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 September 30, 1999
or
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number 0-22055
TTR TECHNOLOGIES, 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
November 17, 1999 was 9,902,941
Transitional Small Business Disclosure Format:
Yes |_| No |X|
<PAGE>
TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
(A Development Stage Company)
Index
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheet
December 31, 1998 and September 30, 1999 1
Consolidated Statement of Operations
For the Nine months and Three Months ended
September 30, 1998 and 1999 2
Consolidated Statement of Comprehensive Loss
For the Nine months and Three Months ended
September 30, 1998 and 1999 3
Consolidated Statement of Cash Flows
For the Nine months and Three Months ended
September 30, 1998 and 1999 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Managements Discussion and Analysis 8 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon senior securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-k 15
Exhibit 27 - Financial Data Schedule
Signatures
* The Balance Sheet at December 31, 1998 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 74,445 $ 6,326
Accounts receivabe 7,793 47,314
Other current assets 21,250 8,758
------------ ------------
Total current assets 103,488 62,398
Property and equipment - net 311,493 225,161
Deferred financing costs, net 70,712 3,209,638
Other assets 4,852 3,700
------------ ------------
Total assets $ 490,545 $ 3,500,897
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
Current portion of long-term debt $ 873,153 $ 1,524,786
Short-term borrowings, net of discount 264,335 146,871
Accounts payable 744,103 655,400
Accrued expenses 1,056,345 701,128
------------ ------------
Total current liabilities 2,937,936 3,028,185
10% Convertible debentures -- 1,500,000
Long-term debt, less current portion 594,011 9,902
Accrued severance pay 56,765 36,825
------------ ------------
Total liabilities 3,588,712 4,574,912
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred Stock, $.001 par value;
5,000,000 shares authorized; none issued and outstanding -- --
Common stock, $.001 par value;
15,000,000 shares authorized; 4,176,326 and 5,681,472
issued and outstanding, respectively 4,177 5,682
Additional paid-in capital 9,170,585 15,209,044
Other accumulated comprehensive income 79,415 76,691
Deficit accumulated during the development stage (11,758,111) (15,473,282)
Less: deferred compensation (594,233) (892,150)
------------ ------------
Total stockholders' deficit (3,098,167) (1,074,015)
------------ ------------
Total liabilities and stockholders' deficit $ 490,545 $ 3,500,897
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
TTR TECHNOLOGIES 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,
1998 1999 1999 1998 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 45,580 $ 67,341 $ 122,263 $ 45,580 $ 26,848
Expenses
Research and development 788,334 406,164 3,026,125 285,868 41,884
Sales and marketing 890,612 310,044 4,003,269 342,493 104,942
General and administrative 1,377,937 1,757,696 5,924,258 465,360 730,979
------------ ------------ ------------ ------------ ------------
Total expenses 3,056,883 2,473,904 12,953,652 1,093,721 877,805
------------ ------------ ------------ ------------ ------------
Operating loss (3,011,303) (2,406,563) (12,831,389) (1,048,141) (850,957)
Other (income) expense
Legal settlement -- -- 232,500 -- --
Loss on investment -- -- 17,000 -- --
Other income (25,000) -- (75,000) -- --
Amortization of deferred financing costs 41,164 906,564 1,242,799 31,871 524,776
Interest income (869) (732) (59,038) (182) (188)
Interest expense 198,053 402,776 1,283,632 109,674 94,769
------------ ------------ ------------ ------------ ------------
Total other (income) expenses 213,348 1,308,608 2,641,893 141,363 619,357
------------ ------------ ------------ ------------ ------------
Net loss $ (3,224,651) $ (3,715,171) $(15,473,282) $ (1,189,504) $ (1,470,314)
============ ============ ============ ============ ============
Per share data:
Basic and diluted $ (0.93) $ (0.69) $ (0.31) $ (0.26)
============ ============ ============ ============
Weighted average number
of common shares used in
basic and diluted loss per share 3,472,363 5,394,717 3,791,529 5,646,429
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
From
Inception
Nine Months (July 14, Three Months
Ended 1994) to Ended
September 30, September 30, September 30,
1998 1999 1999 1998 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (3,224,651) $ (3,715,171) $(15,473,282) $ (1,189,504) $ (1,470,314)
Other comprehensive income (loss)
Foreign currency translation adjustments (5,765) (2,724) 76,691 84 3,125
------------ ------------ ------------ ------------ ------------
Comprehensive loss $ (3,230,416) $ (3,717,895) $(15,396,591) $ (1,189,420) (1,467,189)
============ ============ ============ ============ ==========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
TTR TECHNOLOGIES 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,
1998 1999 1999
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,224,651) $ (3,715,171) $(15,473,282)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 125,834 990,794 1,618,423
Amortization of note discount 134,751 204,079 476,088
Translation adjustment -- -- (1,528)
Amortization of deferred compensation 613,469 873,243 3,018,949
Stock and warrants issued for services and legal settlement -- 576,160 1,159,958
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 -- (41,355) (49,672)
Other current assets (7,910) 12,396 (14,409)
Other assets 69,000 -- (3,700)
Accounts payable 297,270 (374,055) 525,010
Accrued expenses 154,223 (56,754) 856,380
Accrued severance 108,770 (19,136) 58,434
Interest payable 51,455 159,143 250,063
------------ ------------ ------------
Net cash used by operating activities (1,833,133) (1,390,656) (7,734,630)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed assets -- 2,748 2,748
Purchases of property and equipment (35,893) (4,523) (680,286)
Increase in organization costs -- -- (7,680)
------------ ------------ ------------
Net cash used by investing activities (35,893) (1,775) (685,218)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 100,000 291,744 6,327,314
Proceeds from officer loan 16,000 -- --
Stock offering costs (172,025) -- (475,664)
Deferred financing costs (117,000) (200,090) (605,501)
Proceeds from short-term borrowings 1,685,289 -- 1,356,155
Proceeds from long-term debt -- -- 2,751,825
Proceeds from convertible debentures -- 1,500,000 1,500,000
Repayment of short-term borrowings -- (173,374) (1,222,976)
Repayments of long-term debt (14,265) (94,101) (1,199,411)
------------ ------------ ------------
Net cash provided by financing activities 1,497,999 1,324,179 8,431,742
------------ ------------ ------------
Effect of exchange rate changes on cash (1,026) 133 (5,568)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (372,053) (68,119) 6,326
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 450,040 74,445 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 77,987 $ 6,326 $ 6,326
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 7,391 $ 9,750 $ 431,861
============ ============ ============
Transfer of common stock issued with guaranteed selling price
to permanent capital $ 77,156
============
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
TTR TECHNOLOGIES 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
Technologies, 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
30,1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999. 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, 1998 as filed
with the Securities and Exchange Commission.
Note 2 - Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
Note 3 - 10% Convertible Debentures
From May through October 1999, the Company issued $2,000,000 of its 10%
Convertible Debentures to private investors. The Debentures mature on
April 30, 2001 and are convertible into shares of the Company's Common
Stock at a conversion rate based on the closing trading prices of the
Common Stock during certain specified periods. In addition, upon
conversion, warrants will be issued to purchase additional shares of
Common Stock equal to one-half of the shares of Common Stock issued. The
warrants are exercisable at a price per share equal to 120% of the
conversion rate, and expire in April 2002.
In October and November 1999, the investors converted all of the
outstanding debentures and were issued 2,681,934 shares of common stock
and 1,340,967 warrants exercisable at $.92 per share. In November 1999,
the investors exercised of all the outstanding conversion warrants.
In connection with the sale of Debentures, the Company also issued
warrants to purchase up to 1.3 million shares of Common Stock to an
independent consultant. These warrants expire in April 2002 and are
exercisable at a nominal price per share. Using the Black-Scholes model
for estimating the fair value of the warrants, the Company recorded
$3,845,400 as deferred financing costs. This amount is being amortized on
a straight-line basis over the term of the debentures and will be charged
to operations in the period the debentures were converted.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Stockholders' Deficit
Stock Grants
In January and February 1999 the Company issued 627,000 shares of Common
Stock and 10,000 warrants exercisable at $1.75 to various consultants
pursuant to one-year consulting agreements. The Company has recorded a
charge to deferred compensation expense of $445,725 as a result of these
issuances. Also in January 1999, the Company issued 250,000 shares of
Common Stock as payment of an outstanding liability in the amount of
$168,750.
In July 1999, the Company issued 150,000 shares of Common Stock in
exchange for previously issued options in connection with the termination
of, and settlement of certain claims by an ex-employee.
Private Placement
In February and April 1999, the Company received $160,000 from the
issuance of an additional 205,682 shares of its Common Stock.
Warrants
In July 1999, the Company issued 400,000 warrants exercisable at $2.75 to
a consultant pursuant to a three-month consulting agreement.
Note 5 - Commitments and Contingencies
Employment Agreement
Effective, June 1, 1999, The Company entered into an employment agreement
with its new Chief Operating Officer. The agreement is for a term of one
year and is automatically renewable for additional one-year terms, unless
terminated in accordance with the agreement upon 90 days prior notice. The
agreement provides for a monthly salary of $5,000 plus benefits and the
issuance of options under the 1996 Option Plan to purchase 235,000 shares
of our common stock, at an exercise price of $0.01 per share. The options
vest in equal monthly installments over three years.
Litigation
In June 1999, the Company received notice from a shareholder, threatening
to commence litigation, alleging that the Company failed to register his
stock. The shareholder is seeking the return of his investment in the
amount of $400,000 plus interest to date. The Company is seeking to settle
and is presently negotiating this matter. As present, management cannot
predict the outcome.
-6-
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Commitments and Contingencies - continued
Amended Marketing and Sales Representation Agreement
In August 1999, the Company amended an existing agreement to provide for
the issuance of 200,000 shares of common stock upon the commencement of an
approved marketing campaign of the Company's proposed product to prevent
the unauthorized copying of audio CR-ROM discs. In addition, the
representative was granted warrants to purchase up to 1,000,000 shares of
common stock at a nominal price per share. The warrants are exercisable
only upon the Company entering into an agreement with a Strategic Partner
through the efforts of the representative. Such agreement must provide for
an equity investment of at least $3,000,000 and the licensing of the
Company's technology. The warrants expire in October 2002.
In October 1999, pursuant to the agreement, the Company issued 200,000
shares of common stock.
-7-
<PAGE>
ITEM 2. Management's Discussions and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus.
General
Overview.
We design, develop and market anti-piracy software technologies that
provide encryption and copy protection for software applications distributed on
CD-ROMs. Our proprietary product, DiscGuard, is designed to prevent unauthorized
CD-ROMS from operating as intended. Our copy protection technologies are
transparent to the legitimate end-user and do not require the user to install
hardware "keys" or "dongles" on the user's desk top or to obtain an "unlock
code" in order to run the protected application.
Since our inception in 1994, we have focused on
o developing our proprietary anti-privacy technologies; and
o in the last year, licensing a broad base of replicators,
representing a significant percentage of the world replication
market by disc volume, to use DiscGuard in their mastering
equipment, making DiscGuard readily available to software
publishers.
With our network of licensed replications in place to have
DiscGuard-protected software mass-produced on CD-ROMs, since the first
commercial release of DiscGuard in February 1998, we have begun marketing
DiscGuard to software publishers, directly and through distributors.
Approximately 24 software publishers market some or all of their titles on
DiscGuard-protected discs, representing approximately 400,000 CD-ROMs and
approximately 71 software titles.
Our goal is to establish DiscGuard as the leading product in our target
market segment of software-based CD-ROM copy protection for high-volume
multi-media consumer software, including games, entertainment and reference
software and other install-to-use applications. We are currently of exploring
the possibility of adapting the DiscGuard technology for use in preventing the
unauthorized copying of audio CD-ROM discs. There can be no assurance that we
will be able to do so, or that if we do, we will be able to successfully
commercialize the resulting technology.
We have not had any significant revenues to date. As of September 30,
1999, we had an accumulated deficit of approximately $15.5 million. Our expenses
have related primarily to expenses related to and expenditures on research and
development, marketing, recruiting and retention of personnel, costs of raising
capital and operating expenses. The report of the independent auditors on our
financial statements for the year ended December 31, 1998 includes an
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<PAGE>
explanatory paragraph relating to the uncertainty of our ability to continue as
a going concern, which may make it more difficult for us to raise additional
capital.
Subject to our raising sufficient financing in the future, we intend to
increase our research and development efforts. We believe that the software
developed for CD-ROMs has begun to migrate to DVDs, a medium with greater
storage capacity. We hope to complete the development of DiscGuard protection
for DVDs by the time DVD drives become widely available and software is
distributed on DVDs.
We intend to ensure that DiscGuard remains integrated into the mastering
equipment of a broad base of replicators (i.e., mass producers of CD-ROMs),
affording software publishers convenient access to DiscGuard-licensed
replicators. We will continue our marketing efforts by directly distributing our
product in the United States, Europe and the Middle East, utilizing distributors
in Asia and acting on referrals from our replicators. If we do not succeed in
significantly increasing the number of licensed publishers generated by our
existing marketing efforts, we may also seek a strategic alliance with an
international marketing partner or increase our use of distributors in
particular countries outside of Asia. On June 1, 1999, we hired a Chief
Operating Officer to oversee our marketing efforts.
Revenue Sources
Our main source of revenue is from royalties payable by software
publishers under non-exclusive license agreements with such software publishers.
Typically, our license agreements relate to some or all of a publisher's
software titles on CD-ROMs. These license agreements have unit-based pricing
schedules, based on the number of CD-ROMs produced by a replicator. We recognize
revenue when CD-ROM discs are produced for our licensed software publishers by
our licensed replicators. We also receive a limited amount of revenue from our
licensed replicators.
Stock Based Compensation
Compensation expense arising from stock grants, and options and warrants
issued at exercise prices below the quoted market price as of the date of grant
is recognized over the period that services are rendered. As more fully
described below in "Results of Operations," we have recorded expense in
connection with stock based compensation during the Nine months ended September
30, 1998 and 1999.
Results of Operations
Nine months Ended September 30, 1999 ("1999 period") Compared to Nine months
Ended September 30, 1998 ("1998 period")and Three Months Ended September 30,
1999 Compared to Three Months Ended September 30, 1998.
Revenues for the 1999 and 1998 period were $67,341 and $45,580,
respectively and were derived from licensing fees of our DiscGuard product.
Revenues for the quarter were $26,848 and $45,580 for 1999 and 1998,
respectively.
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<PAGE>
Research and development costs for the 1999 period were $406,164 as
compared to $788,334 for the 1998 period. Research and development costs for the
quarter ended September 30, 1999 were $41,884 as compared to $285,868 for the
comparable quarter in 1998. These decreases are attributable primarily to
reduced staffing effected in the latter part of 1998.
Sales and marketing expenses for the 1999 period were $310,044 as compared
to $890,612 for the 1998 period and for the quarter ended September 30, 1999
were $104,942 as compared to $342,493 for the comparable quarter in 1998. This
decrease was primarily due to reduced staffing in 1999.
General and administration expenses for the 1999 period were $1,757,696 as
compared to $1,377,937 for the 1998 period and for the quarter ended September
30, 1999 were $730,979 as compared to $465,360 for the comparable quarter in
1998. The increase was attributable primarily to charges from stock based
compensation in 1999 of approximately $819,136 as compared to $316,172 in 1998.
For the quarter ended September 30, 1999 stock based compensation charges were
$342,000 as compared to $143,000 in 1998. In addition, the Company recorded a
charge of $344,000 in the 1999 quarter in connection with the issuance of
150,000 shares of common stock to an ex-employee in settlement of claims.
Total operating expenses include $873,243 and $613,469 of stock-based
compensation for the Nine months ended September 30, 1999 and 1998,
respectively.
As a result of the issuance of 1.3 million warrants in connection with the
10% Convertible Debentures, the Company recognized significant non-cash
financing costs. Using the Black-Scholes model for estimating the fair value of
the warrants, the Company recorded $3,845,400 as deferred financing costs and is
amortizing this amount over the two-year term of the debentures. Total
amortization of deferred financing costs for the 1999 period was $906,564 as
compared to $41,164 for the 1998 period and for the quarter ended September 30,
1999 was $524,776 as compared to $31,871 for the comparable quarter in 1998. As
of September 30, 1999, the Company has deferred financing costs remaining of
$3,209,638. This amount will be charged to operations in the next quarter when
the debentures were converted.
Interest expense for the 1999 period increased to $402,776 compared to
$198,053 during the 1998 period due to the increase in debt financing activity
in the period. Included in interest expense is non-cash amortization of note
discount of $204,079 and $134,751 for 1999 and 1998, respectively. Note
discounts were imputed to reflect the equity component of the related
financings.
The Company reported a net loss for the September 1999 period of
$3,715,171, or $(.69) per share on a basic and diluted basis, as compared to a
net loss of $3,224,651 or $(.93) per share for the September 1998 period. Net
loss for the quarter ended September 30, 1999 was $1,470,314, or $(.26) per
share on a basic and diluted basis, as compared to a net loss of $1,189,504, or
$(.31) per share for the comparable 1998 quarter.
Liquidity and Capital Resources
At September 30, 1999, we had cash of approximately $6,000, representing a
decrease of approximately $68,000 over December 31, 1998. During the Nine months
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<PAGE>
ended September 30, 1999 we used net cash for operations of $1,390,656 as
compared to $1,833,133 for the same period in 1998.
We have curtailed expenses in many areas, including reductions in
personnel. We believe that ongoing investment in research and development
activities and marketing, especially to software publishers, will be critical to
our ability to generate revenue and operate profitably. We anticipate that we
will continue to expend significant funds in research and development activities
and marketing.
In October, we issued an additional $500,000 in aggregate principal amount
of our 10% Convertible Debentures. In October and November 1999, the investors
converted all of the outstanding debentures and were issued 2,681,934 shares of
common stock and issued 1,340,967 warrants exercisable at $.92 per share. In
November 1999, the investors exercised of all the outstanding conversion
warrants. Net proceeds to the Company were approximately $1,050,000.
We have approximately $1.625 million in aggregate principal amount of
indebtedness which is currently due and payable together with interest thereon.
The holders of an aggregate of $562,500 in principal amount of such indebtedness
have variously agreed to extend the maturity thereof until various dates from
April through July 2000. We are attempting to obtain similar extensions from the
holders of the balance of such indebtedness. There can be no assurance that any
extensions will be granted with regard to all or any part of such balance. We
will need to obtain additional financing or otherwise reallocate our available
funds in order to repay any amount of such indebtedness as to which no extension
is granted.
If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that cash on hand, will allow us to maintain
operations through April 2000. We are currently reviewing possible private sales
of equity or debt with equity features and arrangements with strategic partners.
We have no commitments for any such financing and there can be no assurance that
we will obtain additional capital when needed or that any such additional
capital will not have a dilutive effect on current stockholders.
Year 2000 Issues
Background
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because these systems may have been developed using two digits rather than four
to determine the applicable year. For example, computer systems that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such "Year
2000" requirements.
State of Readiness
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<PAGE>
Our business is dependent on the operation of numerous systems that could
potentially be affected by Year 2000 related problems. Those systems include,
among others:
o software systems that we use internally in the management of our
business;
o hardware and software products that we have developed;
o the internal systems of our customers and suppliers; and
o non-information technology systems and services that we use in the
management of our business, such as telephone systems and building
systems.
Based on an analysis of the systems potentially affected by conducting
business in the twenty-first century, we are applying a phased approach to
making such systems, and accordingly our operations, Year 2000 ready. Beyond
awareness of the issues and scope of systems involved, the phases of activities
in progress include:
o an assessment of specific underlying computer systems, programs
and/or hardware;
o rededication or replacement of Year 2000 non-compliant technology;
o validation and testing of technologically Year 2000 ready solutions;
and
o implementation of the Year 2000 ready systems.
The table below provides the status and timing of these phased activities:
Affected Systems Status
- ---------------- ------
software Assessment completed; conducting ongoing
products that we validation and testing
license or sell (see details below)
Hardware and software Assessment completed;
systems that we use certain components replaced;
conducting validation and testing
Internal systems of our Assessment not yet completed
customers and suppliers
Non-information technology No assessment made
systems and certain services
that we use in the management
of our business, internal and
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<PAGE>
external, such as telephone
systems and building systems
Product Status
DiscGuard is not date or time sensitive. We have tested and verified
DiscGuard as Year 2000 ready. Year 2000 readiness does not include the
performance or functionality of third party products, including hardware or
software with which DiscGuard interfaces.
Costs to Address Year 2000 Readiness
We have expensed as incurred all costs directly related to Year 2000
readiness, even in cases where non-compliant information technology systems have
been replaced. To date, these costs have been insignificant. The replacement
cost of non-information technology systems would have been incurred, regardless
of the Year 2000 issue.
We do not believe that future expenditures to upgrade internal systems and
applications will have a material adverse effect on our business, financial
condition and results of operations. In addition, while the potential costs of
redeployment of personnel and any delays in implementing other projects is not
known, the costs are anticipated to be immaterial.
Risks of Year 2000 Issues
We believe that DiscGuard is Year 2000 ready; however, success of our Year
2000 readiness efforts may depend on the success of our customers in dealing
with their Year 2000 issues. We license DiscGuard to customers in several
different industries--i.e., to manufacturers of mastering equipment, replicators
and software publishers--each of which are experiencing different issues with
Year 2000 readiness. Customer difficulties with Year 2000 issues could interfere
with the use of DiscGuard, which might require us to devote additional resources
to resolve the underlying problems. If the problem is found to lie in DiscGuard,
our business, financial condition and results of operations could be materially
adversely affected.
Furthermore, the purchasing patterns of these customers or potential
customers may be affected by Year 2000 issues as companies expend significant
resources to become Year 2000 ready. The costs of becoming Year 2000 ready for
current or potential customers may result in reduced funds available to purchase
and implement our products. In addition, we rely on various entities that are
common to many businesses, such as public utilities. If these entities were to
experience Year 2000 failures, our ability to conduct business would be
disrupted.
Although we believe that our Year 2000 readiness efforts are designed to
appropriately identify and address those Year 2000 issues that are within our
control, there can be no assurance that our efforts will be fully effective or
that the Year 2000 issues will not have a material adverse effect on our
business, financial condition or results of operations. The novelty and
complexity of the issues presented and our dependence on the preparedness of
third parties are among the factors that could cause our efforts to be less than
fully effective. Moreover, Year 2000 issues present many risks that are beyond
-13-
<PAGE>
our control, such as the potential effects of Year 2000 issues on the economy in
general and on our business partners and customers in particular.
Contingency Plans
We have conducted an assessment of certain of our Year 2000 exposure areas
in order to determine what steps beyond those identified by our internal review
were advisable and no additional work was recommended. We do not presently have
a contingency plan for handling Year 2000 issues that are not detected and
corrected prior to their occurrence. Any failure by us to address any unforeseen
Year 2000 issue could adversely affect our business, financial condition and
results of operations. Any such occurrence could adversely affect our business.
Item 1. Legal Proceedings
In June 1999 we received notice from Biscount Overseas Ltd., a selling
stockholder, threatening to commence litigation for damages suffered as a result
of our failure to register shares of our common stock purchased by Biscount.
Biscount alleges that we owe them $400,000, the full amount of their investment,
plus approximately $60,000 in interest to date. We are attempting to settle this
matter.
Several suits have been filed and threats of litigation have been made
against us and our Israeli subsidiary by various vendors and former employees
for unpaid invoices and other amounts in an aggregate amount of approximately
$55,000.
Item 2. Change in Securities
1.(a) In July 1999, TTR issued $400,000 in principal amount of its 10%
Convertible Debentures due April 30, 2001 to certain private investors. Upon the
conversion of the Debentures, TTR is obligated to issue warrants to purchase up
to the number of shares equal to 50% of the shares issued upon such conversion,
at an exercise price per share equal to 120% of the conversion price.
(b) TTR paid commissions to a finder of approximately $36,000.
(c) TTR believes that the Debentures 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.
2. (a) In July 1999, the Company issued 150,000 shares of Common Stock in
exchange for previously issued options in connection with the termination of,
and settlement of certain claims by an ex-employee.
(b) There were no underwriters with respect to the above transaction.
(c) TTR believes that the shares 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
3.(a) In July 1999 TTR issued to a consultant warrants to purchase up to
an aggregate of 400,000 shares at an exercise price of $2.75 per share.
-14-
<PAGE>
(b) There were no underwriters with respect to the above transaction.
(c) TTR 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_
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
None
Exhibit 27. Financial Data Schedule
-15-
<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 TECHNOLOGIES, INC.
By: /s/ MARC D. TOKAYER
------------------------------------
MARC D. TOKAYER,
Date: November 19, 1999
CHAIRMAN OF THE BOARD AND
PRESIDENT (PRINCIPAL EXECUTIVE
AND FINANCIAL OFFICER AND OFFICER
DULY AUTHORIZED TO SIGN ON
BEHALF OF REGISTRANT
<TABLE> <S> <C>
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<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,326
<SECURITIES> 0
<RECEIVABLES> 47,314
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<CURRENT-ASSETS> 62,398
<PP&E> 225,161
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<TOTAL-ASSETS> 3,500,897
<CURRENT-LIABILITIES> 3,028,185
<BONDS> 0
0
0
<COMMON> 5,682
<OTHER-SE> (1,079,697)
<TOTAL-LIABILITY-AND-EQUITY> 3,500,897
<SALES> 67,341
<TOTAL-REVENUES> 67,341
<CGS> 0
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<OTHER-EXPENSES> 2,473,904
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<INTEREST-EXPENSE> 402,776
<INCOME-PRETAX> (3,715,171)
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<EPS-BASIC> (0.69)
<EPS-DILUTED> (0.69)
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