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________________________________________________________________________________
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 MARCH 31, 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)
------------------------
<TABLE>
<S> <C>
DELAWARE
(STATE OR OTHER JURISDICTION OF 11-3223672
INCORPORATION OR ORGANIZATION) I.R.S. EMPLOYER NUMBER
</TABLE>
------------------------
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 May
15, 1998 was 4,052,548.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
________________________________________________________________________________
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<C> <S> <C>
PART I -- FINANCIAL INFORMATION
INDEX
Item 1. Financial Statements*
Consolidated Balance Sheets 1
December 31, 1997 and March 31, 1998........................................................
Consolidated Statements of Operations 2
For the Three Months ended March 31, 1997 and 1998..........................................
Consolidated Statements of Comprehensive Loss 3
For the Three Months ended March 31, 1997 and 1998..........................................
Consolidated Statements of Cash Flows 4
For the Three Months ended March 31, 1997 and 1998..........................................
Notes to Consolidated Financial Statements.................................................... 5-6
Item 2. Plan of Operation............................................................................. II-1-II-3
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. II-4
Item 2. Changes in Securities and Use of Proceeds..................................................... II-4
Item 3. Defaults upon senior securities............................................................... II-5
Item 4. Submission of Matters to a Vote of Security Holders........................................... II-5
Item 5. Other Information............................................................................. II-5
Item 6. Exhibits and Reports on Form 8-K.............................................................. II-5
Signatures.............................................................................................. II-6
Exhibit 27 -- Financial Data Schedule...................................................................
</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.
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................................................... $ 450,040 $ 94,820
Stock subscription receivable.................................................. 100,000 --
Other current assets........................................................... 131,538 142,092
------------ -----------
Total current assets...................................................... 681,578 236,912
Property and equipment -- net....................................................... 416,045 378,805
Due from officer.................................................................... 16,000 16,000
Other assets........................................................................ 75,004 59,620
------------ -----------
Total assets.............................................................. $ 1,188,627 $ 691,337
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities
Current portion of long-term debt.............................................. $ 5,564 $ 2,387
Accounts payable............................................................... 118,558 349,616
Accrued expenses............................................................... 139,972 159,675
------------ -----------
Total current liabilities................................................. 264,094 511,678
Long-term debt, less current portion................................................ 14,804 11,597
Other liabilities................................................................... -- 46,317
------------ -----------
Total liabilities......................................................... 278,898 569,592
Common stock issued with guaranteed selling price -- $.001 par value 15,000 shares
issued and outstanding............................................................ 232,500 --
------------ -----------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Common stock, $.001 par value; 20,000,000 shares authorized, 4,271,548 and
4,052,548 issued and outstanding, respectively, including 1,000,000 and
750,000 shares, respectively, placed in escrow................................ 4,272 4,053
Common stock subscribed, $.001 par value; 16,000 shares at December 31, 1997... 100,000 --
Additional paid-in capital..................................................... 8,117,275 8,294,650
Accumulated comprehensive income............................................... 38,029 34,977
Deficit accumulated during the development stage............................... (6,179,571) (7,030,535)
Less: deferred compensation.................................................... (1,402,776) (1,181,400)
------------ -----------
Total stockholders' equity................................................ 677,229 121,745
------------ -----------
Total liabilities and stockholders' equity................................ $ 1,188,627 $ 691,337
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
1
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM
THREE MONTHS INCEPTION
ENDED (JULY 14,
MARCH 31, 1994) TO
------------------------- MARCH 31,
1997 1998 1998
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue............................................................... $ -- $ -- $ --
Expenses
Research and development......................................... 270,979 188,692 1,776,400
Sales and marketing.............................................. 326,438 251,700 2,106,994
General and administrative....................................... 347,687 404,392 2,526,213
----------- ---------- -----------
Total expenses................................................... 945,104 844,784 6,409,607
----------- ---------- -----------
Operating loss........................................................ (945,104) (844,784) (6,409,607)
Other (income) expense
Legal settlement................................................. 232,500 -- 232,500
Loss on investment............................................... -- -- 17,000
Other income..................................................... -- -- (50,000)
Interest income.................................................. (10,182) (144) (55,037)
Interest expense................................................. 97,063 6,324 476,465
----------- ---------- -----------
Total other (income) expenses......................................... 319,381 6,180 620,928
----------- ---------- -----------
Net loss.............................................................. $(1,264,485) $ (850,964) $(7,030,535)
----------- ---------- -----------
----------- ---------- -----------
Per share data:
Basic and diluted................................................ $(0.51) $(0.26)
----------- ----------
----------- ----------
Number of common shares used in basic and diluted loss per share...... 2,496,476 3,293,481
----------- ----------
----------- ----------
</TABLE>
See Notes to Financial Statements.
2
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------------
1997 1998
----------- ---------
(UNAUDITED)
<S> <C> <C>
Net loss.............................................................................. $(1,264,485) $(850,964)
Other comprehensive income............................................................ 3,427 3,052
Income tax effect................................................................ -- --
----------- ---------
Comprehensive loss............................................................... $(1,261,058) $(847,912)
----------- ---------
----------- ---------
</TABLE>
See Notes to Financial Statements.
3
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM
INCEPTION
THREE MONTHS ENDED MARCH (JULY 14,
31, 1994) TO
-------------------------- MARCH 31,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss......................................................... $(1,264,485) $(850,964) $(7,030,535)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization............................... 100,970 37,795 478,126
Translation adjustment...................................... (58,894) -- (1,528)
Amortization of deferred compensation....................... 249,712 221,376 1,193,943
Stock and warrants issued for services and legal
settlement................................................ 50,000 -- 583,798
Payment of common stock issued with guaranteed selling
price..................................................... (55,344) (55,344)
Increase (decrease) in cash attributable to changes in
assets and liabilities
Accounts receivable.................................... 72 -- 163
Other current assets................................... 2,090 (12,762) (138,680)
Other assets........................................... (114,000) 15,000 (57,700)
Accounts payable....................................... (101,881) 162,684 268,452
Accrued expenses....................................... 276,165 37,643 205,990
Interest payable....................................... (234,508) --
----------- ----------- -----------
Net cash used by operating activities....................... (1,094,759) (444,572) (4,553,315)
----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment.............................. (73,550) (6,767) (618,167)
Increase in organization costs................................... -- -- (7,680)
----------- ----------- -----------
Net cash used by investing activities....................... (73,550) (6,767) (625,847)
----------- ----------- -----------
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.................................... (209,565) -- (475,664)
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..................................... (1,046,434) (3,506) (1,092,977)
----------- ----------- -----------
Net cash provided by financing activities................... 3,096,236 96,494 5,277,655
----------- ----------- -----------
Effect of exchange rates on cash...................................... (1,440) (375) (3,673)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents...................... 1,926,487 (355,220) 94,820
Cash and cash equivalents at beginning of period...................... 63,656 450,040 --
----------- ----------- -----------
Cash and cash equivalents at end of period............................ $ 1,990,143 $ 94,820 $ 94,820
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.................................................... $ 316,116 $ 4,519 $ 384,021
----------- ----------- -----------
----------- ----------- -----------
Transfer of common stock issued with guranteed selling price to
permanent capital.............................................. $ 77,156
-----------
-----------
</TABLE>
See Notes to Financial Statements.
4
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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, 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 has been included in the net loss per share computation for the
years presented, because their inclusion would be anti-dilutive. Shares held in
escrow are 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 -- ESCROW SHARES
An aggregate of 1,000,000 shares of the Company's Common Stock, owned
beneficially by its President, 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.
NOTE 5 -- COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE
On March 31, 1997, the Company and TTR Israel were served with claims by an
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 issued 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 of $15.50 per share over two consecutive days the Company's obligation to
the consultant terminates. If the share
5
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TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 established a temporary
equity account to record its maximum liability from the guarantee. Payment of
any shortfall will be charged to this account. Any balance remaining at the end
of the holding period will be credited to permanent capital. The Company
recorded an expense of $232,500 due to the issuance of these shares.
In January 1998, the individual sold the shares at an aggregate price of
$77,156. Under the terms of the settlement agreement, the Company was required
to remit to him an additional $155,344. On January 19, 1998, the Company
remitted to the individual $57,344 and agreed to remit the balance of $100,000
by June 15, 1998, together with an additional $5,000 in consideration of
deferring the payment. The deferred amount has been secured by a guarantee
issued by an Israeli Bank.
NOTE 6 -- SUBSEQUENT EVENTS
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. The offering price will be at or about the market price
of the Common Stock of the Company immediately prior to the effective date of a
Registration Statement. In connection therewith, the Company also entered into a
consulting agreement with the 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.
CONSULTING AGREEMENT
On April 1, 1998, the Company retained the services of a consultant to
perform consulting services related to the operation and development of the
Company's business under a one-year consulting agreement. The agreement provides
for a $10,000 non-refundable retainer and to pay $250,000 to the consultant and
issue 50,000 unregistered shares of its Common Stock after the consummation of
the Company's proposed public offering.
PRIVATE PLACEMENT
On April 6, 1998, the Company commenced a private offering of up to 20
Units, each unit consisting of $50,000 principal amount of 10% Promissory Notes
and Warrants to purchase 11,500 shares of Common Stock. 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 offering price of Common Stock to be sold in a subsequent firm
commitment underwriting of at least $1,000,000. To date, the Company has
received gross proceeds from this offering totaling $850,000.
6
<PAGE>
<PAGE>
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.
TTR Inc. (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 and
electronic content. TTR's core software protection technologies are designed to
be used by software publishers for purposes of protecting software applications
or other electronic content from unauthorized reproduction. To date, the Company
has not realized any operating revenues. DiscGuard'tm', the Company's
proprietary technology designed to combat unauthorized reproduction of CD-ROM
and DVD based software and other electronic content, first became commercially
available in February 1998.
DiscGuard is designed to provide a comprehensive anti-copying solution for
optical media (e.g., CD-ROM, CD-R, DVD-ROM, DVD-R) based software and other
electronic content. The technology underlying DiscGuard requires modification to
the laser optics system of the optical media mastering machine through which
optical media are replicated. Toward that end, the Company and Doug Carson and
Associates Ltd. (DCA), a leading manufacturer of mastering interface or other
signal processing systems used by CD-DVD/ROM replicators to mass-produce CD-ROMs
('Signal Processor'), have, effective October 31, 1997 entered into a
Development and OEM Licensing Agreement (the 'License') providing for,
inter-alia, the incorporation of the Company's DiscGuard technology into DCA's
Signal Processor. Under the terms of the License, DCA has been accorded an
exclusive, non-transferable royalty-free world-wide license to merge the
DiscGuard Technology into DCA's mastering interface system or signal processing
systems to create pre-recorded master discs to be used to mass-produce DiscGuard
treated CD-ROM discs (hereinafter, the 'DCA Enhanced Signal Processor'), and to
market and distribute, directly and indirectly, the DCA Enhanced Signal
Processor. The License is exclusive through December 31, 1998, provided, that,
if by such date DCA shall have sold or upgraded 100 units of its Signal
Processor units into which DiscGuard can be integrated to become a DCA Enhanced
Signal Processor, then the Exclusive License shall be extended through December
31, 1999. Otherwise, the exclusivity provision terminates. If the above minimum
sales or upgrade criteria are met, then by September 31, 1999, DCA and TTR are
to confer for purpose of establishing mutually acceptable minimum unit sales or
upgrade requirements for purposes of renewing the exclusivity provisions.
Following its development, the DCA Enhanced Signal Processor was installed
into one of the mastering machines of Nimbus CD International Inc., a Delaware
corporation, and leading CD ROM replicator ('Nimbus'), to produce DiscGuard
treated CD ROMs pursuant to a Development and OEM Licensing Agreement, dated
November 24, 1997 (the 'Nimbus Agreement') among the Company, DCA and Nimbus.
Under the Nimbus Agreement, Nimbus was granted the right to use DiscGuard for
the purpose of replicating DiscGuard enhanced optical media. Nimbus was granted
a six month exclusive license to produce the protected media, which period began
on March 16, 1998 and runs through September 16, 1998. Under the Nimbus
Agreement, the Company is to receive a percentage of the proceeds of the premium
charged by Nimbus on any DiscGuard protected media.
Pending the Company's license of DiscGuard to other optical media
replicators, DiscGuard protected media is available to software and other
content publishers through Nimbus. DiscGuard replicators will be authorized by
the Company to replicate DiscGuard enhanced CD-ROMs for licensed publishers who
have obtained directly from the Company or an authorized distributor rights to
use DiscGuard. DiscGuard enhanced replicators are required to report to the
Company sales volumes of DiscGuard enhanced CD-ROMs. The Company will charge
publishers on a per disc basis.
Although no assurances can be given with respect to the successful
marketing of DiscGuard product or the DCA Enhanced Signal Processor, management
believes that the integration of the DiscGuard technology into DCA's Signal
Processor and Nimbus' mastering machine will expose the Company's DiscGuard
product to CD-ROM and DVD-ROM replicators and publishers worldwide, thereby
establishing the infrastructure necessary for software and other electronic
content publishers to integrate the Company's technology into their software
products.
II-1
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<PAGE>
The Company has completed development of SoftGuard'tm', its software
protection solution for non-CD-ROM based software applications, for use on
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.
The Company has leveraged a substantial part of SoftGuard's encryption and
protection technology into DiscGuard. DiscGuard can now protect software and
content running from a CD-ROM or from a hard disk. The Company has not released
SoftGuard since, in management's view, the software and other electronic content
distribution market is increasingly characterized by the use of optical media
such as CD-ROMs and in the foreseeable future, DVDs. Accordingly, management
determined that it was in the Company's best interests to devote its research
and development efforts on completing the design and development of DiscGuard
and to bring to market as soon as practicable effective optical media
anti-copying protection.
The Company anticipates continuing marketing efforts in North America and
Israel and, undertaking marketing efforts in 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
$325,000.
The Company currently has 22 employees and other service providers and
depending on its level of business activity, expects to hire an additional 15
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, 1998, the Company has incurred total
operating losses of $6,409,607. For the three months period ended March 31,
1998, the Company incurred operating losses of $844,784.
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 chief financial
officer. The amortization of this deferred compensation resulted in non-cash
charges for the three months ended March 31, 1998 of $221,376. The Company
believes that these compensation charges were necessary to retain the services
of competent individuals.
Cash used by operations for the three months ended March 31, 1998 was
approximately $444,572. This amount included the payment of $55,344 in
connection with the Common Stock issued with a guaranteed selling price pursuant
to a settlement. (See notes to financial statement).
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 $1,776,400 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 amount was subsequently increased to $210,000. To date, the Company has
received approximately $173,000. These funds will partially offset research and
development costs.
In April 1, 1998, the Company entered into a letter of intent with an
underwriter respecting a firm commitment public offering of 2,500,000 shares of
the Company's Common Stock (the 'Public
II-2
<PAGE>
<PAGE>
Offering'). The Company anticipates that the Common Stock offering price at the
Public Offering will be at or about the market price of the Common Stock
immediately prior to the effective date of the registration statement.
Additionally, on April 6, 1998, the Company commenced a private offering of a
maximum of 20 units of its securities, each unit consisting of a 10% promissory
note in a principal amount of $50,000 and warrants to purchase 11,500 shares of
Common Stock (the 'Private Placement'). The notes bear interest at a rate of 10%
per annum and are repayable at the earlier to occur of (i) one year from closing
or (ii) the 30th day following the closing by the Company of any public or
private financing in an amount exceeding $1,000,000. The warrants are
exercisable for a 4 year period at an exercise price equal to 115% of the Common
Stock Public Offering price. The closing of the Private Placement is subject to
the sale of a minimum of 10 units; to date, the Company has closed on 17 units
($850,000). No assurance can be given, however, that the Company will be
successful in completing the Private Placement on consummating the Public
Offering on terms favorable to the Company. 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 6 months, including
expected capital expenditures and working capital to fund operations.
II-3
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<PAGE>
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 an 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 registered 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. In January 1998, Mr. Israel sold the shares issued to him in the
over-the-counter market for aggregate sales proceeds of approximately $77,000.
Under the terms of the settlement, the Company owed Mr. Israel approximately
$155,000 in connection with such sale, plus an additional $7,000 in related
costs. Pursuant to a subsequent agreement between the Company and Mr. Israel
entered into in January 1998, the Company paid to Mr. Israel approximately a
third of such amount with the balance payable by June 15, 1998.
ITEM 2. CHANGE IN SECURITIES & USE OF PROCEEDS
1. (a) In January 1998, the Company issued, under the Company 1996 Stock
Option Plan, to a consultant options to purchase 4,000 shares of Common Stock,
at an exercise price per share equal to $5 7/8. The options are exercisable
until 2006.
(b) There were no underwriters with respect to the above transaction.
(c) The options were issued in consideration of services to be performed
prior to vesting pursuant to the Company's 1996 Stock Option Plan.
(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.
2. (a) In February 1998, the Company issued to Biscount 16,000 shares of
Common Stock and four (4) year warrants to purchase 8,000 shares of Common Stock
at an exercise price per share of $7.80; provided, that, in lieu of cash
payments for exercising the warrants, Biscount is entitled to accept a smaller
number of shares of Common Stock based on the spread between the per share
exercise price and the then public market price of a share of Common Stock.
(b) There were no underwriters with respect to the above transaction.
(c) The shares and warrants were issued in consideration of the payment of
$100,000 and $80 respectively.
(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.
USE OF PROCEEDS
On February 10, 1997, the Company's Registration Statement covering the
offering of 920,000 shares of the Company's common Stock, commission file number
333-11829, was declared effective. The offering commenced on February 12, 1997
and was managed by First Metropolitan Securities Inc., as the underwriter named
in the Registration Statement (the 'underwriter'). Of the 920,000 shares sold
pursuant to the offering, 860,000 shares were sold by the company and 60,000
were sold by certain selling stockholders (the 'Selling Stockholders'). In
connection with the offering, the company issued to the underwriter, at a
purchase price of $0.001 per warrant, warrants to purchase up to an aggregate of
80,000 shares of common stock at an exercise price equal to $11.20 per share.
II-4
<PAGE>
<PAGE>
The shares were sold at $7.00 per share, for aggregate proceeds of
$6,020,000 and $420,000 to the company and the Selling Stockholders,
respectively. The amount of expenses incurred for the company's account in
connection with the offering is as follows:
<TABLE>
<S> <C>
Underwriting Discounts and Commissions.......................................... $ 602,000
Non Accountable Expense Allowance............................................... 180,600
Expense paid to or for the Underwriters......................................... 99,948
Other expense:.................................................................. 436,104
----------
Total Expenses............................................................. $1,318,652
----------
----------
</TABLE>
All of the foregoing expenses were direct or indirect payment to persons
other than (i) directors, officers or their associates, (ii) persons owning ten
percent (10%) or more of the company's Common stock or (iii) affiliates of the
Company.
The net proceeds of the offering to the Company after deducting the above
noted expense were $4,701,348. From the effective date of the registration
statement through March 31, 1998, a reasonable estimate of the utilization of
the net proceeds of the offering is as follows:
<TABLE>
<S> <C>
Purchase and installation of machinery & equipment.............................. $ 175,507
Repayment of indebtedness....................................................... 2,329,045
Additional facilities and working capital....................................... 695,252
Research & Development.......................................................... 820,100
Marketing....................................................................... 681,434
----------
$4,701,348
----------
----------
</TABLE>
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
a) On January 21, 1998, the Company filed a report on Form 8-K relating to
the settlement of amounts owed to Mr. Henry Israel
b) Exhibit 27 -- Financial Data Schedule
II-5
<PAGE>
<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
By /s/ M.D. TOKAYER
.....................................
M.D. Tokayer
CHAIRMAN OF THE BOARD, PRESIDENT,
CHIEF EXECUTIVE OFFICER
Date: May 20, 1998 AND TREASURER
II-6
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as 'tm'
<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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 94,820
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 236,912
<PP&E> 378,805
<DEPRECIATION> 0
<TOTAL-ASSETS> 691,337
<CURRENT-LIABILITIES> 511,678
<BONDS> 0
<COMMON> 4,053
0
0
<OTHER-SE> 117,692
<TOTAL-LIABILITY-AND-EQUITY> 691,337
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 844,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,324
<INCOME-PRETAX> (850,964)
<INCOME-TAX> 0
<INCOME-CONTINUING> (850,964)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (850,964)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
