-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tc1M/9/R0N5Vk5ISqU1+aWP6oRnzVugkZhgkb/wEJbuWo3934ZhKaLxZ5pyrsZxh JHHBrsWd31cyX5RlFgce5Q== 0000950120-03-000214.txt : 20030417 0000950120-03-000214.hdr.sgml : 20030417 20030417165926 ACCESSION NUMBER: 0000950120-03-000214 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISTINCTIVE DEVICES INC CENTRAL INDEX KEY: 0000059963 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 131999951 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-02749 FILM NUMBER: 03654692 BUSINESS ADDRESS: STREET 1: ONE BRIDGE PLAZA SUITE 100 CITY: FORT LEE STATE: NJ ZIP: 07024 BUSINESS PHONE: 5612744233 MAIL ADDRESS: STREET 1: ONE BRIDGE PLAZA SUSITE 100 CITY: FORT LEE STATE: NJ ZIP: 07024 FORMER COMPANY: FORMER CONFORMED NAME: LMC DATA INC DATE OF NAME CHANGE: 19761021 10KSB 1 d520497v4form10ksb.txt ANNUAL REPORT ON FORM 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB /X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 / / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission file number 0-2749 DISTINCTIVE DEVICES, INC. (Name of small business issuer in its charter) Delaware 13-1999951 -------- ---------- (State of incorporation or organization) (I.R.S. Identification No.) One Bridge Plaza, Suite 100, Fort Lee, New Jersey 07024 ------------------------------------------------------- (Address of principal executive offices) Issuer's telephone number: (201)363-9922 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes(X) No( ) Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure 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). Issuer had operating revenues of $882,134 for the fiscal year ended December 31, 2002. The aggregate market value of voting stock held by non-affiliates of the issuer approximated $840,000 as of April 9, 2003, computed by reference to the average of the bid and asked prices for such stock as reported by the OTC Bulletin Board. 7,008,582 shares of issuer's common stock, $.001 par value, were outstanding at April 9, 2003. Issuer had no other class of common equity. DOCUMENTS INCORPORATED BY REFERENCE: NONE INDEX Page PART I.........................................................................1 Item 1. DESCRIPTION OF THE BUSINESS.......................................1 Item 2. DESCRIPTION OF PROPERTIES.........................................3 Item 3. LEGAL PROCEEDINGS.................................................3 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............3 PART II........................................................................4 Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS...........4 Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........4 Item 7. FINANCIAL STATEMENTS..............................................5 Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................................5 PART III.......................................................................6 Item 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................6 Item 10. EXECUTIVE COMPENSATION............................................7 Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...7 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................8 Item 13. EXHIBITS AND REPORTS ON FORM 8-K..................................9 Item 14. CONTROLS AND PROCEDURES..........................................11 CERTIFICATION.................................................................12 SIGNATURES...............................................................13 ii PART I ITEM 1. DESCRIPTION OF THE BUSINESS --------------------------- Distinctive Devices, Inc. is a Delaware corporation whose predecessor was organized in 1961 (herein referred to as "we", "our", "issuer", "DDI" or "the Company"). In November 2002, Distinctive Devices, Inc., a New York corporation ("DDI-NY"), which had formed the Company as a wholly-owned subsidiary, merged itself into the Company for the purpose of changing the state of incorporation to the State of Delaware from the State of New York. Immediately prior to the merger, all of the outstanding shares of DDI-NY Preferred Stock were converted into shares of DDI-NY Common Stock, and DDI-NY effected a one-for-six reverse split of the DDI-NY Common Stock, thereby reducing the number of outstanding shares to 7,008,582 shares. The merger was then concluded on a share-for-share basis. All references herein to shares of Common Stock shall be to DDI-DE Common Stock, unless indicated otherwise. All references herein to DDI-NY Common Stock shall be on a post reverse split basis. Sanjay Mody, a shareholder and director since early 2000, became President of the Company in May 2001. Shortly thereafter, in July, DDI abandoned its earlier plan to provide wireless Internet connectivity services in the New York City area and commenced new activities in software development, distribution of wireline telephone equipment and gemstone trading over the following months. To implement activity in the software segment, in September 2001, Distinctive Devices (India), PLC ("DDI-India") was organized as a subsidiary, based in Mumbai (Bombay), India, in an attempt to take advantage of the high skill levels and relatively low cost of software professionals in that country, and to draw upon Mr. Mody's contacts and relationships in his native India. A staff of engineers and marketers was recruited, which, with supporting personnel, now numbers 14 persons. DDI-India offers software design, development and consulting services, IT solutions and the creation and maintenance of websites to clients, primarily in India. It acts as a stocking reseller of hardware and software products from major software and hardware vendors. Formed at a time when the software industry was in the early stages of an unprecedented slump, activity at DDI-India has picked up of late and revenues currently approximate $50,000 monthly. Also in the software segment, in October 2001, DDI acquired all outstanding shares of Webpulse Consulting, Inc. of Fort Lee, New Jersey ("Webpulse"). Webpulse now serves as a marketing arm for DDI-India. Mr. Mody was and remains the President of Webpulse. His spouse had been Webpulse's controlling shareholder. Webpulse was acquired in exchange for 295,000 shares of DDI-NY Common Stock. It shares office space with DDI in Fort Lee. In a secondary, but promising, activity, in 2002, DDI-India became the exclusive franchisee of Hughes Escort Communications for the northern portion of Mumbai, India. The franchise provides for the satellite delivery of educational materials, on a real time basis, to DDI-India's Mumbai facility, from sources such as the University of Phoenix and other institutions of learning. Courses offered can lead to undergraduate and professional degrees in a range of subjects. Classrooms are maintained at DDI-India's premises. In September 2001, the Company became involved in another business segment when it entered into a distribution agreement with Real Time Access, Inc. ("RTA"), located in California. RTA and its Indian affiliate, Real Time Systems, Ltd. of New Delhi ("RTS"), designed, developed and manufactured telephone 1 wireline equipment that enable multiple connections, or conversations, as well as DSL services, to be carried over traditional copper pairs for distances up to five miles. The agreement granted exclusive marketing rights to DDI for four countries in eastern Europe, including Russia. At the time of the agreement, Mr. Mody and Mr. Mehta, a second DDI director, were directors of RTA. The worldwide downturn in the telecommunications industry, which began in the fall of 2001, severly impacted RTA. RTA filed for bankruptcy protection in April 2002 under the federal bankruptcy laws, and later ceased operations. RTS was impacted as well, although not as severely. It remained viable, but faced several maturing obligations which required resolution. To protect RTS against prospective loan defaults and to assure an ongoing production source for wireline equipment supplied by RTS to DDI, we determined to support its operations. During the latter part of 2002, the Company loaned and advanced approximately $600,000 to RTS which enabled it to redeem more than 70% of its outstanding debt. These efforts culminated in our acquisition of 99.99% of RTS's equity in December 2002, for nominal consideration. RTS's facility houses R & D, engineering and production operations. It employs 72 persons, including twelve software and hardware engineers. Sales since acquisition have averaged about $150,000 monthly. One customer accounts for about 35% of the sales of RTS and two other customers account for about 10% each. DDI-India assists in marketing RTS products in the Bombay area and western India. RTS is also preparing to produce set-top boxes for cable TV operators. The boxes ("STB") will conform to new technical standards specified by India's Ministry of Communications to become effective in July 2003. Arrangements have been made to utilize technology to be furnished to RTS by the leading STB manufacturer in Germany, under a royalty agreement. So far as we know, RTS is the only local Indian company preparing to enter this field, although others may well follow. Given the continuing decline in telecommunication industry activity in the U.S. and Europe, the Company intends to emphasize its marketing efforts on behalf of RTS and DDI-India to buyers in India and Russia, where telephone and cable operators continue to expand and update their systems. In another activity, the Company's subsidiary, Webpulse, opened a website in 2001 to enable buyers and sellers of diamonds and other precious stones to conduct trading in these goods. The effort was not successful and was discontinued in 2002. Meanwhile, in January 2002, we formed International Gemsource, Inc. ("Gemsource") as a subsidiary for the purpose of trading in gemstones for the Company's account. Gemsource is in discussions which could lead to its appointment as a sales agent for a new diamond polishing venture being organized in Russia. Raw materials and components for RTS products are available from a number of sources in India, China and the U.S. In addition to the 86 employees of its subsidiaries in New Delhi and Mumbai, referred to above, DDI has three U.S. employees and a part-time, salaried, representative in Moscow, Russia. We consider relations with our employees to be good. 2 The Company faces intense competition in each of its principal business activities. In virtually all instances, competitors have far greater resources and longer operating histories than the Company. The revenues of DDI-India and RTS are realized in Indian Rupees. While Rupees are freely convertible into U.S. dollars, certain restrictions apply to the repatriation of earnings and loan repayments from these Indian subsidiaries to the parent company in the U.S. In most instances, a delay of one year is involved in effecting such transfers, dating from the time of the loan or advance or payment of Indian income tax on the subject earnings. ITEM 2. DESCRIPTION OF PROPERTIES ------------------------- The Company leases 2,300 sq. ft. of space in an office complex in Fort Lee, New Jersey at a rate of $5,175 per month. The lease expires in 2005. The offices of DDI, Webpulse and Gemsource are situated at this location. DDI-India leases 5,000 sq. ft. of space on two floors of a building located in a commercial section of Mumbai, India. Rental is $1,563 monthly. The firm's administrative, sales and engineering activities are conducted there, together with classrooms for students enrolled in satellite-delivered educational programs. The lease expires on March 31, 2006. RTS leases a four-story, free standing building in an industrial section of New Delhi, India, comprising approximately 17,000 sq. ft. at a rental of $4,169 per month. The firm's administrative, marketing, R & D, engineering, production and warehouse facilities are housed at this location. The lease expires on May 31, 2003 and is renewable year to year thereafter. ITEM 3. LEGAL PROCEEDINGS ----------------- We are involved in litigation which we consider routine and incidental to our business. Management does not expect the results of these actions to have a material adverse effect on our business, results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No matters were submitted to a vote of security holders during the quarter ended December 31, 2002. 3 PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS ------------------------------------------------------- The Company's Common Stock, $.001 par value, has been traded over-the-counter under the symbol DDVS since the November 12, 2002 corporate migration. Prior thereto, the Common Stock, $.05 par value, of DDI-NY was traded under the symbol DDEV. Quotations are reported in the OTC Bulletin Board and the Pink Sheets OTC Market Report. The Company has no other common equity outstanding. Information provided by the OTC Bulletin Board reports the range of high and low bid quotations for each quarterly period during the two most recent fiscal years, as set forth below. Quotations represent prices between dealers and do not include retail mark-up, mark-down or commissions, and may not represent actual transactions. Prices have been adjusted for the one-for six reverse split which became effective on November 12, 2002.
BID PRICES ---------- 2002 2001 ---- ---- HIGH LOW HIGH LOW ---- --- ---- --- Fiscal quarter ended: March 31 $0.51 $0.18 $2.34 $0.78 June 30 0.21 0.09 1.68 0.60 September 30 0.18 0.05 1.14 0.36 December 31 0.14 0.04 0.54 0.30
At April 9, 2003, approximately 1,700 holders of record held our common stock. We estimate that an additional 300 to 400 persons hold our stock in street name. We have never paid a dividend on our common stock and have no plan to do so in the foreseeable future. DDI-NY never paid a dividend on its common stock. Recent Sales of Unregistered Securities: On November 12, 2002, the Company issued 7,008,582 shares of its Common Stock to the former stockholders of DDI-NY in exchange for their DDI-NY Common Stock upon the migratory merger. The foregoing securities exchange was made pursuant to the exemption provided by Rule 145 under the Securities Act of 1933. On December 10, 2002, in connection with the issuance of an Unsecured Demand Promissory Note in the principal amount of $415,000, we issued to the lender Purchase Warrants for the purchase of an aggregate of 2,766,666 shares of Common Stock issuable at $0.15 per share (see Item 12 herein). The issuance of the Warrants was claimed exempt from registration under the Securities Act of 1933 by reason of Section 4(2) thereof. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- As disclosed in the financial statements, the Company sustained losses amounting to $1,024,688 and $1,333,902 in the years ended December 31, 2002 and 2001, respectively. A comparison of financial results for 2002 to those for 2001 would not be meaningful because of the significant changes in the Company's business operations during 2002, as described in item 1 herein. The Company had a working capital defecit at the end of 2002 of $16,436. The Company's ability to remain in business is dependent upon management's continuing success in the private placement of debt and equity securities of 4 DDI, until such time as consolidated operations become profitable. The Company will seek to raise debt or equity funds. However, based upon the difficulties of small public entities to raise capital from conventional sources, the most likely source of capital would be from persons associated with the Company. There is no assurance that any additional capital would be raised, and, if so, the terms thereof may be highly dilutive to existing stockholders. STATEMENTS CONTAINED HEREIN AND ELSEWHERE IN THIS REPORT CONCERNING FUTURE ACTIVITIES, PERFORMANCE OR INTENTIONS ARE FORWARD-LOOKING STATEMENTS WHICH, BY THEIR NATURE, INVOLVE RISK AND UNCERTAINTY BECAUSE THEY RELATE TO EVENTS, AND DEPEND ON CIRCUMSTANCES, THAT WILL OCCUR IN THE FUTURE, MANY OF WHICH ARE NOT WITHIN THE COMPANY'S CONTROL. ACTUAL RESULTS AND EVENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH STATEMENTS AS THE RESULT OF KNOWN OR UNKNOWN RISKS, UNCERTAINTIES AND/OR OTHER FACTORS AND THERE CAN BE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE CORRECT. ITEM 7. FINANCIAL STATEMENTS -------------------- PAGE ---- Independent Auditors' Reports F-1 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Changes in Stockholders' Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8-to F-18 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------------------- On April 16, 2002, the Company decided to change its independent auditors back to Goldstein Lewin & Co.("Goldstein") from Rosen Seymour Shapps Martin & Company LLP ("Rosen Seymour"). Rosen Seymour has served as the Company's independent accountants for the fiscal year ended December 31, 2001, having replaced Goldstein which had served as the independent accountants for the fiscal year ended December 31, 2000. Audit reports issued by our independent accountants for either of the past two fiscal years ended December 31, 2002 did not contain any adverse opinion or disclaimer of opinion, other than as to the uncertainty about the Company's ability to continue as a going concern, nor were such reports modified in any way, nor were there any disagreements with the firms on any matter of accounting principles or practices, financial disclosure or audit scope or procedures. 5 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Distinctive Devices, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheet of Distinctive Devices Inc. and subsidiaries (the "Company") as of December 31, 2002 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit a portion of the consolidated financial statements of Distinctive Devices (India) Private Limited, a majority-owned subsidiary, which statements reflect total assets, not audited by us, constituting 42% of the related consolidated total in 2002 and total revenues constituting 30% of the related consolidated totals in 2002. Those statements were audited by other auditors whose report has been furnished to us, and our opinion insofar as it relates to the amounts included for Distinctive Devices (India) Private Limited, not audited by us, is based solely on the report of the other auditors. The consolidated financial statements of the Company for the year ended December 31, 2001 were audited by other auditors whose report, dated March 27, 2002, expressed an unqualified opinion and included an explanatory paragraph that disclosed uncertainty about the Company's ability to continue as a going concern. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Distinctive Devices Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 17 to the consolidated financial statements, the Company has suffered recurring losses since inception and its working capital is not sufficient to fund its current level of operations for the next year. Those conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 17. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. GOLDSTEIN LEWIN & CO. Boca Raton, Florida April 12, 2003 F-1 REPORT OF PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDED DECEMBER 31, 2001 The consolidated financial statements of Distinctive Devices, Inc. and subsidiaries ("DDI") for the year ended December 31, 2001 was examined by Rosen Seymour Shapss Martin & Company LLP, independent public accountants, whose report thereon dated March 27, 2002 was included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. Such report expressed an unqualified opinion and included an explanatory paragraph that disclosed an uncertainty about the Company's ability to continue as a going concern. On April 16, 2002, Distinctive Devices, Inc. and subsidiaries filed Form 8-K to disclose a change in its certified public accountant, due to higher fees than anticipated as set forth in the engagement letter. The Company and Rosen Seymour Shapss Martin & Company LLP are still disputing fees. Because of the foregoing dispute Rosen Seymour Shapss Martin & Company LLP has informed the Company that it is unable to reissue its report for the year ended December 31, 2001. As a result, Rosen Seymour Shapss Martin & Company LLP report for 2001 is not included in this annual report on Form 10KSB. Even if Rosen Seymour Shapss Martin & Company LLP were to reissue its report for the year 2001, there can be no assurance that such report would be identical to the report dated March 27, 2002, or that such reissued report would not include additional qualifications. However, DDI is not aware of any subsequent events, transactions or other matters that would affect Rosen Seymour Shapss Martin & Company LLP's report. F-2 INDEPENDENT AUDITOR'S REPORT The Board of Directors and Stockholders of the Distinctive Devices (India) Private Limited We have audited the accompanying Consolidated Balance Sheet of Distinctive Devices (India) Private Limited, an Indian company as of 31st Dec 2002 and the related statement of income, retained earnings, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with "US generally accepted auditing standards". 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 evaluation the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Distinctive Devices (India) Private Limited as at 31st December 2002, and the results of its operations and its cash flows for the year then ended in conformity with "U.S. generally accepted accounting principles". For M.B. Nayak & Co. Chartered Accountants Mayur Nayak Proprietor M.N. 40688 F-3 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001
2002 2001 ------------ ------------ ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 331,036 $ 689,958 Accounts Receivable, Net 242,397 19,800 Inventories 713,252 - Prepaid Expenses and Advances 46,787 530 Asset of Discontinued Operations and Assets Held for Sale 6,500 272,415 ------------ ------------ Total Current Assets 1,339,972 982,703 PROPERTY AND EQUIPMENT, Net 896,843 271,728 GOODWILL - 11,221 OTHER ASSETS 91,860 42,324 ------------ ------------ Total Assets $ 2,328,675 $ 1,307,976 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable and Accrued Liabilities $ 318,693 $ 42,521 Accrued Professional Fees 138,154 50,500 Term Loan Due Banks 278,899 - Other Loans Payable 620,662 - ------------ ------------ Total Current Liabilities 1,356,408 93,021 CONVERTIBLE SUBORDINATED DEBENTURES 400,000 400,000 ------------ ------------ Total Liabilities 1,756,408 493,021 ------------ ------------ MINORITY INTEREST 2,116 2,116 ------------ ------------ COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY: Preferred Stock, $1 Par, 1,000,000 Shares Authorized 2001 Only; 60,000 Shares Designated Series C Convertible, 10,000 Outstanding - 10,000 Preferred Stock, $.001 Par, 5,000,000 Shares Authorized 2002 Only; None Outstanding - - Common Stock, $.30 Par, 100,000,000 Shares Authorized 2001 Only; 3,189,137 Shares Issued and Outstanding - 956,741 Common Stock, $.001 Par, 50,000,000 Shares Authorized 2002 Only; 7,008,582 Shares Issued and Outstanding 7,008 - Additional Paid-In Capital 5,291,413 3,549,680 Accumulated Deficit (4,728,270) (3,703,582) ------------ ------------ Total Stockholders' Equity 570,151 812,839 ------------ ------------ $ 2,328,675 $ 1,307,976 ============ ============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements F-4 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001 ------------ ------------ Revenue: Operating $ 882,134 $ - Other - 35,888 ------------ ------------ Total Revenue 882,134 35,888 Cost of Goods Sold 687,314 - ------------ ------------ Gross Profit 194,820 35,888 Operating Expenses 1,067,737 1,037,697 ------------ ------------ Operating Loss (872,917) (1,001,809) ------------ ------------ Other Income (Expense): Interest and Other Income 47,889 21,379 Interest Expense (59,001) - ------------ ------------ Total Other Income (Expense) (11,112) 21,379 ------------ ------------ (884,029) (980,430) Minority Interest - - ------------ ------------ Loss from Continuing Operations (884,029) (980,430) Discontinued Operations: Loss on Sale and Write-Down of Assets From Discontinued Operations, Net of Tax Benefit of $0 After Valuation Allowance (140,659) (353,472) ------------ ------------ Net Loss $ (1,024,688) $ (1,333,902) ============ ============ Weighted Average Shares of Common Stock Outstanding (1) 3,775,134 2,929,229 ============ ============ Loss Per Share - Basic and Diluted: Loss from Continuing Operations $ (0.23) $ (0.34) Loss from Discontinued Operations (0.04) (0.12) ------------ ------------ Net Loss Per Share - Basic and Diluted $ (0.27) $ (0.46) ============ ============ (1) The weighted average shares of common stock outstanding are not adjusted for potential effects of the Company's warrants and convertible subordinated debentures because of their anti-dilutive effect.
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements F-5 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002 AND 2001
ADDITIONAL SHARES TOTAL PREFERRED STOCK COMMON STOCK PAID-IN TO BE ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL ISSUED DEFICIT EQUITY --------- --------- --------- --------- ----------- -------- ------------ ------------ Balance at December 31, 2000 - $ - 2,860,567 $ 858,170 $ 3,396,717 $ 73,034 $(2,369,680) $ 1,958,241 Issuance of Shares for Acquisition of Minority Interest - - 30,410 9,123 (9,123) - - - Issuance of Shares for Finder's Fee - - 3,160 948 72,086 (73,034) - - Issuance of Shares for Acquisition of Shares of Subsidiary - - 295,000 88,500 - - - 88,500 Exchange of Common for Series C Preferred Shares 10,000 10,000 (208,333) (62,500) 52,500 - - - Issuance of Shares for Cash - - 208,333 62,500 37,500 - - 100,000 Net Loss - 2001 - - - - - - (1,333,902) (1,333,902) --------- --------- --------- --------- ----------- -------- ------------ ------------ Balance at December 31, 2001 10,000 10,000 3,189,137 956,741 3,549,680 - (3,703,582) 812,839 Issuance of Series D Preferred Shares 173,333 173,333 - - 476,667 - - 650,000 Change in Par Value Common to $.001 - - - (953,552) 953,552 - - - Conversion of Preferred Shares to Common (183,333) (183,333) 3,819,445 3,819 179,514 - - - Issuance of Common Stock Warrants - - - - 132,000 - - 132,000 Net Loss - 2002 - - - - - - (1,024,688) (1,024,688) --------- --------- --------- --------- ----------- -------- ------------ ------------ Balance at December 31, 2002 - $ - 7,008,582 $ 7,008 $ 5,291,413 $ - $(4,728,270) $ 570,151 ========= ========= ========= ========= =========== ======== ============ ============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements F-6 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (1,024,688) $ (1,333,902) Loss from Discontinued Operations 140,659 353,472 ------------ ------------ Net Loss from Continuing Operations (884,029) (980,430) Adjustments to Reconcile Net Loss to Net Cash Used in Continuing Operations: Depreciation 207,598 128,705 Impairment of Goodwill 11,221 - Change in Operating Assets and Liabilities: Accounts Receivable (222,597) (19,800) Loan and Other Receivables - 7,190 Inventories (713,252) 43,682 Prepaid Expenses (46,257) 4,220 Other Assets (49,536) 59,040 Accounts Payable and Accrued Liabilities 276,172 (8,369) Accrued Professional Fees 87,654 43,503 ------------ ------------ Net Cash Used in Continuing Operations (1,333,026) (722,259) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Property and Equipment (832,713) (103,048) Payments Received on Notes Receivable - 15,000 Cash Received on Acquisition of Webpulse - 13,117 ------------ ------------ Net Cash Used in Investing Activities (832,713) (74,931) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from Term Loan Borrowings 278,899 - Net proceeds from Other Loan Borrowings 752,662 - Issuance of Convertible Subordinated Debentures - 400,000 Minority Interest - 2,116 Issuance of Common Stock 650,000 100,000 ------------ ------------ Net Cash Provided By Financing Activities 1,681,561 502,116 ------------ ------------ Decrease in Cash and Cash Equivalents From Continuing Operations (484,178) (295,074) Net Cash Provided By Discontinued Operations 125,256 - Cash and Cash Equivalents: Beginning of Period 689,958 985,032 ------------ ------------ End of Period $ 331,036 $ 689,958 ============ ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Impairment of Assets Held for Sale $ 140,659 $ - ============ ============ Issuance of Common Stock Warrants $ 132,000 $ - ============ ============ Issuance of Common Stock for Services $ - $ 73,034 ============ ============ Common Stock Issued in Connection with Acquisition of Minority Interest $ - $ 9,123 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid $ 20,000 $ 167 ============ ============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements F-7 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - -------------------- Prior to July 2001, Distinctive Devices, Inc.'s ("DDI") principal business activity was the development of a wireless Internet and telecommunication service, which activity was discontinued that month. The Company is now engaged in three principal activities: i) design, development and production of software products including web-related services, conducted by a subsidiary, Distinctive Devices (India) PLC, based in Mumbai (Bombay), India ("DDI-India"). DDI-India products and services are marketed in the United States by a second subsidiary, Webpulse Consulting, Inc., based in New Jersey ("Webpulse"). Webpulse was acquired in October 2001 in exchange for 295,000 shares of DDI common stock from, among others, the controlling shareholder of Webpulse who is the wife of the president of DDI; ii) manufacture and distribution of multiple-access and digital subscriber line (DSL) wireline equipment marketed to telephone companies in India and Russia, conducted by a subsidiary of DDI-India, Real Time Systems Ltd., based in New Delhi, India ("RTS"). RTS was acquired by DDI-India on December 6, 2002, for nominal consideration, following a series of loans and advances to RTS, from DDI, during 2002. RTS manufactures platforms which enable local telephone companies to provide multi-line and DSL services to customers over existing copper wire infrastructure; and, iii) trading in rough and polished gemstones, an activity conducted by a subsidiary, International Gemsource, Inc., based in New Jersey ("Gemsource"), organized by DDI in January 2002. At December 31, 2002, the telephone equipment manufacturing activities are the most significant business segment. In prior years, the consolidated financial statement presentation reported the activities of DDI and subsidiaries as a development stage company. During 2002, DDI and subsidiaries generated significant revenue and, therefore is no longer considered to be a development stage company. PRINCIPLES OF CONSOLIDATION - --------------------------- The consolidated financial statements include the accounts of Distinctive Devices, Inc. and its subsidiaries, DDI-India, Webpulse, Gemsource and RTS (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. RISKS AND UNCERTAINTIES - ----------------------- The Company is subject to all the risks inherent in an early stage company in the software, systems and telecommunications industries. Risks include, but are not limited to, a limited operating history, limited resources, dependence upon business acceptance of its products and services, changes taking place in the electronic commerce and telecommunication industries and the general economic climate. The Company's operating results may be materially affected by the foregoing factors. Also, a significant portion of the Company's operations are conducted in India and the potential exists to experience severe negative financial impact from political, social and economic (including exchange rate fluctuations) events occurring in that country. This concentration of operations involves additional risk of uncertainty. F-8 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES - ---------------- The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. LOSS PER SHARE INFORMATION - -------------------------- Basic net (loss) per common share is computed as net (loss) divided by the weighted average number of common shares outstanding during the period. Diluted net (loss) per common share is computed as net (loss) divided by the weighted average number of common shares and potential common shares, using the treasury stock method, outstanding during the period. There are no reconciling items in calculating the numerator and denominator for basic and diluted net (loss) per share for any periods presented as any potential common shares are excluded from the diluted net (loss) per share calculation as these shares would be anti-dilutive. FOREIGN CURRENCY TRANSLATION - ---------------------------- The balance sheet accounts of DDI-India and RTS, whose functional currency is the Indian Rupee, are translated at exchange rates in effect at the end of the period and statement of operations accounts are translated at the average exchange rate for the period. Translation adjustments are required to be included as a separate component of stockholders' equity; however, at December 31, 2002 and 2001, translation adjustments were insignificant. CASH AND CASH EQUIVALENTS - ------------------------- Cash and cash equivalents include deposit accounts, money market funds and all highly liquid debt instruments with maturities of three months or less when acquired. INVENTORIES - ----------- At the end of 2002, inventories, using the first-in first-out method, consisted primarily of raw materials, work-in-progress and finished goods related to the manufacture of telephone equipment by RTS. At the end of 2001, inventories consisted primarily of radio equipment and accessories which were written down to net realizable value, reclassified into assets held for sale and subsequently liquidated during 2002. Gemsource's gemstone inventory, at December 31, 2002, consists of polished diamonds being held by two customers on consignment. After a customary period allowed for examination of these goods, the stones will be returned or paid for, as the case may be, in accordance with common practice in the diamond industry. ASSETS HELD FOR SALE - -------------------- Assets of discontinued operations held for sale amounting to $272,415 at December 31, 2001 were written off or liquidated during 2002, including property, equipment and inventory. As of December 31, 2002, approximately $6,500 remains as held for sale, primarily consisting of inventory. PROPERTY AND EQUIPMENT - ---------------------- Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. F-9 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPAIRMENT OF GOODWILL - ---------------------- In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized, however, it must be tested annually for impairment. This impairment test is calculated at the reporting unit level, which is at the consolidated financial statement level. The goodwill impairment test has two steps. The first identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write-down is recorded. During 2002, management determined that goodwill in the amount of $11,221 was impaired and, as a result, was written-off. RESEARCH AND DEVELOPMENT COSTS - ------------------------------ The costs of materials and equipment acquired for research and development activities that have an alternative future use are capitalized and depreciated over 3 to 10 years. All other research and development costs are expensed as incurred. REVENUE RECOGNITION - ------------------- Sales are recognized when goods are shipped in response to a customer's order, pricing is final or determinable, and collection is reasonably assured. The Company generally gives its gemstone customers the right to return merchandise purchased and records an accrual at the time of sale for the effect of the estimated returns. INCOME TAXES - ------------ The Company accounts for its income taxes using SFAS No. 109, Accounting for Income Taxes, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. ADVERTISING COSTS - ----------------- Advertising costs are expensed as incurred. Advertising costs incurred for the years ended December 31, 2002 and 2001 were not material. FAIR VALUE OF FINANCIAL INSTRUMENTS - ----------------------------------- The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These instruments include cash, accounts receivable and loans. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. F-10 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR DOUBTFUL ACCOUNTS - ------------------------------- An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. Losses are charged against the allowance when management believes the uncollectibility of the receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for bad debts is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the receivables. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. As of December 31, 2002 and 2001, management has determined that the accounts receivable are fully collectible. Therefore, no allowance for doubtful accounts has been recorded. RECLASSIFICATION - ---------------- The 2001 consolidated financial statements have been reclassified to conform to the 2002 presentation. NOTE 2: CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. CASH - ---- The Company has cash deposits in various foreign financial institutions in India. Cash deposited in these institutions is subject to various regulatory standards. As of December 31, 2002, the Company had approximately $309,000 in these accounts. ACCOUNTS RECEIVABLE - ------------------- The Company grants credit to customers, substantially all of whom are businesses located in the United States and India. The Company typically does not require collateral from customers. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary in the circumstances. NOTE 3: INVENTORIES Inventories were comprised of the following as of December 31, 2002: Raw materials $ 279,718 Work-in-process 120,514 Goods in transit 210,736 Gemstones 101,450 Other 834 ------------ $ 713,252 ============
Included in inventories is approximately $54,000 which is consigned to a related party as of December 31, 2002. F-11 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4: PROPERTY AND EQUIPMENT
DECEMBER 31, ESTIMATED ---------------------- USEFUL LIFE-YEARS 2002 2001 ----------------- ---------- --------- Computers and software 5 $ 367,628 $ 269,626 Furniture and office equipment 10 212,525 93,179 Technical and production equipment 7 85,764 -- Vehicles 5 47,708 -- Research and development 3-10 790,250 -- ---------- --------- 1,503,875 362,805 Less accumulated depreciation (607,032) (91,077) ---------- --------- $ 896,843 $ 271,728 ========== =========
NOTE 5: CONVERTIBLE SUBORDINATED DEBENTURES The Company issued $400,000 of 10% Convertible Subordinated Debentures dated December 27, 2001 (the "Debentures") that mature in five (5) years (Note 10). Interest only payments are due semi-annually and principal is due at maturity. The Debentures are convertible into common stock at the holder's option at conversion prices ranging from $1.50 per share in the first year to $4.50 per share in the fifth year. The Company has the right to redeem the Debentures, in whole or in part, at percentages of principal ranging from 105.00% in the second year to 101.25% in the fifth year. The Debentures are subordinated to all existing or future obligations for money borrowed from financial institutions (Note 10). NOTE 6: SECURED CREDIT FACILITY RTS has a revolving credit facility with a local bank ("facility") which enables it to borrow up to $330,000 (in local currency equivalent) for working capital purposes. In addition, the facility provides for issuance by the bank of Letters of Credit and Performance Bonds, on RTS's behalf, up to maximum amounts of $520,000 and $145,000, respectively. As of December 31, 2002, the bank was owed $272,881 in working capital loans plus a remaining balance of $6,018 on a term loan of $68,500 made in 2000 and there were no Letter of Credit or Performance Bond balances outstanding. Cash borrowings available at year-end 2002, under the facility, approximated $57,000. Borrowings and commitments under the facility bear interest at various rates, depending upon the type of credit or loan and the bank's lending rates at the time the funds are advanced or the commitment is issued. Provisions of the facility do not include mandatory repayment terms. However, the bank may, at any time, declare any outstanding balances due and payable. Working capital loans are secured by RTS's accounts receivable and inventories while term loans are collateralized by the pledge of RTS's property and equipment. Loans are further guaranteed personally by two local officers of RTS. NOTE 7: OTHER LOANS PAYABLE UNSECURED DEMAND PROMISSORY NOTE - -------------------------------- On December 10, 2002, DDI issued a promissory note in the amount of $415,000 to Combine International, Inc. ("Combine"). A director and the controlling shareholder of DDI, is a principal of Combine. Per agreement, the funds were advanced to DDI in two equal installments during December 2002 and January 2003. The loan is unsecured and is payable, in whole or in part, upon demand with 30 days notice. No other maturity date is specified. The note bears interest at the rate of 12% per annum, payable annually. F-12 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: OTHER LOANS PAYABLE (CONTINUED) UNSECURED DEMAND PROMISSORY NOTE (CONTINUED) - -------------------------------------------- As an inducement to make these advances, DDI issued to Combine warrants to purchase 2,766,666 of the Company's common stock at a purchase price of $0.15 per share. The warrants may be exercised, in whole or in part, at any time between June 10, 2003 and expiration on December 9, 2007. The warrants have been recorded based on a fair value allocation of the note proceeds, effectively discounting the note balance by $132,000 to be amortized straight line over the life of the note. The allocated value of the warrants has been recorded as additional paid-in-capital. UNSECURED LOANS FROM OTHERS - --------------------------- RTS entered into a revised loan agreement with an individual lender in India on June 5, 2002. The loan amount was $625,000 with interest at 12% per annum. Principal of $312,500, plus interest, was paid in 2002. Remaining payments of $156,250 each, plus interest, were payable November 30, 2002 and February 28, 2003. The November 30, 2002 payment was not made as scheduled and the remaining balance due on the note was $312,500 at December 31, 2002. The November 2002 payment was paid in full in January 2003. A partial payment of $52,083 was made against the payment of $156,250 scheduled for February 28, 2003 and the unpaid balance of $104,167 was re-scheduled for payment on May 31, 2003, by verbal agreement between the parties. A loan agreement was entered into with another individual lender in India on May 16, 2002. The loan amount of $62,500, with interest at 9% per annum, was to be repaid 90 days later. By verbal agreement between the parties, the due date has now been extended to August 16, 2003. In addition, as of December 31, 2002, the Company had other loans outstanding aggregating in the amount of $3,391. OTHER ADVANCES - -------------- During 2002, an individual advanced $166,771 to DDI-India. The financial statements of DDI-India report that preferred shares with a value of $166,771 are to be issued to this individual. DDI-India intends to issue the shares in 2003. The advance has been handled in this manner since regulations of the Reserve Bank of India require clearance by the Bank for any loans to be made by an unaffiliated individual to a foreign-controlled Indian company. NOTE 8: MINORITY INTERESTS A former subsidiary, EagleView Industries, Inc. ceased operations in 2001 and was liquidated as of December 31, 2001. As a result of the subsidiary's stockholders' deficit, a minority equity interest of 0.3% was reduced to zero upon liquidation. The Company directly holds a 96.6% equity interest in DDI-India and a 99.99% indirect interest (through DDI-India) in RTS, with minority interests of 3.4% and .01%, respectively. NOTE 9: BUSINESS ACQUISITIONS REAL TIME SYSTEMS LTD. ("RTS") - ------------------------------ RTS was acquired on December 6, 2002. Prior thereto, for more than a year, the Company had acted as a distributor in Eastern Europe for RTS products. During the latter half of 2002, the Company invested approximately $600,000 in RTS and completed the acquisition for nominal cash consideration. RTS has been in business, in India, for more than 20 years. The acquisition was accounted for as a purchase and accordingly operations of this subsidiary have been included in the consolidated financial statements from the date of acquisition. F-13 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9: BUSINESS ACQUISITIONS (CONTINUED) WEBPULSE CONSULTING, INC. ("WEBPULSE") - -------------------------------------- In October 2001, the Company issued 295,000 of its common shares in exchange for all outstanding stock of Webpulse. Mrs. Mody, wife of the Company's president and treasurer, received 183,333 shares of DDI in the exchange and her uncle, Mr. Mehta, a director of the Company, received 25,000 shares. Operation of this subsidiary has been reflected in the consolidated financial statements from the date of acquisition. The acquisition was accounted for as a purchase with the aggregate purchase price allocated to the underlying assets and liabilities based upon their respective fair values at the date of acquisition. The excess of cost over fair value of the net assets acquired (goodwill) was determined to be $11,221. The goodwill was determined to be impaired in 2002 and was written off. NOTE 10: SALES OF UNREGISTERED SECURITIES In December 2001, the Company sold 208,333 shares of its common stock at $0.48 per share and $400,000 of 10% Convertible Subordinated Debentures, at face value, to Alexander Ammosov of Linkcapital Business Consulting, Ltd., Moscow, Russia ("Linkcapital") (Note 5). Mr. Ammosov became a director of the Company in March 2002. Linkcapital has an interest in the marketing of RTS products in Russia. In July 2002, Shrikant Mehta, a director of DDI, paid $650,000 for shares of a newly-designated series of the Company's convertible preferred stock. In November 2002, the purchased shares were converted into 3,361,111 shares of DDI Common Stock. In December 2002, a company controlled by Mr. Mehta agreed to loan the Company $415,000 against issuance of DDI's 12% Unsecured Demand Promissory Note. The funds were advanced in two equal installments, in December 2002 and January 2003. As an inducement to make the loan, warrants were issued to the lender to purchase 2,766,666 shares of DDI Common Stock at $0.15 per shares. The warrants are exercisable between June 10, 2003 and December 9, 2007. Issuance of the warrants was claimed as exempt from registration under Section 4(2) of the Securities Act of 1933. On November 12, 2002, the Company issued 7,008,582 shares of its Common Stock to the former shareholders of DDI-NY, a New York corporation, in exchange for their DDI-NY Common Stock. The exchange was made pursuant to the exemption provided by Rule 145 under the Securities Act of 1933. NOTE 11: CAPITAL STOCK The Company has 5,000,000 authorized shares of preferred stock, par value $.001. The Board of Directors has the authority to issue the shares in one or more series and to fix the assignation preferences, powers and other rights as it deems appropriate. No preferred shares are outstanding at December 31, 2002. The Company has 50,000,000 authorized shares of common stock, par value $.001. The common stock has one vote per share for the election of directors and all other matters submitted to a vote of the shareholders. At December 31, 2002, there were 7,008,582 shares of common stock outstanding. Effective November 12, 2002, and pursuant to actions taken at a Special Meeting of Stockholders held September 30, 2002, DDI-NY, a New York corporation, merged into the Company, a Delaware corporation. Immediately prior to the merger, DDI-NY increased its authorized common share capital, exchanged common stock for all outstanding shares of preferred stock and reverse-split its common stock on a one-for-six share basis. Consequently, at the time of the merger, DDI-NY had 7,008,582 common, and no preferred shares outstanding. The merger then took place on a share-for-share basis with the Company. All amounts from prior periods have been retroactively restated to give effect to this reverse split. F-14 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12: STOCK OPTION PLAN In 2001, the Board of Directors approved the establishment of the 2001 Stock Option Plan (the "Plan"), to provide incentives to attract future employees and retain existing key employees with the Company. The Plan allows the Company to grant options for up to 2,000,000 shares of common stock to employees, officers and directors. The option price is the market price at the date of grant. The Plan was approved by shareholders on September 30, 2002. To date, no stock options have been issued under the Plan. The Company has elected to use the intrinsic valuation method prescribed under APB Opinion 25, Accounting for Stock Issued to Employees, to account for stock-based compensation. Under this method, compensation is measured as the difference between the estimated fair value of the stock at the date of the award less the amount required to be paid. The difference, if any, is charged to expense over the periods of required service. NOTE 13: LEGAL PROCEEDINGS The Company is involved in legal proceedings relating to claims against the Company which are encountered in the normal course of business. While it is not feasible to predict or determine the outcome of any of these cases. It is the opinion of management that their outcome will have no material adverse effects on the financial position of the Company. NOTE 14: COMMITMENTS AND CONTINGENCIES OPERATING LEASES - ---------------- The Company is the lessee on operating leases for facilities located in Fort Lee, New Jersey and New Delhi and Mumbai, India. In Fort Lee, annual rental is $62,100, payable $5,175 monthly, plus escalation for increases in operating costs, fuel and real estate taxes. The lease expires in June 2005. In New Delhi, annual rental is $50,031, payable $4,160 monthly, and the lease expires March 31, 2006. In Mumbai, annual rental is $18,756, payable $1,563 monthly. The lease expires May 31, 2003 and is renewable on a year-to-year basis thereafter. Future minimum lease commitments as of December 31, 2002 for noncancellable operating leases with material or remaining terms in excess of one year are as follows:
MINIMUM YEAR ENDING DECEMBER 31, LEASE COMMITMENTS* ------------------------ ------------------ 2003 $ 130,887 2004 130,887 2005 98,837 2006 34,391 2007 18,756 --------- $ 413,758 ========= * Assumes renewal of the Mumbai lease on a year-to-year basis.
Rent expense aggregated approximately $102,000 and $180,000 for the years ended December 31, 2002 and 2001, respectively. F-15 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15: RELOCATION OF OFFICES During 2001, the Company closed its offices in New York City, Delray Beach, Florida and Union City, New Jersey and relocated its operations to Fort Lee, New Jersey. NOTE 16: DISCONTINUED OPERATIONS On July 2, 2001, the Company's Board of Directors approved the discontinuation of its wireless ISP business and operations ceased that day. The accompanying financial statements have been reclassified to reflect the discontinuation. The net operating results, net assets, and net cash flows of this business have been reported as discontinued operations as follows:
2002 2001 ----------- ----------- Net assets $ - $ 272,415 =========== =========== Loss from discontinued operations $ - $ - Loss on disposal of assets of discontinued operations (140,659) ----------- ----------- Net cash flow used in discontinued operations $ (140,659) $ (353,472) =========== ===========
NOTE 17: GOING CONCERN As shown in the accompanying financial statements, the Company incurred net losses of $1,024,688 and $1,333,902 during the years ended December 31, 2002 and 2001, respectively. The Company's working capital deficit at December 31, 2002 was $16,436. These factors create substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to continue to obtain financing, the successful implementation of management's plan and the establishment of profitable operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. NOTE 18: NEW ACCOUNTING PRONOUNCEMENTS In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44, Accounting for Intangible of Assets of Motor Carriers. Additionally, this Statement amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meaning, or describe their applicability under changed conditions. This Statement will be effective for the year ended December 31, 2003 and for transactions entered into after May 15, 2002. It does not appear that this Statement will have a material effect on the financial position, operations or cash flows of the Company. F-16 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18: NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit of Disposal Activities. This Statement mollifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under Issue 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. It does not appear that this Statement will have a material effect on the financial position, operations or cash flows of the Company. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. This Statement amends SFAS No. 123 (same title) and provides alternative methods of transition for voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements in both annual and interim financial statements related to the methods of accounting for stock-based employee compensation and the effect of the method on reported results. The Statement also prohibits the use of the prospective method of transition, as outlined in SFAS No. 123, when beginning to expense stock options and change to the fair value based method in fiscal years beginning after December 15, 2003. As required, the Company adopted the disclosure requirements of SFAS No. 148 on December 31, 2002. In November 2002, the FASB issued Financial Accounting Standard Board Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), which requires a guarantor to recognize a liability for the fair value of the obligation at the inception of the guarantee. It does not appear that this Statement will have a material effect on the financial position, operations or cash flows of the Company. NOTE 19: SEGMENTS The Company reports segments based upon the management approach. The management approach designates the internal reporting that is used by management for making operating decisions and assessing performance. For the year ended December 31, 2002, the Company operated three segments, Manufacture and Distribution of telephone equipment, Gemstone Trading and Software Development. The Company did not have separate reporting segments for 2001.
TELEPHONE GEMSTONE SOFTWARE EQUIPMENT TRADING DEVELOPMENT CONSOLIDATED ------------- ---------- ----------- ------------ For the year ended December 31, 2002: Revenue $ 533,701 $ 348,433 $ - $ 882,134 Depreciation 179,797 15,819 11,982 207,598 Operating loss (840,153) (15,198) (17,566) (872,917) Other income (expense) (11,141) - 29 (11,112) Income (loss) from continuing operations (876,732) (15,198) 7,901 (884,029) Total assets 2,147,171 103,352 78,152 2,328,675
F-17 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20: INCOME TAXES The provision for income taxes for the years ended December 31, 2002 and 2001 was $0. The Company has net operating losses of approximately $4,500,000, expiring at dates ranging from 2018 to 2023, resulting in a deferred tax asset of approximately $1,702,000. The Company has recorded a full valuation allowance with respect to any future tax benefits arising from the $1,702,000 deferred tax asset due to the uncertainty of its ultimate realization. The net increase in the valuation allowance was $302,000 and $300,000 for the years ended December 31, 2002 and 2001, respectively. F-18 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ------------------------------------------------- Positions Held and Family Name Age Duration of Service Relationship - --------------------- --- ------------------- ------------ Sanjay S. Mody 44 Director See Note President and CEO Treasurer and CFO Alexander Ammosov 38 Director None Earl M. Anderson, Jr. 77 Director and Secretary None Walter E. Freeman 78 Director None Shrikant C. Mehta 59 Director See Note Note: Mr. Mehta is Mr. Mody's uncle. The term of office of all directors will expire at the next Annual Meeting of Stockholders and when their respective successors have been duly elected and qualified. Officers serve at the pleasure of the directors. The following provides a brief account of their principal occupations during the past five years. Mr. Mody joined DDI-NY as a director in March 2000 and assumed his current position as Chief Executive Officer and Chief Financial Officer in May 2001. He served since 2000 as President of Webpulse Consulting, Inc. (a subsidiary of the Company since October 2001). Previously, he served for four years as a Vice President of Laidlaw Global Securities, Inc., New York City. He holds equity interests in, and serves as a director of, Caprius, Inc. (OTCBB: CAPR), engaged in disposal of medical wastes, and several closely-held technology companies in the U.S. and his native India. Mr. Ammosov is the Deputy Chairman of "COPF" Bank and Chairman of Linkcapital Business Consulting, Ltd., both headquartered in Moscow, Russia, and has been so involved for the past five years. "COPF" is a securities brokerage firm where Mr. Ammosov supervises financing of new Bank projects. Linkcapital is a diversified holding company with interests in oil distribution, aircraft sales, retail food chains, tourism, diamond production, and pension fund management. He became a director of DDI-NY in March 2002. Mr. Anderson has acted as an independent management consultant for more than five years. He served as the President of the Company's predecessor from 1978 to 1999. He is a director of Sunair Electronics, Inc.(AMEX: SNR), a company engaged in the production of high frequency radio equipment and systems. He became a director of DDI-NY in 1982. Mr. Freeman has acted as a financial consultant and bank management advisor in the Washington D. C. area for more than the past five years. Prior thereto, he had served as Vice President of the International Bank of Washington. During a 30-year tenure, he was the President of bank subsidiaries engaged in consumer credit, property and casualty insurance and industrial lending and investments. He became a director of DDI-NY in 1983. Mr. Mehta has served for more than five years as CEO and president of Combine International, Inc., a major jewelry manufacturer, and Internet Operations Center, Inc., engaged in web hosting and Internet professional 6 services. He is the founder of both companies and both are based in the Detroit, Michigan area. He is also a founder and director of Inknowvator, Inc. I*Logic, Inc., the POM Group, Inc. and Lenderlive.com, all closely-held corporations. Also, he serves as a director of Caprius Inc. (OTCBB: CAPR). He became a director of DDI-NY in 2001. The Board of Directors does not presently have any committees. However, it plans to establish an Audit Committee and a Compensation Committee. Based solely upon a review of information furnished to the issuer during the most recent fiscal year, including written representations, no director, officer or beneficial owner of more than 10% of issuer's common stock failed to file reports required by Section 16(a) of the Exchange Act during the most recent fiscal year. ITEM 10. EXECUTIVE COMPENSATION ---------------------- The following table sets forth compensation paid or accrued to the chief executive officer. No director or officer received compensation exceeding $100,000 for any of the last three completed fiscal years. SUMMARY COMPENSATION TABLE
Fee or Other Name and Principal Position Period Salary Compensation Total - --------------------------- ------ ------ ------------ ----- Sanjay S. Mody 2002 $108,000 None $108,000 President and CEO May-Dec. 2001 $65,000 None $65,000
Compensation does not include benefits which may be deemed personal, the amount of which cannot be precisely determined. No stock option or stock appreciation rights were granted in 2002 nor are any stock options or SARs outstanding. No compensation was paid for directors' services in 2002. Four board meetings were held during the year at which attendance was 100%. Other matters requiring board action were taken by unanimous written consent of directors, in lieu of a meeting. The Company has had no formal compensatory plan or contract with respect to the employment, resignation, retirement or termination of any director or officer, nor arising from a change in control of the Company. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------- The following table sets forth certain information regarding DDI's Common Stock owned on April 9, 2003 (i) by each person who is known to DDI to own beneficially more than 5% of DDI's Common Stock, (ii) by each of DDI's directors and officers and (iii) by all directors and officers as a group: 7
Name of Number of Shares Percent of Beneficial Owner Beneficially Owned (1) Outstanding Shares (2) - ---------------- ---------------------- ---------------------- Alexander Ammosov (3) 291,666 4.2% Earl M. Anderson, Jr. 139,300 2.0% Walter E. Freeman (4) 6,797 * Shrikant C. Mehta (5) 3,636,111 51.9% Sanjay S. Mody (6) 529,167 7.6% Directors and officers as a group (5 persons) (7) 4,603,041 65.7% *less than 1% (1) Unless otherwise noted, we believe that the beneficial owners have sole voting and investment power with respect to their shares. (2) There are 7,008,582 shares of Common Stock outstanding. (3) Mr. Ammosov holds 83,333 shares directly and 208,333 shares indirectly, through a company he controls. Does not include 177,778 shares currently underlying a Convertible Subordinated Debenture. (4) Includes shares held by Mr. Freeman's wife as to which Mr. Freeman disclaims beneficial ownership. (5) Does not include 2,766,666 shares underlying warrants that are not presently exercisable. (6) Includes 187,500 shares held by Mr. Mody's wife. Mr. Mody disclaims ownership with respect to these shares. (7) See notes (3), (4) (5), and (6).
The address for all individuals listed above is c/o Distinctive Devices, Inc., One Bridge Plaza, Suite 100, Fort Lee, New Jersey 07024. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- On October 31, 2001, DDI acquired all of the outstanding capital stock of Webpulse Consulting, Inc. ("Webpulse") for 295,000 shares of DDI Common Stock. Mr. Mody was a founder, President and sole director of Webpulse and his wife was Secretary and a principal shareholder of Webpulse. On the acquisition, she received 183,333 shares of DDI-NY Common Stock. The Company did not obtain a third party opinion regarding the fairness of the financial terms of the Webpulse transaction. In December 2001, Mr. Mody and his wife exchanged 208,333 shares of DDI Common Stock for 10,000 shares of DDI-NY's newly-authorized Series C Preferred Stock. The exchange was undertaken to enable DDI to sell the same number of shares of Common Stock for cash to Alexander Ammosov because the available number of authorized and unissued shares of Common Stock was inadequate. Each share of Series C Preferred Stock was convertible into 20.83 shares of DDI-NY Common Stock, subject to mandatory conversion upon an increase in authorized Common Stock. In November 2002, upon recapitalization and reverse split of DDI-NY Common Stock and prior to the migratory merger into the Company, DDI-NY issued an aggregate of 208,333 shares of Common Stock in exchange for its Series C Preferred Stock. In December 2001, a company controlled by Mr. Ammosov purchased 208,333 shares of DDI Common Stock at $.48 per share and simultaneously Linkcapital Business Consulting, Ltd. ("Linkcapital"), a second company controlled by him, acquired for $400,000 a 10% Convertible Subordinated Debenture in the principal amount of $400,000 and repayable in five years. The Debentures are convertible into the Company's Common Stock at prices ranging from $1.50 per share in the 8 first year to $4.50 in the fifth year. Mr. Ammosov became a director of the Company in March 2002. Linkcapital holds a 49% interest in a venture with the Company for the marketing in Russia of products manufactured by our subsidiary, Real Time Systems, Ltd. ("RTS"). In August 2002, Shrikant C. Mehta, a director of the Company, purchased 173,333 shares of DDI-NY's newly-authorized Series D Preferred Stock for $650,000. Each share of Series D Preferred Stock was convertible into 20.83 shares of DDI-NY Common Stock. In November 2002, following the recapitization and reverse stock split of DDI-NY Common Stock and prior to the migratory merger into the Company, DDI-NY issued an aggregate of 3,611,111 shares of Common Stock to Mr. Mehta in exchange for his DDI-NY Series D Preferred Stock. On December 10, 2002, Combine International, Inc.("Combine") loaned the Company $207,500 and agreed to loan an additional $207,500 by January 10, 2003, which monies were timely advanced. For the loan, the Company issued to Combine an Unsecured Demand Promissory Note repayable 30 days after demand is given, which demand could be given after February 10, 2003, together with interest at the rate of 12% per annum, payable when the principal is paid. To induce Combine to make the loan, the Company issued to Combine warrants to purchase 2,766,666 shares of the Company's Common Stock exercisable at $0.15 per share, from June 10, 2003 through December 9, 2007. Mr. Mehta is the principal of Combine. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) EXHIBITS 3.1 The Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on July 10, 2001 (filed as Exhibit 3.3 to Registrant's Form 10-QSB for the fiscal quarter ended September 30, 2002, and incorporated herein by reference). 3.2 By-Laws of Registrant (filed as Exhibit 3.3 to Registrant's Form 10-QSB for the fiscal quarter ended September 30, 2002, and incorporated herein by reference). 4.1 2002 Stock Option Plan (filed as Exhibit 4.1 to Registrant's Form 10-QSB for the fiscal quarter ended September 30, 2002, and incorporated herein by reference). 4.2* Common Stock Purchase Warrant, dated December 10, 2002. 10.1 Agreement and Plan of Merger, dated July 24, 2002, between Distinctive Devices Inc., a New York corporation, and Registrant (filed as Exhibit A of the Definitive Proxy Statement of Distinctive Devices Inc., dated August 28, 2002, and incorporated herein by reference). 10.2 Certificate of Merger of Distinctive Devices Inc., a New York corporation, and Registrant, filed on November 5, 2002, with the Secretary of State of the State of New York (filed as Exhibit 3.2 in Form 8-K for an event of November 5, 2002, and incorporated herein by reference). 9 10.3 Certificate of Merger of Distinctive Devices Inc., a New York corporation, and Registrant, filed on November 6, 2002, with the Secretary of State of the State of Delaware (filed as Exhibit 3.3 in Form 8-K for an event of November 5, 2002, and incorporated herein by reference). 10.4 Share Purchase Agreement, dated as of December 6, 2002, between Registrant and the stockholders of Real Time Holdings Private Limited, (filed as Exhibit 2 in Form 8-K for an event of December 6, 2002, and incorporated herein by reference). 10.5* Unsecured Demand Promissory Note, dated as of December 10, 2002, by Registrant in favor of Combine International, Inc. in the principal amount of $415,000. 10.6* Lease Agreement, dated April 1, 2000, with respect to Registrant's Subsidiary's occupancy of premises in New Delhi, India. 10.7* Lease Agreement, dated October 29, 2001, with respect to Registrant's Subsidiary's occupancy of premises in Mumbai, India. 21* Subsidiaries of the Registrant *Filed herewith (b) REPORTS ON FORM 8-K A Report on Form 8-K, dated November 12, 2002, reported in Item 5 the migratory merger and related transactions. A Report on Form 8-K, dated December 20, 2002, reported in Item 2 the acquisition of 99.99% of the outstanding equity capital of Real Time Systems Ltd. (c) INDEX OF EXHIBITS FILED HEREWITH. Exhibit Number 4.2 Common Stock Purchase Warrant 10.5 Unsecured Demand Promissory Note 10.6 Lease Agreement for New Delhi, India premises 10.7 Lease Agreement for Mumbai, India premises 21 Subsidiaries of the Registrant. 10 ITEM 14. CONTROLS AND PROCEDURES The principal executive officer and principal financial officer, based on his evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14 (c) and 15d-14 (c) of the Securities Exchange Act of 1934) as of December 31, 2002 has concluded that the Company's disclosure controls and procedures are adequate and effective to ensure that material information relating to the Company and its consolidated subsidiary is recorded, processed, summarized and reported with the time periods specified by the SEC's rules and forms, particularly during the period in which this annual report has been prepared. The principal executive officer and principal financial officer has concluded that there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to December 31, 2002, the date of their most recent evaluation of such controls, and that there were no significant deficiencies or material weaknesses in the Company's internal controls. 11 CERTIFICATION I, Sanjay Mody, President, Chief Executive Officer and Chief Financial Officer of Distinctive Devices, Inc., certify that: 1. I have reviewed this annual report on Form 10-KSB of Distinctive Devices, 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. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities 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 make 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. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: 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. 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. Date: April 15, 2003 /s/ Sanjay Mody ---------------------------------- Sanjay Mody President, Chief Executive Officer and Chief Financial Officer 12 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. DISTINCTIVE DEVICES, INC. ------------------------- (Registrant) April 15, 2003 By: /s/ SANJAY S. MODY ------------------------------ Sanjay S. Mody President and Treasurer Chief Executive Officer Chief Financial Officer In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. April 15, 2003 /s/ ALEXANDER AMMOSOV ----------------------------- Alexander Ammosov Director April 15, 2003 /s/ EARL M. ANDERSON, JR. ----------------------------- Earl M. Anderson, Jr. Director April 15, 2003 /s/ WALTER E. FREEMAN ----------------------------- Walter E. Freeman Director April 15, 2003 /s/ SANJAY S. MODY ----------------------------- Sanjay S.Mody Director April 15, 2003 /s/ SHRIKANT C. MEHTA ----------------------------- Shrikant C. Mehta Director 13 EX-4 3 ex4_2.txt EX. 4.2 - COMMON STOCK PURCHASE WARRANT Exhibit 4.2 VOID AFTER 5:00 P.M., EASTERN TIME, ON DECEMBER 9, 2007 DISTINCTIVE DEVICES, INC. COMMON STOCK PURCHASE WARRANT ----------------------------- No. 02-1 2,766,666 Shares DISTINCTIVE DEVICES, INC., a Delaware corporation (the "Company"), hereby certifies that COMBINE INTERNATIONAL, INC. (the "Initial Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, 2,766,666 shares (the "Shares") of fully paid and non-assessable Common Stock of the Company, par value $.001 per share, at a purchase price of Fifteen Cents ($0.15) per Share, subject to adjustment from time to time pursuant to Section 3 hereof (the "Exercise Price"). The term "Common Stock" means, unless the context otherwise requires, the Company's Common Stock, par value $.001 per share, or other securities or property at the time deliverable upon the exercise of this Warrant. This Warrant has been issued as additional consideration for the Unsecured Demand Promissory Note (the "Note") in aggregate principal amount of up to $415,000 by the Company. 1. Exercise. 1.1 Timing of Exercise. This Warrant shall be exercisable in whole or in part from time to time commencing as of June 10, 2003 and expiring at 5:00 P.M., New York time, on December 9, 2007 (the "Expiration Date"), subject to earlier termination as provided herein, and may not be exercised thereafter. 1.2 Manner of Exercise. The purchase rights evidenced by this Warrant shall be exercised by the Initial Holder or any person permitted by Section 6.1 herein (collectively, "the Holder"), by surrendering this Warrant, with the Notice of Exercise in the form of Exhibit A hereto duly executed by the Holder, to the Company at its principal office (or such other office as may be designated by the Company to the Holder), accompanied by payment (in cash, by wire transfer or by certified or official bank check or checks) of the Exercise Price. 1.3 Partial Exercise. This Warrant may be exercised for less than the full number of shares of Common Stock at the time called for hereby, in which case the number of shares receivable upon the exercise of this Warrant as a whole, and the sum payable upon the exercise of this Warrant as a whole, shall be proportionately reduced. Upon any such partial exercise, the Company at its expense will forthwith issue to the Holder a new Warrant or Warrants of like tenor calling for the number of shares of Common Stock as to which rights have not been exercised, such Warrant or Warrants to be issued in the name of the Holder. 2. Delivery of Stock Certificates Upon Exercise. As soon as practicable after the exercise of this Warrant, and in any event within ten (10) business days thereafter, the Company, at its expense, will cause to be issued in the name of and delivered to the Holder a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock to which the Holder shall be entitled upon such exercise. Any shares of Common Stock as to which this Warrant is exercised shall be deemed issued on and as of the date of such exercise, and the Holder shall thereupon be deemed to be the owner of record of such shares. 3. Anti-Dilution Adjustments. 3.1 Change in Capitalization. In case of any stock split, stock dividend or similar transaction which increases or decreases the number of outstanding shares of Common Stock, appropriate adjustment shall be made by the Board of Directors of the Company to the number of Share, of Common Stock or the Exercise Price per Share, or both, which may be purchased under this Warrant. 3.2 Consolidation, Merger and Sale of Assets. (a) In case of any consolidation of the Company with or a merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, upon any such consolidation, merger, sale or conveyance and the surviving entity is a publicly traded company or the transaction consideration consists in whole or in part of securities of a publicly traded company, the Company agrees that a condition of such transaction will be that the Company or such successor or purchasing corporation, as the case may be, shall assume the obligations of the Company hereunder in writing. In the case of any such consolidation, merger or sale or conveyance, the Holder shall have the right until the Expiration Date upon payment of the Exercise Price in effect immediately prior to such action, to receive the kind and amount of shares of stock or other securities or property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which this Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3, provided that the consideration to the stockholders of the Company on such transactions consists in whole or in part of securities of the other corporation. The provisions of this Section 3.2(a) shall similarly apply to successive consolidations, mergers, sales or conveyances. (b) In case of any consolidation of the Company with or a merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, upon any such consolidation, merger, sale or conveyance and the surviving entity is neither a publicly traded company nor a subsidiary of a publicly traded company, the Company agrees that a condition of such transaction will be that the Company shall mail to the Holder at the earliest applicable time (and, in any event not less than thirty (30) days before the anticipated closing date of the transaction) written notice of such record date. Such notice shall also set forth facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price of and the kind and amount of the shares of stock and other securities and property deliverable upon exercise of this Warrant. Upon the closing of the transaction referenced in the foregoing notice, this Warrant to the extent then unexercised shall terminate. 3.3 Exchanges and Distributions With Respect to Common Stock. If the Company shall exchange for its Common Stock or distribute with respect to its Common Stock other securities issued by it, the Company shall give notice thereof to the Holder, and the Holder shall have the right thereafter (until the 2 expiration of this Warrant) to exercise this Warrant for the kind and amount of shares of stock and other securities retained or received by a holder of the number of shares of Common Stock of the Company into which this Warrant might have been converted immediately prior to such exchange or distribution, subject to adjustment as provided hereinabove. 3.4 Officer's Certificate. Whenever the Exercise Price per Share or the number of shares of Common Stock subject to this Warrant is adjusted, the Company shall promptly mail to the Holder of this Warrant a notice of adjustment, which notice shall include a brief statement of the facts requiring the adjustment and the manner of computing it and shall be certified by the chief financial officer of the Company. The determination of the adjustment shall be made by the Company in its sole discretion in accordance with this Warrant and shall be final and binding upon the Holder absent manifest error. 4. Shares to Be Fully Paid; Reservation of Capital Stock Issuable Upon Exercise of Warrants. The Company covenants and agrees that any shares issued hereunder will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. Upon the delivery of shares issued upon the due exercise of this Warrant, the issuing company shall deliver to the Holder an opinion of counsel setting forth that the issued shares are fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. The Company shall at all times reserve and keep available out of its authorized but unissued capital stock, solely for the issuance and delivery upon the exercise of this Warrant, such number of its duly authorized shares of Common Stock as from time to time shall be issuable upon the exercise of this Warrant. 5. Fractional Shares. The Company shall not issue fractions of shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any fraction of a share of Common Stock would, except for the provisions of this Section 5, be issuable upon exercise of this Warrant, then the number of shares of Common Stock to be issued shall be rounded up or down to the nearest whole share. 6. Transfer Restrictions 6.1 Transfer. A Holder, including the Initial Holder or any subsequent Holder, may transfer this Warrant only to (i) any other Holder of a Warrant in this Series, (ii) any entity controlled by, controlling or under common control of the Holder, or for which the Holder is acting as the representative, (iii) to one or more shareholders, directors, officer, or employees of the Holder; or (iv) any member of the immediate family (which shall be deemed to include a spouse, parent, or child) of an individual Holder or trust for the benefit of any such individual. Prior to any such transfer, the Holder must deliver the Assignment Form in the form of Exhibit B hereto and provide information to the Company, in writing, regarding the proposed transferee sufficient for the Company to determine the eligibility of such transferee under this Section 6. 6.2 Securities Laws. The Holder of this Warrant, by accepting delivery of the same, hereby: (a) acknowledges that any shares of Common Stock issued pursuant to the exercise of this Warrant may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), at the time issued; 3 (b) agrees that, upon the exercise of this Warrant, it shall make the customary representations and warranties as may be requested by counsel to the Company in order for the Company to properly rely upon Section 4(2) of the Securities Act or any other appropriate exemption from registration thereunder, and, in connection with such exemption, that any certificates representing shares of Common Stock issued pursuant to this Warrant would reflect an appropriate legend regarding restrictions upon transferability; and (c) agrees to indemnify the Company, and hold it harmless from and against, any and all losses, expenses (including attorneys' fee), costs and damages arising form or relating to any violation of the Securities Act and applicable state securities or "blue sky" laws arising from any misstatement or omission by Holder in any of its representations and warranties in connection with the exercise of this Warrant or the issuance, sale or transfer of shares of Common Stock or other securities acquired under this Warrant. 6.3 Maintenance of Reporting Requirements. The Company shall use its best efforts to be in compliance with its reporting requirements, if any, under the Securities Exchange Act of 1934, as amended. The Company shall maintain such compliance until the earliest of (i) the date that the Holder ceases to be the beneficial owner of any shares acquired upon exercise of this Warrant, (ii) the date that the Holder would have the ability to dispose of all of the shares acquired hereunder pursuant to the provisions of Rule 144(k) under the Securities Act, or any similar rule as may be enacted by the Securities and Exchange Commission or (iii) the termination of this Warrant without it having been exercised, . 7. Registration Under the Securities Act of 1933. 7.1 Piggyback. If at any time prior to the Expiration Date the Company proposes to register shares of its Common Stock under the Securities Act on any form for the registration of its Common Stock under the Securities Act (the "Registration Statement") for the account of stockholders (other than a registration relating to (i) a registration of a stock option, stock purchase or compensation or incentive plan or of stock issued or issuable pursuant to any such plan, or a dividend investment plan; (ii) a registration of securities proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another corporation; or (iii) a registration of securities proposed to be issued in exchange for other securities of the Company) in a manner which would permit registration of the Shares for sale to the public under the Securities Act (a "Piggyback Registration"), it will at such time give prompt written notice to the Holder of its intention to do so and of the Holder's rights under this Section 7. Such rights are referred to hereinafter as "Piggyback Registration Rights". Upon the written request of the Holder to the Company made within ten (10) days after the giving of any such notice (which request shall specify the number of Shares intended to be disposed of by the Holder and the intended method of disposition thereof) (such Shares being for purposes of this Section 7, the "Registered Shares"), the Company will include in the Registration Statement the Registered Shares which the Company has been so requested to register by the Holder, provided that the Company's obligation shall continue after exercise of the Warrants, but it need not include any Registered Shares in a Registration Statement filed after the Expiration Date. 7.2 Company Termination. If, any time after giving written notice of its intention to register any securities in a Piggyback Registration but prior to the effective date of the related Registration Statement filed in connection with such Piggyback Registration, the Company shall determine for any reason not to register such securities, the Company will give written notice of such 4 determination to the Holder and thereupon shall be relieved of its obligation to register any Shares in connection with such Piggyback Registration. 7.3 Holder Election. The Holder may elect in writing, not later than three (3) business days prior to the effectiveness of the Piggyback Registration not to have its Registered Shares so included in connection with the Registration Statement. 7.4 Underwriting. If the securities covered by the Registration Statement are to be underwritten, the Company shall not be required to include therein any of Registered Shares unless the Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it. If in the opinion of the managing underwriter, the registration of all, or a part of, the Registered Shares which the Holder has requested to be included in the Registration Statement would adversely affect such public offering, then, (i) the Company shall be required to include in the underwriting only the number of Shares, if any, which the managing underwriter believes may be sold without causing such adverse effect, and the number of the Registered Shares that may be included in such registration shall be allocated among all selling stockholders, requesting to participate in such registration in proportion (as nearly as practicable) to the amount of shares of Common Stock owned by each selling stockholder (including the Holder), or (ii) the Company may require the selling stockholders (including the Holder) to delay any offering of their Securities for a period of up to ninety (90) days. 7.5 Obligation. The Company is obligated to file only one Registration Statement pursuant to this Section 7 which is declared effective under the Securities Act; provided however, in the event any Registered Shares are excluded from inclusion in a Registration Statement pursuant to Section 7.4, such excluded Registered Shares may be included in a second Registration Statement filed in accordance with this Section 7. The Piggyback Registration Rights under this Section 7 are the only rights granted by the Company to the Holder to include the Shares in a Registration Statement. 7.6 Selling Stockholders Agreement. As a condition to including the Holder's Registered Shares in a Piggyback Registration, the Holder shall enter into a Selling Stockholders Agreement with the Company containing such terms and conditions, including mutual indemnification, as then are reasonable and customary for such agreements. 8. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement, and if requested by the Board of Directors, a bond in an amount reasonably satisfactory to it, or (in the case mutilation) upon surrender and cancellation hereof, the Company will issue in lieu thereof a new Warrant of like tenor. 9. Rights as a Warrant Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity except with respect to certificates representing shares of Common Stock issued upon exercise of this Warrant. The rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. Prior to due presentment for transfer of this Warrant, the Company may deem and treat the Holder as the absolute owner of this 5 Warrant for purposes of any exercise hereof and for all other purposes and such right of the Company shall not be affected by any notice to the contrary. 10. Subdivision of Rights. This Warrant (as well as any new warrant issued pursuant to the provisions of this Section) is exchangeable upon the surrender hereof by the Holder at the principal office of the Company for any number of new warrants of like tenor and date representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock of the Company that may be subscribed for and purchased hereunder. 11. Sending of Notices. All notices and other communications with respect to this Warrant shall be in writing and sent by express mail or courier service or by personal delivery, if to the Holder, to the address set forth at the end of this Warrant, and if to the Company, to One Bridge Plaza, Suite 100, Fort Lee, New Jersey 07024, or to such other address as either party hereto may duly give to the other. 12. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of the terms hereof. 13. Change, Waiver, Discharge or Termination. This Warrant sets forth the entire agreement between the Company and the Holder with respect to the matters herein. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. The Company shall not amend any other Warrant issued as part of this Series to make terms thereunder more favorable to the Holder thereof without offering the same amended terms to the Holder hereof. 14. Governing Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law. DISTINCTIVE DEVICES, INC. By: ---------------------------------- Dated: December 10, 2002 Sanjay Mody, Chief Executive Officer, President and Chief Financial Officer Agreed to: COMBINE INTERNATIONAL, INC. 354 Indusco Court Troy, MI 48083 BY: ---------------------------------- Name: Title: 6 EXHIBIT A --------- NOTICE OF EXERCISE ------------------ (To be executed by a Holder desiring to exercise the right to purchase Shares pursuant to a Warrant.) The undersigned Holder of a Warrant hereby: (a) Irrevocably elects to exercise the Warrant to the extent of purchasing _______ Shares; (b) Makes payment in full of the aggregate Exercise Price for those Shares in the amount of $___________ by wire transfer or the delivery of certified funds or a bank cashier's check in the amount of $___________; (c) Requests that a certificate for such Shares be issued in the name of the undersigned, or, if the name and address of some other person is specified below, in the name of such other person: - --------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- (Name and address of person other than the undersigned in whose name Shares are to be registered.) (d) Requests, if the number of Shares purchased are not all the Shares purchasable pursuant to the unexercised portion of the Warrant, that a new Warrant of like tenor for the remaining Shares purchasable pursuant to the Warrant be issued and delivered to the undersigned at the address stated below. COMBINE INTERNATIONAL, INC. Employer ID Number: Dated: By: - --------------------------------- ---------------------------------------- Name: Title: (This signature must conform in all respects to the name of the Holder as specified on the face of the Warrant.) Address: - ------------------------------------------ - ------------------------------------------ Stock Warrant No.: ## 7 EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, the undersigned, ________________________________, hereby sells, assigns and transfers unto: Name: ________________________________________________ (Please type or print in block letters.) Address: - --------------------------------------------- - --------------------------------------------- the right to purchase ______________ shares (the "Shares") of Distinctive Devices, Inc. (the "Company") pursuant to the terms and conditions of the Warrant held by the undersigned. The undersigned hereby authorizes and directs the Company (i) to issue and deliver to the above-named assignee at the above address a new Warrant pursuant to which the rights to purchase being assigned may be exercised, and (ii) if there are rights to purchase Shares remaining pursuant to the undersigned's Warrant after the assignment contemplated herein, to issue and deliver to the undersigned at the address stated below a new Warrant evidencing the right to purchase the number of Shares remaining after issuance and delivery of the Warrant to the above-named assignee. Except for the number of Shares purchasable, the new Warrant to be issued and delivered by the Company is to contain the same terms and conditions as the undersigned's Warrant. This Assignment is subject to receipt by the Company of such investment representations by the assignee, as may be reasonably required under the Securities Act of 1933, as amended. To complete the assignment contemplated by this Assignment Form, the undersigned hereby irrevocably constitutes and appoints ______________________________ as the undersigned's attorney-in-fact to transfer the Warrant and the rights thereunder on the books of the Company with full power of substitution for these purposes. COMBINE INTERNATIONAL, INC. Employer ID Number: Dated: By: - --------------------------------- ---------------------------------------- Name: Title: (This signature must conform in all respects to the name of the Holder as specified on the face of the Warrant.) Address: - ------------------------------------------ - ------------------------------------------ Stock Warrant No.: ## 8 EX-10 4 ex10_5.txt EX. 10.5 - UNSECURED DEMAND PROMISSORY NOTE Exhibit 10.5 DISTINCTIVE DEVICES, INC. ------------------------- UNSECURED DEMAND PROMISSORY NOTE -------------------------------- $415,000. December 10, 2002 FOR VALUE RECEIVED, the undersigned, DISTINCTIVE DEVICES, INC., a Delaware corporation (the "Maker"), hereby promises to pay to the order of COMBINE INTERNATIONAL, INC. (the "Holder"), on DEMAND, in lawful money of the United States of America, the principal sum of up to FOUR HUNDRED FIFTEEN THOUSAND DOLLARS ($415,000), together with interest at the rate of Twelve (12%) percent per annum thereon. The principal on this Note, together with accrued interest thereon, shall be paid at the address of the Holder, 354 Indusco Court, Troy, MI 48083, or at such other place as may be specified by the Holder in its notice of demand. 1. Advances. Subject to the terms and conditions herein, the Holder agrees to advance to Maker up to FOUR HUNDRED FIFTEEN THOUSAND DOLLARS ($415,000) (the "Advances"), of which TWO HUNDRED SEVEN THOUSAND FIVE HUNDRED DOLLARS ($207,500) has been loaned this day and an additional TWO HUNDRED SEVEN THOUSAND FIVE HUNDRED DOLLARS ($207,500) is to be loaned no later than January 10, 2003. 2. Payment. 2.1 Demand. This Note is payable on demand, which may be given by the Holder to the Maker, in writing, at any time after February 10, 2003, specifying the amount of the outstanding principal sought to be repaid. The Maker shall pay the then specified principal amount, together with accrued interest thereon, within thirty (30) days after its receipt of the notice of demand. The notice of demand may be given regardless of whether a Default (as defined below) has occurred under this Note. 2.2 Prepayment. The Maker may prepay the outstanding principal amount, in whole or in part, together with accrued interest on the principal amount being prepaid, at any time, without premium or penalty 3. Common Stock Purchase Warrants. In order to induce the Holder to make such Advances, the Maker has issued Warrants to the Holder to purchase 2,766,666 shares of Common Stock of Maker. 4. Default. 4.1. Event of Default. Upon the occurrence of any of the following events, the Maker shall be deemed to be in default hereunder (a "Default"): (a) the failure by the Maker to pay any of the amounts due hereunder when such amounts become due and payable in accordance with terms hereof; or (b) the commencement of any bankruptcy, insolvency, arrangement, reorganization or other debtor-relief proceedings by or against the Maker, or the dissolution or termination of the existence of the Maker. 4.2 Declaration. At any time after a Default, the Holder may (i) upon written notice to the Maker, declare the entire outstanding principal sum and all accrued and unpaid interest hereunder as well as any costs of collection (collectively, the "Obligations") immediately due and payable, and (ii) exercise any and all rights, powers and remedies provided under this Note and otherwise under applicable law. 5. Notice. Any notice, presentation or demand to or upon the Maker or to the Holder in respect of this Note may be given or made in writing to the addresses set forth below, and shall be deemed to be duly given if personally delivered with receipt acknowledged, if mailed by registered or certified mail, first class, postage prepaid, or if delivered by a nationally recognized overnight courier service to such address, or, if any other address shall at any time be designated for this purpose by the Maker in writing to the other, to such other address. (a) If to the Holder: Combine International 354 Indusco Court Troy, MI 48083 Attn: Roger Parsons (b) If to the Maker: Distinctive Devices, Inc. One Bridge Plaza, Suite 100 Fort Lee, NJ 07024 Attn: Sanjay Mody, President 6. Governing Law. The provisions of this Note shall be construed and interpreted, and all rights and obligations hereunder determined, in accordance with the laws of the State of Delaware, without reference to the conflict of laws principles thereof. 7. Successors. This Note shall be binding on the Maker and its successors and assigns, and inure to the benefit of Holder and its successors and assigns; provided that Maker may not assign, transfer or convey this Note without the written consent of Holder. 8. Amendment. This Note sets forth the entire agreement between the Holder and the Maker with respect to the matters herein; and may not be amended, modified or terminated except by a writing executed by the Maker and the Holder. IN WITNESS WHEREOF, the Maker has duly executed this Note on the day and year first above written. DISTINCTIVE DEVICES, INC. ------------------------------------------- By: Sanjay Mody Title: Chief Executive Officer, President and Chief Financial Officer 2 EX-10 5 exh10_6.txt EX. 10.6 - LEASE AGREEMENT FOR NEW DELHI LEASE DEED THIS LEASE DEED is made on this the 1st day of April, 2000 between M/S IRON TRADERS PRIVATE LIMITED, having its registered office at A-235, Okhia Industrial Area, Phase-I, New Delhi-110020 through its representative Sh. Santosh Kumar Hingal S/o Sh. Krishan Lal Hingal, R/o BS-S5 B; Shalimar Bagh, Deli-110052 (hereinafter referred to as the "LESSOR/OWNER") and M/S REALTIME SYSTEMS LIMITED having its office at C-45, Okhia Industrial Area, Phase-I, New Delhi-110020 through its Asst. Manager (P&A) Mr. Sandi Biman, S/o Sh. M.L. Bhan, R/o 112, Lok Viher Appts, Vikaa Puri, New Delhi-18 (hereinafter referred to as the "LESSEE") of the other part. WHEREAS the LESSOR, M/S IRON TRADERS PRIVATE LIMITED, is the owner of the Factory Premises No. A-235, Okhia Industrial Area, Phase-I, New Delhi-110020, duly installed with Industrial Power (about 100 H.P.), commercial light and subsoil water facilities and having DDA leasehold rights. AND WHEREAS the LESSEE, M/S REALTIME SYSTEMS LIMITED has approached the LESSOR/OWNER for the grant of Permission to use the factory premises No. A-235, Okhia Industrial Area, Phase-I, New Delhi-110020 duly installed with Industrial Power, Permanent commercial light and water facilities for the purpose its office/workshop for manufacturing of Telecom equipment to use the said premises for Commercial/Industrial purposes by the LESSEE & their representatives, business associates, legal representative etc. in the said premises on Lease for a period of three years at a monthly Lease Money of Ra.1,40,000/- (Rupee One Lacs forty thousand only) (After tax deducted at source as per 1. Tax Act.), excluding consumption charges of Industrial power, Commercial light, Water, Telephone, Generator set. AND WHEREAS the LESSOR/OWNER has agreed to grant Lease to the LESSEE, M/S REALTIME SYSTEMS LIMITED to use the aforesaid factory premises, A-235, Okhia Industrial Area, Phase-I, New Delhi-110020. NOW IT IS HEREBY EXPRESSLY agreed and declared between the parties as under: 1. That the LESSEE, M/S REALTIME SYSTEMS LIMITED has undertaken to pay a sum of Rs.1,40,000/- (Rupee One Lacs forty thousand only) (After tax deducted its source as per 1. Tax Act) per month as monthly lease, money payable always in advance before the 10th of each English Calendar month. 2. That the LESSEE M/S REALTIME SYSTEMS LIMITED shall pay the consumption charges of Industrial Power, Commercial Light and water charges directly to the authorities concerned, as per bills, always in time and the LESSOR/OWNER shall not be responsible in case of dis-connection due to non-payment of bills. The LESSOR shall have no objection for making any temporary partition, cabins, chambers, alterations in the demised premises to be associated by the LESSEE at its own cost of A/cs Telephones, Computers, Water Coolers, etc. But at the time of termination of the lease agreement LESSEE shall remove all such equipments & hand over the vacant possessions to the Lessor/Owners. 1 3. That the LESSEE shall keep the premises in a sanitary and clear condition and shall pay the cost of making goods any damage there to or to the adjacent premises caused by the negligence or misuse of the premises by the LESSEE or its agents/employees/workers etc., and the LESSEE shall indemnify the LESSOR/OWNER against any loss or damage to the factory premises caused by fire or otherwise by any other reason. 4. That the LESSEE shall not change the constitution of its company and shall not change the user of the premises as stated in the Lease Deed/Agreement, neither this LESSEE nor any of the rights conferred by it shall be transferred or assigned to any other person/firm/company etc., nor shall the factory premises or any part thereof be allowed to be used by any other person/firm/company doing business in its name etc. 5. That the LESSEE shall be responsible for any damages to the premises due to fire, any disputes, between the workers of the LESSEE and the LESSEE shall repair and maintain the leased premises and keep the same in a good sanitary condition. 6. That the LESSEE shall not deal in and store any inflammable/combustible goods or any such other goods prohibited under the By-laws framed by Municipal Corporation of Delhi/Delhi Development Authority or any other Government Body. 7. That the LESSEE shall pay all taxes and impositions on account of the office carried on by it in the said premises and the LESSOR shall not incur any liability in respect of the same. 8. That the LESSEE shall not make any encroachment and shall confine itself only to the aforesaid portion of the factory premises for the running of its Office & Work shop & other business activities. 9. That the LESSOR shall not be responsible for the safety of the goods/machines or any other materials or articles, belonging to the LESSEE M/S REALTIME SYSTEMS LIMITED or to any other person connected with the LESSEE or visiting the LESSEE nor shall the LESSOR/OWNER be liable for any loan or damage or injury to the premises, lying at any time in or around the said factory premises, by reason of theft, fire, pilferage, emergency, risks, other risks, seepage, leakage of water from any part of the building, or from any cause whatsoever. The goods/articles, machine things etc., lying in the premises, shall be strictly at the risk and responsibility of the LESSEE. 10. That the LESSEE shall comply with all the laws, by-laws, encroachments, statutes, rules and regulations and sets of Municipal Corporation of Delhi, Delhi Development Authority, Land & Development Officer, New Delhi Municipal Committee, Delhi Administration, DBV, DWB, Central Government, Delhi Government, R.B.I., Export-Import Bye-laws, or any other local body or authority. In case, the LESSEE contravenes any of the aforesaid rules, regulations, acts or bye-laws etc., and any penalty or damage is imposed by the authorities, in such an event, the LESSEE will be solely responsible and the LESSOR/OWNER shall not incur any liability whatsoever. The LESSOR has no objection. LESSEE for the installation of Generator Set in the premises. 2 The House Tax or other future tax on the premises to be levied by the Govt. Authorities is to be borne by the LESSOR only. But any Tax which is levied due to the business of the LESSEE shall be payable by the LESSEE. 11. That the LESSOR/OWNER has not objection if the LESSEE applies and avails the necessary registrations with the Directorate of Industries, Small Scale Industries, or any other registrations in connection with the Import-Export policies and also to deal with any Excise, Sales Tax Department, and also to apply and avail the Telephone connection, Telex, Fax, tele fax facilities and another Industrial Power, Commercial Light, Power connections from DVB to run its office/Workshops in the said factor premises. 12. That the LESSEE has deposited total a sum of Rs.9,80,000/- (Rupees Nine lace eighty thousands only) which represents as Ra.5,60,000/+ towards advance lease rent equivalent to 4 months lease rent adjustable (TDs to be deducted as per rules framed under the Income Tax Act) and Ra.4,20,000/+ which is equivalent to three months lease money (interest free). The LESSEE have deposited this monies with the LESSOR (on account of Security Deposit) against infrastructure facilities in the said leased premises and the said security deposit is refundable by the LESSOR/OWNER to the Lessee as and when the LESSEE will vacater the premises after clearance of the dues if any. The LESSEE shall be entirely responsible for any breach of laws due to their business activities and LESSEE have to make such arrangements at their own cost and responsibilities such as getting permission/consent from the Delhi Pollution Control committee for running their business in the subject premises or another department(s) as per circulars/notifications issued from time to time. 13. That the Lease Deed has been executed for a period of 3 (Three) years w.o.f. 1st April, 2000 to 31st March, 2003. In case the LESSEE is desirous of renewing the Lease for a farther period of 3 years i.e. 1st April, 2003 to 31st March 2006. It requires at least three months notice in writing from the LESSEE showing their such intention and will be renewed for a further period of Three years as given above subject to 15% increase in the monthly lease money of the last lease rent paid by the LESSEE. However the 14. That the LESSEE shall not sublet, assign or otherwise part with the possession of the demised premises to any one without the pre-consent of the LESSOR/OWNER in writing. 15. That the LESSEE shall permit the LESSOR/OWNER, its agents/surveyors and workmen to enter the demises premises at any time for the purpose of inspection or repair of the demised premises. 16. That the LESSEE to deliver the demised premises to the LESSOR on the expiry or earlier on termination of the lease of the factory premises, A-235, Okhia Industrial Area, Phase-I, New Delhi-110020, together with fullmap & fixture in such good condition as is consistent with the covenants and conditions of the arrangements. 3 17. Electric Connections exist in the demised premises. Extra power, if required, shall be arranged by the LESSEE at its own cost, to which the LESSOR/OWNER shall have no objection. 18. That if the monthly lease money i.e. Ra.1,40,000/- (Rupees One lacs forty thousand only) (After tax deducted at source as per I.Tax Act) hereby reserved and agreed shall be in arrears, or not paid by the LESSEE M/S REALTIME SYSTEMS LIMITED TO THE LESSOR/OWNER M/S IRON TRADERS PRIVATE LIMITED in accordance with the terms and conditions contained and agreed herein then in such events, circumstances the legal consequences will follow, however the LESSOR/OWNER M/S IRON TRADERS (P) LTD. Shall intimate in writing to the LESSEE M/S REALTIME SYSTEMS LIMITED Thirty (30) days with prior notice/intimation before taking any such strong actions. 19. This Lease Deed can be terminated before expire date - by both the LESSOR OR LESSEE side and for this purpose at least three months notice in writing is required. IN WITNESS WHEREOF the parties hereto have signed this Lease Deed/agreement after having fully understood the contents of the terms on the date mentioned herein above. WITNESSES: 1. LESSOR/OWNER IRON TRADERS PRIVATE LIMITED 2. LESSEE M/S REALTIME SYSTEMS LIMITED 4 EX-10 6 exh10_7.txt EX. 10.7 - LEASE AGREEMENT FOR MUMBAI Exhibit 10.7 AGREEMENT OF LEAVE & LICENSE ARTICLES OF AGREEMENT made and entered into at Mumbai this 29th day of October, 2001 in this Christian year. Two Thousand and One between SHRI SWAMI SADANAND GIRI JI, residing at Sanyas Ashram, Vithabal Road, Vile Parle (West), Mumbai-400056, hereinafter called the "LICENSOR" (which expression shall unless it be repugnant to the context or meaning thereof mean and include his heirs, legal representatives and assigns) of the One Part and M/S. Distinctive Devices (India) Pvt. Ltd. having its Registered Office at 620, Parekh Market, Kennedy Bridge, Mumbai-400004, hereinafter called the "LICENCEE" (which expression shall unless it be repugnant or meaning mean and include the Company, its successors and assigns). WHEREAS, Licensor is in lawful possession in respect of Two Halls each admeasuring 58ft. X 40ft., Buildup area respectively on 4th and 5th floor in the building known as Sanskrit Parhahala situated at Sanyas Ashram Compound, near its Main Gate, V.P. Road, Vile Parle (West), Mumbai-400056 (hereinafter referred to as the "said Premises"). And, whereas the Licensee herein is in the need of premises for temporary period for it's running its educational institute, the Licensor at the request of the Licensee gave the said premises to the Licensee for the period of 18 months commencing from 1st day of August, 2001 to 30th June, 2002 on the following terms and conditions hereinafter appearing. NOW THIS ARTICLES OF AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: (1) The Licensor has already given on leave and license said premises to the Licensee, on 1st August, 2001 and the Licensor had given possession of said premises to the Licensee and the Licensee hereby admit, and confirm the same. (2) The Licensee shall pay the Licensor monthly compensation of Rs: 75000-00 only (Rupees Seventy Five Thousand only). Such monthly compensation shall be paid by the Licensee to the Licensor in advance on or before 5th day of each and every calendar month. Such compensation shall be due and payable from 1st day of August, 2001. (3) It is hereby agreed that the said Monthly compensation of Rs: 75000-00 only (Rupees Seventy Five Thousand only) is Exclusive of Maintenance and other outgoings. The Licensee shall bear and pay exclusively all the Municipal Taxes, Rates, Cess and other levies by the Authorities Concerned, as also Electricity Charges, Water Charges, Lift-operation and Maintenance, Watchman, etc.; proportionately, as Billed by the Licensor, from time to time, within time. (4) THE LICENSEE HEREBY CONVENIENT WITH THE LICENSOR AS FOLLOWS: (a) To pay the monthly compensation to the Licensor on or before the 5th day of each and every calendar month, and for the purpose, the Licensee has handed over post dated Cheques to Licensee, as per Annexture I. (b) The Licensee is at liberty to take telephone connection in the said premises in its own name for the sake of convenience only and on basis of the telephone bill, the Licensee will not claim any right, title and interest in the said Licensee premises and used as proof of evidence of termination or expiry of the terms shall transfer telephone connection to other place and pay telephone bills to M.T.N.L. (c) To use said premises for Conducting Educational Institute owned and run by Licensee. The Licensee shall not create any subtenancy 2 or sub-licensing or in any way part with the possession of the said Premises, in the favour of any Third Party. (d) Not to do or permit to be done upon the Licensed premises anything illegal or anything which may create or cause nuisance or annoyance or disturbance to the Licensor to any Occupants occupying the other portion of the said building or the adjoining buildings. (e) Not to store any hazardous and inflammable articles to hide the premises. No non-vegetarian food shall be used in the premises or any portion thereof. (f) To permit the Licensor and his representatives and his authorized agents at all times during the business hours to enter upon the premises to view the conditions of the said Premises. (g) To permit the Licensor and his authorized agents with all necessary workmen and appliances at all reasonable times to enter upon premises for the purpose of any inspection and repairs if any, of the premises as may be deemed to be necessary by the Licensor. (h) The Licensed Premises shall not be used for any entertainment Party or function. No loud speakers and or Public Address system shall be employed by the Licensee. The Licensee shall not be entitled to make any grievances or Complaint, regarding any noise, lights, loudspeakers, traffic, parking spaces, and or any religious activities and festivals conducted in other part of the said building and or in any part of the Sanyas Ashram Compound. 3 (i) The Licensee shall not make addition alteration and renovate in the said premises and structural alteration. (j) To keep fixture and furniture such as tables, fans and other furniture is good and tenable repair and condition (responsible wear and tear) and damages by fire, earthquake, tempest or other act of God or inevitable accident or by irresistible always expected. (k) To hand over possession of the Licensed premises along with the fixtures and furniture if any provided by the Licensor, on the expiration of the License period or its earlier determination as per this agreement to the Licensor. (5) IT IS HEREBY MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS: (a) If the compensation shall be in arrears for two months (whether legally demanded or not) or if the Licensee shall fail to perform or observe the convenants and agreements on the part of the License of any of the conditions herein contained then and in such cases, it shall be lawful for the Licensor at any time hereafter to terminate and revoke the license and re-enter upon the said premises or upon any part thereof in the name of the whole and License hereby created shall thereupon absolutely cease and determine but without prejudice to any claim or demand which the Licensor may has against the Licensee in respect of any breach on nonperformance or non-observance of the any of the 4 convenants and agreements on the part of the Licensee and the conditions herein contained. (b) In the event of the said premises or the said building being acquired or requisitioned by Government or any other authorities under any act of Ordinance or Modification for the time being in force, this License shall, cease and determine and the Licensee shall handover vacant possession of the said premises to the Licensor. (c) It is mutually agreed between Parties hereto that if the Licensee wants to terminate this agreement before expiry of Licensed period in that event it should give one month Notice to the Licensor. Similarly, the Licensor wants to terminate this agreement before expiring the terms in that event he should give one month Notice to the Licensee. (6) On the expiry of the said period if 11 Months, the parties herein, can enter into fresh leave and Licensee Agreement subject to terms and conditions agreed by and between the parties. (7) In the event of expiry of the terms of this agreement and or its earlier termination by the Licensor as provided hereinabove the Licensee shall forthwith vacate the premises and handover quiet possession thereof to the Licensor and in the meanwhile discontinue using the said premises failing which the Licensee shall be bond to pay at the rate of double the Monthly Compensation for the number of days delay is made in giving possession to the Licensor and or discontinuing use of the premises. (8) It is agreed by and between the parties that this agreement of leave and license shall be subject to the provision of the Maharashtra Road Control Act, 1999, as amended from time to time and the disputes if any arising between 5 the parties hereto under these presents shall have exclusive jurisdiction by the competent authority constituted by the (9) All the out of pocket costs, charges and expenses of and incidental to this leave and license Agreement and the Stamp duty and Registration charges shall be borne and paid by the Licensee alone. IN WITNESS WHEREOF the parties have hereto set and subscribe their respective hands and signatures on these presents on the day and year first hereinabove written. SIGNED AND DELIVERED by the withinnamed the "LICENSOR" Shri Swami Sadanand Giri Ji, in the presence of Witness (1) (2) SIGNED AND DELIVERED by the withinnamed the "LICENSEE" Distinctive Devices (India) Pvt. Ltd., in the presence of Witness (1) (2) 6 EX-21 7 ex21.txt EX. 21 - SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT Jurisdiction of Subsidiaries Incorporation Ownership ------------ ------------- --------- Webpulse Consulting, Inc. New Jersey 100% Distinctive Devices (India), PLC India 96.6% International Gemsource Inc. Delaware 100% Real Time Systems Ltd. (India) India 99.9% -----END PRIVACY-ENHANCED MESSAGE-----