SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Check One
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998
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)
1841 Broadway, New York, New York 10023
(Address of Principal Executive Offices)
212-333-3355
(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
November 19, 1998 was 4,014,659.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
Index
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements *
Consolidated Balance Sheets
December 31, 1997 and September 30, 1998 1
Consolidated Statements of Operations
For the Nine and Three months ended September 30, 1997 and 1998 2
Consolidated Statements of Comprehensive Loss
For the Nine and Three months ended September 30, 1997 and 1998 3
Consolidated Statements of Cash Flows
For the Nine months ended September 30, 1997 and 1998 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Plan of operations 8 - 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon senior securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-k 12
Exhibit 27 - Financial Data Schedule
Signatures 12
</TABLE>
* The Balance Sheet at December 31, 1997, has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 450,040 $ 77,987
Stock subscription receivable 100,000 --
Other current assets 131,538 129,989
----------- -----------
Total current assets 681,578 207,976
Property and equipment - net 416,045 338,959
Due from officer 16,000 --
Deferred financing costs, net -- 75,836
Deferred stock offering costs -- 172,025
Other assets 75,004 4,852
----------- -----------
Total assets $ 1,188,627 $ 799,648
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Current portion of long-term debt $ 5,564 $ 7,128
Notes payable, net of discount of $301,802 -- 1,260,698
Bank loan -- 114,808
Accounts payable 87,363 408,323
Accrued expenses 139,972 302,201
----------- -----------
Total current liabilities 232,899 2,093,158
Long-term debt, less current portion 14,804 --
Accrued severance pay 31,195 132,499
----------- -----------
Total liabilities 278,898 2,225,657
Common stock issued with guaranteed selling price -
$.001 par value; 15,000 shares issued and outstanding 232,500 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value;
20,000,000 shares authorized; 4,271,548 and 3,970,659
issued and outstanding, including 1,000,000 and -0-
shares placed in escrow, respectively 4,272 3,971
Common stock subscribed, $.001 par value; 16,000 shares
at December 31, 1997 100,000 --
Additional paid-in capital 8,117,275 9,235,464
Other accumulated comprehensive income 38,029 32,264
Deficit accumulated during the development stage (6,179,571) (9,404,222)
Less: deferred compensation (1,402,776) (1,293,486)
----------- -----------
Total stockholders' equity (deficit) 677,229 (1,426,009)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,188,627 $ 799,648
=========== ===========
</TABLE>
See Notes to Financial Statements
1
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception
Nine Months (July 14, Three Months
Ended 1994) to Ended
September 30, September 30, September 30,
1997 1998 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 45,580 $ 45,580 $ -- $ 45,580
Expenses
Research and development 539,019 788,334 2,376,042 103,890 285,868
Sales and marketing 1,264,640 890,612 2,745,906 285,989 342,493
General and administrative 1,145,243 1,419,101 3,540,922 405,529 497,231
----------- ----------- ----------- ----------- -----------
Total expenses 2,948,902 3,098,047 8,662,870 795,408 1,125,592
----------- ----------- ----------- ----------- -----------
Operating loss (2,948,902) (3,052,467) (8,617,290) (795,408) (1,080,012)
Other (income) expense
Legal settlement 232,500 -- 232,500 -- --
Loss on investment -- -- 17,000 -- --
Other income -- (25,000) (75,000) -- --
Interest income (29,094) (869) (55,762) (12,025) (182)
Interest expense 107,977 198,053 668,194 849 109,674
----------- ----------- ----------- ----------- -----------
Total other (income) expenses 311,383 172,184 786,932 (11,176) 109,492
----------- ----------- ----------- ----------- -----------
Net loss $(3,260,285) $(3,224,651) $(9,404,222) $ (784,232) $(1,189,504)
=========== =========== =========== =========== ===========
Per share data:
Basic and diluted $ (1.09) $ (0.93) $ (0.24) $ (0.31)
=========== =========== =========== ===========
Weighted average number
of common shares used in
basic and diluted loss per share 2,990,392 3,472,363 3,238,548 3,791,529
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Ended
September 30, September 30,
1997 1998 1997 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net loss $(3,260,285) $(3,224,651) $ (784,232) $(1,189,504)
Other comprehensive income (loss) 55,671 (5,765) 39,806 84
----------- ----------- ----------- -----------
Comprehensive loss $(3,204,614) $(3,230,416) $ (744,426) $(1,189,420)
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Nine Months (July 14,
Ended 1994) to
September 30, September 30,
1997 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,260,285) $(3,224,651) $(9,404,222)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 148,301 125,834 566,165
Amortization of note discount -- 134,751 134,751
Translation adjustment 33,346 -- (1,528)
Amortization of deferred compensation 735,000 613,469 1,586,036
Stock and warrants issued for services and legal settlement 565,125 -- 583,798
Payment of common stock issued with guaranteed selling price (155,344) (155,344)
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (382) -- 163
Other current assets 34,215 (7,910) (133,828)
Other assets (87,700) 69,000 (3,700)
Accounts payable (11,500) 297,270 403,038
Accrued expenses (102,877) 154,223 278,009
Accrued severance 36,654 108,770 153,331
Interest payable (234,508) 51,455 51,455
----------- ----------- -----------
Net cash used by operating activities (2,144,611) (1,833,133) (5,941,876)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (165,947) (35,893) (647,293)
Increase in organization costs -- -- (7,680)
----------- ----------- -----------
Net cash used by investing activities (165,947) (35,893) (654,973)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,220,837 100,000 6,010,570
Loans to officer -- 16,000 --
Deferred stock offering costs (309,565) (172,025) (647,689)
Deferred financing costs (19,000) (117,000) (379,411)
Proceeds from short-term borrowings 200,000 1,685,289 2,734,891
Proceeds from long-term debt -- -- 1,114,137
Repayment of short-term borrowings (1,049,602) -- (1,049,602)
Repayments of long-term debt (1,044,935) (14,265) (1,103,736)
----------- ----------- -----------
Net cash provided by financing activities 2,997,735 1,497,999 6,679,160
----------- ----------- -----------
Effect of exchange rate changes on cash (2,751) (1,026) (4,324)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 684,426 (372,053) 77,987
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 63,656 450,040 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 748,082 $ 77,987 $ 77,987
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 315,972 $ 7,391 $ 386,893
=========== =========== ===========
Transfer of common stock issued with guaranteed selling price
to permanent capital $ 77,156
===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
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 Nine
months ended September 30, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. 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, 1997, as filed with the Securities and Exchange
Commission.
Note 2 - Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130 Reporting Comprehensive Income.
SFAS No. 130 requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The foreign currency translation adjustment
is the Company's only component of comprehensive income.
Note 3 - Net loss per share
The Company has adopted Statement of Financial Accounting Standards
No.128 (SFAS 128), "Earnings per Share," which supersedes APB Opinion
No. 15 (APB No. 15), "Earnings per Share," and which is effective for
all periods ending after December 15, 1997. SFAS 128 requires dual
presentation of basic and diluted earnings per share (EPS) for complex
capital structures on the face of the Statements of Operations. Basic
EPS is computed by dividing net income (loss) by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of
other securities into common stock. None of the stock options and
warrants issued in 1997 and 1998 have been included in the net loss per
share computation for the years presented, because their inclusion
would be anti-dilutive. Shares held in escrow were not treated as
outstanding during any period. Earnings per share data for 1997 has
been restated to conform with the provisions of SFAS No. 128.
Note 4 - Notes Payable
From April through July 1998, the Company realized gross proceeds of
$1,462,500 from a private offering of 29.25 Units, each Unit consisting
of $50,000 principal amount of 10% Promissory Notes and Warrants to
purchase 11,500 shares of Common Stock. For financial reporting
purposes, the Company recorded a note discount totaling $349,053, to
reflect the value of the Warrants issued. The discount will be
amortized on a straight-line basis over the term of the respective
notes. The notes bear interest at the rate of 10% per annum and become
due and payable together with accrued interest at the earlier of one
year or 30 days following the consummation by the Company of any public
or private equity or debt financing exceeding $1,000,000. The Warrants
are exercisable for a four-year period at an exercise price equal to
115% of the public offering price in the proposed offering, or 115% of
the price per share of the Common Stock on the date of the issuance of
the Warrants if the offering is not completed by December 31, 1998.
In September 1998, the Company issued a short-term non-interest bearing
promissory note in the amount of $100,000. In connection therewith, the
lender purchased 111,111 shares of Common Stock at par. For financial
reporting purposes, the Company recorded a note discount totaling
5
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$97,222, to reflect the value of the stock issued. The discount will be
amortized on a straight-line basis over the term of the note. The note
is due on March 31, 1999.
Note 5 - Bank Loan
TTR Ltd. has an arrangement with its bank for a $55,000 line of credit.
Outstanding borrowings are due on demand, bear interest at the rate of
15% per annum, and are secured by substantially all of the Subsidiary's
assets. The bank from time to time advances credit in excess of
$55,000. Such additional amounts bear interest at the rate of 17% per
annum.
Note 6 - Stock Grants
In June 1998 the Company issued 125,000 shares of Common Stock and
25,000 Warrants exercisable at 115% of the proposed public offering
price to various consultants pursuant to one year consulting
agreements. The Company recorded a charge to deferred compensation
expense of $445,000 as a result of these issuances and is amortizing
this amount over the term of the agreement.
Note 7 - Escrow Shares
An aggregate of 1,000,000 shares of the Company's Common Stock, owned
by its President and the Tokayer Family Trust (the Trust), have been
designated as escrow shares. In February 1998, pursuant to the terms of
the escrow agreement, 250,000 shares were forfeited and returned to the
Company. In June 1998, the Company's President and the Trust waived
their rights to the remaining 750,000 shares which have been returned
to treasury and canceled.
Note 8 - Common Stock Issued with Guaranteed Selling Price
In 1998, an individual who in 1997 had been issued 15,000 shares of
Common Stock subject to a guaranteed selling price of $15.50 per share,
sold his shares in the open market for $77,156. In 1998, the Company
had paid the shortfall of $155,344, as required by the guarantee.
Note 9 - Warrant Exchange
In July 1998, the Company issued 432,000 additional shares of Common
Stock in exchange for 1,000,000 and 80,000 outstanding warrants
exercisable at $7.00 and $11.20, respectively.
Note 10 - Proposed Public Offering
On April 1, 1998, the Company entered into a letter of intent with an
underwriter for a firm commitment public offering of 2,500,000 shares
of the Company's Common Stock, and in July 1998, the Company filed a
registration statement relating to these shares. The Company has
postponed the Offering due to uncertainties in the equities market.
6
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also entered into a consulting agreement with the proposed
underwriter. The agreement provides for an advance payment of $50,000,
four-year Warrants to purchase up to 25,000 shares of the Company Stock
at an exercise price of $5 5/8, and a fee of 5% of the exercise price
of certain outstanding Warrants that are converted to Common Stock.
Note 11 - Employment Agreement
In July, 1998, the Company entered into an eighteen-month employment
agreement with its new Chief Executive Officer. The agreement provides
for annual compensation of $210,000 and is automatically renewable for
additional one-year terms. The Company also granted to the employee
250,000 options under the Company's 1996 Stock Option Plan (the "Plan")
with a five-year vesting period.
In October 1998, the Officer agreed to reduce his salary to $70,000 per
annum and to defer the payment of the balance until such time as the
Company raises a minimum of $3,000,000 in equity or debt financing. In
addition, 250,000 non-plan options were issued in exchange for the
options issued under the Plan. The options have an exercise price equal
to the fair market value on the date of grant and vest immediately.
Note 12 - Subsequent Events
In October, 1998, the Company entered into a consulting agreement for
the provision of financial consulting services to the Company. As
consideration for the services to be provided thereunder, the Company
issued to the Consultant 44,000 shares of Common Stock.
7
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. PLAN OF OPERATION
The following discussion and exposition should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this Form
10-QSB.
This report may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.
Overview
TTR Inc. ("TTR" or the "Company") designs, markets and sells proprietary
software anti-piracy products. The Company's flagship product, DiscGuard, embeds
an indelible and non-reproducible digital signature on CD-ROMs that prevents
unauthorized copies from operating. CD-ROMs are an optical medium used for
storage of software and other electronic content. DiscGuard protection is
transparent to the end user and is a cost effective way for a software publisher
to reduce the piracy of its products. Tests performed in August 1998 on
DiscGuard by NSTL, the premier independent testing organization for software and
hardware products, revealed that DiscGuard was compatible with NTSL's entire
test bed of CD ROM drives, which included drives manufactured by NEC, Hitachi,
Sanyo, Samsung and Toshiba. As a result of this successful test, the NSTL has
authorized TTR to use its prestigious "NSTL Tested" logo on its marketing
material and literature.
TTR's goal is to become the market leader in CD-ROM anti-piracy protection.
The Company is implementing a two part strategy to achieve this objective.
First, the Company intends to ensure that DiscGuard will be readily available to
software publishers by integrating DiscGuard into the mastering equipment of a
broad base of CD-ROM replicators, mass producers of CD-ROMs and DVDs
("Replicators"). At the same time, the Company is marketing DiscGuard directly
to software publishers, who can then purchase DiscGuard protection through a
Replicator for a per disc royalty fee.
In October 1997, the Company entered into an exclusive license agreement
with Doug Carson & Associates, Inc. ("DCA") to permit DCA to integrate DiscGuard
into its mastering interface system ("MIS"), a key component of the mastering
equipment used by Replicators in the production of glass masters used to mass
produce CD-ROMs. The Company believes that DCA's MIS is currently installed in
over 75% of the world's mastering equipment. DCA has agreed to sell DiscGuard
compatible MIS and to use its best efforts to encourage Replicators to upgrade
their MIS to include DiscGuard capability.
In November 1997, Nimbus CD International, Inc. ("Nimbus"), a leading
Replicator of CD-ROMs, entered into an agreement with the Company to integrate
DiscGuard into its MIS and now offers DiscGuard protection to its large client
base of software publishers throughout North America and Europe. In July 1998,
the Company entered into a license agreement with SKC Co. Ltd. ("SKC"), the
largest South Korean Replicator and a subsidiary of a major South Korean
conglomerate. The Company expects that SKC will offer DiscGuard protection to
software publishers throughout South Korea.
In November 1998, the Company installed DiscGuard capabilities in Nimbus
UK, the UK branch of Nimbus, in MPO, a large replicator in France with an annual
capacity of more than 150 million discs and at Sonopress in Germany. Sonopress
is one of the world's largest producer of CD-ROMs with an annual capacity of 228
million.
8
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company commenced its marketing efforts in February 1998 and by
September 30, 1998, had licensed DiscGuard to a number of software publishers
world-wide that agreed to protect some or all of their titles distributed on
CD-ROMs with DiscGuard. While these software publishers market mostly multimedia
CD-ROMs, including games, design and reference software, the Company believes
that DiscGuard will be beneficial to software publishers seeking to protect a
broad range of products.
In October 1998, the Company entered into an agreement with the China
Intercontinental Communication Center, a government-authorized entity operating
in the People's Republic of China and responsible for marketing and distributing
a broad spectrum of media products, to exclusively supply DiscGuard to China's
CD-ROM manufacturers and software publishers. Under the terms of the agreement,
CICC undertook to implement DiscGuard technology such that TTR's
DiscGuard-protected share of the applicable Chinese software market will
comprise 3.5% in 1999, 10% in 2000 and 15% in 2001. CICC also undertook to
implement DiscGuard in at least three CD-ROM mastering facilities by year-end
1999, and to protect at least one software title of each of the 15 largest
Chinese software developers by June 30, 1999.
The Company has recently opened sales offices in California, New York and
London to establish a presence as well as maintain close contact with customers
in these key software development markets. The Company has sought out
distributors to market the Company's products in certain other areas, such as
Asia, where the Company does not otherwise have a sales presence. In June 1998,
the Company entered into a non-exclusive two year agreement with Eagle
International Co. Ltd., a leading Japanese technology marketing company, for the
distribution of DiscGuard in Japan, and also entered into a representation
agreement with DM (Digital Media) Tech Co. ("Digital Media"), a South Korean
Distributor, to market the Company's products in South Korea.
The Company is actively marketing DiscGuard to other replicators and
software publishers. As a fist step toward licensing DiscGuard, the Company
encourages potential customers to conduct internal evaluations of the product as
well as pilot tests. In a pilot test, the software publisher will distribute a
number of copies of a CD-ROM software title to evaluate the effectiveness of
DiscGuard. The Company is currently in various stages of pilot testing with
several software publishers and Replicators.
On April 1, 1998, the Company entered into a letter of intent with
Josephthal &Co., Inc., respecting a firm commitment public offering of 2,500,000
shares of the Company's Common Stock (the "Offering"). In connection therewith,
in July 1998, the Company filed a registration statement under the Securities
Act of 1933, as amended, relating to these shares. Efforts to complete the
Offering are in abeyance pending the stabilization of the market and the
Company's stock price.
To target effectively the large number of Replicators and software
publishers that would benefit from the Company's products, TTR anticipates
increasing the size of its sales force. The Company recently hired a Vice
President of Sales to its ranks who will be overseeing the Company global sales
efforts. In addition, the Company intends to add additional sales and marketing
representatives, who will provide the Company with greater market presence.
9
<PAGE>
The priority of the Company's research and development efforts is to expand
DiscGuard's capabilities and uses. DiscGuard is currently available for the
Microsoft Windows family of operating systems (including Windows 98 & Windows
NT). TTR's current focus is to complete the development of DiscGuard for other
operating systems and a version of DiscGuard to protect electronic content on
DVDs. The Company also has other products in various stages of design and
development. It is continuing to devote significant research and development
resources to completing these projects. TTR intends to expand its research and
development department in the next twelve months to assist these efforts.
To augment the Company's administrative infrastructure to support its
proposed growth, the Company intends to hire a chief financial officer as well
as other customer service and support personnel.
The Company currently has 35 employees and other service providers
(including 15 in research and development) and expects to hire additional
personnel in the next 12 month period.
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.
Year 2000 Issues
Certain organizations anticipate that they will experience organizational
difficulties at the beginning of the year 2000 as a result of computer programs
being written using two digits rather than four digits to define the applicable
year. The Company's plan for the Year 2000 calls for compliance verification
with vendors, testing software in the Company's products for Year 2000 problems
and communication with significant suppliers to ascertain their readiness for
the Year 2000 problem. The Company has tested DiscGuard for Year 2000
compliance, and the Company believes that DiscGuard is Year 2000 compliant.
Liquidity and Capital Resources
The Company does not have any commitments or plans to undertake significant
capital expenditures. Management, however, anticipates that the Company will
continue to expend significant funds in marketing and research and development
activities.
To date, the Company has not generated any significant revenues from
operations. For the nine months ended September 30, 1998, the Company incurred
net operating losses of $3,052,467. During this period, the Company expended
$788,334 on research and development activities primarily associated with
expanding DiscGuard's capabilities and uses. The Company also incurred a total
of $890,612 in sales and marketing efforts with respect to Replicators and
publishers. General and administrative expenses of $1,419,101 for the period
reflects the Company's growth and expansion since its initial public offering in
February 1997. The Company believes that continued expansion of its operations
is essential to achieving and maintaining a strong competitive position.
A substantial portion of the Company's operating expenses are attributable
to non-cash charges associated with the compensation of senior company personnel
through the issuance of stock options and stock grants. Such stock based
compensation resulted in non-cash charges of $613,469 for the nine months ended
September 30, 1998. The Company believes that these compensation levels were
necessary to retain the services of qualified individuals.
In connection with the private offering of Promissory Notes and Warrants,
completed in July 1998, and the additional note issuance in September 1998, the
Company recorded note discounts totaling $436,553, to reflect the value of the
Warrants and Stock issued (See Note 4 in notes to the consolidated financial
statements). The amortization of the discount resulted in a non-cash charge of
$134,751 for the nine months ended September 30, 1998.
10
<PAGE>
Cash used for the nine months ended September 30, 1998 was $ 1,833,133.
This included a one-time payment of $155,344 in connection with the guaranteed
selling price of stock issued in a legal settlement (See Note 8 in notes to
consolidated financial statement).
Financing Activities
In September 1998, the Company borrowed, $100,000, evidenced by a note. The
note is non-interest bearing and matures on March 31, 1999. In connection with
the note, the Company issued 111,111 shares of Common Stock to the lender.
In July 1998, the Company completed a private placement (the "1998 Debt
Placement") of $1,462,000 in principal amount of 10% promissory notes (the
"Notes"). The proceeds were used for working capital and general corporate
purposes and the Company paid commissions of $117,000. The Notes are payable on
the earlier to occur of (i) the first anniversary of the issuance of each of the
Notes or (ii) 30 days following the completion of the Company of any public or
private offering in an amount exceeding $1,000,000 (the "Subsequent Offering").
In connection with the 1998 Debt Financing, the Company issued warrants to
purchase 336,375 shares of Common Stock at an exercise price equal to 115% of
the price per share of Common Stock in the Subsequent Offering or 115% of the
price per share of the Common Stock on the date of the issuance of the warrants
if no Subsequent Offering is completed by December 31, 1998.
The Company's existing cash balances and cash flows may not be sufficient
to meet its current needs. The Company is, however, actively negotiating to
raise up to $1.5 million for working capital purposes by way of a private
placement of its securities. However, no assurance can be provided that the
Company will be successful in obtaining such financing on terms and conditions
acceptable to the Company.
11
<PAGE>
PART II
Item 1. Legal Proceedings
Not Applicable
Item 2. Change in Securities & Use of Proceeds
1. (a) In September 1998, in connection with the Loan, the Company issued
to Tuva Financial Ltd., a financial services company operating out of
Switzerland, a total of 111,111 shares of Common Stock.
(b) There were no underwriters with respect to the above transaction.
(c) The shares were issued in consideration of an interest-free loan made
to the Company.
(d) The Company believes that the options 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.
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
b) Exhibit 27 - - Financial Data Schedule
12
<PAGE>
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: November 19, 1998 By /s/ Steven L. Barsh
-------------------------
Steven L. Barsh
Chief Executive Officer
13
<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>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 77,987
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 207,976
<PP&E> 338,959
<DEPRECIATION> 0
<TOTAL-ASSETS> 799,648
<CURRENT-LIABILITIES> 2,093,158
<BONDS> 0
3,971
0
<COMMON> 0
<OTHER-SE> (1,429,980)
<TOTAL-LIABILITY-AND-EQUITY> 799,648
<SALES> 45,580
<TOTAL-REVENUES> 45,580
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,098,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,053
<INCOME-PRETAX> (3,224,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,224,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,224,651)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
