<PAGE>
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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 June 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 (20 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
August 7, 1998 was 3,859,548.*
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
* This figure reflects the (i) return to treasury and cancellation in
June 1998 of 750,000 shares of Common Stock held by Mr. Marc Tokayer and the
Tokayer Family Trust, which shares had been placed in escrow and (ii) the
issuance in July 1998 of 432,000 shares of Common Stock in exchange for the
surrender and cancellation of 1,080,000 outstanding warrants.
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
Index
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements *
Consolidated Balance Sheets
December 31, 1997 and June 30, 1998 1
Consolidated Statements of Operations
For the Six and Three months ended June 30, 1997 and 1998 2
Consolidated Statements of Comprehensive Loss
For the Six and Three months ended June 30, 1997 and 1998 3
Consolidated Statements of Cash Flows
For the Six months ended June 30, 1997 and 1998 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Plan of operations 8 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
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
* 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, June 30,
1997 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 450,040 $ 97,476
Stock subscription receivable 100,000 --
Other current assets 131,538 147,163
----------- -----------
Total current assets 681,578 244,639
Property and equipment - net 416,045 360,086
Due from officer 16,000 16,000
Deferred financing costs, net -- 68,707
Deferred stock offering costs -- 92,332
Other assets 75,004 5,236
----------- -----------
Total assets $ 1,188,627 $ 787,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Current portion of long-term debt $ 5,564 $ 10,432
Notes payable, net of discount of $308,708 -- 691,292
Bank loan -- 91,918
Accounts payable 87,363 305,380
Accrued expenses 139,972 158,802
----------- -----------
Total current liabilities 232,899 1,257,824
Long-term debt, less current portion 14,804 --
Accrued severance pay 31,195 71,782
----------- -----------
Total liabilities 278,898 1,329,606
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 3,427,548
issued and outstanding, including 1,000,000 and -0-
shares placed in escrow, respectively 4,272 3,428
Common stock subscribed, $.001 par value; 16,000 shares
at December 31, 1997 100,000 --
Additional paid-in capital 8,117,275 9,172,284
Other accumulated comprehensive income 38,029 32,180
Deficit accumulated during the development stage (6,179,571) (8,214,718)
Less: deferred compensation (1,402,776) (1,535,780)
----------- -----------
Total stockholders' equity (deficit) 677,229 (542,606)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,188,627 $ 787,000
=========== ===========
</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
Six Months Inception Three Months
Ended (July 14, Ended
June 30, 1994) to June 30,
---------------------------- June 30, ----------------------------
1997 1998 1998 1997 1998
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $ -- $ --
Expenses
Research and development 435,129 502,466 2,090,174 164,150 313,774
Sales and marketing 978,651 548,119 2,403,413 652,213 296,419
General and administrative 739,714 921,870 3,043,691 392,027 517,478
----------- ----------- ----------- ----------- -----------
Total expenses 2,153,494 1,972,455 7,537,278 1,208,390 1,127,671
----------- ----------- ----------- ----------- -----------
Operating loss (2,153,494) (1,972,455) (7,537,278) (1,208,390) (1,127,671)
Other (income) expense
Legal settlement 232,500 -- 232,500 -- --
Loss on investment -- -- 17,000 -- --
Other income -- (25,000) (75,000) -- (25,000)
Interest income (17,069) (687) (55,580) (6,887) (543)
Interest expense 107,128 88,379 558,520 10,065 82,055
----------- ----------- ----------- ----------- -----------
Total other (income) expenses 322,559 62,692 677,440 3,178 56,512
----------- ----------- ----------- ----------- -----------
Net loss $(2,476,053) $(2,035,147) $(8,214,718) $(1,211,568) $(1,184,183)
=========== =========== =========== =========== ============
Per share data:
Basic and diluted $ (0.87) $ (0.61) $ (0.38) $ (0.36)
=========== =========== =========== ============
Weighted average number
of common shares used in
basic and diluted loss per share 2,852,468 3,311,161 3,204,548 3,328,647
=========== =========== =========== ============
</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>
Six Months Three Months
Ended Ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1998 1997 1998
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net loss $(2,476,053) $(2,035,147) $(1,211,568) $(1,209,183)
Other comprehensive income (loss) 15,865 (5,849) 19,292 (2,797)
----------- ----------- ----------- -----------
Comprehensive loss $(2,460,188) $(2,040,996) $(1,192,276) $(1,211,980)
=========== =========== =========== ===========
</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
Six Months Inception
Ended (July 14,
June 30, 1994) to
------------------------------- June 30,
1997 1998 1998
---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,476,053) $(2,035,147) $(8,214,718)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 127,737 86,614 526,945
Amortization of note discount -- 64,122 64,122
Translation adjustment 60,634 -- (1,528)
Amortization of deferred compensation 492,356 371,175 1,343,742
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 35 -- 163
Other current assets 5,573 (19,858) (145,776)
Other assets (102,700) 69,000 (3,700)
Accounts payable (146,166) 229,414 335,182
Accrued expenses 50,840 6,699 130,485
Accrued severance 48,809 42,130 86,691
Interest payable (234,508) 17,199 17,199
----------- ----------- -----------
Net cash used by operating activities (1,608,318) (1,323,996) (5,432,739)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (134,740) (34,227) (645,627)
Increase in organization costs -- -- (7,680)
----------- ----------- -----------
Net cash used by investing activities (134,740) (34,227) (653,307)
----------- ----------- -----------
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) (92,332) (567,996)
Deferred financing costs (19,000) (78,000) (340,411)
Proceeds from short-term borrowings 200,000 1,080,487 2,130,089
Proceeds from long-term debt -- -- 1,114,137
Repayment of short-term borrowings (1,049,602) -- (1,049,602)
Repayments of long-term debt (1,052,545) (3,890) (1,093,361)
----------- ----------- -----------
Net cash provided by financing activities 2,990,125 1,006,265 6,187,426
----------- ----------- -----------
Effect of exchange rate changes on cash (7,501) (606) (3,904)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,239,566 (352,564) 97,476
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 63,656 450,040 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,303,222 $ 97,476 $ 97,476
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 316,262 $ 7,235 $ 386,737
=========== =========== ===========
Transfer of common stock issued with guaranteed 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 six
months ended June 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
In April through June 1998, the Company realized gross proceeds of
$1,000,000 from a private offering of 20 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 $372,830, 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 $1,600,000. 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
5
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
completed by December 31, 1998.
In July 1998, the Company realized proceeds of $475,000 from the sale
of an additional 9.5 Units.
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 agreements.
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. As of June 30, 1998,
the Company had paid the shortfall of $155,344, as required by the
guarantee.
Note 9 - Proposed Public Offering
On April 1, 1998, the Company entered into a letter of intent with
Josephthal & Co. Inc. 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
offering price is expected to be at or about the market price of the
Common Stock of the Company immediately prior to the effective date of
a Registration Statement. 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 Common 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. In July 1998, certain Warrants were exchanged for
Common Stock (see Note 11), and the time and manner of payment
of the fee is still being negotiated.
Note 10 - Consulting Agreement
On April 1, 1998, the Company retained the services of an individual to
perform consulting services related to the operation and development of
the Company's business under a one-year consulting agreement. The
Company paid a $10,000 non-refundable retainer. In
6
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TTR INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
addition, the agreement provides for the payment of $250,000 and the
issuance of 50,000 unregistered shares of Common Stock upon the closing
of the Company's proposed public offering. The shares will be valued at
the public offering price.
Note 11 - Subsequent Events
Warrant Exchange
In July 1998, the Company issued 432,000 additional shares of Common
Stock in exchange for the surrender and cancellation of 1,000,000
and 80,000 outstanding warrants exercisable at $7.00 and $11.20,
respectively.
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 options
have an exercise price equal to the fair market value on the date of
grant and will vest over a five-year period.
7
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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'TM', 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'TM' protection is transparent to the end user and is a cost
effective way for a software publisher to reduce the piracy of its
products.
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'TM' will be
readily available to software publishers by integrating DiscGuard'TM' 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'TM' directly to software publishers, who can
then purchase DiscGuard'TM' protection through a Replicator for a per disc
royalty.
In October 1997, the Company entered into an exclusive license
agreement with Doug Carson & Associates, Inc. ("DCA") to permit DCA to
integrate DiscGuard'TM' 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'TM' compatible MIS and to use
its best efforts to encourage Replicators to upgrade their MIS to include
DiscGuard'TM' 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'TM' into its MIS and now offers DiscGuard'TM'
protection to its large client base of software publishers throughout North
America and Europe. This agreement is exclusive through mid-September 1998.
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'TM' protection to software publishers throughout South Korea by
mid-September 1998, when the Nimbus exclusivity period expires.
The Company commenced its marketing efforts in February 1998 and by
June 30, 1998, had licensed DiscGuard'TM' to a number of software
publishers that agreed to protect some or all of their titles distributed
on CD-ROMs with DiscGuard'TM'. While these software publishers market
mostly multimedia CD-ROMs, including games, design and reference software,
the Company believes that DiscGuard'TM' will be beneficial to software
publishers seeking to protect a broad range of products.
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'TM' 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.
8
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The Company is actively marketing DiscGuard'TM' to other Replicators
and software publishers. As a fist step toward licensing DiscGuard'TM' 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'TM'. 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. The Company anticipates, though can give no assurance, 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.
To target effectively the large number of Replicators and software
publishers that would benefit from the Company's products, TTR anticipates,
subject to the consummation of the Offering, to add a Vice President
of Marketing and a Vice President of Sales to its ranks as well as
additional sales and marketing representatives, who will provide
the Company with greater market presence.
The priority of the Company's research and development efforts is to
expand DiscGuard's'TM' capabilities and uses. DiscGuard'TM' is currently
available for the Microsoft Windows'r' family of operating systems
(including Windows'r' 98). TTR's current focus is to complete the
development of DiscGuard'TM' for other operating systems and a version of
DiscGuard'TM' 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, subject to the consummation of the
Offering, 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, following, the Offering, to hire a
chief financial officer as well as other customer service and support
personnel.
The Company currently has 30 employees and other service providers
(including 15 in research and development) and expects, subject to the
Offering, 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 Ltd.), 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'TM' for Year 2000 compliance, and the Company
believes that DiscGuard'TM' 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 revenues from operations.
For the six months ended June 30, 1998, the Company incurred net operating
losses of $1,972,455. During this period, the Company expended $502,466 on
research and development activities primarily associated with expanding
DiscGuard's'TM' capabilities and uses. The Company also incurred a total of
$548,119 in sales and marketing efforts with respect to Replicators and
publishers. General and administrative expenses of $921,870 for the period,
reflect 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.
9
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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 $371,175 for
the six months ended June 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, commenced in April 1998, the Company recorded a note discount
totaling $372,830, to reflect the value of the Warrants issued (See Note 4
in notes to consolidated financial statement). The amortization of the
discount resulted in a non-cash charge of $64,122 for the six months ended
June 30, 1998.
Cash used by operations for the six months ended June 30, 1998, was
$1,323,996. 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 July 1998, the Company completed a private placement (the "1998 Debt
Financing") of $1,475,000 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 $96,000. 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 $1,600,000 (the
"Subsequent Offering"). In connection with the 1998 Debt Financing, the
Company issued Warrants to purchase 339,250 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 expects, but cannot give assurance, that existing cash
balances and cash flows will be sufficient to meet its needs through the
end of the third quarter. If necessary, the Company will undertake
efforts to obtain additional short-term financing. However, no assurance
can be provided that the Company will be successful in obtaining such
financing on terms and conditions acceptable to the Company.
10
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PART II
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGE IN SECURITIES
1. (a) In April 1998, the Company issued to Josephthal & Co Inc.
four (4) year warrants to purchase 25,000 shares of Common
Stock at an exercise price per share of $5 5/8.
(b) There were no underwriters with respect to the above
transaction.
(c) The warrants were issued in consideration of services to
be performed.
(d) The Company believes that the warrants 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 (The "Securities Act").
2. (a) In April 1998, the Company entered into a consulting
agreement pursuant to which it will issue 50,000 shares
of Common Stock at the closing of the Proposed Public
Offering.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares are to be issued in consideration of
services to be performed by the consultant.
(d) The Company believes that the shares are to be 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.
3. (a) In April 1998, pursuant to the Company's 1996 Stock Option
Plan (the "Plan"), the Company issued to employees options to
purchase 7,000 shares of Common Stock at an exercise price per
share equal to $5 3/8.
(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 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.
4. (a) In June 1998, pursuant to the Plan, the Company issued to
an employee options to purchase 4,000 shares of Common Stock
at an exercise price per share equal to $4 5/8.
(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 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.
11
<PAGE>
<PAGE>
5. (a) In June 1998, the Company issued to three consultants a
total of 125,000 shares of Common Stock and warrants for an
additional 25,000 shares. The warrants are exercisable at a
price per share equal to 115% of the price of the Common Stock
in the Public Offering or 115% of the price of Common Stock
on the date of the grant if no offering takes place by
December 31, 1998.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares and warrants were issued in consideration of
services to be performed.
(d) The Company believes that the shares and warrants
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.
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) Exhibit 27 - - Financial Data Schedule
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: August 13, 1998 By /s/ Steven L. Barsh
Steven L. Barsh
Chief Executive Officer (and duly
authorized to sign on behalf of the
Registrant)
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as.................................'TM'
The registered trademark symbol shall be expressed as...................... 'r'
12
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 97,476
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 244,639
<PP&E> 360,086
<DEPRECIATION> 0
<TOTAL-ASSETS> 787,000
<CURRENT-LIABILITIES> 1,257,824
<BONDS> 0
<COMMON> 3,428
0
0
<OTHER-SE> (546,034)
<TOTAL-LIABILITY-AND-EQUITY> 787,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,972,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,379
<INCOME-PRETAX> (2,035,147)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,035,147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,035,147)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
