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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1997
or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 0-22055
TTR INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 11-3223672
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
515 Madison Avenue, New York, New York
(Address of Principal Executive Offices)
212-688-9828
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No[ ]
The number of shares outstanding of the registrant's Common Stock as of
May 15, 1997 was 4,238,548.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
Index
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements *
Consolidated Balance Sheet
December 31, 1996 and March 31, 1997 1
Consolidated Statement of Operations
For the Three Months ended March 31, 1996 and 1997 2
Consolidated Statement of Cash Flows
For the Three Months ended March 31, 1996 and 1997 3
Notes to Consolidated Financial Statements 4 - 6
Item 2. Plan of operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon senior securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 27 - Financial Data Schedule
* The Balance Sheet at December 31, 1996 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 63,656 $ 1,990,143
Accounts receivable 507 455
Other current assets 135,321 158,731
------- ---------
Total current assets 199,484 2,149,329
Property and equipment - net 373,444 434,846
Deferred financing costs, net of accumulated amortization of
$181,310 for 1996 62,101 -
Deferred stock offering costs 475,664 -
Due from officer 26,000 26,000
Other assets 14,995 129,635
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Total assets $ 1,151,688 $ 2,739,810
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) LIABILITIES
Current liabilities
Current portion of long-term debt $ 1,065,365 $ 24,285
Short-term borrowings 849,602 -
Accounts payable 170,323 63,573
Accrued expenses 403,594 494,127
Interest payable 234,508 -
----------- -----------
Total current liabilities 2,723,392 581,985
Long-term debt, less current portion 22,153 14,709
----------- -----------
Total liabilities 2,745,545 596,694
COMMITMENTS AND CONTINGENCIES - See Notes
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.001 par value;
20,000,000 shares authorized,
3,050,000 and 4,204,548 issued and outstanding, respectively,
including 1,000,000 shares placed in escrow 3,050 4,205
Additional paid-in capital 405,356 7,511,685
Cumulative translation adjustments 57,696 54,269
Deficit accumulated during the development stage (2,059,959) (3,324,444)
Less: deferred compensation - (2,103,599)
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Total stockholders' equity (deficit) (1,593,857) 2,143,116
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,151,688 $ 2,739,810
=========== ===========
</TABLE>
See Notes to Financial Statements.
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception
Three Months Three Months (July 14,
Ended Ended 1994) to
March 31, March 31, March 31,
1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue $ - $ - $ -
Expenses
Research and development 85,246 270,979 891,532
Sales and marketing 36,105 326,438 760,236
General and admininstrative 75,497 347,687 992,423
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Total expenses 196,848 945,104 2,644,191
------- ------- ---------
Operating loss (196,848) (945,104) (2,644,191)
Other (income) expense
Legal settlement - 232,500 232,500
Loss on investment - - 17,000
Interest income - (10,182) (23,006)
Interest expense 14,769 97,063 453,759
----------- ------------ -----------
Total other (income) expenses 14,769 319,381 680,253
----------- ------------ -----------
Net loss $ (211,617) $(1,264,485) $(3,324,444)
=========== ============ ===========
Net loss per share $ (0.08) $ (0.43) $ (1.13)
=========== ============ ===========
Weighted average number of shares outstanding 2,595,200 2,929,992 2,929,992
=========== ============ ===========
</TABLE>
See Notes to Financial Statements.
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Three Months Three Months (July 14,
Ended Ended 1994) to
March 31, March 31, March 31,
1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (211,617) $(1,264,485) $(3,324,444)
Adjustments to reconcile net loss
to net cash used by operating ectivites:
Depreciation and amortization 29,200 100,970 357,011
Translation adjustment (177) (58,894) (60,422)
Amortization of deferred compensation - 249,712 249,712
Stock and warrants issued for services - 50,000 68,673
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (786) 72 (243)
Escrow - -
Other current assets 10,094 2,090 (116,624)
Other assets - (114,000) (114,000)
Accounts payable (18,084) (101,881) 76,288
Accrued expenses 9,735 276,165 395,916
Interest payable 26,026 (234,508) -
----------- ----------- -----------
Net cash used by operating activities (155,609) (1,094,759) (2,468,133)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (10,688) (73,550) (509,443)
Increase in organization costs - - (7,680)
----------- ----------- -----------
Net cash used by investing activities (10,688) (73,550) (517,123)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 100,000 5,220,837 5,610,570
Loans to officer - - (26,000)
Deferred stock offering costs - (209,565) (375,664)
Deferred financing costs - (19,000) (262,411)
Proceeds from short-term borrowings - 200,000 1,049,602
Proceeds from long-term debt - - 1,114,137
Repayment of short-term borrowings - (1,049,602) (1,049,602)
Repayments of long-term debt (3,282) (1,046,434) (1,082,450)
----------- ----------- -----------
Net cash provided by financing activities 96,718 3,096,236 4,978,182
----------- ----------- -----------
Effect of exchange rates on cash 128 (1,440) (2,783)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (69,451) 1,926,487 1,990,143
CASH AT BEGINNING OF PERIOD 87,866 63,656 -
----------- ----------- -----------
CASH AT END OF PERIOD $ 18,415 $ 1,990,143 $ 1,990,143
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 2,742 $ 316,116 $ 337,314
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of TTR Inc.
and its Subsidiary ( "the Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with Item 310(b) of Regulation SB. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1996 as filed with
the Securities and Exchange Commission.
Note 2 - Loss per share
Net loss per share of common stock is computed based on the weighted
average number of common stock and common stock equivalent shares
outstanding during the period. Pursuant to SEC rules, common stock and
warrants issued for consideration below the public offering price within
the twelve months prior to filing a registration statement have been
included in the calculation of common stock equivalents, using the
treasury stock method, as if they had been outstanding for all periods
presented. Certain shares held in escrow are not treated as outstanding
during any period.
Note 3 - Initial Public Offering
In February 1997, the Company completed an initial public offering of
860,000 shares of its Common Stock and realized net proceeds of
approximately $4,700,000 after stock offering costs. In connection with
this offering, the Company sold to the underwriter, for $80, warrants to
purchase up to an additional 80,000 shares of the Company's Common Stock
at an exercise price equal to $11.20 per share. The Company has also
agreed to retain the Underwriter as management and financial consultants
for a two-year period at an annual rate of $60,000 per annum, payable in
advance. In connection with the IPO, certain securityholders have agreed
not to sell their shares for up to two years from the offering date,
without the prior written consent of the Underwriter.
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Long-term Debt and Short-term Borrowings
In January 1997, the Company issued short-term promissory notes
aggregating $200,000. Interest is calculated at the rate of 15% per
annum. In February 1997, upon the completion of the IPO, the Company
repaid these notes as well a total of $1,900,000 in other long-term debt
and short-term borrowings, plus accrued interest thereon. All
unamortized deferred financing costs have been charged off in the
period.
Note 5 - Stock warrants, options and grants
(1) Pursuant to an employment agreement with the Chief Executive
Officer of TTR Israel, the Company granted, on the date the IPO
was declared effective, warrants to purchase up to 217,473 shares
of the Company's Common Stock, at an exercise price of $.01 per
share. The company has recorded deferred compensation expense of
$1,522,300 and is amortizing this amount over the period that
services are provided. The options will vest over a four year
period commencing with the date of grant.
(2) On March 11, 1997, the Company issued 5,000 shares of its Common
Stock to a consultant. The Company has recorded compensation in
the amount of $50,000 due to the issuance of these shares.
Note 6 - Employment Agreement
On March 11, 1997, the Company entered into a one-year employment
agreement with its Chief Financial Officer. The agreement provides for
monthly compensation of $5,000 and is automatically renewable for
additional one-year terms. The agreement may be terminated by either
party with 30 or 60 days' prior notice during the first and second
anniversary, respectively, and with 90 days' notice thereafter. The
Company has also issued to the employee 50,000 shares of its Common
Stock which shares have been placed in escrow. Pursuant to the escrow
agreement, 25,000 shares will be released from escrow on July 31, 1997
and 25,000 on January 31, 1998. The grant of these shares results in a
charge to deferred compensation in the amount of $500,000 is being
amortized over one year. The officer was also granted 40,000 qualified
and 60,000 nonqualified options to purchase shares of the Company's
Common Stock, at an exercise price of $10.00 and $5.00 per share,
respectively. The options will vest over a four-year period commencing
with the date of grant. The issuance of the nonqualified options
resulted in a charge to deferred compensation in the amount of $300,000.
This amount will be amortized over the vesting period.
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Consulting Agreement
On March 1, 1997, the Company entered into a one year consulting
agreement which provided for a lump-sum payment of $100,000 to be paid
upon signing.
Note 8 - Legal Matter
On March 31, 1997, the Company and TTR Israel were served with claims by
and individual demanding, among other things, royalties at the rate of
5% of the proceeds from the sales of products in which the plaintiff
claims to have provided consulting services towards its development.
On May 6, 1997, the Company entered into a settlement agreement whereby
the Company will issue the plaintiff 15,000 shares of its Common Stock,
subject to the following: (a) If the Company registers any additional
shares for sale it will include these shares in its registration
statement; (b) Following the registration of these shares and continuing
for a 180 day period, if the share price averages in excess $15.50 per
share over two consecutive business days the Company's obligation to the
consultant terminates. If the share price is not met, then during the
three days commencing after 180 days the Company will remit to the
consultant the difference between $15.50 per share and the actual
consideration received. The Company has recorded a charge to income of
$232,500 in the current quarter.
Note 9 - Subsequent event
On April 15, 1997, the Company granted 15,000 shares of its Common Stock
to a consultant for consulting services rendered and 4,000 shares to a
non-profit entity as a charitable contribution. The Company will record
a charge to operations of $282,625 upon the issuance of these shares.
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ITEM 2. PLAN OF OPERATIONS
The following discussion and exposition should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this Form
10-QSB.
TTR Inc. ("TTR" or the "Company") is engaged in the design and
development and marketing of proprietary software security products that are
designed to prevent the unauthorized reproduction and use of computer
software programs. TTR's core software protection technologies are designed
to be used by software publishers for inclusion into their software
products. The Company is in development stage and, to date, has not realized
any operating revenues.
The Company is actively engaged in completing the development and
commencing the intensive marketing of DiscGuard, its proprietary technology
designed to protect against the unauthorized reproduction of CD-ROM and
DVD based software, and anticipates releasing the initial version by the
third quarter of 1997. The Company and Doug Carson and Associates Ltd.
("DCA"), a leading supplier of mastering interface systems used by CD-ROM
replicators to mass-produce CD-ROMs, have, on April 14, 1997, entered into a
Memorandum of Understanding ("DCA MOU") providing for, inter-alia, the
incorporation of the DiscGuard technology into DCA's mastering interface
systems. DCA has undertaken under the DCA MOU to assist Nimbus CD
International Inc. ("Nimbus"), a leading CD-ROM replicator, in integrating
the DiscGuard enhanced mastering interface system into Nimbus' mastering
machines to produce a first-run of 1,000 DiscGuard treated CD-ROMs (the
"First Run"). On May 11, 1997 the Company, DCA and Nimbus entered into a
memorandum of understanding (the "Nimbus MOU") relating to the principal
terms of a proposed license agreement granting Nimbus the right to use the
DiscGuard technology for the purpose of replicating DiscGuard protected
CD-ROMs and DVDs (the "Protected Media"). Upon successful completion of the
First Run, Nimbus shall be granted an exclusive six month license to produce
Protected Media through mastering machines. During the term of the license
agreement, Nimbus is to pay TTR 50% of the premium per Protected Media disc
sold or distributed by or on behalf of Nimbus, which shall be a minimum of
$0.15 per disc. Additionally with respect to each DiscGuard protected title
sold or distributed by or on behalf of Nimbus, a mandatory $1,500 mastering
charge will be collected by Nimbus, from which TTR shall be paid $1,000.
Although no assurances can be given with respect to the successful
development and marketing of the DiscGuard product, management believes that
the integration of the DiscGuard technology into DCA's mastering interface
system and Nimbus's mastering machines will expose the Company's DiscGuard
product to CD-ROM replicators and publishers worldwide, thereby establishing
the infrastructure necessary for software publishers to integrate the
Company's technology into their software products.
The Company has completed development of SoftGuard, its software
protection solution for non-CD-ROM based software applications, for use on
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Windows 3.x and MS-DOS based systems, but does not intend on currently
releasing SoftGuard to the public unless prevailing market conditions
dictate otherwise and the Company develops a sales and other customer
support infrastructure.
The Company anticipates undertaking marketing efforts in North America,
Israel, Europe and the Far East to increase awareness of the Company's
products. In this respect the Company will be exploring the possibility of
establishing strategic alliances with appropriate software distributors. In
addition to the DCA and Nimbus relationship, the Company is exploring with
CD recording equipment manufacturers the option of incorporating the
DiscGuard technology into their CD recorders. No assurance can however be
provided that any agreements will result.
The Company's product development is centralized out of the facilities
of its Israeli based subsidiary, TTR Technologies Ltd. ("TTR Israel"), at 2
Hanagar Street, Kfar Saba 44425 Israel. The Company does not have any
commitments or plans to undertake significant capital expenditures other
than computer workstations as it hires new employees which is not expected
to be more than $150,000.
The Company currently employs 18 employees, and depending on its level
of business activity, expects to hire an additional 12 employees in the next
12 month period.
To date, the Company has not generated any revenues from operations. In
February 1997, the Company completed an initial public offering of its
securities consisting of 860,000 shares of its common stock and realized
proceeds of approximately $4,700,000 net of deferred stock offering costs.
For the period from its inception to March 31, 1997, the Company has
incurred total operating losses of $2,644,191. For the three months period
ended March 31, 1997, the Company incurred operating losses of $945,104.
The Company's operating expenses have increased relative to previous
periods, reflecting the Company's growth and expansion since its initial
public offering. The increase in operating expenses is also due to a great
extent to certain non-cash charges associated with the compensation of
senior Company personnel. In the first quarter of 1997, the Company recorded
deferred compensation in the amount of $2,352,311 in connection with stock
options and stock grants issued to its chief executive officer and to its
newly hired chief financial officer. The amortization of this deferred
compensation resulted in non-cash charges for the 1997 quarter of $249,712.
Non-cash charges of $50,000 were also charged to research and development in
connection with a stock grant to a consultant of the Company. The Company
believes that these compensation charges were necessary to retain the
services of competent individuals.
Cash used by operations for the first quarter of 1997 was approximately
$1,095,000. This amount included the repayment of accrued interest in the
amount of $305,000, including current period interest of $71,000, in
February 1997 when the Company repaid substantially all of its debt from the
proceeds of the offering. In
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addition, the company prepaid $220,000 of fees under two consulting
contracts with ten-month and two-year terms, respectively. (See notes to
financial statement).
The Company has also recorded a non-cash, non-recurring charge of
$232,500 associated with the settlement of a law suit brought by a former
consultant. See Part II, Item 1. Although the Company denies the allegations
contained in the lawsuit, the Company believes that settlement of the
lawsuit was desirable to avoid costly and protracted litigation.
The Company believes that ongoing investment in research and development
and marketing activities will be critical to the ability of the Company to
generate revenues and operate profitably. Since its inception, the Company
has expended approximately $891,532 on its research and development
activities. Management anticipates that the Company will continue to expend
funds the development activities of DiscGuard and in the effort to market
its products effectively.
In April 1997, the Company was approved by the Office of the Chief
Scientist of the Government of Israel (OCS) for an additional grant of
$112,500, which the Company anticipates receiving over the course of the
next 12 months. These funds will partially offset research and development
costs.
The Company expects, but cannot give assurance, that existing cash
balances and cash flows from activities will be sufficient to meet its
financing needs for at least the next twelve months, including expected
capital expenditures and working capital to fund operations.
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PART II
Item 1. Legal Proceedings
On March 31, 1997, the Company was served with notice of a law suit
filed with the District Court in Tel Aviv-Jaffa, Israel, by Henry Israel, a
former consultant to the Company, alleging that an oral agreement exists
between the Company and Mr. Israel according to which he is entitled to 5%
of "the rights" in DiscGuard and SoftGuard, including any further
developments and enhancements therein, as well as any proceeds received
therefrom. Management believes that the allegations are without merit.
Notwithstanding, to avoid costly litigation, the Company entered into a n
agreement with Mr. Israel on May 6, 1997 (the "Settlement Agreement")
whereby Mr. Israel dismissed the law suit with prejudice in consideration of
the Company's issuance to him of 15,000 shares of common stock. Pursuant to
the Settlement Agreement, the Company has agreed to register such shares and
has guaranteed, under certain circumstances, a gross sale price in an
ordinary brokerage transaction in the over-the-counter market of $15.50 per
share. The Company's obligation shall cease if at any time after
registration of these shares the sale price at which the Company's publicly
traded common stock trades averages in excess of $15.50 per share for a
consecutive 2 day period.
Item 2. Change in Securities
(C1) In March 1997, the Company issued 5,000 shares of Common Stock to
Allon Guez, a former consultant to the Company.
(i) There were no underwriters with respect to the above
transaction.
(ii) The shares were issued in consideration of services
rendered.
(iii) The Company believes that the shares of Common Stock
were issued in a transaction not involving a public
offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as
amended.
(C2) In March 1997, the Company issued 50,000 shares of Common Stock
to Robert Friedman, its Chief Financial Officer. The shares were
deposited into escrow and are to be released to Mr. Friedman at
the rate of 25,000 shares on each of July 31, 1997 and January
31, 1998.
(i) There were no underwriters with respect to the above
transaction.
(ii) The shares were issued in consideration of services to be
rendered.
(iii) The Company believes that the shares of Common Stock
were issued in a transaction not involving a public
offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as
amended.
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Item 3. Default Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
Exhibits
Exhibit 10. Friedman Employment Agreement
Henry Israel Settlement
Exhibit 27. Financial Data Schedule
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned , thereunto duly authorized.
TTR INC.
Registrant
Date: May 15, 1997 By: /s/ Marc D. Tokayer
---------------------------------------
Marc D. Tokayer,
President (Principal Executive Officer)
(and duly authorized to sign on
behalf of the Registrant)
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EMPLOYMENT AGREEMENT
WITH
ROBERT FRIEDMAN
AGREEMENT entered into as of March 11, 1997, between Robert Friedman
residing at ________________________ (the "Employee") and TTR Inc. c/o TTR
Technologies Ltd. P.O. Box 2295 Kfar Saba Israel 44425 (the "Company" or "TTR").
W I T N E S S E T H
WHEREAS, the Company is in the business of developing and marketing
computer products ("Business"); and
WHEREAS, the Company desires to employ Employee initially as Chief
Financial Officer (CFO) of the Company.
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment
With effect from the effective date (as defined in section 3), the
Company employs Employee and Employee accepts employment with the Company upon
the terms and conditions set forth herein.
2. Duties
2.1 TTR hereby engages Employee to serve as its Chief Financial Officer
("CFO"). The Employee's authority shall be subject to the authority of the
President or the Board of Directors of the Company.
2.2 Employee shall devote his full time and attention to the Business of
the Company and shall perform his duties diligently and promptly for the benefit
of the Company. Notwithstanding the above the Company acknowledges and agrees
that Employee may devote up to ten hours per month in rendering services to
American Corporate Services.
2.3 Employee shall report regularly and as requested to the President of
the Company. Employee shall pre-clear with the President of the Company all
activities.
2.4 The Employee shall further have such duties and responsibilities
commensurate with his position as may be assigned to him from time to time by
the President.
2.5 The Employee's services under this Agreement will be performed
primarily at the Company's United States office. The Parties acknowledge and
agree however that the
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2
nature of the Employee's duties hereunder will also require substantial domestic
and international travel.
3. Term
3.1 Employee's employment under this Agreement shall commence on March
11, 1997 (the "Effective Date") and shall end on the earlier of: (i) the death
or disability (as defined herein) of the Employee, (ii) termination of
Employee's employment with cause (as defined herein); (iii) termination by
either party without cause as provided in Section 3.4 hereof; (iv) one (1) year
from the date of this Agreement. After the expiration of such initial term
(other than for reasons set forth in clauses (i), (ii) and (iii)), this
Agreement shall automatically be renewed for additional one (1) year periods on
the same terms and conditions set forth herein (unless mutually agreed
otherwise).
3.2 For the purpose of this paragraph 3, "disability" shall mean any
physical or mental illness or injury as a result of which Employee remains
absent from work for a period of two (2) successive months, or an aggregate of
two (2) months in any twelve (12) month period. Disability shall occur at the
end of any such period.
3.3 For the purpose of this paragraph 3, "cause" shall exist if Employee
(i) breaches any of the material terms or conditions of this Agreement; (ii)
substantially fails to perform the Employee's areas of responsibility set forth
herein, (iii) engages in willful misconduct or acts in bad faith with respect to
the Company, in connection with and related to the employment hereunder, (iv) is
convicted of a felony, (v) fails to comply with the instructions of the
Company's President or Board of Directors in a manner materially detrimental to
the Company, provided that with respect to clauses (i), (ii) and (v), if
Employee has cured any such condition (that is reasonably susceptible to cure)
within 30 days following delivery of the advance notice (as defined herein) then
"cause" shall be deemed to not exist. For purposes of this Paragraph 3, "advance
notice" shall constitute a written notice delivered to Employee that sets forth
with particularity the facts and circumstances relied upon by the Company as the
basis for cause.
3.4 During the period commencing on the Effective date through the first
anniversary thereof, either Employee or Company may terminate this Agreement and
the employment hereunder without cause and for whatever reason upon furnishing
the other with thirty (30) days' advance written notice. Thereafter, during the
period up to the third (3rd) anniversary of the Effective Date, either party may
terminate this Agreement and the employment hereunder upon sixty (60) days
advance written notice to the other. For any period of employment hereunder
beyond the third anniversary of the effectiveness hereof, either party may
terminate this Agreement and the employment hereunder upon ninety (90) months
advance written notice to the other.
3.4.1. Notwithstanding the foregoing, the Company, in its sole
and absolute discretion, is entitled to make payment to Employee in lieu
of the notice period specified under Clause in this Section 3.4.
Additionally, it is hereby agreed that should the Employee be or become
entitled to severance pay under applicable law as a result of the
termination hereunder, the amounts payable hereunder shall be in lieu
thereof and in full and final substitution therefor.
<PAGE>
<PAGE>
3
3.5 During the period following notice of termination by either party
for whatever reason, the Employee shall cooperate with the Company and use his
best efforts to assist the integration into the Company the person or persons
who will assume the Employee's responsibilities.
4. Compensation
4.1 During the term hereof, and subject to the performance of the
services required to be performed hereunder by Employee, the Company shall pay
to the Employee for all services rendered hereunder, as salary, payable not less
often than once per month and in accordance with the Company's normal and
reasonable payroll practices, a monthly gross amount of U.S. $5,000 (the "Gross
Salary").
4.2 The Board shall undertake an evaluation of the Employee's
performance from time to time and may increase the monthly Gross Salary or grant
a performance bonus if it should determine in its absolute discretion that such
increase or bonus is justifiable and appropriate. It is understood and agreed
that Employee's compensation hereunder will not be increased for at least the
first eighteen (18) months that this Agreement is in effect.
4.3 In addition to the Salary the Company agrees to provide the Employee
incentive compensation as set out below in Section 4.4 and shall provide the
Employee a health care plan in accordance with the Company's policies from time
to time.
4.4 Incentive Compensation.
Subject to the written approval of First Metropolitan Securities, Inc.
(the "Underwriter"), the Company shall issue to the Employee 50,000 shares of
Common Stock of the Company Such shares shall be held in escrow by Brounstein-
Aboudi Trustees Ltd. in accordance with the terms and conditions of the Escrow
Agreement attached hereto as Exhibit II.
4.5 The Employee shall devote his full time to the affairs of the
Company as required without any right or entitlement to additional or overtime
compensation except as expressly provided herein.
5. Expenses
Employee is authorized to incur reasonable and proper expenses for
promoting the Business of TTR including expenses for entertainment, travel,
lodging, and similar items. TTR will reimburse Employee promptly for all such
expenses upon presentation by Employee, of receipts or other appropriate
evidence of expenses.
6 Vacation
Employee shall be entitled to 15 working days of paid vacation during
each year that this Agreement is in affect, to be taken at times as agreed upon
by the parties.
<PAGE>
<PAGE>
4
7. Development Rights
The Employee agrees and declares that all proprietary information
including but not limited to trade secrets, know-how, patents and other rights
in connection therewith developed by or with the contribution of Employee's
efforts during his employment with TTR shall be the sole property of TTR.
8. Employee Representations
The Employee represents and warrants to TTR that the execution and
delivery of this Agreement and the fulfillment of the terms hereof (i) will not
constitute a breach of any agreement or other instrument to which he is party,
(ii) does not require the consent of any person, and (iii) shall not utilize
during the term of his employment any proprietary information of any third
party, including prior employers of the Employee.
9. Benefit & Assignment
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including any subsidiary or affiliated
entity. The rights and obligations of the Employee under this Agreement may not
be assigned by him.
10. Entire Agreement
This Agreement constitutes the entire understanding and agreement
between the parties, and supersedes any and all prior discussions and agreements
and correspondence, and may not be amended or modified in any respect except by
a subsequent writing executed by both parties.
11. Confidentiality & Non-Competition
The Employee shall execute the attached Confidential Disclosure &
Non-Competition Agreement.
12. Notices
All notices or other communications required or desired to be sent to either
Party shall be in writing and shall be sent by hand or by Registered or
Certified mail, postage prepaid, return receipt requested, or sent by telegram
or facsimile to the address set forth in the Preamble to this Agreement or to
such other address as the recipient may designate by notice in accordance with
the provisions of this Clause.
Any such notice shall have been deemed to have been delivered if served by hand
when delivered, if by Registered or Certified Mail 48 hours after posting if
within the same country or 14 days if posted from another country, and by telex
or facsimile transmission when dispatched and receipt confirmed by recipient
party.
13. Severability:
<PAGE>
<PAGE>
5
Any term or provision of this Agreement which is found by a court, tribunal or
arbitration panel to be invalid or unenforceable shall be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms or provisions of this Agreement or affecting
the validity or enforceability of any of the other terms or provisions of this
Agreement. In the event that any term or provision of this Agreement is found to
be unenforceable or ineffective, then the reviewing court, tribunal or
arbitration panel may modify such term or provision to the extent necessary to
render it enforceable and the parties agree to be bound by and perform this
Agreement as modified.
14. Applicable Law
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly signed by
the date stated above.
TTR Inc.
- -------------------- ----------------------
Marc Tokayer Robert Friedman
President
<PAGE>
<PAGE>
AGREEMENT
AGREEMENT made this 6th day of May, 1997, between HENRY ISRAEL, Israeli
Identity No.: 030203425, residing at 39 Ben Zakai Street, Bnei Barak, Israel
(hereinafter "Henry Israel") on the one hand, and TTR TECHNOLOGIES LTD., an
Israeli company with offices at 2 Hanagar Street, Kfar Saba, Israel ("TTR Ltd.")
and TTR INC., a Delaware corporation with offices in New York, New York ("TTR
Inc."; TTR Ltd. and TTR Inc., collectively referred to as the "TTR Companies")
on the other hand.
W I T N E S S E T H
WHEREAS, disputes between Henry Israel and TTR Ltd. have arisen in
connection with the retention and termination of Henry Israel as a consultant to
TTR Ltd., which disputes have resulted in claims brought by Henry Israel,
inter-alia, for breach of contract against the TTR Companies. Henry Israel's
claims are fully set forth in Civil File 368/97, District Court for Tel
Aviv-Jaffa and Summary Judgment File 32591/97a, Magistrate Court for Tel
Aviv-Jaffa (hereinafter, the "Lawsuit");
WHEREAS, each of the TTR Companies expressly denies each and every claim
and allegation set forth in the Lawsuit; and
WHEREAS, the parties desire to resolve all disputes between them;
Accordingly, the parties are entering into this Agreement.
NOW, THEREFORE, the parties agree hereafter as follows:
1. Consideration & Undertakings of the Parties
1.1 Consideration. In consideration of Henry Israel's full and final
release of all claims, as set forth in the Lawsuit, the TTR Companies, jointly
and severally, agree to the following:
(i) within three (3) days after the due execution by the parties of this
Agreement, pay to Henry Israel the amount of NIS 38,000, plus VAT (at a
rate of 17%) (hereinafter, the "Back Fees"); and
(ii) issue to Henry Israel within ten (10) business days following the
effectiveness of this Agreement, 15,000 shares of the Common Stock, par
value $0.001, of TTR Inc. (hereinafter, the "Shares"). The parties agree
that for purposes of this Agreement, issuance of the Shares shall be
deemed to have fully and finally occurred upon presentation to Henry
Israel of the opinion of Aboudi & Brounstein, Law Offices, to the effect
that all actions necessary for the issuance of the Shares hereunder have
been completed.
<PAGE>
<PAGE>
2
1.2 Other Undertakings of the TTR Companies.
(i) At any time that TTR Inc. proposes to register (including for this
purpose a registration effected by TTR Inc. for any of its existing
shareholders) any of its share capital or other securities under the
Securities Act of 1933 (hereinafter, the "Securities Act"), as amended,
the Company shall, at such time, cause to be registered under the Act
all of the Shares. TTR Inc. acknowledges that registration under this
Section 1.2(i) comprises a fundamental provision of this Agreement and,
accordingly, will use its best efforts to facilitate and expedite the
registration of the Shares.
(b) At any time following the 180th day after registration of the Shares
in accordance with the provisions of Section 1.2(i) and continuing for
three (3) business (trading) days thereafter, upon and subject to the
sale, transfer or other disposition of the Shares (or any part thereof)
in a bona-fide arms-length ordinary brokerage transaction in the
over-the-counter market (and not by way of a private sale) (hereinafter,
the "Share Disposition"), TTR Inc. will remit to Henry Israel, at Henry
Israel's written request, an amount per Share, equal to the difference
between $15.50 and the actual gross consideration (the actual price at
which the trade is completed, as recorded by the broker) received by
Henry Israel (or his designee) in connection with such Share
Disposition; PROVIDED, THAT, TTR Inc.'s, obligation under this
Sub-section 1.2(ii) shall terminate and be of no force or effect if at
any time after registration of the Shares as provided under Section
1.2(i) above, the per Share sale price at which TTR Inc.'s publicly
traded Common Stock trades in the over-the-counter market averages in
excess of $15.50 per Share for a two (2) consecutive day period;
PROVIDED, FURTHER, THAT, TTR Inc.'s obligation hereunder shall be
exercised, at the request of Henry Israel as herein provided, on only
one (1) occasion. In determining the average price at which TTR Inc.'s
publicly traded Common Stock trades in the over-the-counter market in a
given one (1) day period, the sale price per share of Common Stock
traded shall be multiplied by the number of shares traded at that price
(the product being the "Traded Dollar Amount per Transaction") for all
transactions, and the aggregate Dollar amount of all Traded Dollar
Amount per Transaction shall be divided by the total number of shares
traded on such day.
Notwithstanding anything to the contrary contained herein, TTR Inc.'s
obligation hereunder shall terminate and be of no further force or
effect with respect to any part of such Shares that are transferred,
sold or otherwise disposed of at any time after their issuance hereunder
and prior to the 180th day after registration of such Shares (under
Section 1.2(i) above).
1.3 Undertaking of Henry Israel. Immediately upon the effectiveness of this
Agreement and the payment by the TTR Companies of the Back Fees, Henry Israel
shall transfer to the Company a Philips CDD 2000, Plextor 4.5 speed external CD,
SCSI Card and cables.
<PAGE>
<PAGE>
3
2. Mutual Releases. Upon the issuance of the Shares as in accordance with the
provisions of Section 1.1(ii) hereunder, Henry Israel does hereby absolutely and
unconditionally release and forever discharge each of the TTR Companies, their
respective officers, directors, employees, agents, attorneys, insurers,
successors and assigns from any claims, demands, rights and causes of action and
damages, whether liquidated or unliquidated, absolute or contingent, known or
unknown, arising prior to or concurrent with the date hereof, including
specifically, but without limiting the generality of the foregoing, any and all
claims Henry Israel could have asserted against the TTR Companies.
Upon the issuance of the Shares as in accordance with the provisions of
Section 1.1(ii) hereunder, each of the TTR Companies does hereby absolutely and
unconditionally release and forever discharge Henry Israel, his heirs,
executors, beneficiaries, counsel and assigns from any claims, demands, rights
and causes of action and damages, whether liquidated or unliquidated, absolute
or contingent, known or unknown, arising prior to or concurrent with the date
hereof, including specifically, but without limiting the generality of the
foregoing, any and all claims the TTR Companies could have asserted against
Henry Israel.
3. Confidentiality. Each of Henry Israel and the TTR Companies hereby undertakes
(i) to keep confidential and (ii) not to disclose to any party - any and all
matters relating to this Agreement and the Lawsuit, unless required by
applicable law, the Act, the Securities Exchange Act of 1934, as amended, or
relevant regulations. Henry Israel acknowledges that this provision is
fundamental to the TTR Companies and that without it the TTR Companies would not
enter into this Agreement. Henry Israel acknowledges that any actual or
threatened violation of this restriction set forth in this section 3 may cause
irreparable harm to the TTR Companies to which there may be no adequate legal
remedy in damages. In the event of an actual or threatened violation of the
foregoing restrictions, each of the TTR Companies and Henry Israel shall be
entitled to temporary and permanent injunctive relief, in addition to any other
remedy available to it under applicable law.
4. Stipulation of Dismissal: Concurrently with the issuance of the Shares in
accordance with the provisions of Section 1.1(ii), the parties, through their
respective counsel, shall enter into and file with the District Court in Tel
Aviv-Jaffa, within twenty four (24) hours of the issuance of the Shares
hereunder, a dismissal of the Lawsuit with prejudice. However, the Court in Tel
Aviv-Jaffa shall expressly retain exclusive jurisdiction over the action for
purpose of enforcing this Agreement, but, unless a Party breaches this
Agreement, this Agreement shall not be filed with the Court.
5. Reliance and Complete Agreement. The parties acknowledge and agree that in
the execution of this Agreement, neither has relied upon any representation by
any party or attorney, except as expressly stated herein. Moreover, this
Agreement shall represent the complete and entire agreement between the parties,
to the exclusion of any and all other prior or concurrent terms, written or
oral.
<PAGE>
<PAGE>
4
6. Modification. The terms of this Agreement may be modified only upon written
consent of the parties.
IN WITNESS WHEREOF, each of the parties has set forth his signature as
of the date first written above.
TTR LTD.
By: ________________
Title:
TTR INC.
By: _______________
Title:
------------------
HENRY ISRAEL
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements accompanying the filing of Form
10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 1,990,143
<SECURITIES> 0
<RECEIVABLES> 455
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,149,329
<PP&E> 434,846
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,739,810
<CURRENT-LIABILITIES> 581,985
<BONDS> 0
<COMMON> 4,205
0
0
<OTHER-SE> 2,143,116
<TOTAL-LIABILITY-AND-EQUITY> 2,739,810
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,177,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,063
<INCOME-PRETAX> (1,264,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,264,485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,264,485)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> 0
</TABLE>
