DEFICIENCY

      A.    General

            The total number of shares of the Company is as follows:


                                           AUTHORIZED     ISSUED AND OUTSTANDING
                                           ----------     ----------------------

      Class A Common Stock                  20,000,000           9,047,036
                                            ==========           =========

      Class B Common Stock                      10,000                 744
                                            ==========           =========


            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 shares of Class B Common Stock have the
            right to appoint one director.

            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.


                                      F-19
<PAGE>


                                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, 2003,  2002 and 2001, and of changes during the periods
            then ended, is presented below:

            1.    Subsidiary


<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                     ----------------------------------------------
                                                                                           EXERCISE
                                                     2 0 0 3      2 0 0 2      2 0 0 1      PRICE
                                                     -------      -------      -------     --------
<S>                                                  <C>          <C>          <C>         <C>
          Outstanding at beginning
            of year                                   60,162       42,414       67,595      $     0
          Granted during year                             --       20,614           --      $     0
          Exercised during year                      (59,295)          --      (25,181)     $     0
          Forfeited during year                         (867)      (2,866)          --      $     0
                                                     -------      -------      -------     --------
          Outstanding at end of year                      --       60,162       42,414      $     0
                                                     =======      =======      =======     ========
          Weighted average fair value of options
          granted during the year                         --      $  1.21
                                                     =======      =======
</TABLE>


            2.    Company (Note 9 B17 hereunder)


<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                    ----------------------------------------------
                                                                                          EXERCISE
                                                    2 0 0 3      2 0 0 2      2 0 0 1      PRICE
                                                    -------      -------      -------     --------
<S>                                                 <C>          <C>          <C>         <C>
          Outstanding at beginning  of year              --         --         --           $   --
          Granted during year                        20,000         --         --           $ 0.01
                                                    -------      -------      -------     --------

          Outstanding at end of year                 20,000         --         --           $ 0.01
                                                    =======      =======      =======     ========
          Weighted average fair value of options
          granted during the year
                                                    $  0.05
                                                    =======
</TABLE>

      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.



                                      F-20
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - SHAREHOLDERS' DEFICIENCY (CONT.)

      B.    Issuance of share capital and options (Cont.)

            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.

            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.



                                      F-21
<PAGE>


                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - SHAREHOLDERS' DEFICIENCY (CONT.)

      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 16).

      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.

      15.   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.

      16.   In May 2003 the Company  adopted a Stock  Options Plan for employees
            and subcontractors.  Under this plan, in September 2003, the Company
            granted Mr. Uri Z. Tolkowsky,  Vice President of the Company, 20,000
            options  exercisable  until  September 2006, at a price of $0.01 per
            share.

      17.   During the period from June 2003 to September 2003 several investors
            invested  in  the  Company  an  aggregate   amount  of  $200,000  in
            consideration  for  4,039,214  shares of Class A Common  Stock.  The
            investment  was made pursuant to  Regulation S under the  Securities
            Act of 1933, as amended. The investors were led by the principals of
            Nir-Or  Israel  Ltd.  ("Nir-Or"),  an  Israeli  company.  One of the
            principals of Nir-Or became a director in the Company.


                                      F-22
<PAGE>


                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - SHAREHOLDERS' DEFICIENCY (CONT.)

      18.   In August 2003 the Company  issued  384,817 shares of Class A Common
            Stock to Natali  (the  Company  for  Emergency  Medical  Services in
            Israel) Ltd. (see note 1A), in consideration of $3,848.17 to be paid
            until September 2006.

      19.   In May 2003 The  Company  filed a  registration  statement  with the
            Securities  Exchange  Commission  (the "SEC") to register  2,400,000
            shares  of  Class  A  Common  Stock  to be  offered  to the  public;
            2,726,470  shares of Class A Common  Stock to be  offered by selling
            shareholders, 1,000,000 shares of Class A Common Stock pursuant to a
            stock option plan for  employees and  suppliers,  (see 17 above) and
            1,618,885  shares  of Class A Common  Stock  to be  issued  upon the
            conversion of Class B Common Stock. The SEC granted effectiveness to
            the registration  statement in June 2003. The offering was closed on
            December 15, 2003. The Company sold to the public  2,297,257  shares
            of Class A Common  Stock  at a price  of $0.07 in  consideration  of
            $160,808.  1,656 shares of the Class B Common  Stock were  converted
            into 1,618,885  shares of Class A Common Stock.  An application  for
            listing the shares was filed with NASD on December 2003.

NOTE 10 - REVENUES

      A.    Main customers:


                                       YEAR ENDED DECEMBER 31
                                       ----------------------
                                        2 0 0 3     2 0 0 2
                                        -------     -------
      CUSTOMERS:
          A                             $42,724     $    --
                                        =======     =======
          B                             $26,473     $    --
                                        =======     =======
          C                             $    --     $16,573
                                        =======     =======

      B.    Data by geographical regions:

                                       YEAR ENDED DECEMBER 31
                                       ----------------------
                                        2 0 0 3     2 0 0 2
                                        -------     -------
      SALES DISTRIBUTION, BY TARGET MARKET:
          Israel                        $13,689     $31,640
          U.S.A                          42,724         651
          Europe                         26,473       1,711
                                        -------     -------
                                        $82,886     $34,002
                                        =======     =======


                                      F-23
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - COST OF REVENUES

<TABLE>
<CAPTION>
                                                                                  CUMULATIVE FROM
                                                                                  OCTOBER 1, 1993
                                                                                    (DATE OF
                                                                                  COMMENCEMENT
                                                                                  OF OPERATIONS)
                                                     YEAR ENDED DECEMBER 31       TO DECEMBER 31,
                                             ----------------------------------   --------------
                                             2 0 0 3      2 0 0 2      2 0 0 1       2 0 0 3
                                             --------     --------     --------     --------
<S>                                          <C>          <C>          <C>          <C>
          Materials                          $ 33,847     $ 12,751     $ 63,985     $416,149
          Salaries and related  expenses        7,865       30,924       13,347       81,340
          Sub-contractors                          --           --           --       50,783
          Non-cash compensation expenses           --           --           --       20,025
          Other                                 8,996       15,734        3,704       63,653
                                             --------     --------     --------     --------
                                             $ 50,708     $ 59,409     $ 81,036     $631,950
                                             ========     ========     ========     ========
</TABLE>


NOTE 12 - RESEARCH AND DEVELOPMENT EXPENSES

<TABLE>
<CAPTION>
                                                                                           CUMULATIVE FROM
                                                                                           OCTOBER 1, 1993
                                                                                              (DATE OF
                                                                                            COMMENCEMENT
                                                                                            OF OPERATIONS)
                                                         YEAR ENDED DECEMBER 31             TO DECEMBER 31,
                                                 ----------------------------------------   --------------
                                                   2 0 0 3       2 0 0 2        2 0 0 1        2 0 0 3
                                                 ----------     ----------     ----------     ----------
<S>                                              <C>            <C>            <C>            <C>
         Salaries and related expenses           $    8,214     $  111,051     $       --     $  882,533
         Sub-contractors                                 --          6,221        137,127        387,921
         Materials                                       --         10,202         15,000         87,598
         Non-cash compensation expenses                  --             --             --         57,004
         Other                                        2,645         15,107         21,989        375,603
                                                 ----------     ----------     ----------     ----------
                                                     10,859        142,581        174,116      1,790,659

         Less:
         Participation from Government funds             --             --             --       (704,350)
         Grants received                                 --             --             --         39,244
                                                 ----------     ----------     ----------     ----------
                                                 $   10,859     $  142,581     $  174,116     $1,125,553
                                                 ==========     ==========     ==========     ==========
</TABLE>

                                      F-24
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                                                                    CUMULATIVE FROM
                                                                                                    OCTOBER 1, 1993
                                                                                                        (DATE OF
                                                                                                      COMMENCEMENT
                                                                                                     OF OPERATIONS)
                                                                YEAR ENDED DECEMBER 31               TO DECEMBER 31,
                                                      --------------------------------------------   --------------
                                                         2 0 0 3         2 0 0 2         2 0 0 1        2 0 0 3
                                                      ------------     -----------     -----------     -----------
<S>                                                   <C>              <C>             <C>             <C>
          Salaries and related expenses               $         --     $   114,923     $    33,280     $   410,351
          Advertising and marketing costs                   13,093          38,842          22,122         187,015
          Depreciation                                       8,680           7,723           2,951         116,742
          Non-cash compensation expenses                     1,000          25,000              --         232,971
          Professional services                             86,004          65,309          14,178         268,646
          Office expenses                                   13,968           9,945           9,457         152,441
          Management fees                                   40,000          33,333              --         121,615
          Car maintenance                                   15,885          11,881           3,779          75,671
          Others                                             9,858          22,180           1,211         102,326
                                                      ------------     -----------     -----------     -----------
                                                           188,488         329,136          86,978       1,667,778

          Less: expenses attributed to
                 research and development expenses              --              --              --        (335,861)
                                                      ------------     -----------     -----------     -----------
                                                       $   188,488     $   329,136     $    86,978     $ 1,331,917
                                                      ============     ===========     ===========     ===========
</TABLE>

NOTE 14 - FINANCIAL EXPENSES

<TABLE>
<CAPTION>
                                                                                      CUMULATIVE FROM
                                                                                      OCTOBER 1, 1993
                                                                                         (DATE OF
                                                                                       COMMENCEMENT
                                                                                       OF OPERATIONS)
                                                         YEAR ENDED DECEMBER 31       TO DECEMBER 31,
                                                  ----------------------------------  ----------------
                                                  2 0 0 3      2 0 0 2      2 0 0 1      2 0 0 3
                                                  --------     --------     --------     --------
<S>                                               <C>          <C>          <C>          <C>
          Financial expenses to banks             $ 45,541     $ 10,613     $ 15,083     $222,704
          Interest to related party                     --       33,465        9,049       42,986
          Amortization of debt issuance costs           --       98,249           --      168,561
                                                  --------     --------     --------     --------
                                                  $ 45,541     $142,327     $ 24,132     $434,251
                                                  ========     ========     ========     ========
</TABLE>


                                      F-25
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - OTHER INCOME

      Consists of profit from sales of P.C.  CARDS to Nir-Or  (2002 - consulting
      services to Nir-Or).

NOTE 16 - 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

            Under  Statement 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 3      2 0 0 2
                                             --------     --------
             Loss carryforwards              $762,913     $658,696
             Other temporary differences        4,208        3,907
                                             --------     --------
                                              767,121      662,603
             Less: valuation allowance        767,121      662,603
                                             --------     --------
                                             $     --     $     --
                                             ========     ========

            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,  2003,  the  Company  and  the  Subsidiary  had
            carryforward  tax  losses  generated  in the U.S.  and in  Israel of
            approximately $196,325 and $2,037,402 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.


                                      F-26
<PAGE>

                                VOICE DIARY INC.
                          (A DEVELOPMENT-STAGE COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17 - RELATED PARTY TRANSACTIONS

                                                YEAR ENDED DECEMBER 31
                                            -------------------------------
                                            2 0 0 3     2 0 0 2     2 0 0 1
                                            -------     -------     -------
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
                                            =======     =======     =======
          Management fees                   $40,000     $33,000     $    --
                                            =======     =======     =======



                                      F-27
<PAGE>


                                    PART III

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

      The  following  table  sets  forth  certain  information   concerning  the
Company's directors as of April 1, 2004.


NAME                      AGE              POSITION WITH COMPANY
----                      ---              ---------------------

Arie Hinkis               56               President, Chief Executive Officer,
                                           Chief Financial Officer and Director

Nathan Tarter             56               Director


      Mr. Hinkis has been Chief Executive  Officer of VDL since January 1997 and
has been  Chief  Executive  Officer  and a  director  of the  Company  since its
inception.  From July 1991  until  January  2001,  Mr.  Hinkis was  director  of
Robogroup T.E.K. Ltd which is a shareholder in VDI. From October 2002 until July
2003, Mr. Hinkis was CFO of Nir-Or.

      Mr.  Tarter  has been a director  of the  Company  since May 2003.  Nathan
Tarter is President  and Director of Nir-Or since 1982.  Under this capacity Mr.
Tarter  engineered  and managed the  development  of over 250  computer-embedded
systems for avionics and military applications.

      Mr. Ofer Yonach who is the largest  shareholder of VDI, is also a director
and shareholder of Nir-Or.

      Directors serve in their  respective  capacities for a term of one year or
until their  successors are duly 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.

      There are no family  relationships  between any two or more  directors  or
executive officers.  There are no arrangements or understandings between any two
or more directors or executive officers.

      We have no audit committee  financial expert because we believe we are too
small to need one and since we are being reviewed by  independent  auditors on a
regular basis.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      There  were no events to  trigger  compliance  with  Section  16(a) of the
Exchange Act during the fiscal year ended December 31, 2003.

ITEM 10. 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, 2003 in an aggregate amount which exceeded $100,000.


                                       17
<PAGE>

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                  ANNUAL COMPENSATION                         LONG TERM COMPENSATION
                                                         OTHER ANNUAL                 AWARDS
NAME AND PRINCIPAL POSITION         YEAR    SALARY       COMPENSATION             RESTRICTED STOCK
---------------------------         ----    ------       ------------             ----------------
<S>                                 <C>     <C>          <C>                      <C>
Arie Hinkis, President              2003    $15,000           0                         0
                                    2002    $98,221           0                         0
                                    2001    $33,280           0                         0
</TABLE>


EMPLOYMENT AND MANAGEMENT AGREEMENTS

      Arie Hinkis is employed by VDI pursuant to an Employment  Agreement  dated
July 3, 2002. The agreement provides that Mr. Hinkis is paid a salary,  starting
on March 1, 2002,  at the rate of $40,000 per year plus a bonus to be determined
in the sole  discretion  of the Board of  Directors.  Since the formation of VDI
until now Mr.  Hinkis did not  receive  any  payment  from VDI on account of his
salary.  The amount accrued for his salary is included in our financial  reports
under "Accrued Expenses".  During his stay in the USA we reimburse Mr. Hinkis on
his  hotel or rent  expenses  and we pay for his  rented  car.  Mr.  Hinkis  was
employed  by VDL until  December  2002.  Arie  Hinkis  waived a total  amount of
$58,333 for 2002 and 2003,  this waiver is reflected  under  additional  paid in
capital in the financial reports

DIRECTORS' COMPENSATION

      Directors  are  not  paid  for  their  services  as  directors.  We do not
currently  have  any  formal  policy  as to  the  compensation  we  would  offer
independent directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table sets forth as of April 1, 2004  certain  information
with respect to the amount and nature of  beneficial  ownership of the Company's
Class A Common  Stock,  par value $.01 per share  ("Class A Stock") held by: (i)
each  person  known  to us to be a  beneficial  owner  of  more  than  5% of the
Company's  outstanding  Class A Stock and (ii) the directors and officers of the
Company.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER (1)                  CLASS OF SHARES               NUMBER OF SHARES             PERCENT (2)
--------------------                  ---------------               ----------------             -----------
<S>                                   <C>                           <C>                          <C>
Arie Hinkis, President and            Class A Common Stock          3,059,668(3)                 30.805%
director

Arie Hinkis, President and            Class B Common Stock          744                          100.000%
director

Nathan Tarter, director               Class A Common Stock          1,346,405                    14.882%

Directors and Executive               Class A Common Stock          4,406,073(4)                 44.361%
Officers as a group (2
persons)

Ofer Yonach                           Class A Common Stock          2,045,889                    22.614%
</TABLE>


                                       18
<PAGE>

-----------------------

(1)   The business address for each person named is c/o Voice Diary Inc.

(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  421,607  shares  of Class A  Common  Stock  owned by Seed  Money
      Holding (Voice Diary) Limited Partnership, of which Mr. Hinkis is the sole
      general  partner,  and 72,000 shares of Class A Common Stock owned by Seed
      Money Holding  (Voice Diary) Limited  Partnership,  of which Mr. Hinkis is
      the sole general  partner,  and an aggregate of 885,255  shares of Class A
      Common  Stock  which may be issued to Mr.  Hinkis  upon  conversion  of an
      aggregate of 744 shares of Class B Common Stock,  par value $.01 per share
      ("Class B Stock") held by Mr. Hinkis.

(4)   Includes  1,346,405  shares of Class A Common Stock owned by Nathan Tarter
      and the shares associated with Mr. Hinkis under (3) above.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Under the  agreement  with Natali  regarding  the order of the  CardioGSM,
Natali  purchased  384,817  shares of Class A Common  Stock of the Company for a
total of $ 3,848.17 to be paid on August 19,  2006.  These shares are pledged to
the Company to secure Natali's commitments under the CardioGSM order agreement.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

        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.+

         4.2      Form of Class B Common Stock Certificate.+


                                       19
<PAGE>


         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 +

         10.5     (Voice Diary) LP, dated July 2, 2002.*

         10.6     Share Purchase Agreement between the Company and Arie Hinkis,
                  dated July 2, 2002 (Class B Common Stock).*

         10.7     Loan Agreement between VDL and Bank for the Development of
                  Industry in Israel Ltd., dated September 8, 2001.*

         10.8     Royalty Agreement between Aryt and VDL, dated as of June 30,
                  2002.*

         10.9     Share Purchase Agreement between the Company and Robogroup
                  T.E.K. Ltd., dated September 4, 2002.*

         10.10    Share Purchase Agreement between the Company and Arie Hinkis,
                  dated July 2, 2002 (Class A Common Stock).*

         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.+

         31.1     Certification by President and Chief Financial Officer Arie
                  Hinkis pursuant to U.S.C. Securities 1350, as adopted pursuant
                  to section 302 of the Sarbens-Oxley Act of 2002.

         31.2     Certification by President and Chief Financial Officer Arie
                  Hinkis pursuant to U.S.C. Securities 1350, as adopted pursuant
                  to section 906 of the Sarbens-Oxley Act of 2002.


      *  Previously  filed with our Form 10 filed  October  7, 2002,  as amended
      February 3, 2003.

      +  Previously  filed with our SB-2  registration  statement  filed May 15,
      2003,  as  supplemented  on December 15,  2003,  in  accordance  with Rule
      424(b)(3).

      (b) Reports on Form 8-K

            Listed below are reports on Form 8-K filed during the fiscal quarter
      ended December 31, 2003.

            None.


                                       20
<PAGE>


ITEM 14. CONTROLS AND PROCEDURES

      As required by United States  Securities and Exchange  Commission  ("SEC")
rules,  we have evaluated the  effectiveness  of the design and operation of our
disclosure  controls and  procedures as of the end of the period covered by this
Quarterly Report. This evaluation was carried out under the supervision and with
the participation of our principal  executive and principal  financial  officer.
Based on this  evaluation,  this  officer  has  concluded  that the  design  and
operation of our disclosure controls and procedures are effective. There were no
significant  changes to our  internal  controls or in other  factors  that could
significantly   affect  internal  controls  subsequent  to  the  date  of  their
evaluation.

      Disclosure  controls and procedures are our controls and other  procedures
that are designed to ensure that  information  required to be disclosed by us in
the reports that we file or submit  under the Exchange Act of 1934,  as amended,
is  recorded,  processed,  summarized  and  reported,  within  the time  periods
specified  in the SEC's  rules and forms.  Disclosure  controls  and  procedures
include,  without  limitation,  controls and procedures  designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our principal  executive officer
and principal  financial  officer to allow timely decisions  regarding  required
disclosure.  In designing our  disclosure  controls and  procedures,  management
recognized  that any controls and  procedures,  no matter how well  designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives,  and  management  necessarily  was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

      The Company is working  closely with its corporate and securities  lawyers
to ensure that it maintains  compliance with the Sarbanes-Oxley Act of 2002, and
the SEC regulations promulgated pursuant to that Act.



                                       21
<PAGE>


                                   SIGNATURES

      In accordance  with the  requirements  of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                          VOICE DIARY INC.
                                          (Registrant)

Dated: April 13, 2004

                                          /s/ Arie Hinkis
                                          -------------------------------------
                                          Arie Hinkis
                                          President and Chief Financial Officer


      In accordance  with the Exchange Act, this report has been signed below by
the  following  person on behalf of the  registrant  and in the capacity and the
date indicated.


Dated: April 13, 2004

                                          /s/ Nathan Tarter
                                          -------------------------------------
                                          Nathan Tarter, Director



                                       22