<PAGE>

                                  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, 2002

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

             For the transition period from __________ to __________

                        Commission file number __________

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

                DELAWARE                             72-1629948
                --------                             ----------
    (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: $34,000

<PAGE>

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 ____________ (a date within the past 60 days) was $__________.


At March 1, 2003, the registrant had outstanding 706,863 shares of par value
$.01 Class A Common Stock and 2,400 shares of par value $.01 Class B Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-KSB incorporates certain information
by reference from Form 10 Amendment 2 filed on February 3, 2003.

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 ........................................... 15
ITEM 3    LEGAL PROCEEDINGS ................................................. 15
ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS ................................................... 15

                                       PART II

ITEM 5    MARKET FOR COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS ....................................... 16
ITEM 6    MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                  PLAN OF OPERATIONS ........................................ 16
ITEM 7    FINANCIAL STATEMENTS .............................................. 25
ITEM 8    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE .................... 26

                                      PART III

ITEM 9    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                  CONTROL PERSONS; COMPLIANCE WITH SECTION
                  16(a) OF THE EXCHANGE ACT ................................. 26
ITEM 10   EXECUTIVE COMPENSATION ............................................ 26
ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT ..................................... 27
ITEM 12   CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS .............................................. 28
ITEM 13   EXHIBITS AND REPORTS ON FORM 8-K .................................. 29
ITEM 14   CONTROLS AND PROCEDURES ........................................... 29



<PAGE>



                                VOICE DIARY INC.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

FORWARD LOOKING STATEMENTS

     This Form 10-KSB includes certain  statements that are not historical facts
and are deemed to be "forward looking  statements" within the meaning of Section
21E  of the  Securities  Exchange  Act  of  1934.  See  Item  6 -  "Management's
Discussion  and Analysis of  Financial  Condition Or Plan of Operation - Forward
Looking   Statements"  for  a  further  discussion  of  these  "forward  looking
statements."

GENERAL

     We were  incorporated  in Delaware on February 26,  2002.  In June and July
2002 we  acquired  approximately  99% of the  outstanding  shares of Voice Diary
Ltd.,  an Israeli  corporation  ("VDL"),  through a purchase  of shares from the
former  controlling  stockholder  of VDL and an  exchange  of shares of 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 began  operations in October
1993  and has  been  in the  development  stage.  (Unless  otherwise  indicated,
references to us include VDL.)

     We are  developing  and  marketing  a line of personal  digital  assistants
("PDAs")  which have a voice user interface and provide to the user a full range
of personal  information  management  applications,  including a talking  diary,
telephone book, daily pad and other advanced features.  The voice user interface
enables the visually impaired to use PDA technology by removing obstacles to use
inherent in conventional display-based products.

Current Products
----------------

     We have developed and are marketing a hand-held  voice PDA called the "IMP"
specifically designed for blind and visually impaired people. The IMP is used to
make  recordings of personal  information.  The  recordings are stored in one of
several "compartments":

     o    NOTEPAD.  In this  compartment the recordings are stored one after the
          other.  The user can browse the Notepad by pressing 3 to move down the
          list  and 1 to move up the  list.  The  list  is  browsed  cyclically.
          Pressing  ENTER  will  play the  current  recording  (with  the  first
          recording  being the default  recording)  reached by browsing with the
          1/3 keys. If pressed  during play,  ENTER will pause the play and when
          pressed  again it will resume the  playing.  Pressing 5 will  announce
          Notepad and the number of recordings  in Notepad.  When a recording is
          played its number in the list is announced first. By pressing the MOVE
          key a recording  is selected to be moved or copied.  The user can then
          browse to another recording and after pressing MOVE again the selected
          recording is moved just before the current recording. To copy the user
          needs to press CODE MOVE.  MOVE is used to  reprioritize  the  Notepad
          recordings.  To

                                       3
<PAGE>



          erase a  recording  the user  needs to press the ERASE  key,  after he
          plays  the  recording,   and  then  ENTER  for  confirmation.   Erased
          recordings are stored in the ERASED MEMOS compartment and can be moved
          out as long as the Memory  Recycle  procedure was not  executed.  This
          procedure  is used to truly  erase  the  memory.  The  Memory  Recycle
          procedure is needed because the IMP uses Flash memory,  which,  unlike
          RAM memory, cannot be erased byte by byte but in blocks of 128k bytes.
          The number of  recordings  the IMP can hold is 1,000 and the length of
          the recoding  time is 90 minutes.  A new  recording is always added at
          the end of the list.  Pressing CODE ERASE followed by ENTER will erase
          the entire Notepad.

     o    DAILYPAD. The IMP can hold up to 60 Dailypad compartments.  A Dailypad
          is like the Notepad with an  additional  feature that it is associated
          with a date.  The date can be any date from 1950 to 2049.  The date is
          announced when pressing 5 together with the announcement  DAILYPAD and
          the number of recordings in the Dailypad.  In the Dailypad  associated
          with the date of the real date the announcement also includes the word
          TODAY.  All of the Notepad  functions  discussed  above are  similarly
          applicable  to  Dailypad.  In  addition  the user can browse  from one
          Dailypad to the next by pressing 6 and browse to the previous Dailypad
          by pressing 4. When browsing from one Dailypad to another the IMP will
          identify the new Dailypad by  announcing  Dailypad,  the date (without
          the year),  TODAY, if applicable,  and the number of recordings in the
          Dailypad,  if any.  If  there is no  recording  in the  Dailypad  of a
          certain  date it is not  taking  up any  space in the  database,  even
          though it can be browsed.  To browse only through the  Dailypads  that
          contain recordings,  the user needs to press ESCAPE followed by either
          4 or 6.  MOVE,  COPY  and  ERASE  operate  like in  Notepad,  with the
          additional  feature  that  recordings  can be moved or copied from any
          Dailypad to any Dailypad or the Notepad. After playing a recording, if
          the ALARM key is pressed,  the recording becomes a DAY HEADER. It will
          be placed  at the  beginning  of the list and be played  automatically
          upon browsing into the Dailypad. This feature is used to alarm to user
          as to a certain  engagement that may be conflicting other engagements.
          When a memo is moved or copied to a Dailypad  it will be placed at the
          beginning  of the  list,  or just  after the  Daily  headers,  if any.
          Dailypads  can be  accessed  directly  and not  through  browsing,  by
          pressing the ESCAPE TIME keys and entering the desired Dailypad date.

     o    DIARY.  The IMP's  diary is a virtual  structure  that can be  browsed
          minute by minute from January 1, 1950 to December 31, 2049. The keys 2
          and 8 are used to browse  backward and forward in any specific day, in
          steps ranging from one minute to 4 hours. The keys 4 and 6 are used to
          browse from day to day. To make a recording  in Diary the user browses
          to the day and  minute  where he wants the  recording  to be made and,
          like in all other  compartments,  makes the  recording by pressing the
          RECORD key. To browse the Diary through the  recordings  the user uses
          the 1 or 3 keys.  The  combination  ESCAPE 4 or 6 is used to browse to
          the days where there are recordings.  To avoid tedious  browsing,  the
          user can use the combination  ESCAPE TIME to enter the exact date-time
          point where he wants to be positioned.  In any date-time  position the
          user can record  several  recordings.  The recording can have an Alarm
          attached  that goes off when the time arrives or at a set time before.
          Snooze and  duration  features  are also  available.  Move and Copy of
          recordings in the Diary and



                                       4
<PAGE>



          between the Diary and the Dailypads or the Notepad is available. ERASE
          and UNDO work similarly as in the other compartments.

     o    REPETITION.  This compartment is used to store recurring recordings of
          the Diary.  The user can decide if the recoding is transparent so that
          browsing  the diary  will not  reveal it (this is good for  medication
          alarms) or opaque (for  recurring  meetings).  The need for a separate
          compartment  for  recurring  recordings  stems  from the fact that the
          amount of memory of the IMP is small compared to the memory  available
          in  PC  and  the  recordings  themselves  are  much  longer,  so  that
          duplicating recordings is not an option.

     o    PHONEBOOK.  The Phonebook is organized in folders.  Each folder has an
          associated  keyword.  The  user  enters  the  keyword  to the IMP in a
          special recording session called TRAINING. The user is prompted to say
          the keyword and then to repeat it. The  Phonebook can be browsed using
          the 4 and 6 keys to browse through the folders and the 2 and 8 keys to
          browse through  sub-folders  of each folder.  When a folder is reached
          through  browsing the IMP announces the keyword  associated  with this
          folder. The user can enter recordings to the folder and browse through
          them.  Other  operations  on recordings  are executed  similarly as in
          other compartments. MOVE, COPY and ERASE operations can be executed on
          folders as well as recordings. To retrieve a folder the user can press
          the FIND key and utter its keyword.

     The software implemented in the IMP, except the Voice Recognition and Voice
Compression  software,  was developed by us. This software is not patented.  The
IMP uses a DSP component  manufactured  by DSP Group for Voice  Compression  and
Voice  Recognition.  This  component  is now  obsolete.  See  below in regard to
inventory of this  component that we may have access to and our plans to replace
it.

     The IMP can  communicate  with a personal  computer  ("PC") for back-up and
software update. The IMP features include:


<TABLE>
<CAPTION>
<S>                                                     <C>
|_|  Talking-Diary                                      |_|  Talking Daily Pads
|_|  Talking Phonebook with voice recognition           |_|  Move and Undo commands
|_|  Multiple Talking-Alarms                            |_|  Talking-Calendar-Clock
|_|  Talking-Calculator with advanced functions         |_|  Superb audio quality
|_|  Special ergonomic design (form, keys & operation)
</TABLE>

     The IMP includes a rechargeable  battery pack and has a 90-minute recording
memory, a carrying case, a PC connection cable and a charger.


     The IMP was launched in December 2001. It is the third model in the line of
Voice  Electronic  Organizers  developed  and sold by us.  The  first  model was
launched in  November  1997.  It was bulkier and had only 1MB Flash  memory that
allowed  for only 10  minutes of  recording  time.  We sold 1,000  units of this
model.  In April 1998 we  started  shipping  our second  model that had the same
bulky shape but 2MB Flash memory that allowed for 30 minutes of recording  time.
We sold 2,000 units of the second  model.  The IMP has a smaller  form that fits
better in the hand,  and 4MB of Flash  memory  that  allows  for 90  minutes  of
recording time. However, due to its smaller format, the sound quality of the IMP
is less than that of the older models. We have sold approximately 1,500 units of
the IMP to date.  Of all versions of our voice

                                       5
<PAGE>



organizers we have sold, about 1,600 where sold in the US, 750 in the UK, 500 in
Israel, 250 in Holland, 70 in Australia,  25 in Belgium, and the rest in some 20
countries around the world, in quantities ranging from 1 to 10 per country. Most
sales (over 80%) were made to distributors  that specialize in selling  products
to the visually impaired.  In certain  countries,  such as Australia and Israel,
such  distributors are stores or  organizations  that serve the blind community.
Most of our distributors are selling directly to the end user. Since the release
of the IMP we have offered  customers  using the older models of the Voice Diary
line,  the right to trade in their units for the newer IMP. We have attempted to
sell the  traded  in units  at a  reduced  price  to  customers  in third  world
countries, such as India, but so far with limited success.

Planned Products
----------------

     The next  model in the Voice  Diary  line that we plan to develop is called
TOTAL. It will  incorporate a cellular phone and a removable,  large flash disk.
These added  capabilities  will enable the user to make  telephone  calls,  send
voice mail through the Internet or other voice  paging  services,  and make long
recordings (lectures, court sessions,  meetings) and to edit the recordings with
operations such as cut and paste. Using the flash disk, the user will be able to
import from the PC or the Internet information and entertainment  products, such
as MP3 music and talking books.  (The  incorporation  of a Text To Speech engine
will enable the TOTAL to play text  material in addition to recorded  material.)
Our goal in developing  the TOTAL is to offer a product with  communication  and
entertainment capabilities.  We believe that there will be a much greater demand
for a product with such  capabilities,  and with our Voice User Interface,  than
for the IMP, which is just a PDA. Our belief in the increased sales potential of
the TOTAL as compared to the IMP is based on our observation,  which we have not
substantiated by any objective survey, that sales of cellular telephones and MP3
players greatly exceed sales of PDAs. In the design of the TOTAL we will use new
engines  for Voice  Recognition  and Voice  Compression,  purchased  from  other
companies. In this way we will bypass the obsolete component that we use for the
voice  processing  functions.  We have not yet identified  providers for the new
voice  processing  engines nor have we defined yet the  components  that will be
used to run these engines.  Also we do not know at this stage what the financial
arrangement  will be in  regard  to  using  the  new  engine  technology  and in
particular if we will have to pay a licensing fee and or a per unit fee.

     To develop the TOTAL we believe we will need to invest about  $500,000.  At
this time we have no commitments  for  additional  financing and there can be no
assurance  we will have the funds  necessary  to develop  the  TOTAL.  We do not
foresee any technical barrier in the development of the TOTAL.  However, we know
that our TOTAL will need to be  approved  as a cellular  telephone  by  cellular
service  providers  and  possibly by  communication  authorities  in the various
countries such as the Federal Communication  Commission in the United States. We
have little experience in dealing with the granting of such approvals. We intend
to use for the TOTAL cellular engines provided by major  corporations  that have
received for their products required approvals, but we still have not contracted
any such provider.

     We  anticipate  that the  TOTAL  will be sold  mainly by  cellular  service
providers with or without support from distributors of products to the blind and
visually impaired.

     We also  envision the  adaptation  of the TOTAL to serve the elderly.  This
model of the TOTAL,  called GOLDEN,  will have fewer, larger buttons for greater

                                       6
<PAGE>



ease of use,  and a remote  monitoring  feature  to help  program  the unit by a
relative or an emergency service.  The reason we have for introducing the GOLDEN
is  because  we  believe  that the  elderly  market  will  favor our Voice  User
Interface  over the graphic  user  interface  implemented  in products  that are
designed for the general public.

     To bring the GOLDEN to the market we will need an investment of $250,000 in
addition to the investment  necessary for the introduction of the TOTAL. At this
time we  have no  commitments  for  additional  financing  and  there  can be no
assurance  that we will have the funds  necessary  to  develop  the  GOLDEN.  We
anticipate  that  the  GOLDEN  will  be sold  mainly  through  cellular  service
providers or providers of caring services for the elderly. We do not foresee any
technical barrier in the development of the GOLDEN.

Planned Services
----------------

     If we can  introduce  the TOTAL,  we plan to  establish  a service  for the
distribution of content to its users.  Such distribution of content will be made
through  several means:  mail (sending flash disc with the content);  libraries,
particularly those that serve the visually impaired, who will use PC to download
such  content;  Internet  downloads  to PCs  from  where  the  content  will  be
downloaded  either  by local  communication  or  using a flash  disk  drive;  or
directly to the TOTAL using its wireless communication abilities. As part of our
distribution service, we intend to operate a voice portal accessible through the
Internet,  from a PC and directly from the TOTAL. From the portal, users will be
able to download content using their PCs or a TOTAL. The portal will not be used
as a starting point for Internet browsing,  but rather as a central location for
obtaining voice and audio content.  The portal will be designed to be accessible
by the visually impaired.

     We intend to  acquire  rights for  content  distribution  from third  party
organizations  that have such rights. We intend to pay for such rights on a "per
use"  basis with no down  payments.  We intend to provide  the  content  under a
subscription  arrangement  that will  require  users to pay an annual fee, and a
"per item" fee.  Generating  income from  subscribers is the main reason for our
plan to establish the content distribution service.

     We  hope  to  obtain  additional   revenues  from   advertisements  in  our
distribution  channels,  a percentage  from the  communication  fees paid to the
wireless communication  operator, and a commission from the e-business generated
through our channels. To establish a content distribution business we think that
we  will  need an  investment  of $1  million.  We  currently  do not  have  any
commitments  for  additional  investment  in the  Company  and  there  can be no
assurance that we will be able to establish our content distribution service. We
have not yet contacted  any content  provider and we do not know if our business
model as to the way we can acquire content distribution rights is valid.

Planned PC Model
----------------

     We plan to develop a voice  organizer for the PC with  features  similar to
those of the IMP.  This  product  will be a stand  alone  product  but will also
operate as backup and  synchronization  base for those users who will own an IMP
or a TOTAL, enabling them to synchronize automatically their hand-held unit with
the PC counterpart.  To achieve this goal we will need to make sure that the new
Voice Recognition and Voice Compression  engines we intend to implement with the
TOTAL are compatible with the PC environment. We believe that the budget for the
development  of a first


                                       7
<PAGE>


version of the PC model, first free standing and later IMP and TOTAL compatible,
will require an investment of $200,000.  We will achieve  several goals with the
development  of the PC version.  This version  could serve to introduce our hand
held  device.  It could serve also as a training  station and a reference  model
with HELP  features for users of our hand held units.  Finally it could become a
preferred  product  to the  general  community  of the PC users  increasing  our
exposure.  At first we intend to distribute the PC version for free from our web
site,  but later we may require  some payment for it and thus we may generate an
additional source of income.

Possible Palm Pilot Model
-------------------------

     We may consider in the future  developing a version of our PC model to work
on the Palm Pilot or similar PDAs.

Possible Sales of Software to OEM
---------------------------------

     We may  consider in the future  adapting  our  software to common  cellular
telephones  if  approached  by  manufacturers  of such  products.  The reason we
believe that this direction  might be advantageous to us is that we may generate
substantial licensing fees and royalties in such transactions.

Technology
----------

     Our  technology  consists of our software  and our  know-how in  developing
Voice PDA. We use a DSP component that comes with software for Voice Recognition
and  Voice  Compression.  We pay for  this  component  per  piece  and we pay no
licensing fee. The component that we use is now obsolete. See below in regard to
inventory of this  component that we may have access to and our plans to replace
it. As we stated, we plan to replace this component in our next models.

Intellectual Property
---------------------

     We have rights to a patent in Israel with respect to a Voice  Organizer for
the blind.  The patent  contains a block  diagram of a possible  product  but no
reference to the software or actual  electronic  design. We currently do not own
or license any other  patents.  We may seek patent  protection on our technology
where appropriate.

     We have a registered trademark in Israel for our logo and design.

Business Strategy
-----------------

     We develop  and market the VOICE DIARY line of voice  PDAs,  including  the
newly released IMP, which is tailored and ergonomically designed to the needs of
the visually impaired.  The IMP provides the full range of personal  information
management,  including  a talking  diary,  phonebook,  daily  pads and many more
advanced features.

     We  plan  to  incorporate  wireless  capabilities  (cell-phone  or  two-way
messaging/e-mailing  voice paging) to our platform,  with a vision to expand and
become the major  provider of wireless  mobile  computing  handsets  and related
services in the specific niche markets where we operate.

     We intend to expand to niche  markets  adjacent  to the  visually  impaired
market,  which are likewise  under-served  by  brand-name  providers of consumer
electronics and IT services, such as the fast growing market of the elderly.

     Central to our product vision is the voice user  interface,  an alternative
paradigm to the prevailing  graphic user interface  ("GUI") used in conventional
display-based  products.  The GUI is a  recognized  obstacle in the way for many
user  groups  (e.g.,  visually  impaired  and the  elderly) to adapt and use new
technology


                                       8
<PAGE>



products and  services.  VDI offers an approach  that removes this  obstacle and
serves the needs of many.

     Our  technology  consists of our ability to provide  complete  hardware and
software systems that answer needs specifically  identified by the people in the
addressed niche. We do not get involved in the development of generic technology
(such as voice  processing  engines).  Instead,  we  implemented  in the IMP and
previous  products,  a component sold by another company that provides for Voice
Recognition and Voice Compression.

     We may  complement  growth  in  our  proprietary  line  by  acquisition  of
companies with complementary products and services, a market presence and stable
cash flow,  for example,  a company that  distributes  various  products for the
blind and visually impaired. Another possibility may be a company with a line of
products similar to our product in technology but addressing a different market.

     We operate  globally in the sense that we have offices in the United States
and in Israel and have active distributors in the United States, United Kingdom,
Holland,  Australia  and  Israel.  We seek to raise  money in the United  States
through public and private offerings and seek strategic  partners in Europe, the
United States and South East Asia.  Of our  accumulated  sales of  approximately
$670,321, 40% were achieved in the United States, 30% in the United Kingdom, 15%
in Israel, and the balance in other countries.

     We manufacture our products through  subcontractors that provide electronic
assembly and  mechanical  assembly  work,  including  packaging.  There are many
subcontractors who can qualify for the production of the IMP.

     We market  our  products  to  distributors  who  mostly  sell our  products
directly to the end user.

     We conducted  our research and  development  activity by a team of software
and hardware  engineers  operating at our subsidiary,  VDL, based in Israel.  At
present we have dissolved our R&D operation.  When we will raise enough money to
develop  our  next  products  we  intend  to do  most of the  R&D  work  through
subcontractors.  We will  maintain  a small  group  of  software  engineers  for
maintenance of our software system.

Industry Analysis
-----------------

     We  operate  in two  industries:  the  PDA  industry  and the  industry  of
assistive  technology  that provides  technology-based  products and services to
disabled people.

     Today the PDA industry is merging with two other  industries:  the cellular
phone  industry and the hand held music  players.  Most  manufacturers  in these
industries are large companies that sell in large quantities. As a result of the
demand,  semiconductor manufacturers have developed components that simplify the
design of the  mainstream  PDAs,  cellular  phones and hand held music  players.
These new components are now generally available,  and at affordable costs. Thus
small  companies  can now develop  niche market  products  similar to mainstream
products. This is what we intend to do for the market of the visually impaired.

     The assistive  technology  industry was spurred in the United States by the
Americans with  Disabilities  Act (the "ADA").  This  legislation is a conscious
attempt to make  technology  accessible  to people  who  cannot  use  mainstream
products because of personal handicaps.  Thus, the assistive technology industry
fills a social need to


                                       9
<PAGE>



bring the disabled into the mainstream and integrate them into productive  life.
For this reason the purchasing of assistive  technology products like the IMP is
subsidized by governments and charity organizations all around the world. We are
making use of this approach by bringing to the  attention of the  administration
the availability of our products and its usefulness to the visually impaired.

Competition
-----------

     We believe that we have only one direct competitor,  a French company named
Parrot SA. This company already offers several  generations of competitive  PDAs
for the blind and visually  impaired and we believe that this company  currently
has an approximately 90% market share.

     We believe that the advantages of Parrot's product,  called Voice Mate, are
that it can use 400 voice recognizable  keywords,  compared to 127 with the IMP,
and such  keywords  can be linked  to diary  entries  and not only to  Phonebook
entries.  Also, some users believe that the Voice  Recognition of the Voice Mate
is  better  than  the  IMP.  The  Voice  Mate  allows  for  periodic  repetition
recordings,  for example every second Tuesday, which the IMP does not. The Voice
Mate  can turn on  quicker  than the IMP if you lock the ON key of the IMP or if
the IMP is in its DEEP SLEEP mode, which is used for energy saving. The IMP uses
rechargeable  batteries and needs to be charged every other day even if not used
at all,  to keep it working.  The Voice Mate uses  regular  batteries  that last
between two weeks and two months depending on use. Many users seem to prefer the
Voice Mate for this  reason.  The Voice  Mate  supports  all the major  European
languages  (for  prompts)  and the user does not need to download a new language
version to move from one language to the other.  The IMP supports  only English,
Hebrew,  Cantonese  and  Hungarian,  and the user needs to download the language
prompts.

     We believe that the IMP has significant advantages over the Voice Mate. The
sound of the IMP is louder and clearer. Its shape is smaller and more ergonomic.
It uses a standard connector to the earphone.  The IMP is more robust. The Voice
Mate has parts (like the screen and the batteries  compartments doors) that more
easily get  broken.  In the  Phonebook  folders of the IMP a user can store many
entries in free format  while the Voice Mate allows only for Phone  numbers in a
rigid order (home,  work,  etc.). A user can undo erase operations with the IMP.
The IMP has a back up battery for the clock which the Voice Mate does not. IMP's
communication  with the PC seems to be less  "temperamental",  to quote a user's
observation.  The Voice  Mate does not have a  Dailypad  system  and you can not
browse  the  Diary to find the  place to make a  recording.  Rather,  you make a
recording  and insert its date and time.  The  Company  has  various  non-direct
competitors,  such as companies which market digital voice event  recorders.  In
addition, companies like Philips, Hewlett-Packard, Casio, Compaq and others have
added voice  recording  capability to their  products,  but they remain text and
graphic machines and therefore inappropriate for people with sight problems.

     We believe that the  disabled  market in general and the blind and visually
impaired market in particular are unattractive  markets for large companies like
Palm or Nokia  because the market is small and  products  need  special  design.
However, there can be no assurance that other companies,  with greater resources
than VDI,  may not enter the  market.

     In the  market of the  blind  and  visually  impaired  there  are  portable
computers  product  generally  known as  Braille  to  Speak.  Some of the  newer
versions  of these


                                       10
<PAGE>


products  are  introduced  as PDA.  Their size and price tag (about 10 times the
price of the IMP which sells for $229,)  places them as we believe in a separate
category than our products.

     Nokia  recently  introduced  a Voice User  Interface  on its 9290  cellular
telephone.  The  software  is  called  TALX  and is  provided  by a third  party
manufacturer.  The price of this unit is about three times the price of the IMP.
Because of this reason and reasons of ease of use, we believe  that this product
does not pose a threat  to the IMP.  We  further  believe  that our  concept  of
building the TOTAL with a VUI software  that is designed  from the beginning for
the visually  impaired  will prove more user  friendly  than the approach of the
TALX  that is built  around  the  basically  GUI  approach  of the  standard  PC
software.

The Market
----------

     We estimate the potential market for our product to be 25 million blind and
visually  impaired  people  in the  developed  world.  Additionally  there  is a
possibility of sales to people in Third World countries of refurbished products.
We are planning to perform further market research in the second half of 2003 to
learn in detail the market potential and most desirable operating specifications
for our new products.

     We believe the market for our products is continually  growing,  mainly due
to advances in medical  treatment  that prolong life  expectancy.  In the United
States, the baby boomer generation is now entering the age group targeted by us.
Thus, the market potential for our devices is expected to grow.

     It is now a major  concern  worldwide  to make sure that the IT  revolution
will not increase the gap between the able and the disabled. Many countries have
enacted  legislation  aimed at this  concern.  The  purchase of products for the
disabled is often partly supported by public grants. In addition,  in some cases
there  is an  obligation  on  the  part  of an  employer  to buy  any  assistive
technology  product that can assist a disabled person to do a job. This practice
is especially  implemented in government  offices.  The U.S.  government runs an
Access  to Work  program,  which may pay for  special  aids that are shown to be
justified. Aids for the disabled are also sometimes tax deductible. An important
recent move is President Bush's "New Freedom Initiative" that includes:

     |_|  Increased   budgets  for   developing   and   implementing   assistive
          technologies.
     |_|  Increased  funding for the IDEA,  a program that helps  students  with
          disabilities.
     |_|  Aid  to  states  to  guarantee  low-interest  loans  for  people  with
          disabilities  to buy  computers and other  equipment  enabling them to
          work from home.
     |_|  Providing  resources  to  promote  ADA  compliance  and to help  small
          businesses hire people with disabilities.

     Many of the  users of Voice  Diary  received  financial  support  for their
purchase.

     In Western Europe and Japan,  public help to people with  disabilities  for
purchasing products is similar to that in the United States. Furthermore, social
assistance,  reimbursement  policies and  awareness of the disabled are far more
developed,  in  particular  in the  Scandinavian  and  other  northern  European
countries, as well as in Spain (an historic remnant of the multitude of crippled
survivors of the Spanish Civil War in the 1930s).  In such  locations  assistive
technology   can  be  financed  via  insurance  or  social   welfare  or  health
legislation.

Distribution Channels
---------------------


                                       11
<PAGE>



     The blind  and  visually  impaired  market  is  characterized  by the close
relationship  between users,  including  distributors  who are often  themselves
blind.

     Direct sales activity is done through local  distributors,  assisted by our
personnel. We have active distributors,  operating with us for several years. We
do not sign  distribution  agreements with our  distributors.  However,  we have
promised  them  that  we will  not to  nominate  another  distributor  in  their
territories  as  long  as  they  have  inventory  of our  product.  Distributors
generally pay at least one third of any order before shipment and the balance in
one or two  payments  3  months  apart.  We do not  have  any  price  protection
arrangements. We give a one year warranty on our products.

     In  the  United  States  we  use  a  single  distributor,   New  York-based
Independent  Living  Aids  ("ILA"),  which  is one of the  larger  U.S.  catalog
distributors  for the blind and  visually  impaired.  ILA also  provides us with
office space.

     Some of our  distributors are specialized  catalog  sellers,  providing the
blind and visually  impaired with the special products they need,  otherwise not
available through regular retail outlets.

     We conduct  marketing  activity  to raise  customer  awareness,  education,
promotion, advertisement and public relations through various channels, such as:

     |_|  The  large  number  of  national  and   regional   organizations   and
          associations for the blind and visually impaired in the United States,
          Europe and elsewhere.  Practically  every blind person,  especially in
          the  United   States,   is   associated  in  at  least  one  of  these
          organizations.
     |_|  State and federal  agencies for the blind and visually  impaired.
     |_|  Special clinics that treat vision impairments.
     |_|  Exhibitions. There are numerous exhibitions worldwide for the disabled
          in general, and for the blind and visually impaired in particular.  In
          the  United  States,  for  example,  there are some four to six annual
          nation-wide  exhibitions,  two to four regional  exhibitions  and many
          local  ones.  The  organizers  are  generally  the  various  dedicated
          organizations.
     |_|  Research   institutes  and  universities   that  provide  programs  on
          disabilities.
     |_|  Radio  programs.  Radio is an especially  powerful means for blind and
          visually impaired.
     |_|  Publications.  Of special  interest are the popular and  proliferating
          large  font  issues  of   publications,   like  the  Readers   Digest.
          Advertising  in such  publications  will afford access not only to the
          blind and visually impaired, but also to elderly people.
     |_|  Word of Mouth.  This is very  important in the market of the blind and
          visually  impaired since such people tend to communicate very strongly
          among themselves.

Sales
-----

     Due to their  physical  challenges,  the blind and visually  impaired  need
special  products to assist them in their lives,  such as calendars,  clocks and
watches,  temperature measuring devices, scales,  computers,  browsers,  Braille
displays,  and other  products.  Since such products are not  available  through
regular  retail  outlets,  special  marketing  channels  exist  that  distribute
products to this market. These include catalog companies and stores. The catalog
companies usually sell low end products like canes and watches, while the stores
usually sell high-end products such as computer systems.

                                       12
<PAGE>



     We  will  try to  cooperate  strategically  with  large  corporations  that
specialize  in this field and whose sales forces sell  expensive  equipment on a
head-to-head  basis. We believe that it would be advantageous  for both sides to
add our family of products to the product line of such large corporations.

     We will also consider the option of direct sales through the Internet.  One
of the main  considerations  in this  regard is to avoid  competing  with  local
distributors.

     Notwithstanding  distributors'  operations,  software upgrades will be made
available to end-customers directly through the Internet.

     Selling   through   renowned   retail  outlets  could  promote   widespread
distribution.  However,  this  option  will be chosen only if the deal with such
outlets  permits a high enough margin for us, and there are no conditions  which
could lead to financially  harmful  outcomes (such as maintaining high stocks in
stores).

     We plan to sell the TOTAL and GOLDEN devices by cellular service  providers
with or without the  support of the  traditional  distributors  to the blind and
visually impaired. The markup of cell phones by the service providers is usually
negligible,  as their main income is from the service. As such service providers
are constantly  seeking more customers,  the TOTAL will give them an added value
of  a  specific  niche  market.   Cellular  service  providers  usually  provide
installment plans to their customers to finance purchased products.

     We intend  to  remain  in touch  with  end-users  in order to  provide  the
software  upgrades (a new concept in the cell phone industry) as well as various
specific content.

     For the GOLDEN, we plan to use different distribution channels, specialized
in the elderly market. For example, companies that provide emergency services to
the elderly. We have already contacted such a company in Israel.

     We are also considering a paging  functionality for the TOTAL,  mainly as a
voice e-mail service, taking advantage of the big success of two-way messaging /
e-mailing products.

Environmental Compliance
------------------------

     We do not anticipate that we will become subject to environmental  laws and
regulations since we do not intend to conduct manufacturing operations.

Backlog and Seasonality
-----------------------

     We generally do not have any backlog of unfilled orders.  We do not believe
that our business will be seasonal.

Manufacturing Operations
------------------------

     We manufacture the IMP in Israel through subcontractors controlled from the
operations office of VDL in Yoqneam,  Israel. Because the development of the IMP
was supported by grants provided by the State of Israel,  we are required by law
to manufacture the IMP in Israel.  We believe that the TOTAL and the GOLDEN,  as
well as any model designed based on them,  will be free from such  restrictions.
However,  we plan that  because of our  presence  in Israel we will  continue to
manufacture our future  products  there, as long as the quantities  manufactured
will be less than 10,000 per batch.

     We are presently  manufacturing  2,200 units in runs of 550 units each. The
first run was completed in January 2003 and we started  shipments from this run.

                                       13
<PAGE>


The  second  is  due  to  commence   during  the  third  quarter  of  2003.  The
manufacturing of the 2,200 units is done by Reshef  Technologies Ltd ("Reshef").
Each future run will start only after we pay for the  previous  run and after we
initiate its start. We have no commitment to complete the  manufacturing  of the
additional 1,650 units. There is no written agreement between us and Reshef. For
each run we pay  Reshef  approximately  $60 per unit  upon  receiving  the units
produced.

     Reshef holds the components necessary for the production of the 1,650 units
plus  approximately  14,000  pieces of two main  components of the IMP that have
become  obsolete.  Thus, we will not be able to manufacture more than 14,000 IMP
units in addition to the 1,650 we plan to  manufacture in 2003 and 2004. We have
no  commitment  to  purchase  the  components  from  Reshef  and  Reshef  has no
commitment to provide us with these components. The obsolete components will not
be used in the design of the TOTAL and its derivative the GOLDEN.

     In February 2003 Reshef closed its  manufacturing  plant and terminated all
of the plant's employees. The components that Reshef holds for the manufacturing
of the our  product is held at the plant that was closed  down.  It is  possible
that Reshef will not carry out the next  manufacturing  runs of our  products or
furnish us with the  components.  Since some  components that are held by Reshef
are to not  available  elsewhere,  there is the risk that we will not be able to
manufacture  the Voice  Diary IMP units in its  present  design.  Our ability to
redesign the unit around generally available  components is not assured since at
present time we have no funds necessary to carry out such an undertaking.

     Reshef is a subsidiary of Aryt Industries Ltd. ("Aryt"),  which was a major
shareholder  in VDL until June 2002.  VDI  became the major  shareholder  of VDL
after it purchased  Aryt's  share in VDL.  Prior to this  transaction,  existing
loans that Aryt gave to VDL were  replaced  by an  agreement  of VDL to pay Aryt
royalties on its sales. More information on the history of the relations between
VDL, Aryt and Reshef,  is provided in the  Management  Discussion  and Analysis,
Background section below.

Research and Development
------------------------

     On research and development we spent during 2002, $142,581, and during 2001
$174,116. Because of our low volume of sales there is no correlation between our
R&D  expenditure  and our sales and we do not  include in our  pricing a special
percentage to allocate for R&D budget.

Employees
---------

     We employ at  present  only one full time  employee  who is our  Operations
Manager.  He is working out of our Israeli  office.  Three of our past employees
work today at Nir Or Israel Ltd ("Nir  Or").  They  include  our CEO who is Vice
President of Nir Or, our software  engineer and our sales and marketing  manager
for the  Israeli  market.  Our  relationship  with  Nir Or is  explained  in the
Management  Discussion below. Our CEO was recently granted a working visa in the
United  States and if we are able to raise money in the United States to finance
our future plans he will be spending about half of his time in the United States
running our local operations  there. We have an outside  consultant for Business
Development.

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.


                                       14
<PAGE>



     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.

ITEM 2. DESCRIPTION OF PROPERTY

     We lease approximately 400 square feet of office space in the Shaar Yoqneam
Industrial Park,  Yoqneam,  Israel for approximately $350 per month in rent. The
original  term of the lease has expired  and we intend to  negotiate a new lease
for the premises.

     Under oral arrangements  with our US distributor we are provided  marketing
offices in  Jericho,  New York on a rent-free  basis.  This  arrangement  may be
terminated immediately at any time.


ITEM 3. LEGAL PROCEEDINGS

     As of date of this document there were no legal actions  pending against us
or any of our officers or directors in their fiduciary  capacities,  nor, to our
knowledge, was any litigation threatened,  except that two demands were recently
raised against us that may evolve into court procedures. One is a demand made by
a subcontractor,  to whom we owe approximately  $50,000. The debt is included in
our financial  statements under "accrued  expenses".  The  subcontractor had the
option to convert  the debt into stock  options of VDL but  notified us recently
that it  decided  not to do so and is now  demanding  that the  debt be  settled
during  2003.  We offered to settle the debt  during  2004,  2005.  We  recently
received  a letter  from the  claimant's  attorney  that  unless we pay the full
amount by the end of March 2003,  the issue maybe  brought to court.  We believe
that the claim will be settled  outside the court.  The other demand was made by
the Chief  Scientist of the Ministry of Industry and Trade in Israel (the "Chief
Scientist")  concerning  its claim to repayment  of part of the grants  received
during 1998. (See Note 8B to the Company's  Consolidated  Financial Statements.)
The Chief  Scientist  threatens to use its power under the Tax Collection Law to
collect the sum it demands.  We have  considered  filing a court appeal to force
the Chief Scientist to take into  consideration  our counter claims.  We believe
that the issue will be settled outside the court. The costs resulting from these
procedures are expected to be nominal.


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

     No matters were submitted for a vote of security  holders during the fourth
quarter ended December 31, 2002.



                                       15
<PAGE>



                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     A  broker  dealer  made  an  application  on our  behalf  to  the  National
Association  of  Securities  Dealers,  Inc.  (the "NASD") for our Class A Common
Stock to trade on the OTC  Bulletin  Board.  The  NASD  replied  that it  cannot
approve the  request  until we have some  shares  that are freely  tradable.  We
intend to file a  registration  statement  to  register  the shares that are not
control  shares.  Also we  intend  to use the  same  registration  statement  to
register new shares for  allocation to new  investors.  We expect that following
our filing of the  registration  statement  our shares will be quoted on the OTC
BB. We plan to become  registered  in the BBX as it  becomes  available.  We are
awaiting  approval of our Form 10 from the Securities  and Exchange  Commission.
There was no public market for our shares during the fiscal year ended  December
31, 2002.

     As of March 1, 2003,  there were 5 stockholders of our Class A Common Stock
and 1 stockholder of our Class B Common Stock. The Class B Common Stock will not
be registered for sale in the public market.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     We do not have any equity compensation plans.


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.

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


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

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 or Plan of Operation" 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. These forward-looking  statements
include   statements  of


                                       16
<PAGE>



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").

OVERVIEW

     We were incorporated in the state of Delaware on February 26, 2002. In June
and July  2002 and in  January  2003 we  acquired  approximately  99.81%  of the
outstanding shares of Voice Diary Ltd., an Israeli corporation ("VDL"),  through
a purchase of shares  from Aryt  Industries  Ltd.  ("Aryt"),  the former  parent
company and former  controlling  stockholder of VDL and an exchange of shares of
VDI  with  other  former  stockholders  of VDL.  The  balance  of  0.19%  of the
outstanding shares of VDL are held by an ex-employee, the wife of an ex-employee
and two  investors.  All were offered the  opportunity  to swap their shares for
shares of VDI but declined or did not respond to the offer.

     Under generally  accepted  accounting  principles the purchase and exchange
transactions  were  accounted for as a  reorganization  under common control and
accordingly,  the  financial  statements  represent the  consolidated  financial
position, operating results and cash flows of the Company and the subsidiary for
all periods from inception of the  subsidiary.  VDL began  operations in October
1993  and has  been  in the  development  stage.  (Unless  otherwise  indicated,
references to the Company herein include VDL.)

     From its inception VDL used three sources of funding:  investments  made by
shareholders and third parties in shares and shareholders  loans; grants for R&D
made by the Office of the Chief  Scientist of the Ministry of Industry and Trade
in Israel;  and revenues from product  sales.  From investors VDL received about
$1.6 million (not including stock-based compensation);  from the Chief Scientist
VDL  received  about $0.7  million;  and from  sales VDL  received  about  $0.62
million.  All of the funds from the Chief  Scientist and about $0.8 million from
investors were received  during the years  1993-1998.  VDL started  marketing in
November 1997 and accumulated during the period from November 1997 to March 1999
revenues from sales of about $0.45 million. From March 1999 to June 2001 VDL had
sales of $5,000  only due to lack of  inventory  and the  financial  crisis that
prevented any marketing  activity or manufacturing.  In January 2000 VDL began a
relationship  with Aryt which


                                       17
<PAGE>


culminated  in Aryt  providing  the Company from January 2000 to March 2002 with
loans aggregating  approximately $0.65 million. In December 2001 VDL renewed its
manufacturing and marketing activities and from that date until December 2002 we
had revenues from sales of about $142,000.  We have an understanding with Reshef
Technologies  Ltd ("Reshef"),  a subsidiary of Aryt,  which provides for most of
the  components  needed  for the  manufacturing  of  2,200  IMP  units.  We have
additional  income  from  outsourcing  several  of our  employees.  We also have
received since July 2002 loans from Nir Or. The terms of the loans are discussed
in the Liquidity section below.

     Our plan for 2003 is to file a  registration  statement  and get our shares
quoted on the OTC BB and later  traded on the BBX as it  becomes  available.  We
will also  attempt to raise  money  through a public or a private  offering  and
acquire  another  business  with  better  cash flow than us. We have  identified
certain major risks.  The first risk is that our attempt to get our stock quoted
on the  OTC BB  will  fail  and  further  investment  from  Nir Or  will  not be
forthcoming.  As a result our acquisition  plan will not  materialize.  A second
risk is that we will fail to raise a substantial  investment that will permit us
to bring to the market the next generation of our products,  including the TOTAL
and the  GOLDEN.  The third risk is that some other  company,  likely  with more
financial  resources than us, will market a product that will render the IMP and
even the TOTAL, obsolete. The fourth risk is that we will not be able to further
manufacture IMP units due to the fact that Reshef closed its manufacturing plant
where our components are manufactured or held in inventory.

Critical Accounting Policies
----------------------------

Stock-based compensation
------------------------

     VDL accounts for  employee  stock-based  compensation  in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" ("APB 25") and the FASB  interpretations  thereof.  Pursuant to those
accounting pronouncements, VDL records compensation for share options granted to
employees  at the date of grant based on the  difference  between  the  exercise
price of the options and the market value of the underlying shares at that date.
Due to the terms of the grants, the fair value of the compensation in accordance
with SFAS No. 123,  "Accounting for Stock-Based  Compensation"  approximates the
values  computed in  accordance  with APB No. 25. VDL accounts  for  stock-based
compensation to non-employees in accordance with SFAS No. 123.

     Under   both   accounting   pronouncements,   as  part  of  the   necessary
computations,  management  is  required  to  estimate  the  fair  value  of  the
underlying shares. Fair value has generally been determined by management as the
price at which  the  Company's  shares  were  issued  at the most  recent  prior
placement of the Company's common stock. The timing of the grant and measurement
of stock-based  awards could have a material effect on the Company's  results of
operations and financial position.

Revenue recognition
-------------------

     The  Company is  developing  a line of products  based on personal  digital
assistant technology.  The Company's revenues currently derive solely from a low
volume of consumer  product  sales at standard  terms which are  recognized,  in
accordance with generally accepted accounting  principles,  upon shipment of its
products to the customer  provided that  persuasive  evidence of an  arrangement
exists,


                                       18
<PAGE>



title has transferred,  the price is fixed,  collection of resulting receivables
is probable and there are no remaining significant  obligations.  Future results
of  operations  may be  affected  by the  nature  of the  products  that  may be
developed  and  marketed  in the  future by the  Company  and by the terms to be
included in the sales agreements.  Such matters may have a significant impact on
the timing of the Company's revenue recognition at each reporting date.

Development stage enterprise and going concern issue
----------------------------------------------------

     The Company is in the development  stage and has not generated  significant
revenues. The Company's financial statements have been prepared assuming that it
will continue as a going concern,  which  contemplates the realization of assets
and the  satisfaction  of  liabilities  in the normal  course of  business.  The
Company has an  accumulated  deficit at December  31, 2002 of  $2,525,864  and a
working capital deficit at December 31, 2002 of $454,757 that raise  substantial
doubt  about its ability to continue as a going  concern.  In  addition,  in 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.

Background
----------

     From  our  inception  until  1998,  we were  financed  by an  aggregate  of
approximately  $780,000  in  equity  investments  made by a group of  investors.
During this period we also  received  about  $639,000 in grants for our research
and development program from the Chief Scientist of the Ministry of Industry and
Trade of Israel  ("the  Chief  Scientist").  In return  for the  grants,  VDL is
required to pay royalties to the Chief Scientist equaling 3.5% of sales until an
amount  equal to the grant has been paid.  VDL also  received  an  aggregate  of
approximately   $60,000  in   unconditional   grants   from  the  Fund  for  the
Encouragement  of Export (the  "Marketing  Fund").  See Note 8 to the  Company's
Consolidated  Financial  Statements for information  concerning disputes between
VDL and the Chief Scientist and the payback of part of the Marketing Fund grant.

     Towards the end of the first quarter of 1999 we were in a financial  crisis
that  necessitated  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 and 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.

     During 1999 and 2000 VDL managed to survive  through the  collaboration  of
its  ex-employees  and  subcontractors  that helped in preserving  the Company's
knowledge and in the development of a new model in its series of PDAs, the Voice

                                       19
<PAGE>



Diary IMP.  VDL issued  warrants to purchase VDL stock to its  ex-employees  and
subcontractors as payment for their support.  Altogether seven  ex-employees and
subcontractors  received shares.  Five holders of these warrants exercised their
warrants in January 2003. The two others gave up their warrants. One of them may
be suing the company (see the section on Litigation).

     VDL started  marketing in November 1997 and during the period from November
1997 to March 1999 accumulated revenues from sales of about $0.45 million.  From
March  1999 to June 2001 VDL had sales of $5,000  only due to lack of  inventory
and the financial crisis that prevented any marketing activity or manufacturing.

     In the beginning of 2000 VDL entered into a  subcontracting  agreement with
Aryt for the manufacturing of the IMP, through Aryt's subsidiary,  Reshef,  with
Reshef providing a credit line of $150,000 to cover  manufacturing  costs. Under
this agreement,  VDL sold to Reshef VDL's entire  inventory of components at its
full value of about $40,000. This amount was deducted from the cost of revenues.
In the  beginning  of 2002 the  credit  line was  replaced  by a  subcontracting
agreement  under  which  Aryt  undertook  to cover the costs of  components  and
manufacturing  of the  IMP,  up to an  amount  of  $425,000.  In June  2002  the
subcontracting  agreement was terminated and a manufacturing  understanding  was
reached with Reshef under which Reshef will  manufacture for VDL 2,200 IMP units
in batches of 550 and VDL will pay for each  batch upon  receipt.  The price per
unit is  approximately  $60. As we  discussed  in the  section on  Manufacturing
Operation  above,  some recent  developments  with Reshef may risk our agreement
with it.

     During 2000 and 2001,  Aryt  provided VDL with a loan of $ 350,000 to cover
R&D costs required to finish the  development and engineering of the IMP. In the
first  quarter of 2002 the loan was  increased  to $650,000.  For its  financial
accommodations  to VDL, VDL issued to Aryt an  aggregate of 3,471,652  shares of
common stock of VDL.

     Since  December  2001,  when VDL renewed its  manufacturing  and  marketing
activities  until  December  2002 we had  revenues  from  sales  of IMP of about
$142,000.

     In June 2002, following a financial crisis in Aryt, Aryt and 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  and  Reshef  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 will be 10% of sales for 3 years or until the payment by VDL of
an  aggregate of  $250,000;  thereafter,  6% of sales for two years or until the
payment by VDL of an aggregate of $500,000;  and  thereafter 1% of sales for two
more years or until the payment by VDL of an aggregate of $751,000.  We are late
in paying Aryt for the period of the last quarter of 2002.

     In 2002 we had additional income of approximately  $29,000 from outsourcing
several of our  employees.  We also received  since July 2002,  $57,000 in loans
from Nir Or.

Results of Operations
---------------------

     The  following  discussion  of  the  financial  condition  and  results  of
operations  of  Voice  Diary  Inc.  should  be  read  in  conjunction  with  the
Consolidated  Financial

                                       20
<PAGE>

Statements and the Notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002.

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
-------------------------------------------------------------------------

     Our revenues decreased by approximately $34,000  (approximately 70%) in the
fiscal  year ended  December  31,  2002 ("FY  2002")  over the fiscal year ended
December 31, 2001 ("FY 2001"). The reason for this decrease is that our sales of
the IMP commenced in December 2001 and during most of 2002 our  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.

Fiscal Year 2001 Compared to Fiscal Year 2000
---------------------------------------------

     Our revenues increased by approximately $104,200  (approximately 1,703%) in
the fiscal year ended  December  31, 2001 ("FY 2001") over the fiscal year ended
December  31,  2000 ("FY 2000") due to the  commencement  of sales of the IMP in
December 2001.

     The gross profit as a percentage of sales was  approximately 26% in FY 2001
as compared to a gross loss as a percentage of sales of approximately  29% in FY
2000.  The  increase in FY 2001 was due to a reduction  in  component  costs and
increased sales in FY 2001.

     Research  and  development  expenses  increased  by  approximately  $94,400
(approximately  118%) in FY 2001 over FY 2000 primarily due to expenses incurred
in developing the IMP.

     Marketing,  general and administrative  expenses decreased by approximately
$48,900  (approximately  36%) in FY 2001 compared to the previous year primarily
due to the fact that FY 2000 expenses include non-cash expenses (relating to the
issuance of warrants to employees and subcontractors). Marketing expenses in the

                                       21
<PAGE>



fiscal year ending  December  31,  2002 are  anticipated  to increase as the IMP
marketing plan is implemented.

     In FY 2001 we had net financial income of approximately  $1,100 as compared
to net financial  expenses of $117,542 in FY 2000. The decrease in net financial
expenses  in FY 2001 was due to changes in the  exchange  rate in United  States
dollars for Israeli new shekels.

     Our net loss in FY 2001 decreased by approximately $113,500  (approximately
33%) from FY 2000. The decrease was primarily due to an increase in revenues and
decreased net financial expenses.


Liquidity
---------

     We have limited financial resources to continue our operations. Ultimately,
our  ability to  continue  as a going  concern  will  depend upon our ability to
achieve and maintain  profitability in the sale of our products. Our independent
certified public accountants, stated in their report on our financial statements
as of December 31, 2002, December 31, 2001 and December 31, 2000 and for certain
periods then ended, that our recurring losses from operations,  negative working
capital and  shareholders'  deficiency raise substantial doubt about our ability
to continue as a going concern.

     We had a deficit in working capital of $454,757 as of December 31, 2002. We
plan to meet our  obligations  by entering  into  installment  arrangements,  by
arrangements  deferring  payments  until  future  financing  is  obtained  or by
settlements with creditors.

     Our need to  finance  the  manufacturing  of IMP units is met mostly by the
arrangement we made with Reshef in June 2002.  However,  see above regarding the
risk  that  Reshef  will  not be  able  to  provide  us  components  to  further
manufacture the IMP. We have an arrangement with our distributors  that payments
for shipments are made in two or three equal installments,  with the first being
made in advance and other  installments  made 3 months apart.  This  arrangement
will enable us to pay for manufacturing.

     Since our disengagement  from Aryt has severed our main source of financing
in recent years, we have taken several steps to reduce expenses. We have reduced
the  number  of our  employees  from 10 to 1. We  estimate  that  our  operating
expenses  over the next  twelve  months  will be  approximately  $120,000.  This
assumes that we will make no major  investments  in developing the next model in
the  Voice  Diary  line  or in  expanding  our  marketing  outside  Israel.  The
development of such model would require a budget of approximately $500,000.

     Since July 1, 2002 we have obtained an aggregate of about $57,000 (of which
$9,000 was  received  after the date of our  auditor's  report on the  Financial
Statements)  in bridge  loan  financing  from an Israeli  company  called Nir Or
Israel  Ltd ("Nir Or")  which is a  developer  and  manufacturer  of  electronic
systems for defense  applications.  The loan is provided under an oral agreement
with the lenders. The terms of the loan are: if our Class A Common Shares become
quoted on the OTC BB,  the  lenders  will have the  right to  receive  5% of the
outstanding Class A shares for every $100,000 in principal amount of the loan at
no cost and the loan will be  payable  in an amount  equal to 3% of the sales of
VDI, with interest equal to the London Interbank Offered Rate ("LIBOR") plus 3%,
over a period of 5 years.  If the Class A Common  Shares do


                                       22
<PAGE>



not become  quoted in the OTC BB, the loan will be payable  after 12 months with
interest equal to the LIBOR plus 3%.

     We also negotiated with Nir Or with respect to an acquisition by us through
a share  swap of two small  Israeli  companies  that are  being  held by the two
shareholders  of Nir Or.  This  plan was  abandoned.  We  intend  to seek  other
opportunities to purchase a business through a share swap arrangement.

     On October 1, 2002, after we started  receiving loans from Nir Or, Mr. Arie
Hinkis,  a director and Chief Executive  Officer of our company also became Vice
President of Nir Or. Since January 2003 his salary is being paid directly by Nir
Or.

     We are committed to pay royalties on sales of the IMP to two parties at the
following  annual rates:  The Chief Scientist - 3.5%; Aryt - 10% for 3 years, 6%
for additional 2 years and 1% for  additional 2 years.  Also, the bridge loan we
received  from Nir Or is payable  based upon a  percentage  of the sales of VDI.
These commitments place a heavy burden on the Company's cash flow.

Capital Resources
-----------------

     As of the date of this report we have no material  commitments  for capital
expenditures.   However,  we  do  have  significant  debt  service  and  royalty
commitments,  as discussed  herein.  To meet these  obligations,  to finance our
negative  cash  flow  from  operations  and  to  provide  for  possible  capital
expenditures  to develop  new models in the Voice  Diary  line,  we will seek to
raise money through the sale of our equity in private or public transactions. If
we will not be able to raise  money  through  the  sales of our  equity,  we are
facing the risk of being unable to continue our operations.

     In August 2001 we received a loan in the amount of  approximately  $102,000
from the Bank for the Development of Industry in Israel Ltd. ("BDII").  The loan
is payable in 36 equal monthly  payments of $2,800  starting in September  2002.
The loan bears  interest  at the rate of Libor  plus 4% per annum paid  monthly.
BDII holds a lien on  substantially  all the assets of the Company.  In December
31, 2002 we were in default on three  payments.  We have recently asked the bank
to permit us to pay only the interest on the loan for six months and resume full
payment  thereafter.  We haven't received yet an answer to our request.  We have
also  indicated  to the bank that Nir Or is ready to buy the debt for 25% of its
amount.  BDII,  which is  controlled by the  government of Israel,  has recently
stopped regular operation due to severe losses.

     In August 2001 we received a loan from United Mizrahi Bank Ltd. The balance
of the loan as of December 31, 2002 is about  $11,322.  The loan is payable in 8
equal monthly  payments of $ 1,400 each.  The loan bears interest at the Israeli
Prime  Interest  Rate plus 1.5% per annum.  The loan is  partially  secured by a
deposit in the amount of $4,400.  The  Israeli  Prime  Interest  Rate is defined
below.

     In February  2001 we reached a  settlement  with Israel  Discount  Bank Ltd
("IDB").  The  settlement  finalized  a law suit filed by IDB on a debt of about
$22,000 that we were in default of payment.  Under this settlement we still have
to pay monthly  principal  payments  of $630  during 2003 and a final  principal
amount of $840 in January 2004.  Interest will be paid with the final  principal
payment in January 2004. The loan is not secured.

     Our monthly operating budget is $10,000 per month (including  approximately
$5,000 in debt  service  payments).  We  project  that for the year 2003 we will
generate approximately $140,000 from sales of the IMP.

                                       23
<PAGE>



Disclosures About Contractual Obligations as of December 31, 2002
-----------------------------------------------------------------

<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           $113,347         $     --           $113,347       $      --     $         --
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.

     The following table provides  information  about our debt obligations which
are sensitive to changes in interest rates at December 31, 2002. The information
is the principal  cash flows and weighted  interest  rates by expected  maturity
dates.

<TABLE>
<CAPTION>
  Long-term debt (in U.S. dollars)
  --------------------------------
                                             2003            2004           2005
                                    -------------- ---------------  -------------
<S>                                        <C>             <C>            <C>
   Variable rate (in U.S. dollars)         40,534          33,845         20,046
                     Interest rate     LIBOR + 4%      LIBOR + 4%     LIBOR + 4%

        Fixed rate (in new Israeli         11,322
                          shekels)
                    Interest rate*        IP+1.5%

     Variable rate (in new Israeli          7,600
                          shekels)
                     Interest rate           6.85
                                    -------------- ---------------  -------------
                                           59,456          33,845         20,046
                                    ============== ===============  =============
</TABLE>


*IP-Israel Prime Interest Rate set from time to time by the Bank of Israel. On
December 31, 2002 the IP was 10.4% per annum.


                                       24
<PAGE>



ITEM 7. FINANCIAL STATEMENTS

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




                                       25
<PAGE>





                                VOICE DIARY INC.
                                ----------------
                          (A DEVELOPMENT-STAGE COMPANY)
                          -----------------------------
                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------
                             AS OF DECEMBER 31, 2002
                             -----------------------




                                       F1


<PAGE>




                                VOICE DIARY INC.
                                ----------------
                          (A DEVELOPMENT-STAGE COMPANY)
                          -----------------------------


INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------


<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
INDEPENDENT AUDITORS' REPORT                                                                   F3

CONSOLIDATED FINANCIAL STATEMENTS:

 Consolidated Balance Sheets as of December 31, 2002 and 2001                                  F4

 Consolidated Statements of Operations for the years ended December 31, 2002,
 2001 and 2000 and the cumulative period from October 1, 1993 (date of
 commencement of operations) to December 31, 2002 F5

 Statement of  Shareholders'  Deficiency for the period from October 1, 1993 (date of
 commencement of operations) to December 31, 2002                                           F6 - F8

 Consolidated Statements of Cash Flows for the years ended December 31, 2002,
 2001 and 2000 and the cumulative period from October 1, 1993 (date of
 commencement of operations) to December 31, 2002 F9 - F10

 Notes to the Consolidated Financial Statements                                            F11 - F30

</TABLE>




                                       F2
<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,  2002 and 2001,  and the  related  consolidated  statements  of  operations,
shareholders'  deficiency  and cash  flows  for each of the  three  years in the
period  ended  December 31, 2002 and for the  cumulative  period from October 1,
1993 (date of commencement of operations) to December 31, 2002.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by the management,  as well as evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.


In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of the Company and
its subsidiary as of December 31, 2002 and 2001, and their consolidated  results
of operations and their  consolidated  cash flows for each of the three years in
the period ended December 31, 2002 and for the cumulative period from October 1,
1993 to December 31, 2002, in conformity  with accounting  principles  generally
accepted in the United States of America.


The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the Company's recurring losses from operations,  working
capital deficit and  shareholders'  deficiency raise substantial doubt about its
ability to continue as a going  concern.  Management's  plans  concerning  these
matters are also  described in Note 1. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                                         Brightman Almagor & Co.
                                                    Certified Public Accountants
                                         Member firm of Deloitte Touche Tohmatsu
                                                                   Haifa, Israel
                                                                  March 26, 2003

                                       F3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                 December 31
                                                                                            2002              2001
                                                                                        -----------       -----------
CURRENT ASSETS
--------------
<S>                                                                                     <C>               <C>
Cash and cash equivalents                                                               $    13,019       $   117,805
Trade accounts receivable                                                                     3,309            65,970
 Other receivables and prepaid expenses (Note 3)                                             10,004            29,363
                                                                                        -----------       -----------
                                                                                             26,332           213,138
                                                                                        -----------       -----------
FIXED ASSETS, NET (Note 4)                                                                   37,593            11,604
                                                                                        -----------       -----------
                                                                                        $    63,925       $   224,742
                                                                                        ===========       ===========

CURRENT LIABILITIES
-------------------

Short-term bank borrowings and current portion of long term debt                        $    71,554       $    44,330
Short-term loans from Related Party (Note 15)                                                    --           357,672
Trade accounts payable                                                                       37,447           197,249
Accrued expenses                                                                            220,886           180,542
Related parties                                                                                  --             4,929
Bridge loan                                                                                  47,975                --
Other payables (Note 5)                                                                     103,227            35,291
                                                                                        -----------       -----------
                                                                                            481,089           820,013
                                                                                        -----------       -----------


LONG TERM LIABILITIES
---------------------

Long term loans from banks (Note 6)                                                          53,891           108,443
Liabilities for severance pay (Note 7)                                                        6,216             1,761
                                                                                        -----------       -----------
                                                                                             60,107           110,204
                                                                                        -----------       -----------

COMMITMENTS (Note 8)
--------------------

SHAREHOLDERS' DEFICIENCY (Note 9)
---------------------------------
Share capital:
  Shares of Class A Common Stock $0.01 par value (Authorized -10,000,000 shares
  as of December 31, 2002 and 2001
   Issued and Outstanding - 634,863 shares as of December 31, 2002 and 736,531
   shares as of December 31, 2001) Shares of Class B Common Stock $ 0.01 par value
  (Authorized - 10,000 shares, Issued and Outstanding - 2,400 shares as of
  December 31, 2002 and 2001)                                                                 6,373             7,389
Additional paid-in capital                                                                2,042,220         1,203,489
Deficit accumulated during the development stage                                         (2,525,864)       (1,916,353)
                                                                                        -----------       -----------
                                                                                           (477,271)         (705,475)
                                                                                        -----------       -----------
                                                                                        $    63,925       $   224,742
                                                                                        ===========       ===========
</TABLE>


      March 26, 2003
------------------------------
    Approval date of the
    financial statements

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


                                       F4
<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,
                                       2002              2001                2000             2002
                                    -----------       -----------          --------       -----------
<S>                                 <C>               <C>               <C>               <C>
Revenues (Note 10)                  $    34,002       $   109,963       $     5,778       $   640,963

Cost of revenues (Note 11)               59,409            81,036            19,062           581,242
                                    -----------       -----------          --------       -----------

Gross profit (loss)                     (25,407)           28,927           (13,284)           59,721

Operating costs and  expenses

 Research and development
  expenses (Note 12)                    142,581           174,116            79,700         1,114,694

 Marketing, general and
  administrative expenses
    (Note 13)                           329,136            86,978           135,831         1,143,429

 Operating loss                        (497,124)         (232,167)         (228,815)       (2,198,402)

 Financial expenses  (Note 14)          142,327            24,132           117,542           388,710
                                    -----------       -----------          --------       -----------

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

 Other income, net (Note 16)            (29,358)               --            (1,756)          (31,086)
                                    -----------       -----------          --------       -----------

 Loss for the period                $  (609,511)      $  (231,087)         (344,601)      $(2,525,864)
                                    ===========       ===========          ========       ===========

 Loss per share:
 Basic and diluted                  $     (0.96)      $     (0.36)      $     (1.76)
                                    ===========       ===========       ===========

 Number of shares used in
   computing basic and
     diluted loss per share             637,263           637,263           195,951
                                    ===========       ===========       ===========
</TABLE>

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


                                       F5
<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>
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.


                                       F6
<PAGE>


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



<TABLE>
<CAPTION>
                                             Number of Shares               Number of Shares

                                                                        Class A           Class B                    Additional
                                         Common        Preferred        Common            Common       Share          paid-in
                                          Stock          Stock           Stock             Stock      Capital         capital
                                        ---------     -----------     -----------     ------------- -----------     -----------
<S>                                        <C>                                                            <C>       <C>
Balance- December 31, 1997                 33,160              --              --             --          1,075     $   579,261

Changes in 1998:

Issuance of Common Stock                   87,480                                                         2,275         199,838

Issuance of options to employees                                                                                          3,600

Loss for the year
                                        ---------     -----------     -----------     ------------- -----------     -----------

Balance- December 31, 1998                120,640                                                         3,350         782,699

Changes in 1999:

Issuance of Common Stock                    7,630                                                           179          21,757

 Issuance of options to a related
   party                                                                                                                161,970

Issuance of options to employees                                                                                         37,894

Loss for the year
                                        ---------     -----------     -----------     ------------- -----------     -----------

Balance- December 31, 1999                128,270                                                         3,529       1,004,320

Changes in 2000:

Issuance of Common Stock                  213,718                                                         5,238          48,210

 Issuance of Common Stock pursuant
   to financing agreement                 300,000                                                         7,317          66,722

 Issuance of options for services
   rendered                                                                                                              30,145

 Issuance of options to a related
   party                                                                                                                 45,000

Issuance of options to employees                                                                                          5,391

Issuance of Preferred Stock                                 2,400                                             6              --

Loss for the year
                                        ---------     -----------     -----------     ------------- -----------     -----------

                                          641,988           2,400              --             --         16,090       1,199,788
 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
                                        =========     ===========     ===========     ==========    ===========     ===========

                                             Deficit
                                           accumulated
                                            during the       Total
                                           development   shareholders'
                                              stage       deficiency
                                          -----------     -----------

Balance- December 31, 1997                $  (702,231)    $  (121,895)

Changes in 1998:

Issuance of Common Stock                                      202,113

Issuance of options to employees                                3,600

Loss for the year                            (278,459)       (278,459)
                                          -----------     -----------

Balance- December 31, 1998                   (980,690)       (194,641)

Changes in 1999:

Issuance of Common Stock                                       21,936

 Issuance of options to a related
   party                                                      161,970

Issuance of options to employees                               37,894

Loss for the year                            (359,975)       (359,975)
                                          -----------     -----------

Balance- December 31, 1999                 (1,340,665)       (332,816)

Changes in 2000:

Issuance of Common Stock                                       53,448

 Issuance of Common Stock pursuant
   to financing agreement                                      74,039

 Issuance of options for services
   rendered                                                    30,145

 Issuance of options to a related                              45,000
   party

Issuance of options to employees                                5,391

Issuance of Preferred Stock                                         6

Loss for the year                            (344,601)       (344,601)
                                          -----------     -----------

                                           (1,685,266)       (469,388)
 Adjustment due to reorganization
   under common control                                             -
                                          -----------     -----------

Balance- December 31, 2000                $(1,685,266)    $  (469,388)
                                          ===========     ===========
</TABLE>




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

                                       F7
<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>
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
  pursuant to financing agreement                      98,249                      982         97,267                        98,249

 Waiver of loan by Related Party                                                              649,289                       649,289

 Waiver of shares by principal
   shareholder                                       (265,094)                  (2,650)         2,650

 Issuance of options for services
   rendered                                                                                    25,000                        25,000

Loss for the year                                                                                           (609,511)     (609,511)
                                 -------  -------     -------      -----   -----------    -----------    -----------    -----------

Balance December 31, 2002             --       --     634,863      2,400   $     6,373    $ 2,042,220    $(2,525,864)   $ (477,271)
                                 =======  =======     =======      =====   ===========    ===========    ===========    ===========
</TABLE>


                                       F8
<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,
                                                         2002           2001           2000           2002
                                                      -----------    -----------    -----------    -----------
CASH FLOWS - OPERATING ACTIVITIES
<S>                                                   <C>            <C>            <C>            <C>
Loss for the period                                   $  (609,511)   $  (231,087)   $  (344,601)   $(2,525,864)
Adjustments to reconcile loss to net
  cash used in operating activities (Appendix A)          157,848         67,667        289,949        944,161
                                                      -----------    -----------    -----------    -----------
Net cash used in operating activities                    (451,663)      (163,420)       (54,652)    (1,581,703)
                                                      -----------    -----------    -----------    -----------

CASH FLOWS - INVESTING ACTIVITIES
Purchase of fixed assets                                  (33,713)        (7,189)            --       (156,239)
Proceeds from sale of fixed assets                             --             --          1,805          2,503
                                                      -----------    -----------    -----------    -----------
Net cash (used in) provided by investing activities       (33,713)        (7,189)         1,805       (153,736)
                                                      -----------    -----------    -----------    -----------

CASH FLOWS - FINANCING ACTIVITIES
Proceeds from long-term loans                                  --        118,114         30,932        210,858
Repayment of long-term loans                              (26,128)        (4,050)       (34,896)       (93,505)
Short-term bank credit, net                                 1,949       (130,947)       (49,911)        12,098
Short-term loans from Related Party                       291,617        302,200         55,472        649,289
Bridge loan                                                47,975             --             --         47,975
Issuance of shares                                         65,177             --         57,180        921,743
Costs related to previous year's shares issues                 --         (5,000)            --             --
                                                      -----------    -----------    -----------    -----------
Net cash provided by financing activities                 380,590        280,317         58,777      1,748,458
                                                      -----------    -----------    -----------    -----------

Increase (decrease) in cash and cash equivalents         (104,786)       109,708          5,930         13,019
Cash and cash equivalents - beginning of period           117,805          8,097          2,167             --
                                                      -----------    -----------    -----------    -----------
Cash and cash equivalents - end of period             $    13,019    $   117,805    $     8,097    $    13,019
                                                      ===========    ===========    ===========    ===========
</TABLE>

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


                                       F9
<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,
                                                         2002         2001         2000         2002
                                                       ---------    ---------    ---------    ---------
Appendix A -
------------
Adjustments to reconcile loss to
  net cash from operating activities

Income and expense items not
  involving cash flows:
<S>                                                    <C>          <C>          <C>          <C>
Depreciation and amortization                          $   7,724    $   2,951    $  13,503    $ 117,871
Exchange-rate (gain) loss                                 (3,149)      (2,567)         277       (4,006)
Liabilities for severance pay                              4,455        1,761           --        6,216
Gain on sale of fixed assets                                  --           --       (1,757)      (1,728)
Non-cash compensation expenses                           123,249           --      150,848      477,561
                                                       ---------    ---------    ---------    ---------
                                                         132,279        2,145      162,871      595,914
                                                       ---------    ---------    ---------    ---------

Changes in operating assets and liabilities:

Decrease (increase) in trade accounts receivable          62,661      (65,737)          66       (3,309)
Decrease (increase) in receivables and other current
  assets
                                                          19,359      (28,740)       2,027      (10,004)
Decrease in inventories                                       --           --       40,496           --
Increase (decrease) in trade accounts payable           (159,802)     165,901       (5,853)      37,447
Increase (decrease) in payables and other current
  liabilities                                            103,351       (5,902)      90,342      324,113
                                                       ---------    ---------    ---------    ---------
                                                          25,569       65,522      127,078      348,247
                                                       ---------    ---------    ---------    ---------
                                                       $ 157,848    $  67,667    $ 289,949    $ 944,161
                                                       =========    =========    =========    =========

Appendix B -
------------
Non cash transactions
Waiver of loan by principal shareholder
  in exchange for rights to royalties                  $ 649,289           --           --    $ 649,289
                                                       =========    =========    =========    =========

Supplemental disclosure of cash flow information:
 Cash paid during the period for:
 Interest                                              $  13,485    $  12,605    $  36,398    $ 140,006
                                                       =========    =========    =========    =========
</TABLE>

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


                                      F10
<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,  is developing  and marketing a
          line of personal digital  assistants  ("PDAs") which have a voice user
          interface  and  provide  the  user  with  a  full  range  of  personal
          information  management  applications,   including  a  talking  diary,
          telephone book, daily pad and other advanced features.  The voice user
          interface  enables  the  visually  impaired to use PDA  technology  by
          removing  obstacles  to use  inherent  in  conventional  display-based
          products.

     B.   Going concern

          The accompanying financial statements have been prepared assuming that
          the Company will continue as a going concern,  which  contemplates the
          realization  of assets  and the  satisfaction  of  liabilities  in the
          normal  course of business.  The Company's  accumulated  deficit as of
          December  31, 2002 of  $2,525,864  and working  capital  deficit as of
          December  31,  2002 of  $454,757  raise  substantial  doubt  about its
          ability to continue as a going concern.

          In addition,  in the second half of 2002 the Company  operations  were
          carried out with a significantly reduced staff.

          The ability of the Company to continue as a going concern is dependent
          upon the successful  completion of the Company's  development  program
          and,  ultimately,  the attainment of profitable  operations  which are
          contingent  upon  future  events,   including   maintaining   adequate
          financing to fulfill its development activities, and achieving a level
          of sales adequate to support the Company's expense structure.

          The Company plans to meet its obligations by entering into installment
          arrangements,   by  arrangements   deferring   payments  until  future
          financing is obtained and/or by settlements with creditors.



                                      F11
<PAGE>




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

NOTE 1 - GENERAL (CONT.)
------------------------

     C.   Other risk factors

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

          2.   In accordance with a subcontracting  agreement  between Reshef (a
               subsidiary of Aryt  -Subsidiary's  former parent company) and the
               Subsidiary,  Reshef agreed to  manufacture  2,200 Voice Diary IMP
               units for the  Subsidiary.  In February  2003  Reshef  closed its
               manufacturing  plant.  It is possible  that Reshef will not carry
               out the next manufacturing  runs of the Subsidiary's  products or
               furnish the components to the Subsidiary for  assembly.(see  Note
               8E).


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------

     A.   General

          The  financial  statements  have  been  prepared  in  conformity  with
          accounting  principles  generally  accepted  in the  United  States of
          America.

     B.   Principles of consolidation

          The Company's  consolidated financial statements include the financial
          statements  of the Company and its wholly owned  Subsidiary in Israel,
          after elimination of material intercompany transactions and balances.

     C.   Functional currency and foreign currency translation

          The  currency  of  the  primary  economic  environment  in  which  the
          operations of the Company and its Subsidiary are conducted is the U.S.
          dollar  ("dollar").  Therefore,  the  Company  uses the  dollar as its
          functional  and reporting  currency.  Certain of the dollar amounts in
          the financial  statements may represent the dollar equivalent of other
          currencies, and may not necessarily be exchangeable for dollars.

          Transactions  and  balances  denominated  in dollars are  presented at
          their  dollar  amounts.   Non-dollar  transactions  and  balances  are
          remeasured into dollars in accordance with the principles set forth in
          Statement of Financial  Accounting Standards ("SFAS") No. 52, "Foreign
          Currency  Translation,"  of the Financial  Accounting  Standards Board
          ("FASB").  Transaction gains and losses are reflected in net financing
          expenses.



                                      F12
<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.



                                      F13
<PAGE>





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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
------------------------------------------------

     H.   Revenue recognition

          The Company  recognizes  revenue  upon the shipment of its products to
          the  customer  provided  that  persuasive  evidence of an  arrangement
          exists,  title has  transferred,  the price is  fixed,  collection  of
          resulting   receivables   is  probable  and  there  are  no  remaining
          significant obligations.

     I.   Research and development costs

          Research and development costs are charged to operations as incurred.

     J.   Deferred income taxes

          The  Company  accounts  for  income  taxes  utilizing  the  asset  and
          liability  method in  accordance  with SFAS No. 109,  "Accounting  for
          Income  Taxes".   Current  tax  liabilities  are  recognized  for  the
          estimated taxes payable on tax returns for the current year.  Deferred
          tax liabilities or assets are recognized for the estimated  future tax
          effects  attributable to temporary  differences between the income tax
          bases of assets  and  liabilities  and their  reported  amounts in the
          financial statements,  and for tax loss carryforwards.  Measurement of
          current and deferred tax liabilities and assets is based on provisions
          of  enacted  tax  laws,  and  deferred  tax  assets  are  reduced,  if
          necessary,  by the amount of tax benefits, the realization of which is
          not considered likely based on available evidence.

     K.   Fair value of financial instruments

          The financial  instruments  of the Company  consist mainly of cash and
          cash equivalents,  current accounts  receivable,  accounts payable and
          accruals.  Due to the  relatively  short period to maturity,  the fair
          value of the financial  instruments included in the working capital of
          the Company approximates their carrying amounts.

     L.   Net loss per share

          Loss per share has been  computed  in  accordance  with SFAS No.  128,
          "Earnings per Share". Potential securities have been excluded from the
          diluted loss per share  computation  for the years ended  December 31,
          2002, 2001, and 2000 due to the anti-dilutive effect.


                                      F14
<PAGE>



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


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
------------------------------------------------

     M.   Stock- based compensation

          The  Subsidiary  accounts for  employee  stock-based  compensation  in
          accordance   with   Accounting   Principles   Board  Opinion  No.  25,
          "Accounting  for Stock  Issued to  Employees"  ("APB 25") and the FASB
          interpretations thereof. Pursuant to those accounting  pronouncements,
          the  Subsidiary  records  compensation  for share  options  granted to
          employees  at the date of grant  based on the  difference  between the
          exercise  price of the options and the market value of the  underlying
          shares at that date. Due to the terms of the grants, the fair value of
          the  compensation  in accordance  with SFAS No. 123,  "Accounting  for
          Stock-Based   Compensation"   approximates   the  values  computed  in
          accordance  with APB No. 25. The Subsidiary  accounts for  stock-based
          compensation to non-employees in accordance with SFAS No. 123.


     N.   Effects of recently issued accounting standards

          In August  2001,  the FASB issued SFAS No.143,  "Accounting  for Asset
          Retirement  Obligations".  SFAS No 143  applies  to legal  obligations
          associated  with the  retirement  of tangible  long-lived  assets that
          result  from the  acquisition,  construction,  development  or  normal
          operation of a long-lived  asset.  SFAS No 143 requires that estimated
          asset retirement costs be measured at their fair values and recognized
          as assets and  depreciated  over the useful life of the related asset.
          Similarly,  liabilities  for the  present  value of  asset  retirement
          obligations are to be recognized and accreted as interest expense each
          year to their estimated future value until the asset is retired. These
          provisions will be applied to existing asset retirement obligations as
          of the adoption date as a cumulative  effect of a change in accounting
          policy.  SFAS No. 143 is  effective  for the  Company's  fiscal  years
          beginning  January  1,  2003.  SFAS No.  143 will not have a  material
          effect  on  the  Company's  consolidated  results  of  operations  and
          financial position.

          In June  2002,  the FASB  issued  Statement  of  Financial  Accounting
          Standards  No.  146  "Accounting  for  Costs  Associated  with Exit or
          Disposal Activities". SFAS No. 146 requires that a liability for costs
          associated  with an exit or disposal  activity be recognized only when
          the  liability  is  incurred,  rather  than at the date of an entity's
          commitment  to an exit plan.  SFAS 146 requires  that the liability be
          initially  measured at fair value.  SFAS No. 146 is effective for exit
          or disposal activities that are initiated after December 31, 2002. The
          Company has not yet  determined the effect of adopting SFAS No. 146 on
          its results of operations.

                                      F15
<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 (cont.)

          In November 2002,  FASB  Interpretation  No. ("FIN") 45,  "Guarantor's
          Accounting  and  Disclosure  Requirements  for  Guarantees,  Including
          Indirect  Guarantees  of  Indebtedness  of Others"  was  issued.  This
          interpretation  requires  elaborating on the disclosures  that must be
          made by a guarantor  in its interim  and annual  financial  statements
          about its obligations under certain  guarantees that it has issued. It
          also  clarifies  that a guarantor  is required  to  recognize,  at the
          inception  of a  guarantee,  a  liability  for the  fair  value of the
          obligation  undertaken  in  issuing  the  guarantee.   The  disclosure
          requirements  of this  Interpretation  are  effective  for  statements
          issued after December 15, 2002 and its  recognition  requirements  are
          applicable for guarantees  issued or modified after December 31, 2002.
          Management is in the process of evaluating the impact of  implementing
          FIN 45 and is unable to estimate the effect,  if any, on the Company's
          financial statements.

          In  December  2002,  the  Financial  Accounting  Standards  Board (the
          "FASB")  issued  Statement of  Financial  Accounting  Standards  Board
          ("SFAS")  No.  148,   "Accounting  for  Stock-Based   Compensation  --
          Transition  and Disclosure -- an amendment of FASB Statement No. 123."
          SFAS  No.  148  amends  SFAS  No.  123,  "Accounting  for  Stock-Based
          Compensation,"  to provide  alternative  methods of  transition  for a
          voluntary  change to the fair value  based  method of  accounting  for
          stock-based employee  compensation.  In addition,  SFAS No. 148 amends
          the  disclosure  requirements  of SFAS No.  123 to  require  prominent
          disclosures in both annual and interim financial  statements about the
          method of accounting for  stock-based  employee  compensation  and the
          effect of the method used on reported results. The Company is required
          to follow the prescribed format and provide the additional disclosures
          required by SFAS No. 148 in its annual  financial  statements  for the
          year ended December 31, 2002 and must also provide the  disclosures in
          its quarterly reports containing  condensed  financial  statements for
          interim  periods  beginning with the quarterly  period ended March 31,
          2003.


                                      F16
<PAGE>



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


<TABLE>
<CAPTION>
NOTE 3 - OTHER RECEIVABLES AND PREPAID EXPENSES
-----------------------------------------------
                                                                  As of December 31
                                                              -------------------------
                                                                2002            2001
                                                              ---------       ---------
<S>                                                           <C>             <C>
 Prepaid expenses                                             $   8,316       $   4,582
 Government institutions                                      $   1,688          24,781
                                                              ---------       ---------
                                                              $  10,004       $  29,363
                                                              =========       =========


 NOTE 4 - FIXED ASSETS,NET
 -------------------------

                                                                  As of December 31
                                                              -------------------------
                                                                2002            2001
                                                              ---------       ---------
 Cost:

 Computers and software                                       $ 108,595       $  99,606
 Fixtures                                                        31,099           6,799
 Office furniture                                                 2,858           2,434
                                                              ---------       ---------
                                                                142,552         108,839
                                                              ---------       ---------
 Accumulated depreciation:
 Computers and software                                         (98,148)        (93,477)
 Fixtures                                                        (5,860)         (3,044)
 Office furniture                                                  (951)           (714)
                                                              ---------       ---------
                                                               (104,959)        (97,235)
                                                              ---------       ---------
 Net                                                          $  37,593       $  11,604
                                                              =========       =========


 NOTE 5 - OTHER PAYABLES
 -----------------------

                                                                   As of December 31
                                                              -------------------------
                                                                 2002            2001
                                                              ---------       ---------
 Employees and payroll accruals                               $  67,975       $  15,103
 Customer advances                                               14,343              --
 Fund for the Encouragement of Marketing *                       20,188          20,188
 Others                                                             721              --
                                                              ---------       ---------
                                                              $ 103,227       $  35,291
                                                              =========       =========
</TABLE>


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


                                      F17
<PAGE>




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


NOTE 6 - LONG TERM LOANS FROM BANKS
-----------------------------------

                                          Rate of            As of December 31
                                        interest %          2002          2001
                                        ----------          ----          ----

  Loans in new Israeli shekels
  (Fixed rate)                              6.85           $7,600       $13,134

  Loans in new Israeli shekels
  (Variable rate)                         IP*+1.5%         11,322        27,339

  Loans in U.S. dollars                   Libor+4%         94,425       102,151
                                                           ------       -------

                                                          113,347       142,624

  Less current maturities                                  59,456        34,181
                                                           ------        ------
                                                          $53,891      $108,443
                                                          =======      ========


* IP - Israeli Prime Interest Rate, set from time to time by the Bank of Israel.
On December 31, 2002, the IP was 10.4%.

Interest on the fixed rate loan will be paid with the final principal payment in
January 2004.

Interest on the variable rate loan is payable monthly.

Based on the terms of the  long-term  debt,  their fair value  approximates  the
recorded amounts.

See Note 8C regarding security.

Future payments of long term loans from banks:



 2003                                     $ 59,456
 2004                                       33,845
 2005                                       20,046
                                          --------
                                          $113,347
                                          ========


                                      F18
<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.

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.


                                      F19
<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  $40,376  (including
          interest)  to the O.C.S.  for amounts  received by the  Subsidiary  in
          1998.  The  Subsidiary  recorded a provision in its books for the full
          amount of this request.

          The Subsidiary has claimed participation by the O.C.S. in research and
          development  expenses for the period from December 1998 to March 1999.
          The Subsidiary  has not recorded a receivable in connection  with this
          claim.

     C.   Liens

          A  floating  lien  has been  placed  on all the  Subsidiary's  assets,
          securities,   notes  and  other  documents  in  favor  of  the  Israel
          Industrial  Development  Bank Ltd. In  addition,  a $4,400  deposit is
          security for  repayment of a loan  received  from United  Mizrahi Bank
          Ltd.

     D.   Operating lease

          The  Subsidiary  has  rented  3  vehicles  under  an  operating  lease
          agreement, which expires in 2007.

          Future payments under operating lease:


          2003                                                      $ 26,000
          2004                                                        26,000
          2005                                                        26,000
          2006                                                        26,000
          2007                                                         1,900
                                                                    --------
                                                                    $105,900
                                                                    ========



                                      F20
<PAGE>



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

NOTE 8 - COMMITMENTS (CONT.)
----------------------------

     E.   Purchase commitment

          In June 2002, a subcontracting  agreement between Reshef (a subsidiary
          of Aryt)  and the  Subsidiary,  that was  previously  in  effect,  was
          replaced  by a  manufacturing  arrangement  under  which  Reshef  will
          manufacture  2,200 Voice Diary IMP units for the Subsidiary in batches
          of 550 units  each and the  Subsidiary  will pay for each  batch  upon
          receipt.  The price per unit is approximately $60. In the first stage,
          the Subsidiary  ordered the manufacture of a batch of 550 units out of
          the total quantity in the manufacturing  arrangement.  The cost of the
          first batch amounts to approximately  $25,000. This first batch of 550
          units was supplied to the  Subsidiary  subsequent to the balance sheet
          date.  Each  supply  of an  additional  batch  of 550  units  will  be
          conditional upon payment by the Subsidiary for the previous batch.

          In February 2003 Reshef closed its manufacturing  plant and terminated
          all of the plant's employees. The components that Reshef holds for the
          manufacturing  of the  Subsidiary's  product is held at the plant that
          was closed  down.  It is  possible  that Reshef will not carry out the
          next  manufacturing  runs of the Subsidiary's  products or furnish the
          components to the  Subsidiary.  Since some components that are held by
          Reshef  are to not  available  elsewhere,  there is the risk  that the
          Subsidiary  will not be able to manufacture  the Voice Diary IMP units
          in its  present  design.  Subsidiary's  ability to  redesign  the unit
          around generally available  components is not assured since at present
          time the  Subsidiary  has no  funds  necessary  to  carry  out such an
          undertaking.



                                      F21
<PAGE>

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

NOTE 9 - SHAREHOLDERS' DEFICIENCY
---------------------------------

     A.   General

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

                                      Authorized      Issued and Outstanding
                                      ----------      ----------------------

           Class A Common Stock       10,000,000                 634,863
                                      ==========                 =======

           Class B Common Stock          10,000                    2,400
                                      ==========                 =======

          Each  share  has a par value of  $0.01.  Each  share of Class B Common
          Stock  is  convertible  at any time at the  option  of its  holder  or
          holders and for no additional  consideration into such number of fully
          paid and non-assessable  shares of Class A Common Stock as shall equal
          the  quotient  obtained  by  dividing  the number of shares of Class A
          Common  Stock  outstanding  at  the  close  of  business  on  the  day
          immediately  preceding the date the  conversion  notice is received by
          the Company, by 7,600.

          The shares of Class A and Class B Common  Stock  confer to holders the
          right to receive notice to participate and vote in general meetings of
          the Company and the right to receive dividends, if declared.

          The  holders  of  Class A and  Class B  Common  Stock  shall  vote and
          participate  ratably in  dividends  as a single  class.  Each share of
          Class A Common Stock entitles its holder to one vote and each share of
          Class B Common  Stock  entitles  its holder to such number of votes as
          shall  equal the number of whole  shares of Class A Common  Stock into
          which such share of Class B Common Stock is convertible. Each share of
          Class A Common  Stock  participates  in  dividends  as one  share of a
          single  class and each share of Class B Common Stock  participates  in
          dividends  as the whole  number  shares of Class A Common  Stock  into
          which such share of Class B Common Stock is convertible. The shares of
          Class B Common Stock have the right to appoint one director.


          The Company has not adopted a stock option plan.


                                      F22
<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, 2002,  2001 and 2000,  and of changes  during the periods
          then ended, is presented below:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                              ---------------------------------------------------
                                                                                                         Exercise
                                                               2002           2001           2000         price
                                                              ------         ------         ------       --------
<S>                                                           <C>            <C>            <C>          <C>
  Outstanding at beginning of year                            42,414         67,595         65,127       $      0
               Granted during year                            20,614             --        236,458       $      0
             Exercised during year                                --        (25,181)      (233,990)      $      0
             Forfeited during year                            (2,866)            --             --       $      0
                                                              ------         ------         ------       --------
        Outstanding at end of year                            60,162         42,414         67,595       $      0
                                                              ======         ======         ======       ========
    Weighted average fair value of
   options granted during the year                             $1.21                        $ 0.25
                                                              ======                        ======
</TABLE>


          Subsequent to the balance sheet date the Company  issued shares of the
          Company in exchange for 59,295  subsidiary's  stock  options (see Note
          18).

     B.   Issuance of share capital and options

          1.   In June and July 2002, the Company acquired  approximately 99% of
               the  outstanding  shares  of  the  Subsidiary.   Under  generally
               accepted accounting principles, the transaction was accounted for
               as a  reorganization  under common control.  The shares of Common
               Stock  were  exchanged  for  shares  of Class A Common  Stock and
               shares of Preferred  Stock were  exchanged  for shares of Class B
               Common Stock.

          2.   During the period from its inception through 1998, the Subsidiary
               issued  120,640 shares of Common Stock to 29 investors at a price
               per share ranging from $3 to $38.

          3.   On October 17, 1999, the Subsidiary issued 7,630 shares of Common
               Stock to three investors in consideration of $21,936.

          4.   In 1999,  the  Subsidiary  issued  53,990  options to the CEO and
               9,937 options to two other employees. The options are convertible
               to  shares  of  Common  Stock  with  no  exercise  price  and  in
               consideration  for waiving their  salaries for 1999. The value of
               the options,  totaling $ 199,864, was estimated by the Subsidiary
               at a price of $3 per  option  based on the last  share  placement
               price. That amount was charged to operations.

          5.   In 2000,  the Subsidiary  issued  180,000  options to the CEO and
               31,633  options to two  additional  employees.  The  options  are
               convertible  to shares of Common Stock for no exercise  price and
               in  consideration  for waiving their salaries for 2000. The value
               of the options, totaling $50,391, was estimated by the Subsidiary
               at a price of $0.25 per options based on the last share placement
               price. That amount was charged to operations.


                                      F23
<PAGE>

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

          NOTE 9 - SHAREHOLDERS' DEFICIENCY (CONT.)
          -----------------------------------------

          6.   On November 1, 2000,  the  Subsidiary  issued  213,718  shares of
               Common Stock to two investors in consideration for $53,629.

          7.   On December 1, 2000,  the  Subsidiary  issued  300,000  shares of
               Common Stock to a related party pursuant to a financing agreement
               in consideration for a credit line of $150,000.  The value of the
               shares of Common Stock,  totaling  $74,039,  was estimated by the
               Subsidiary  using an  average  price of $0.25  per  share and was
               charged to operations.

          8.   On  December  1, 2000,  the  Subsidiary  issued  2,400  shares of
               Preferred Stock to the CEO in consideration of 233,990 options.

          9.   During 2000, the Subsidiary issued 24,825 options to suppliers in
               consideration or services rendered to the Subsidiary. The options
               are convertible to shares of Common Stock with no exercise price.
               The value of the options,  totaling $30,145, was estimated by the
               Subsidiary based on the fair value of the services rendered. That
               amount was charged to operations.

          10.  In February 2002,  Aryt Industries Ltd (the  Subsidiary's  former
               parent company) ("Aryt") granted a credit line of $425,000 to the
               Subsidiary to be available throughout 2002. In consideration, the
               Subsidiary  issued 98,249 shares to Aryt.  Deferred  compensation
               cost in the amount of $196,498 was calculated  based on the price
               and  number of shares  issued  to Aryt in  consideration  for the
               credit line. On June 30, 2002 the credit line was terminated and,
               accordingly,  50%  of the  abovementioned  amount  ($98,249)  was
               charged to operations.

          11.  On February 13, 2002, the Subsidiary  issued 65,177 shares Common
               Stock to a related party for consideration of $65,177.

          12.  On June 30, 2002, Aryt, the Subsidiary's  principal  shareholder,
               decided  to waive all of its rights  pertaining  to its shares of
               the Subsidiary and to sell its  shareholdings  to the Company for
               total   consideration   of  $1.  On  June  30,  2002,  Aryt,  the
               Subsidiary's principal shareholder,  waived debt in the amount of
               $649,289  previously  included in  short-term  loans from Related
               Party. The amount has been included in additional paid in capital
               (see Note 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.


                                      F24
<PAGE>

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

NOTE 11 - REVENUES
------------------

A. Main customers:
                                                        Year ended December 31
                                                        ----------------------
                                                          2002          2001
                                                        --------      --------
       Customers:
          A                                               $ 16,573          --
          B                                               $     --    $ 43,244
          C                                               $     --    $ 42,290
          D                                               $     --    $ 17,187


B. Data by geographical regions:
                                                        Year ended December 31
                                                        ----------------------
                                                          2002          2001
                                                        --------      --------
       Sales distribution, by target market:
          Israel                                        $ 31,640      $  2,354
          U.S.A                                              651        43,244
          Europe                                           1,711        60,510
          Australia                                           --         3,855
                                                        --------      --------
                                                        $ 34,002      $109,963
                                                        ========      ========


                                      F25
<PAGE>


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


<TABLE>
<CAPTION>
NOTE 11 - COST OF REVENUES
--------------------------
                                                                                   Cumulative from
                                                                                   October 1, 1993
                                                                                      (date of
                                                                                    commencement
                                                                                   of operations)
                                                Year ended December 31             to December 31,
                                      ----------------------------------------        --------
                                        2002            2001            2000            2002
                                      --------        --------        --------        --------
<S>                                   <C>             <C>             <C>             <C>
Materials                             $ 12,751        $ 63,985        $  2,936        $382,302
Salaries and related  expenses          30,924          13,347           9,041          73,475
Sub-contractors                             --              --              --          50,783
Non-cash compensation expenses              --              --           5,391          20,025
Other                                   15,734           3,704           1,555          54,657
                                      --------        --------        --------        --------
                                        59,409          81,036          18,923         581,242
Decrease in inventory of
  work in progress and
  finished goods                                            --             139              --
                                      --------        --------        --------        --------
                                      $ 59,409        $ 81,036        $ 19,062        $581,242
                                      ========        ========        ========        ========
</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,
                                           -------------------------------------------------         -----------
                                              2002               2001               2000                 2002
                                           -----------        -----------        -----------         -----------
<S>                                        <C>                        <C>        <C>                 <C>
Salaries and related expenses              $   111,051                $--        $     6,623         $   874,319
Sub-contractors                                  6,221            137,127              3,219             387,921
Materials                                       10,202             15,000                469              87,598
Non-cash compensation expenses                      --                 --             30,145              57,004
Other                                           15,107             21,989                 --             372,958
                                           -----------        -----------        -----------         -----------
                                               142,581            174,116             40,456           1,779,800
Less:
                                                    --                 --                 --            (704,350)
Participation from Government funds                 --                 --
Grants received                                     --                 --             39,244              39,244
                                           -----------        -----------        -----------         -----------
                                           $   142,581        $   174,116        $    79,700         $ 1,114,694
                                           ===========        ===========        ===========         ===========
</TABLE>


                                      F26
<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,
                                              -------------------------------------------------        -----------
                                                  2002               2001               2000               2002
                                              -----------        -----------        -----------        -----------
<S>                                           <C>                <C>                        <C>        <C>
Salaries and related expenses                 $   114,923        $    33,280                $--        $   410,351
Advertising and marketing costs                    38,842             22,122              2,573            173,922
Depreciation                                        7,723              2,951             13,503            108,062
Non-cash compensation expenses                     25,000                 --             45,000            231,971
Professional services                              65,309             14,178             58,692            182,642
Office expenses                                     9,945              9,457              4,809            138,473
Management fees                                    33,333                 --                 --             81,615
Car maintenance                                    11,881              3,779              1,827             59,786
Others                                             22,180              1,211              9,427             92,468
                                              -----------        -----------        -----------        -----------
                                                  329,136             86,978            135,831          1,479,290

Less: expenses attributed to
     research and development expenses                 --                 --                 --           (335,861)
                                              -----------        -----------        -----------        -----------
                                              $   329,136        $    86,978        $   135,831        $ 1,143,429
                                              ===========        ===========        ===========        ===========
</TABLE>


NOTE 14 - FINANCIAL EXPENSES
----------------------------

<TABLE>
<CAPTION>
                                                                                        Cumulative from
                                                                                        October 1, 1993
                                                                                            (date of
                                                                                          commencement
                                                                                         of operations)
                                                     Year ended December 31             to December 31,
                                           ----------------------------------------        --------
                                             2002            2001            2000            2002
                                           --------        --------        --------        --------
<S>                                        <C>             <C>             <C>             <C>
Financial expenses to banks                $ 10,613        $ 15,083        $ 46,758        $177,163
Interest to related party                   *33,465           9,049             472          42,986
Amortization of debt issuance costs          98,249              --          70,312         168,561
                                           --------        --------        --------        --------
                                           $142,327        $ 24,132        $117,542        $388,710
                                           ========        ========        ========        ========
</TABLE>

*    Including  financial expenses of $ 18,500 connected with obtaining a credit
     line.


                                      F27
<PAGE>


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

NOTE 15 - INCOME TAXES
----------------------

     A.   The  Subsidiary is assessed under the provisions of the Israeli Income
          Tax Law (Inflationary Adjustments) 1985, pursuant to which results for
          tax  purposes  are  measured in new  Israeli  shekels in real terms in
          accordance with changes in the Israeli consumer price index.

     B.   Deferred taxes

          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
                                             ------------------------
                                               2002            2001
                                             --------        --------
          Loss carryforwards                 $658,696        $528,243
          Other temporary differences           3,907             753
                                             --------        --------
                                              662,603         528,996
          Less: valuation allowance           662,603         528,996
                                             --------        --------
                                             $     --        $     --
                                             ========        ========


          The Company has provided  for a valuation  allowance in respect of all
          deferred tax benefits  resulting from tax loss carryforwards and other
          temporary   differences,   due  to  the   uncertainty   regarding  the
          realizability of such benefits.

          As  of  December  31,  2002,   the  Company  and  the  Subsidiary  had
          carryforward   tax  losses   generated  in  the  U.S.  and  Israel  of
          approximately  $1,793,413 and $87,616  respectively.  The Subsidiary's
          carryforward  tax losses are denominated in New Israel Shekels and are
          linked to the Israeli consumer price index.

     C.   Tax assessments

          Neither the  Company  nor the  Subsidiary  has been  assessed  for tax
          purposes since incorporation.

NOTE 16 - OTHER INCOME
----------------------

          In 2002 other income consists of income from consulting services.


                                      F28
<PAGE>

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

NOTE 17 - RELATED PARTY TRANSACTIONS
------------------------------------
                                                As of December 31
                                                -----------------
                                              2002            2001
                                              ----            ----
             Balances of related parties

              Loans from a related party        $--         $357,672
                                                ===         ========
              Payables and other current
          liabilities -  related parties        $--         $  4,929
                                                ===         ========



                                                    Year ended December 31
                                           ----------------------------------
                                            2002           2001        2000
                                           -------        -------     -------

                    Related parties
                         Expenses -
              Purchase of materials        $ 6,158        $50,299         $--
                                           =======        =======         ===
                    Sub-contractors        $ 9,027        $ 8,445         $--
                                           =======        =======         ===
                    Travel expenses        $ 3,837        $ 1,605         $--
                                           =======        =======         ===
      Salaries and related expenses        $59,823        $33,280         $--
                                           =======        =======         ===

     1.   On June 30, 2002, the Company signed an agreement with Aryt Industries
          Ltd.  (Subsidiary's  former parent company)  ("Aryt").  Aryt agreed to
          sell to the Company its entire  investment in the Subsidiary (93.8% of
          the  outstanding  shares of the  Subsidiary) for a total amount of $1.
          (See Note 9B (12)).

     2.   In addition, on June 30, 2002, the Subsidiary signed another agreement
          with Aryt.  The  Subsidiary  undertook to pay to Aryt royalties on the
          sales  of the  Subsidiary's  products  up to an  aggregate  amount  of
          $751,000  (see Note 8A), in exchange for the  cancellation  by Aryt of
          all of its  rights,  title  and  interest  in  any  obligation  of the
          Subsidiary  or any other  entity on its behalf  including a short term
          debt in the amount of $649,289.  The short-term debt was cancelled and
          recorded to "additional paid-in capital".

     3.   In  February  2002,  Aryt  granted a credit  line of  $425,000  to the
          Subsidiary,  to be  available  throughout  2002.  On June 30, 2002 the
          credit line was terminated (see Note 9B(10)).


                                      F29
<PAGE>




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

NOTE 18 - SUBSEQUENT EVENT
--------------------------

          In January  2003,  five  option  holders of the  Subsidiary  exercised
          59,295 options for 59,295 shares of the Subsidiary. The options had no
          exercise price. On January 6, 2003 the Company issued 72,000 shares of
          Class A Common  Stock in  consideration  for  those  59,295  shares of
          Subsidiary's Common Stock.


                                      F30
<PAGE>





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

         None.


                                    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
sole director and executive officer as of December 7, 2002.


Name                Age              Position with Company
----                ---              ---------------------

Arie Hinkis         55               President, Chief Executive Officer,
                                      Chief Financial Officer and Director

     Mr. Hinkis has been Chief  Executive  Officer of VDL since January 1997 and
was elected  Chief  Executive  Officer and a Director of the Company in February
2002.

     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.

     From July 1991 until  January  2001,  Mr.  Hinkis was director of Robogroup
T.E.K. Ltd which is a shareholder in VDI. Since January 2003, Mr. Hinkis is Vice
President of Nir Or.

     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, 2002.

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, 2002 in an aggregate amount which exceeded $100,000.



                                      F31
<PAGE>



                           Summary Compensation Table
                           --------------------------

                                Annual Compensation       Long Term Compensation
                                                  Other Annual       Awards
Name and Principal Position     Year    Salary    Compensation  Restricted Stock
---------------------------     ----    ------    ------------  ----------------
Arie Hinkis                     2002    $98,221         0             0
President and                   2001    $33,280         0             0
Chief Executive Officer         2000          0         0       $45,000(1)

(1)  In 2000 and  1999,  VDL  issued  to Mr.  Hinkis  warrants  to  purchase  an
     aggregate  of  233,990   ordinary   shares  of  VDL.  These  warrants  were
     subsequently  exchanged for an aggregate of 2,400  preferred  shares of VDL
     and such preferred  shares were in turn exchanged for an aggregate of 2,400
     shares of Class B Stock of the Company.

Employment and Management Agreements

Employment Agreement with Arie Hinkis
-------------------------------------

     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 (Mr. Hinkis is the sole member
of the Board of Directors).  Since the formation of VDI until now Mr. Hinkis did
not receive any payment from VDI. The amount  accrued for his salary is included
in our financial reports under "Accrued Expenses". Mr. Hinkis is employed by VDL
pursuant to an  employment  agreement  dated  March,  2001 which  agreement  was
amended in December  2001.  Under such amended  agreement  Mr.  Hinkis is paid a
monthly salary of 20,000 Israeli new shekels (approximately $4,193) and provided
certain  fringe  benefits  including the use of an automobile  leased by us. The
employment  agreement  does not have a stated term.  In January 2003 Mr.  Hinkis
became an employee of Nir Or and stopped receiving salary from VDL.

Directors' Compensation

     We currently  have only one director who is also an employee,  our CEO, and
is not paid separately for his services as a director.  We do not currently have
any formal policy as to the compensation it would offer independent directors.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The  following  table sets forth as of March 26, 2002  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 sole  director and  executive
officer of the Company.


                                      F32
<PAGE>




Name and Address of Beneficial
Owner (1)                            Number of Shares       Percent (2)
---------                            ----------------       -----------
Arie Hinkis                          778,748(3)             83.73%
Seed Money Holding (Voice Diary)     421,607                59.64%
  Limited Partnership
Voice Diary Options                  72,000                 10.19%
Limited Partnership
Robogroup T.E.K. Ltd.                126,154                17.85%
Directors and Executive Officers     778,748(3)             83.73%
As a group (1 person)

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

(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  and an  aggregate of 223,219
     shares of Class A Common  Stock  which may be  issued  to Mr.  Hinkis  upon
     conversion  of an aggregate of 2,400  shares of Class B Common  Stock,  par
     value $.01 per share ("Class B Stock") held by Mr. Hinkis.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Since  January 1, 2001 we have entered into several  transactions  with our
former controlling  stockholder,  Aryt. On June 30, 2002 Aryt sold to VDI Aryt's
entire  investment  in VDI for $1.00 and also entered into an agreement  with us
under which we agreed to pay to Aryt  royalties  from the sale of VDL's products
up to an aggregate  amount of $751,000 in exchange for the  cancellation  of all
the loans and all other debts payable by VDL to Aryt and Reshef, a subsidiary of
Aryt. On June 30, 2002 Aryt and us also agreed that an agreement entered into on
February  13, 2002 which  provided  for a one year credit line of $425,000  from
Aryt to VDL be terminated.

     Information  regarding  transactions  between  Aryt and the Company is more
fully  set  forth  in the  "Management's  Discussion  and  Analysis  or  Plan of
Operations"


                                      F33
<PAGE>


contained  in  Item  6  and  Notes  8A,  9 and  17 of  Notes  to  the  Company's
Consolidated Financial Statements contained in Item 7.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

Number    Description
------    -----------

3.1       Certificate of Incorporation of the Company.*

3.2       By-laws of the Company.*

10.1      Employment Agreement dated July 3, 2002 between Arie Hinkis and VDI.*

10.2      Employment Agreement dated March 14, 2001 between VDL and Arie Hinkis*

10.3      Share Purchase Agreement between VDI and Aryt, dated June 30, 2002.*

10.4      Share Purchase  Agreement  between VDI and Seed Money Holding  Limited
          Partnership, dated July 2, 2002.*

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

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

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

10.8      Share Purchase  Agreement between VDI and Robogroup T.E.K. Ltd., dated
          September 4, 2002.*

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

21.       Subsidiaries of the Registrant:

         Name                Jurisdiction of Formation    Percentage Ownership
         ----                -------------------------    --------------------
         Voice Diary Ltd.    Israel                       99.81%

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

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

(b) Reports on Form 8-K

     Listed below are reports on Form 8-K filed during the fiscal  quarter ended
December 31, 2002.

          None.

ITEM 14. CONTROLS AND PROCEDURES

     The Company's Chief Executive  Officer has evaluated the  effectiveness  of
the  Company's  disclosure  controls and  procedures as of a date within 90 days
prior to the  filing  date of this  annual  report.  He has  concluded  that the
Company's disclosure controls and procedures are effective in alerting them on a
timely  basis to material

                                      F34
<PAGE>



information  relating  to the Company  required  to be included in its  periodic
filings under the  Securities  Exchange Act of 1934, as amended.  The procedures
and controls have  functioned  effectively  to provide him with the  information
necessary to determine whether:

     (i) this Annual  Report on Form 10-KSB  contains any untrue  statement of a
material fact or omits to state a material fact necessary to make the statements
made, in light of the  circumstances  under which such statements were made, not
misleading with respect to the period covered by this report; and

     (ii) the financial statements,  and other financial information included in
this Annual Report on Form 10-KSB,  fairly present in all material  respects the
financial condition,  results of operations and cash flows of the Company as of,
and for, the periods presented in this report.

     There have been no significant  changes in the Company's  internal controls
or in other factors since the date of this evaluation  that could  significantly
affect  these  controls,  including  any  corrective  actions  with  regards  to
significant deficiencies and material weaknesses.


                                   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: March 26, 2003
                                   /s/ Arie Hinkis
                                   -------------------------------------
                                   Arie Hinkis
                                   President, Chief Executive Officer
                                    and Chief Financial Officer


                                      F35
<PAGE>



                                 CERTIFICATIONS

I, Arie Hinkis, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Voice Diary Inc.

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

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

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act rules 13a-14 and 15d- 14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "evaluation date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the evaluation date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls.

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Dated: March 26, 2003
                                             /s/ Arie Hinkis
                                             -----------------------------------
                                             Arie Hinkis
                                             President, Chief Executive Officer
                                              and Chief Financial Officer


                                      F36
<PAGE>



     I, Arie  Hinkis,  certify  that this  annual  report on Form 10KSB of Voice
Diary Inc. and the financial  statements  contained herein fully comply with the
requirements  of Section 13(a) or 15(d) of the  Securities  Exchange Act of 1934
and that information  contained in this periodic report fairly presents,  in all
material  respects,  the  financial  condition  and results of operations of the
company.

Dated: March 26, 2003
                                             /s/ Arie Hinkis
                                             -----------------------------------
                                             Arie Hinkis
                                             President, Chief Executive Officer
                                              and Chief Financial Officer


                                      F37
<PAGE>