TTR INC, SB-2/A, 1999-10-04

TTR INC
SB-2/A, 1999-10-04
COMPUTER PERIPHERAL EQUIPMENT, NEC

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As filed with the Securities and Exchange Commission on October 4, 1999

Registration No. 333-85085

================================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT NO. 1

FORM SB-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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TTR TECHNOLOGIES, INC.
(Exact name of small business issuer in its charter)

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Delaware 3577 11-3223672
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)

TTR TECHNOLOGIES INC.
1841 Broadway
New York, New York 10023
(212) 333-3355
(Address and telephone number of principal executive
offices and principal place of business)

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MARC D. TOKAYER, PRESIDENT
TTR Technologies, Inc.
1841 Broadway
New York, New York 10023
(212) 333-3355
(Name, address and telephone number of agent for service)

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Copies to:
LAWRENCE M. BELL, ESQ.
Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022-7302
(212) 907-7300

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

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(Continued on the following page)

<PAGE>

(Continued from previous page)

CALCULATION OF REGISTRATION FEE

================================================================================
Proposed
maximum Proposed
Title of each offering maximum
class of price aggregate Amount of
securities to Amount to be per offering registration
be registered registered share price fee
- --------------------------------------------------------------------------------
Common Stock ............ 8,527,203(1) $2.91(4) $24,814,160 $ 6,898
1,458,440(2) 2.91(4) 4,244,060 1,180
1,776,981(3) 2.91(4) 5,171,015 1,438
400,000(3) 2.75(5) 1,100,000 306
33,000(3) 7.80(5) 257,400 72
15,000(3) 6.00(5) 90,000 25
- --------------------------------------------------------------------------------
Total ................... 12,210,624 $35,676,635 $ 9,919(6)
================================================================================

(1) Represents (x) 200% of (a) up to 2,325,581 shares of Registrant's common
stock, par value $0.001 ("Common Stock"), issuable upon conversion of $2
million in aggregate principal amount of the Registrant's 10% Convertible
Debentures due April 30, 2001, at an assumed conversion price of $0.86
plus (b) up to 465,116 shares of common stock issuable upon conversion of
the Debentures with respect to interest accrued thereon through the
maturity date thereof, plus (c) up to 1,395,349 shares of Common Stock
issuable upon exercise of warrants ("Warrants") issuable upon conversion
of the Debentures and (y) 155,111 additional shares of Common Stock which
may be sold in the future by the Debenture holders.

(2) Represents shares of Common Stock held by certain selling stockholders.

(3) Represents shares of Common Stock issuable upon exercise of certain other
warrants and options ("Other Warrants") held by certain selling
stockholders.

In accordance with Rules 416 and 457 under the Securities Act, this
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may be issuable upon conversion of the
Debentures and exercise of the Warrants and Other Warrants to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.

(4) Pursuant to Rule 457(c) and (g) the proposed maximum offering price per
share is $2.91, the average of the high and low price of the Common Stock
as reported on the OTC Electronic Bulletin Board as of August 6, 1999.

(5) Pursuant to Rule 457(c) and (g), the proposed maximum offering price per
share is based on the exercise price therefor on the date hereof.

(6) Previously paid.

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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effectiveness until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================
<PAGE>

SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999

[LOGO]

TTR TECHNOLOGIES, INC.

up to 12,055,513 shares of Common Stock

We design, develop and market proprietary 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.

Holders of our common stock identified in this prospectus are offering all
of the shares to be sold in the offering. These shares may be offered any time
after the date of this prospectus in one or more types of transactions,
including through broker-dealers, in over-the-counter markets or directly by the
selling stockholders in negotiated transactions. Prices for the shares may be
the market prices prevailing at the time of sale or may be negotiated by the
selling stockholder and the buyer. For additional information on the methods of
sale, you should refer to the section entitled "Plan of Distribution." We will
not receive any of the proceeds from the offering.

Each of the selling stockholders may be deemed to be an "underwriter," as
such term is defined in the Securities Act of 1933.

Shares of our common stock trade on the OTC Electronic Bulletin Board
under the symbol "TTRE". The closing sale price of the common stock on August
31, 1999 on the OTC Electronic Bulletin Board was $3 1/32 per share.

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This Investment Involves a High Degree of Risk. You Should Purchase Shares
Only If You Can Afford a Complete Loss. See "Risk Factors" beginning on Page 6
of this Prospectus.

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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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The information in this prospectus is not complete and may be changed. The
stockholders selling our common stock pursuant to this prospectus may not sell
these shares until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
shares and it is not an offer to buy these shares in any state where the offer
or sale is not permitted.

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The date of this prospectus is October __, 1999

<PAGE>

TABLE OF CONTENTS

Prospectus Summary ..................................................... 3

Risk Factors ........................................................... 6

Disclosure Regarding Forward-Looking Statements ........................ 13

Dividend Policy ........................................................ 13

Use of Proceeds ........................................................ 13

Price Range of Common Stock ............................................ 14

Selected Consolidated Financial Data ................................... 15

Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 16

Business ............................................................... 22

Conditions in Israel ................................................... 30

Management ............................................................. 32

Certain Relationships and Related Transactions ......................... 36

Principal and Selling Stockholders ..................................... 37

Description of Securities .............................................. 40

Plan of Distribution ................................................... 42

Legal Matters .......................................................... 45

Experts ................................................................ 45

Available Information .................................................. 45

Index to Financial Statements .......................................... F-1

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PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, especially the
risks of investing in our common stock discussed under "Risk Factors." Except as
otherwise noted, the information in this prospectus does not give effect to the
conversion of outstanding convertible securities or to the exercise of
outstanding options and warrants. Unless otherwise noted, references in this
prospectus to "TTR," "we," "our" and "us" refer to TTR Technologies, Inc., a
Delaware corporation, and our wholly-owned subsidiary, TTR Technologies, Ltd.,
an Israeli corporation.

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.

We believe that DiscGuard addresses a significant need in the rapidly
growing CD-ROM market. According to InfoTech, Inc., a market research firm
specializing in the optical media industry, worldwide sales of CD-ROMs and
Digital Versatile Discs (or DVDs) more than doubled between 1996 and 1998, and
will exceed $75 billion by 2000. The 1999 Global Software Piracy Report (a May
1999 study conducted by International Planning and Research Corp. for the
Business Software Alliance and Software & Information Industry Association)
indicates that losses from the unauthorized replication of business software are
estimated to have exceeded $11 billion worldwide in 1998.

We believe that in 1998 only approximately 3.0 million of the 1.6 billion
discs sold worldwide included some form of copy protection, and that sales of
all CD-ROM copy-protection products was approximately $170 million. The CD-ROM
copy protection market is currently dominated by companies that offer the use of
a hardware device, such as a "key" or "dongle," that plugs into the back of a
computer as an anti-piracy strategy. Due to its relatively high cost and
inconvenience, the dongle is generally used in the United States only in the
high-end market for expensive software, including scientific and computer-aided
design software, although it is used more frequently outside the United States
for other applications. We believe that the global market for CD-ROM copy
protection for the high-volume, multi-media consumer software market, including
games, entertainment and reference software, and other install-to-use
applications, is currently undeveloped, and that DiscGuard offers a
technologically superior, cost-effective, convenient, software-based solution
for this segment of the CD-ROM copy protection market.

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, thus enabling software publishers to have their
DiscGuard-protected software mass-produced on CD-ROMs.

With our network of licensed replicators in place, 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.

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Our goal is to establish DiscGuard as the leading product in our target
market 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. To achieve this objective, the key elements
of our strategy are to:

o Continue to have DiscGuard Integrated into the Mastering Equipment
of a Broad Base of Replicators of CD-ROMS. We intend to continue to
license DiscGuard to leading mastering facilities and replicators
and to support such mastering facilities and replicators.

o Leverage Replicator Relationships and Increase Market Penetration
among Software Publishers. We intend to license DiscGuard to an
increasing number of software publishers, through direct marketing
in the United States, Europe and the Middle East, through
distributors in Asia, and through referrals from our licensed
replicators. We may also seek a strategic alliance with an
international marketing partner or increase our use of distributors
in particular countries outside of Asia. We are targeting publishers
of high-volume, multi-media consumer software such as games,
entertainment and reference software, and other install-to-use
applications.

o Introduce New Product Applications. We intend to expand our
technological base and extend DiscGuard protection to other segments
of the software publishing industry. In addition, we believe that
software developed for CD-ROM is beginning to migrate to DVDs, a
format with much greater storage capacity than CD-ROMs. We
anticipate that we will complete the development of a DiscGuard
protection product for DVD's by the time DVD recorders become widely
available, which we believe will occur over the next twelve to
twenty four months.

o Pursue Royalty-Based Licensing Model. We are pursuing a
royalty-based licensing model that results in a high margin,
transaction-oriented business with recurring revenues. We typically
license our technology under unit-based pricing schedules. Royalties
and other fees are currently paid by software publishers and, to a
lesser extent, by commercial replicators. We intend whenever
feasible to continue to license our technologies to third parties
for unit or transaction-based royalties and fees.

o Protect Patent Position. We believe that our future success will
depend, in part, on the continued protection of our proprietary
technologies. We have applied for patents to protect our copy
protection technologies and intend to pursue patent protection
aggressively.

o Expand and Maintain Customer Support. We intend to expand and
maintain our customer service capability as the number of our
licensed publishers grows. To date, we have been able to provide
satisfactory service and support to the relatively small number of
our licensed publishers.

We were organized in July 1994. We have an Israeli subsidiary, organized
in December 1994, through which we conduct research and development. Our
principle executive offices are located at 1841 Broadway, New York, New York
10023, telephone (212) 333-3355. Our Web site is www.ttrtech.com. Information
contained on our Web site is not, and should not be deemed to be, a part of this
prospectus.

4
<PAGE>

The Offering

Securities offered ................ 12,055,513 shares of common stock. (1)

Shares outstanding ................ 5,646,971 shares of common stock. (2)

Use of proceeds ................... We will not receive any proceeds from the
sale of common stock by the selling
stockholders. We will receive the net
proceeds from the sale of an additional
$1.0 million in principal amount of our
10% Convertible Debentures due April 30,
2001 not later than five days after the
effective date of this prospectus (of
which $400,000 has been pre-funded). The
Securities Purchase Agreement between us
and the holders of the Debentures
generally provides that we must use those
proceeds for internal working capital
purposes. See "Risk Factors-We will
require at least $4.6 million in
additional financing to continue
operating through December 2000;" "Use of
Proceeds" and "Management's Discussion
and Analysis of Financial Condition and
Results of Operations."

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(1) As of August 31, 1999. Includes (i) 200% of (a) 2,325,581 shares of our
common stock issuable upon conversion of $2.0 million in aggregate
principal amount of our 10% Convertible Debentures due April 30, 2001 at
an assumed conversion price of $0.86, (b) up to 465,116 shares of common
stock issuable upon conversion of the Debentures with respect to interest
accrued thereon through the maturity date thereof, and (c) 1,395,349
shares of common stock issuable upon exercise of Warrants issuable upon
conversion of the Debentures, (ii) 1,458,440 shares of common stock held
by certain selling stockholders, and (iii) 2,224,981 shares of common
stock issuable upon exercise of certain other warrants and options held by
certain selling stockholders.

(2) As of August 31, 1999. Does not include (a) up to an aggregate of 423,770
shares of common stock issuable upon exercise of options granted under our
1996 Stock Option Plan, (b) any of the shares described in clauses (i) and
(iii) in footnote (1) above, or (c) 236,000 shares issuable upon exercise
of certain outstanding options and warrants that are not held by the
selling stockholders.

5
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RISK FACTORS

This offering involves a high degree of risk. You should be able to bear a
complete loss of your investment. You should carefully consider the risks
described below and the other information in this prospectus before deciding to
invest in shares of our common stock. If any of the following risks actually
occur, our business, financial condition and results of operations would likely
suffer. In such case, the market price of our common stock could decline, and
you may lose all or a part of the money you pay to buy our common stock.

We will require at least $4.6 million in additional financing to continue
operating through December 2000.

We have approximately $1.5 million in aggregate principal amount of
indebtedness currently due and payable together with interest thereon. At August
31, 1999, the holders of an aggregate of $562,500 in principal amount of such
indebtedness had 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 our cash on hand, together with the net
proceeds (after deducting approximately $112,000 in fees and commissions) from
the sale of an additional $1.0 million in principal amount of our 10%
Convertible Debentures due April 30, 2001 not later than five days after the
effective date of this prospectus (of which $400,000 has been pre-funded) will
allow us to bring certain suppliers and vendors current and to maintain
operations through November 1999. Thereafter, from December 1999 through
December 2000, we will need additional financing of at least $4.6 million of
investment capital, funding by strategic partner(s) or operating revenues to
continue operating, pay suppliers and other creditors and retire an aggregate of
approximately $1.9 million in outstanding principal amount of indebtedness other
than the Debentures. 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.

We do not have any commitments for any additional financing other than the
sale of the additional $1.0 million in principal amount of Debentures (of which
$400,000 has been pre-funded). We do not anticipate receiving any funding from
commercial lenders. There can be no assurance that any additional financing can
be obtained on favorable terms, if at all. Any additional equity financing may
result in dilution to our stockholders.

We have lost money in every quarter and year, and we expect these losses to
continue in the foreseeable future.

Since we began our operations in 1994, we have lost money in every quarter
and year. As of June 30, 1999, we had an accumulated deficit of approximately
$14.0 million. If our revenue does not increase and we cannot adjust our level
of spending adequately, we may not generate sufficient revenue to become
profitable. Even if we do become profitable, we may not be able to sustain or
increase profitability on a quarterly or annual basis in the future. Our ability
to generate revenue depends primarily upon our ability to attract replicators
and software publishers as clients.

"Going concern" statement in auditor's report may make it difficult to raise new
capital.

We have not had any significant revenues to date. As of June 30, 1999, we
had an accumulated deficit of approximately $14.0 million from July 14, 1994
(date of inception). The report of the independent auditors on our financial
statements for the year ended December 31, 1998 includes an 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.

6
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We have only been in business for a short period of time, so your basis for
evaluating us is limited.

We are a development stage company with a limited history of operations.
Before DiscGuard first became commercially available in February 1998, we were
engaged primarily in research and development. As a result, there is a limited
history of operations for evaluating our business. You must consider the risks
and difficulties frequently encountered by early stage companies in new and
rapidly evolving markets, including the software copy protection and anti-piracy
market. Some of these risks and uncertainties relate to our ability to:

o license DiscGuard to additional replicators and software publishers
in order to generate significant revenue;

o maintain our current relationships with leading replicators and
manufacturers of the mastering equipment used by replicators.

o stay ahead of the efforts of hackers and counterfeiters to
circumvent our copy protection technologies;

o respond effectively to actions taken by our competitors;

o build our organizational and technical infrastructures to manage our
growth effectively;

o design, develop and implement effective products for existing
clients and new clients;

o increase awareness of our brand among replicators and software
publishers;

o extend DiscGuard protection to DVD discs;

o attract, retain and motivate qualified personnel.

If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.

The market for computer software copy protection is unproven.

The market for copy protection technology for CD-ROM software products,
especially in the consumer multi-media market, is unproven. For us to be
successful in entering this market, producers and publishers of multi-media
CD-ROMs must accept copy protection generally and also adopt the DiscGuard-based
solution that we have developed. There can be no assurance that copy protection
of multi-media CD-ROMs will be commercially accepted. For example, consumers may
react negatively to the introduction of copy protected CD-ROMs if they are
prevented from copying the content of their favorite applications. Moreover,
copy protection may not be effective or compatible with all hardware platforms
or configurations or may prove to be easily circumvented. Also, software
developed for CD-ROM is beginning to migrate to DVD-ROM, a format in which we
have not completed the development of copy protection technology. Further, our
DiscGuard-based technology may not achieve or sustain market acceptance under
emerging industry standards or may not meet, or continue to meet, the changing
demands of multi-media software providers. If the market for CD-ROM copy
protection fails to develop or develops more slowly than expected, or if
DiscGuard does not achieve or sustain market acceptance, our business, financial
condition and results of operations would be materially adversely affected.

You should not rely on our quarterly operating results as an indication of how
we will do in the future.

Our quarterly operating results may vary significantly in the foreseeable
future due to a number of factors that could affect our revenue, expenses or
prospects during any particular quarter. These factors include:

o the demand for software anti-piracy protection in general and for
CD-ROMs, in particular, and, potentially, for DVDs;

o the degree of acceptance of our copy protection technologies by
software publishers;

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o changes in our operating expenses;

o the development of our direct and indirect distribution channels;

o our continued ability to license DiscGuard to leading mastering
equipment manufacturers and replicators;

o our ability to attract and retain other replicators and software
publishers that are seeking anti-piracy protection;

o changes in fees paid for anti-piracy software resulting from
competition or other factors;

o economic conditions specific to the CD-ROM and DVD industries;

o anticipated seasonality of revenues relating to sales of software to
consumers in our target market.

In any given quarter, we may expend substantial funds and management
resources and yet not obtain adequate revenue, and we may not be able to adjust
spending in a timely manner to compensate for any unexpected shortfall in our
revenue. Any significant shortfall could have an immediate material and adverse
effect on our business, financial condition and results of operations.

Due to all of the foregoing factors, and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our operating results will be below the expectations of public
market analysts and investors. In this event, the price of our common stock
would likely fall.

We currently derive all of our net revenues and operating income from fees
for the application of our copy protection technology to prerecorded CD-ROM
discs that are sold to consumers. We expect these fees to account for
substantially all of our net revenues and operating income at least through
2000. There can be no assurance that revenues from these fees will grow
significantly or at all. Any future growth in revenues from these fees will
depend on the use of our copy protection technology by a larger number of
software publishers. In order to increase our market penetration, we must
continue to persuade software publishers that the cost of licensing our
technology is outweighed by the increase in revenues from additional sales of
the copy protected material that the software publishers would achieve as a
result of using DiscGuard copy protection.

In the event that the customers of our copy protection technology were to
determine that the benefits of using our technology did not justify the cost of
licensing the technology, demand for our technology would decline. Any factor
that results in a decline in demand for our copy protection technology,
including CD-ROM discs that are encoded with our copy protection technology,
would have a material adverse effect on our business, financial condition and
result of operations.

There are many competitors in the software protection industry and we may not be
able to compete effectively against them.

The CD-ROM copy protection industry is extremely competitive. Our primary
competitors include companies with substantially greater financial,
technological, marketing, personnel and research and development resources than
ours. There can be no assurance that we will be able to compete successfully in
this market. In particular, certain companies, such as C-Dilla Limited, Sony
DADC Austria AG, MLS LaserLock International Inc. and Link Data Security, claim
to provide comprehensive optical media-based anti-piracy protection. For
example, the copy protection product of C-Dilla is based on a technology which
attempts to prevent unauthorized copying by encoding a disc with unreadable "bad
sectors." This alternate copy-protection technology may prove to be more
successful than DiscGuard, which embeds a digital signature in authorized discs.
In addition, Rainbow Technologies Inc. and Aladdin Knowledge Systems Ltd. each
have an established installed product base in the market for hardware key or
dongle-based software copy protection products and could expand into our target
market of copy protection products for software contained on optical media such
as CD-ROMs. There can be no assurance that other software

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companies will not enter the market in the future. Many of our competitors have
existing relationships with major software developers in the United States, some
of which are dominant software producers worldwide, and those existing
relationships may impede our ability to sell our products to those customers and
expand our market share. For example, C-Dilla has recently been acquired by
Macrovision Corporation, a leader in the market for video security technology
and products. There can be no assurance that we will be able to continue
developing products with innovative features and functions, or that development
by others of similar or more effective products will not render our products or
technologies noncompetitive or obsolete.

Third parties may be able to circumvent our anti-piracy technology.

We must continually enhance and upgrade DiscGuard to stay ahead of the
efforts of counterfeiters and hackers to circumvent our technologies, even in
the face of the new United States Digital Millennium Copyright Act. The Act
outlaws copy protection circumvention devices and technologies beginning in May
2000 and currently provides for both criminal and civil penalties for companies
or individuals who import, produce or distribute devices designed to circumvent
copy protection devices and technologies. It is conceivable that counterfeiters
and hackers could develop a way to circumvent our copy protection techniques,
which may result in a potentially substantial decrease in the demand for our
products. Additionally, software publishers could choose not to use our
anti-piracy technology if software publishers believe that our technology will
be unable to deter counterfeiters or if they believe it interferes with
legitimate consumer use of the original copyrighted product. In this regard, our
copy protection technologies are intended to prevent both consumer copying and
professional remastering and replication. Any reduction in demand for our
products could have a material adverse effect on our business, financial
condition and results of operations.

We are vulnerable to technological obsolescence.

DiscGuard is currently our only product and is based upon a single set of
core technologies. The market for our technology and products is characterized
by rapid change, often resulting in product obsolescence or short product
lifecycles. Although we are not aware of any developments in the software
protection industry which would render our current or planned product less
competitive or obsolete (other than the incipient migration of software from
CD-ROM to DVD), there can be no assurance that future technological changes or
the development of new or competitive products by others will not do so.

Our relationship with DCA is important.

In October 1997, we signed an agreement with Doug Carson & Associates,
Inc., under which DCA has a license (exclusive through December 31, 1999) to
integrate DiscGuard into its mastering interface system for sale to replicators.
The mastering interface system (or MIS) is a key component of the mastering
equipment used by replicators to produce the glass masters which are, in turn,
used to mass-produce CD-ROMs. We believe that DCA's MIS is currently installed
in more than 50% of the world's CD-ROM mastering equipment. The termination of
our relationship with DCA could have a material adverse effect on us because we
could lose access to a significant portion of the replicators. In addition,
there can be no assurance that DCA will be able to sell or upgrade its
DiscGuard-enhanced MIS to or for replicators or that, if it does, DCA's efforts
will generate significant revenues for us.

We have limited marketing experience and capabilities.

We commenced marketing activities in 1998 and have limited marketing
experience and limited financial, personnel and other resources to undertake
marketing and advertising activities. To date, DiscGuard has generated minimal
licensing revenues, and has achieved only limited market acceptance. Demand for
DiscGuard will depend principally upon the demand by software publishers in our
target market-segment for copy protection. As is typically the case with
newly-introduced products, the ultimate level of demand for our products is
subject to a high degree of uncertainty. Developing market acceptance for our
existing and proposed product will require substantial marketing efforts and the
expenditure of a

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significant amount of funds to inform software publishers of the perceived
advantages of our products. There can be no assurance that our marketing efforts
will result in increased demand for, or market acceptance of, our product. There
can be no assurance that we will be able to market DiscGuard successfully or
that our efforts will result in any significant revenues. If we do not succeed
in significantly increasing the number of licensed publishers generated through
our existing marketing efforts, we may seek a strategic alliance with a partner
with an international marketing capability, or increase our use of distributors
in particular countries outside of Asia. We are not currently engaged in
negotiations with any potential strategic partner and there can be no assurance
that we will be able to identify a suitable partner or that, if so, we will be
able to sign an agreement on acceptable terms.

Software may migrate from CD-ROM to DVD before we are able to adapt DiscGuard to
DVD.

We believe that software products developed for CD-ROM have begun to
migrate to DVD and may complete the process within the next twelve to
twenty-four months, as DVD drives become widely available. Our future growth and
operating results may depend to a large extent on the successful introduction,
marketing and commercial viability of DVDs that utilize our copy protection
technologies. A number of factors will affect our ability to derive revenues
from DVD protection. These factors include the cost and effectiveness of our
copy protection technology in various applications, the development of
alternative technologies or standards for DVD copy protection, the uncertainty
in the marketplace engendered by alternative standards for DVD and for DVD
recordable devices, and the relative ease of copying, as well as the quality of
the copies of unprotected materials distributed in new digital formats. Because
of its early stage of development, demand for and market acceptance of DVD, as
well as demand for associated copy protection, are subject to a high level of
uncertainty. Much of the DVD technology and infrastructure is unproven, and it
is difficult to predict with any assurance whether, or to what extent, these
evolving markets will grow. In this regard, our future growth could be adversely
affected if DVD discs that do not include our copy protection components achieve
market acceptance. If there is consumer dissatisfaction that cannot be managed,
or if there are technical compatibility problems, our business, financial
condition and results of operations could be materially adversely affected. If
the market for DVD copy protection fails to develop or develops more slowly than
expected, or if our solution does not achieve or sustain market acceptance, our
business, financial condition and results of operations would be materially
adversely affected.

We have very few employees and are particularly dependent on our Vice
President-Research and Development.

We have a small number of employees. Although we believe we maintain a
core group sufficient for us to effectively conduct our operations, the loss of
certain of our key personnel could, to varying degrees, have an adverse effect
on our operations and product development. The loss of Dr. Baruch Sollish, our
Vice President-Research and Development, would have a material adverse affect.
We have not obtained "key-man" life insurance on the life of Dr. Sollish. Our
key employees and corporate officers all reside in Israel.

We are subject to risks associated with international operations.

We conduct business from our facilities in Israel and the United States,
and through distributors in Asia. Our international operations and activities
subject us to a number of risks, including the risk of political and economic
instability, difficulty in managing foreign operations, potentially adverse
taxes, higher expenses and difficulty in collection of accounts receivable. In
addition, although we receive most of our revenue in U.S. dollars, a substantial
portion of our payroll and other expenses are paid in the currency of Israel,
where most of our employees reside and our research and development operations
are located. Because our financial results are reported in U.S. dollars, they
are affected by changes in the value of the various foreign currencies that we
use to make payments in relation to the U.S. dollar. We do not cover known or
anticipated operating exposures through foreign currency exchange option or
forward contracts.

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<PAGE>

We are subject to risks associated with operations in Israel.

Our Israeli subsidiary maintains offices and research and development
facilities in Israel and is directly affected by prevailing economic, military
and political conditions that affect Israel.

We need to establish and maintain licensing relationships with companies in
related fields.

Our future success will depend in part upon our ability to establish and
maintain licensing relationships with companies in related business fields,
including CD-ROM and DVD mastering facilities and replicators, owners of
mastering interface systems, software copyright owners and publishers, and
international distributors. We believe that these current and future
relationships can allow us greater access to manufacturing, sales and
distribution resources. However, the amount and timing of resources to be
devoted to these activities by these other companies are not within our control.
We may not be able to maintain our existing relationships or enter into
beneficial relationships in the future. Other parties may not perform their
obligations as expected. Our reliance on others for the development,
manufacturing and distribution of our technologies and products may result in
unforeseen problems. Substantially all of our license agreements are
non-exclusive, and therefore these licensees are free to enter into similar
agreements with third parties, including our current or potential competitors.
There can be no assurance that our licensees will not develop or pursue
alternative technologies either on their own or in collaboration with others,
including our competitors, as a means of developing or marketing products
targeted by the collaborative programs and by our products.

Our efforts to protect our intellectual property rights may not be adequate.

Our success depends on our proprietary technologies. We rely on a
combination of patent, trademark, copyright and trade secret laws, nondisclosure
and other contractual provisions, and technical measures to protect our
intellectual property rights. Our patents, trademarks or copyrights may be
challenged and invalidated or circumvented. Any patents that issue from our
pending or future patent applications or the claims in pending patent
applications may not be of sufficient scope or strength or be issued in all
countries where our products can be sold or our technologies can be licensed to
provide meaningful protection or any commercial advantage to us. Others may
develop technologies that are similar or superior to our technologies, duplicate
our technologies or design around our patents. Effective intellectual property
protection may be unavailable or limited in certain foreign countries. Despite
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise use aspects of processes and devices that we regard as
proprietary. Policing unauthorized use of our proprietary information is
difficult, and there can be no assurance that the steps we have taken will
prevent misappropriation of our technologies. In the event that our intellectual
property protection is insufficient to protect our intellectual property rights,
we could face increased competition in the market for our products and
technologies, which could have a material adverse effect on our business,
financial condition and results of operations.

Litigation may be necessary in the future to enforce any patents that may
issue and other intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. There can
be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on our business, financial condition and results of operations, whether or not
this litigation is determined adversely to us. In the event of an adverse ruling
in any litigation, we might be required to pay substantial damages, discontinue
the use and sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses to infringed technology. Our
failure to develop or license a substitute technology could have a material
adverse effect on our business, financial condition and results of operations.

We face Year 2000 risks.

Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because such systems may have been developed using two digits rather than four
to determine the applicable year. This could result in system failures or

11
<PAGE>

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. Our business depends on the operation of numerous systems
that could potentially be affected by Year 2000 related problems. Those systems
include, among others: hardware and software systems used internally by us in
the management of our business; hardware and software products developed by us,
including DiscGuard; the internal systems of our customers and suppliers; and
non-information technology systems and services used by us in the management of
our business, such as telephone systems and building systems. 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 sell our products to companies in several different industries,
each 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. 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. 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. For more details on our Year 2000 risks, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues."

Future sales of our common stock by our holders of outstanding stock and options
could have an adverse effect on the market price of our common stock.

We anticipate that some or all of the selling stockholders may from time
to time sell all or part of the shares offered hereby. In addition, there are
currently outstanding options or warrants (other than the Warrants issuable upon
conversion of the Debentures) to purchase 2,884,751 shares of our common stock
(including 423,770 options granted under our 1996 Stock Option Plan, 2,146,648
options and warrants held by selling stockholders (of which 1.3 million warrants
have a nominal exercise price and the remainder have exercise prices ranging
from $1.50 to $7.80 per share) and 236,000 other options and warrants not held
by selling stockholders). The market price of our common stock could decline as
a result of sales by our existing stockholders of a large number of shares of
common stock in the market after this offering, or the perception that these
sales may occur. These sales also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate.

Our stock price is volatile and could continue to be volatile.

Investment interest in our common stock may not lead to the development of
an active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes for many software
companies fluctuate widely for reasons that may be unrelated to their business
or results of operations. The market price of our common stock may decline below
the offering price. General economic, market and political conditions could also
materially and adversely affect the market price of our common stock and
investors may be unable to resell their shares of common stock at or above the
offering price.

It may be difficult for a third party to acquire us.

Provisions of our certificate of incorporation, our by-laws and Delaware
law could make it more difficult for a third party to acquire us, even if it
would be beneficial to our stockholders.

Penny Stock Regulation is applicable to investment in our shares.

Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities

12
<PAGE>

exchanges or quoted on the Nasdaq system, provided that current prices and
volume information with respect to transactions in such securities are provided
by the exchange or system). The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock the broker-dealer
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this prospectus, including, without
limitation, statements regarding our future financial position, business
strategy, budgets, project costs and plans and objectives of management for
future operations, are Forward-Looking Statements. In addition, Forward-Looking
Statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "except," "should," "intend," "estimate," "anticipate,"
"believe," or "continue" or the negative thereof or variations thereon or
similar terminology. Although we believe that the expectations reflected in such
Forward-Looking Statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors (or Cautionary
Statements) that could cause actual results to differ materially from our
expectations are disclosed under "Risk Factors" and elsewhere in this
prospectus. All subsequent written and oral Forward-Looking Statements
attributable to us, or to persons acting on our behalf, are expressly qualified
in their entirety by the Cautionary Statements.

DIVIDEND POLICY

We have never paid a cash dividend on our common stock. Payment of
dividends is at the discretion of the board of directors. The board of directors
plans to retain earnings, if any, for operations and does not intend to pay
dividends in the foreseeable future.

USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock by the
selling stockholders. We will receive the net proceeds from the sale of an
additional $1.0 million in principal amount of our 10% Convertible Debentures
due April 30, 2001 not later than five days after the effective date of this
prospectus (of which $400,000 has been pre-funded). The Securities Purchase
Agreement between the holders of the Debentures and us generally provides that
we must use those proceeds for internal working capital purposes. See "Risk
Factors-We will require at least $4.6 million in additional financing to
continue operating through December 2000;" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

13
<PAGE>

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the OTC Electronic Bulletin Board of the
National Association of Securities Dealers, Inc., Automated Quotation System
under the symbol "TTRE". Although trading in our common stock has occurred on a
relatively consistent basis, the volume of shares traded has been sporadic.
There can be no assurance that an established trading market will develop, that
the current market will be maintained or that a liquid market for our common
stock will be available in the future. Investors should not rely on historical
stock price performance as an indication of future price performance.

The following table summarizes the high and low bid prices of our common
stock as reported on the OTC Electronic Bulletin Board for the periods
indicated. The closing price of our common stock on August 31, 1999 was $3 1/32
per share.

Common Stock
--------------------
Quarter Ended High Low
------------- -------- ------

1999

June 30 ............................................ $ 3 1/8 $ 3/4
March 31 ........................................... $ 1 7/16 $ 3/4

1998

March 31 ........................................... $ 6 $ 4
June 30 ............................................ $ 5 1/2 $ 2 5/8
September 30 ....................................... $ 3 1/4 $ 7/8
December 31 ........................................ $ 3 1/16 $ 11/16

1997

March 31 ........................................... $16 23/32 $ 9 1/4
June 30 ............................................ $15 7/8 $11
September 30 ....................................... $13 3/4 $11
December 31 ........................................ $11 15/16 $ 5 5/8

The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.

As of August 31, 1999 there were approximately 142 holders of record of
our common stock, excluding stockholders whose stock is held either in nominee
name or street name brokerage accounts. Based on information obtained from our
transfer agent, as of such date, there were approximately 859 stockholders of
our common stock whose stock is held in either nominee name or street name
brokerage accounts.

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<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our consolidated financial data for the two
years ended December 31, 1998, and for the six months ended June 30, 1998 and
1999. The selected consolidated financial data for the two years are derived
from our consolidated financial statements, which have been audited by Brightman
Almagor & Co. (formerly known as BDO Almagor & Co.), a member of Deloitte Touch
Tohmatsu, independent auditors. The selected consolidated financial data for the
six months ended June 30, 1998 and 1999 have been derived from the unaudited
consolidated financial statements, which in the opinion of management, reflect
all adjustments consisting of normal recurring accruals necessary for a fair
presentation of the financial position and the results of operations of these
periods. The consolidated financial data set forth below should be read in
conjunction with our Consolidated Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The results of operations for
the six months ended June 30, 1999 are not necessarily indicative of results for
the full year.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30, From Inception
--------------------------- ------------------------- (July 14, 1994)
Income Statement Data: 1997 1998 1998 1999 To June 30, 1999
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Revenues ............ $ -- 54,922 -- 40,493 95,415
Total expenses ...... 3,784,635 5,178,872 1,963,162 1,596,099 12,075,847
Operating loss ...... (3,784,635) (5,123,950) (1,963,162) (1,555,606) (11,980,432)
Net loss ............ (4,119,612) (5,578,540) (2,035,147) (2,244,857) (14,002,968)
Net loss per share .. $ (1.35) (1.54) (0.61) (0.43)
Weighted average
shares outstanding(1) 3,054,519 3,615,908 3,311,161 5,236,970

<CAPTION>
December 31, June 30, June 30, 1999
Balance Sheet Data: 1998 1999 As Adjusted(2)
---- ---- --------------

<S> <C> <C> <C>
Working deficiency ........ (2,834,448) (3,245,274) (2,365,274)
Total assets .............. 490,545 4,098,162 5,098,162
Total liabilities ......... 3,588,712 4,508,377 5,508,377
Total stockholders' deficit (3,098,167) (410,215) (410,215)
</TABLE>

- ----------

(1) Does not include (i) up to an aggregate of 423,770 shares of common stock
issuable upon exercise of options granted under our 1996 Stock Option
Plan, (ii) 2,325,581 shares of our common stock issuable upon conversion
of $2.0 million in aggregate principal amount of our 10% Convertible
Debentures due April 30, 2001 at an assumed conversion price of $0.86,
(iii) up to 465,116 shares of common stock issuable upon conversion of the
Debentures with respect to interest accrued thereon through the maturity
date thereof, (iv) 1,395,349 shares of common stock issuable upon exercise
of Warrants issuable upon conversion of the Debentures, (v) 2,146,648
shares issuable upon exercise of other outstanding warrants and options
held by certain selling stockholders or (vi) 236,000 shares issuable upon
exercise of certain outstanding options and warrants that are not held by
the selling stockholders.

(2) Gives effect to the sale of $1.0 million in aggregate principal amount of
10% Convertible Debentures due April 30, 2001.

15
<PAGE>

MANAGEMENT'S DISCUSSION 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

Since our inception in 1994, we have focused on

o developing our proprietary anti-privacy technologies; and

In 1997, we completed an initial public offering to raise working capital.
We have had difficulty in the past twelve months in raising financing needed to
fund our operations and have, therefore, significantly curtailed our activities.
In the summer of 1998, we abandoned a proposed public offering of our common
stock after filing a registration statement therefor, due to a correction in the
stock market.

If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that our cash on hand, together with the net
proceeds (after deducting approximately $112,000 in fees and commissions)_from
the sale of an additional $1.0 million in principal amount of our 10%
Convertible Debentures due April 30, 2001 not later than five days after the
effective date of this prospectus (of which $400,000 has been pre-funded), will
allow us to maintain operations through November 1999. Thereafter, from December
1999 through December 2000, we will need additional financing of at least $4.6
million of investment capital, funding by strategic partner(s) or operating
revenues to continue operating, pay suppliers and other creditors and retire an
aggregate of $1.9 million in outstanding principal amount of indebtedness other
than the Debentures. We do not have any commitments for any additional financing
other than the sale of the additional $1.0 million in principal amount of
Debentures (of which $400,000 has been pre-funded).

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<PAGE>

We have not had any significant revenues to date. As of June 30, 1999, we
had an accumulated deficit of approximately $14.0 million. Our expenses have
related primarily to 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 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 (for example, 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 between us and the 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. At such time, we consider the software
delivered. 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 years ended December 31,
1997 and 1998, as well as deferred compensation expense for the value of the
grants that were not yet earned as of such dates. We currently expect to
amortize $418,528 in 1999, $251,630 in 2000, $232,108 in 2001 and $94,525 in
2002 as deferred compensation expense in respect of options outstanding at June
30, 1999.

Results of Operations

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.

Revenues for the six months ended June 30, 1999 totaled $40,493 and were
derived from licensing fees of our DiscGuard product. We had no revenues for the
same period in 1998.

Research and development costs for the six months ended June 30, 1999 were
$364,280 as compared to $502,466 for the same period in 1998. These decreases
are attributable primarily to reduced staffing effected in the latter part of
1998.

Sales and marketing expenses for the six months ended June 30, 1999 were
$334,416 as compared to $548,119 for the same period in 1998. This decrease was
primarily due to reduced staffing in 1999.

General and administrative expenses for the six months ended June 30, 1999
were $897,493 as compared to $912,577 for the same period in 1998. The decrease
was attributable primarily to reduced staffing. However, the amortization of
stock based compensation in 1999 of approximately $544,600 as compared to
$173,300 in 1998 partially offset this decrease.

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<PAGE>

Total operating expenses include stock-based compensation of $544,605 for
the six months ended June 30, 1999 and $371,175 for the same period in 1998.

As a result of the issuance of 1.3 million warrants in connection with the
issuance of our 10% Convertible Debentures due April 30, 2001, we recognized
significant noncash financing costs. Using the Black-Scholes pricing model for
estimating the fair value of the warrants, we recorded $3,845,400 as deferred
financing costs and will amortize this amount over the two-year term of the
debentures. Total amortization of deferred financing costs for the six months
ended June 30, 1999 was $381,788 as compared to $9,293 for the same period in
1998. As of June 30, 1999, we have deferred financing costs remaining of
$3,666,854.

Interest expense for the six months ended June 30, 1999 increased to
$308,007 compared to $88,379 during the same period in 1998 due to the increase
in debt financing activity. Included in interest expense is $187,493 of non-cash
amortization of note discount for 1999 and $64,122 for 1998. Note discounts were
imputed to reflect the equity component of the related financings.

We reported a net loss for the six months ended June 30, 1999 of
$2,244,857, or $(.43) per share on a basic and diluted basis, as compared to a
net loss of $2,035,147 or $(.61) per share for the same period in 1998.

Year Ended December 31, 1998 Compared to Year December 31, 1997.

We reported revenues for the first time in 1998, totaling $54,922. All of
the revenues were derived from license fees received from licensees of
DiscGuard.

Research and development costs for the year ended December 31, 1998 were
$1,032,253 as compared to $967,155 for 1997. Research and development costs in
1998 were expended in developing improved versions of DiscGuard following its
commercial introduction in February 1998.

Sales and marketing expenses for the year ended December 31, 1998 were
$1,837,931 as compared to $1,421,496 for 1997. This increase reflects our
intensified marketing activities when DiscGuard became commercially available in
the first quarter of 1998.

General and administrative expenses for the year ended December 31, 1998
were $2,308,688 as compared to $1,395,984 for 1997. The increase in general and
administrative spending was primarily due to increased staffing, public
relations and professional fees relating to a proposed secondary public offering
of common stock in July 1998.

Operating expenses include $1,305,000 of stock-based compensation for the
year ended December 31, 1998 and $1,173,000 for 1997.

Interest expense for the year ended December 31, 1998 increased to
$410,715 as compared to $113,445 during 1997 to the increase in debt financing
activity in the year. Included in interest expense is non-cash amortization of
note discount in the amount of $272,009 for the year ended December 31, 1998.
Note discounts were imputed to reflect the equity component of the related
financings.

Interest income was $3,413 for the year ended December 31, 1998 as
compared to $42,069 for 1997. The decrease was a result of higher average cash
holdings during 1997.

We reported a net loss for the year ended December 31, 1998 of $5,578,540,
or $(1.54) per share on a basic and diluted basis, as compared to a net loss of
$4,119,612, or $(1.35) per share for the year ended December 31, 1997.

Liquidity and Capital Resources

At June 30, 1999, we had cash of approximately $120,000, representing an
increase of approximately $74,500 over December 31, 1998. During the six months
ended June 30, 1999 we used net cash for operations of $796,166 as compared to
$1,323,996 for the same period in 1998.

We have curtailed expense 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.

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<PAGE>

In May 1999, we issued $1.0 million in aggregate principal amount of our
10% Convertible Debentures due April 30, 2001. The Debentures were issued
pursuant to an agreement which provides that, subject to certain conditions, the
Debentures holders will purchase an additional $1.0 million in aggregate
principal amount of 10% Debentures not later than five days after the effective
date of this prospectus (of which $0.4 million was pre-funded in July 1999).

Liquidity and Capital Resources

If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that cash on hand, together with the net proceeds
(after deducting approximately $112,000 in fees and commissions) from the sale
of an additional $1.0 million in principal amount of our 10% Convertible
Debentures due April 30, 2001 not later than five days after the effective date
of this prospectus (of which $400,000 has been pre-funded), will allow us to
bring certain suppliers and vendors current and to maintain operations through
November 1999. Thereafter, from December 1999 through December 2000, we will
need additional financing of at least $4.6 million of investment capital,
funding by strategic partner(s) or operating revenues to continue operating, pay
suppliers and other creditors and retire an aggregate of $1.9 million in
outstanding principal amount of indebtedness other than the Debentures. 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

Our business depends on the operation of numerous systems that could
potentially be affected by Year 2000 related problems. Those systems include,
among others:

o hardware and software systems that we use internally in the
management of our business;

o 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.

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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
products that we ongoing 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 systems No assessment made
and certain services that we use in the
management of our business,
internal and 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--for example, 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.

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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
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.

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BUSINESS

Introduction

Since our inception in 1994, we have focused on

o developing our proprietary anti-privacy technologies; and

With our manufacturing and replication infrastructure in place, 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.

Industry Background

Losses related to the unauthorized reproduction and use of software and
other electronic content present a continuing concern for software publishers.
Illegal copies of widely recognized software programs can be frequently
purchased in several parts of the world at retail prices that are a fraction of
those prevailing in the United States and Western Europe. The 1999 Global
Software Piracy Report (a May 1999 study conducted by International Planning and
Research Corp. for the Business Software Alliance and Software & Information
Industry Association) estimates that losses from the piracy of business software
exceeded $11.4 billion worldwide in 1997 and $11 billion in 1998. This amount
represents more than one of every three new business software applications. In
the United States alone, total losses from the piracy of business software
reached nearly $2.9 billion in 1998. Further, approximately 76% of business
software applications used in Eastern Europe, and approximately 36% of the
business software applications used in Western Europe, were illegally copied.
The Interactive Digital Software Association, the trade group representing
interactive entertainment software publishers, estimates that worldwide piracy
of entertainment software cost U.S. based computer and game publishers $3.2
billion in 1998.

The widespread use of CD-ROMs and other optical media exacerbates the
consequences of piracy since CD-ROMs are capable of storing significantly more
information than standard diskettes. Popular games, videos, educational
materials, business and other professional applications are routinely
distributed on CD-ROMs. According to Infotech Inc., a market research firm
specializing in the optical media industry, content distributed on CD-ROMs and
DVDs more than doubled between 1996 and 1998, and will exceed $75 billion by
2000. Such amounts represent estimated sales of approximately 1.6 billion units
in 1998, and 2.4 billion units in 2000. Until recently, CD-ROM based
applications have enjoyed some immunity from unauthorized reproduction due to
the relatively high cost of the copying hardware. However, the wide availability
and increasing affordability of CD recorders have greatly contributed to the
increase in CD-ROM piracy. With a CD recorder, even the casual user can copy an
unprotected application without significant impediment.

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<PAGE>

Attempts by third parties to circumvent copy protection technologies have
been and are expected to be a persistent problem, even in the face of the new
United States Digital Millennium Copyright Act, which was signed in October
1998. The Act outlaws copy protection circumvention devices and technologies
beginning in May 2000 and currently provides for both criminal and civil
penalties for companies or individuals who import, produce or distribute devices
designed to circumvent copy protection devices and technologies.

Since prior laws to combat software piracy have not served as an effective
deterrent, software publishers are seeking more effective methods to prevent the
replication of unauthorized copies of their proprietary products. Software
publishers presently use three primary strategies to protect content distributed
on CD-ROMs, as follows.

o Copy Protection prevents the unauthorized reproduction of CD-ROMs.
Copy protection is a software solution designed to detect the
difference between a legitimate copy and an unauthorized copy of the
software application, and prevent the unauthorized copy from
operating. We compete in the copy protection segment of the
anti-piracy market.

o Restricted Usage prevents the protected application from operating
on more than one unit at the same time, but does not deter
unauthorized reproduction. Included within this category are
solutions which utilize a hardware component known as a "key" or
"dongle." A dongle is a device that plugs into the computer and acts
as a key to unlock the protected software. Dongles are typically
provided directly to the software vendor and are frequently
customized for particular software applications. We believe that the
use of dongles presents significant operating difficulties and
inconveniences for legitimate end-users. Dongles are not
interchangeable among different applications, and require a separate
key for each application, resulting in a "daisy chain" of dongles
protruding out of the back of the computer. Due to its relatively
high cost and inconvenience, the dongle is generally used in the
United States only in high-end markets for expensive software,
including scientific and computer-aided design software, although it
is used more frequently outside the United States, particularly in
Europe and Asia, for other applications. The use of dongles and
other hardware components can be especially burdensome for
high-volume, multi-media consumer software such as games,
entertainment and reference software, and other install-to-use
applications. Such software is not ordinarily installed onto a hard
drive, but accessed from time to time from the CD-ROM. As a result,
the dongle is needed each time the application is used.

o Audit Trail protection does not prevent piracy or unauthorized
copying of CDs and DVDs. Audit trail merely furnishes information
identifying illegal use and perhaps the source of the illegal
reproduction. Examples of this are holograms and watermarks.

We believe that in 1998, only approximately 3.0 million of the 1.6 billion
discs sold included some form of copy protection, and that sales of all CD-ROM
copy-protection products was approximately $170 million. The CD-ROM copy
protection market is currently dominated by companies that offer the use of a
hardware device such as a key or dongle that plugs into the back of a computer
as an anti-piracy strategy. We believe that piracy is a critical issue in the
software and electronic content publishing industry and that, as a result,
software publishers, especially in the games and multi-media segment of the
software market, are increasingly demanding copy protection from replicators. We
believe that the global market for CD-ROM copy protection for the high-volume,
multi-media consumer software market, including games, designs and reference
software, and other install-to-use applications, is currently undeveloped.

Our Solution -- DiscGuard

We believe that copy protection offers software publishers the most
effective solution to protect their products distributed on CD-ROMs and DVDs,
while offering convenience and cost effectiveness to the software publisher and
end-user. We believe that DiscGuard, our only commercially released product,
provides a technologically superior, cost-effective, convenient, software-based
anti-piracy solution for software distributed on CD-ROMs. DiscGuard
distinguishes between an authentic CD-ROM and an

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<PAGE>

unauthorized copy and controls the operation of the software on the DiscGuard
protected CD-ROM. In particular, DiscGuard embeds an indelible and
non-reproducible digital identification code or signature on CD-ROMs. Our
technologies do not use keys or dongles or other hardware on the consumer's
desktop.

To protect a CD-ROM with DiscGuard, the software publisher first
integrates its application with DiscGuard's proprietary detecting software. At
the mastering facility, a DiscGuard-enhanced mastering machine adds a digital
signature to the glass master that is used to mass-produce CD-ROMs. The
remainder of the production process is the same as that for CD-ROMS that are not
DiscGuard protected. When DiscGuard detecting software identifies a CD-ROM as
authentic (that is, containing a signature), it will allow the software
application to operate as intended. DiscGuard will prevent a copy that does not
contain this signature from operating as intended. DiscGuard is intended to
prevent both consumer copying and professional remastering and replication.
DiscGuard does not prevent the unauthorized multiple installation of hard-drive
copies.

Our Strategy

Our goal is to establish DiscGuard as the leading product in our target
market 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. To achieve this objective, the key elements
of our strategy are to:

o Protect Patent Position. We believe that our future success will
depend, in part, on the continued protection or our proprietary
technologies. We have applied for patents to protect our copy
protection technologies and intend to pursue patent protection
aggressively.

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<PAGE>

Customers

Our efforts to date have largely been devoted to integrating DiscGuard
into the mastering equipment of a broad base of licensed replicators, in order
to provide our licensed publishers with a broad base of DiscGuard-licensed
replicators. This, in turn, required us to ensure that DiscGuard was licensed to
leading mastering equipment manufacturers in order to integrate DiscGuard into
the mastering interface system used by leading replicators. In February 1998, we
began marketing to software publishers.

Mastering Equipment Manufacturers

In order to produce DiscGuard-enhanced CD-ROMs, modifications to the laser
optics system of CD-ROM mastering equipment are required. In October 1997, we
signed an agreement with Doug Carson & Associates, Inc. to permit DCA to
integrate DiscGuard into its mastering interface system (or MIS) for sale to
replicators. The MIS is a key component of the mastering equipment used by
replicators to produce the glass masters which are, in turn, used to
mass-produce CD-ROMs and DVDs. Under this agreement, we granted DCA an
exclusive, non-transferable, royalty free world-wide license, originally through
December 31, 1998. Because DCA sold or upgraded a minimum number of units of the
version of its MIS that supports DiscGuard prior to December 31, 1998, the
exclusive license was extended until December 31, 1999. Under this agreement,
DCA must use its best efforts to sell DiscGuard-enhanced units. We believe that
DCA's MIS is installed in over 50% of the world's mastering equipment. We
believe that our relationship with DCA has facilitated the commercial adoption
of DiscGuard by making DiscGuard readily available to a broad base of
replicators. Although our relationship with DCA is important, we believe that,
if our exclusive license to DCA is not renewed or if our relationship with DCA
is otherwise terminated, we will be able to establish relationships on
acceptable terms with one or more other significant manufacturers of mastering
equipment. We also believe that DiscGuard is or could readily be made compatible
with the MIS of the other leading manufacturers, and that the MIS of the other
manufacturers is, in turn, compatible with the mastering equipment of our
existing DiscGuard-licensed replicators.

Mastering and Replicators

Our goal is to ensure that DiscGuard remains licensed to a significant
number of replicators so that software publishers will continue to have access
to DiscGuard from a conveniently located, regional replicator. We believe that
the replication industry is characterized by thin margins and intense
competition, and that DiscGuard provides added value to replicators by allowing
them to offer an anti-piracy option to their software publishing customers.
DiscGuard is currently available through several leading mastering and
replication facilities.

We authorize our licensed replicators to replicate DiscGuard-protected
CD-ROMs for software publishers who have obtained the right to use DiscGuard
directly from us or from an authorized distributor. Only a replicator that has
purchased the DiscGuard option for its mastering equipment can offer DiscGuard
protection to its customers. Licensed replicators of DiscGuard are required to
report sales volumes of DiscGuard protected CD-ROMs to us. We have licensed the
following replicators:

o Nimbus CD International, Inc., a leading British CD manufacturer and
replicator, has installed DCA's DiscGuard-enhanced MIS in its
mastering equipment under a Development and OEM Licensing Agreement
dated November 24, 1997 among DCA, Nimbus and us. Nimbus has a
non-exclusive license to produce DiscGuard-protected CD-ROMs. The
agreement has a five-year term which is automatically renewable for
successive one-year periods unless either party gives notice of its
desire not to renew the term. Under this agreement, Nimbus is
obligated to pay us a percentage of the proceeds of any premium it
charges on any DiscGuard-protected CD-ROM that Nimbus manufactures.
Nimbus now offers DiscGuard protection to its software publishing
clients in North America and Europe.

o SKC Co. Ltd., the leading South Korean replicator, was granted a
three-year license in July 1998 (currently non-exclusive) to
integrate DiscGuard into SKC's mastering equipment and distribute
DiscGuard-protected CD-ROMs in South Korea. SKC is obligated to pay
us a per disc fee based on the number of DiscGuard-protected CD-ROMs
it sells. SKC also distributes and promotes DiscGuard to software
publishers in South Korea.

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<PAGE>

o Sonopress Gmbh, a leading German mastering and replication company
and the world's largest CD-ROM producer, entered into a sales and
marketing agreement with us in February 1999. Sonopress's eleven
plants throughout the world produce more than 2.5 million CDs daily.
Sonopress promotes DiscGuard to its clients in the software
publishing and CD-ROM replication industries. Sonopress can now
master DiscGuard-protected applications at two of its eleven plants
and replicate DiscGuard-protected applications at all eleven of its
plants.

We have also signed a Technology Evaluation Agreement with MPO Disque
Compact, a leading French mastering and replication company, and are currently
negotiating a license and marketing agreement with MPO.

We are currently pilot testing DiscGuard with additional replicators and
are actively marketing DiscGuard to other replicators, sometimes in conjunction
with sales representatives of DCA. We believe that the continued success of our
efforts to integrate DiscGuard in the mastering equipment of a broad base of
replicators will be a key factor in whether DiscGuard becomes the market
standard for software anti-piracy protection.

Software Publishers

As part of our marketing strategy, we attempt to demonstrate to software
publishers that, for a relatively modest investment per disc, DiscGuard can
offer anti-piracy protection and give them the opportunity to reduce the loss of
sales related to the unauthorized reproduction of their products. Since early
1998, we have signed license agreements with approximately 24 software
publishers pursuant to which we have licensed DiscGuard to protect some or all
of their software applications from unauthorized replication. Our licensed
publishers include Software Manufacturing Corporation Ltd., Hed-Artzi
Multi-media Ltd. (the largest Israeli software publisher), Codemasters Software
and Compedia Ltd. The agreements typically require the software publisher to pay
a license fee for each CD-ROM produced with DiscGuard. To date, DiscGuard
protects more than 400,000 CD-ROMs, representing more than 71 software titles.

We are currently in various stages of pilot testing DiscGuard with a
number of publishers. In pilot testing, the software publisher distributes a
relatively small number of discs of a CD-ROM software title to evaluate the
effectiveness of DiscGuard.

Marketing and Sales

We currently market to the North American market directly through our
offices in New York City and Campbell, California, and to the European and
Middle Eastern markets from our offices in Israel. We market to Asia through
distributors.

In June 1998, we entered into a non-exclusive two-year distribution
agreement with Eagle International Co., Ltd., under which Eagle will sell and
market DiscGuard to software publishers and replicators in Japan. The agreement
is automatically renewable for additional one-year periods unless terminated by
either party. Eagle pays a fee for each disc sold with DiscGuard and for
equipment sold based upon our suggested end-user list prices. In October 1998,
we signed a distribution agreement with the China Intercontinental Communication
Center, a government-authorized agency, to exclusively supply China's CD-ROM
manufacturers and software publishers with DiscGuard. The Software and
Information Industry Association estimates a $1.2 billion loss to China's
software industry from software piracy in 1998. We are exploring the possibility
of establishing relationships with additional software distributors.

To maintain our focus on product development and to avoid the expense of
establishing our own global sales and marketing staff, we do not anticipate
significantly expanding our currently limited internal sales and marketing
capability. Nevertheless, if we do not succeed in significantly increasing the
number of licensed publishers generated through our existing marketing efforts,
we may seek a strategic alliance with a partner with an international marketing
capability, or increase our use of distributors in particular countries outside
of Asia. We are not currently engaged in negotiations with any potential
strategic partner and there can be no assurance that we will be able to identify
a suitable partner or that, if so, we will be able to sign an agreement on
acceptable terms.

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Research And Development; New Products

The software industry in general is characterized by rapid product changes
resulting from new technological developments, performance improvements and
lower production costs. Our research and development activities have focused on
developing products responsive to perceived immediate market demands. We believe
that our future growth in the software anti-piracy industry will depend in large
part on our ability to develop and apply our proprietary technology and
know-how. We believe that the key to establishing DiscGuard as an effective
product for software-based CD-ROM copy protection lies in our ability to
continually enhance and upgrade DiscGuard so as to stay ahead of the efforts of
counterfeiters and hackers to circumvent our technology. To date, due a lack of
funding, our research and development efforts in this regard have been
responsive rather than pro-active. We believe, nevertheless, that DiscGuard
continues to provide effective CD-ROM copy protection, and that our technology
is intrinsically less susceptible to circumvention and counterfeiting than the
other software technologies used by our competitors in the consumer, multi-media
software copy protection market segment.

DiscGuard is currently available for the Microsoft Windows family of
operating systems (including Windows 98 and NT). We intend to expand DiscGuard's
capabilities to include other operating systems, and to protect DVDs. Although
no assurance can be given, we believe that we will complete the development of
DiscGuard protection for DVDs by the time DVD recorders become widely available.
The DVD format is expected by industry experts to be superior to CD-ROM since
the DVD format provides a very accurate playback of the original digital format
recording. Additionally, one DVD can contain the same amount of data that seven
to eight CDs currently contain. Industry experts believe that in the future, one
DVD will be able to hold the same amount of data currently contained on 30 to 40
CDs. We are currently exploring the possibility of adapting our 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.

Our Israeli subsidiary has received a grant of $210,000 from the Chief
Scientist of the State of Israel. We pay royalties to the Chief Scientist on
proceeds from the sale of products derived from the research and development
funded by the grant at the rate of 3% of the sales revenue for the first three
years of such sales, 4% for the following three years, and 5% thereafter, up to
a maximum of 100% of the grant. Our obligation to pay royalties to the Chief
Scientist is limited to the amount of the grant received and is linked to the
exchange rate of the dollar and the New Israeli Shekel. The Chief Scientist
places certain restrictions on companies that receive funding relating to the
transfer of know-how. We believe that these restrictions and obligations will
not have a material adverse effect on our operations since we do not presently
anticipate transferring ownership of the technology developed by us to third
parties. The restrictions do not apply to the exports from Israel of products
developed with such technologies.

From the date of inception through June 30, 1999, we have expended
approximately $3.0 million on research and development activities, including
approximately $1.0 million for the year ended December 31, 1998, and
approximately $364,000 for the six months ended June 30, 1999. We expect to
maintain our research and development expense at approximately the current level
for the foreseeable future.

We are a member of the Software and Information Industry Association and
of the Israeli Export Institute.

Competition

The CD-ROM copy protection industry is extremely competitive. Our primary
competitors include companies with substantially greater financial,
technological, marketing, personnel and research and development resources than
ours. There can be no assurance that we will be able to compete successfully in
this market. In particular, certain companies, such as C-Dilla Limited, Sony
DADC Austria AG, MLS LaserLock International Inc. and Link Data Security, claim
to provide comprehensive optical media-based anti-piracy protection. Two of
these competitors have relationships with DCA to make their products available.
The copy protection products of C-Dilla, for example, are based on a technology
which attempts to prevent unauthorized copying by encoding a disc with
unreadable "bad sectors." This alternate copy-protection technology may prove to
be more successful than DiscGuard, which embeds a digital signature

27
<PAGE>

in authorized discs and is designed to prevent discs which lack the signature
from operating as intended. In addition, Rainbow Technologies Inc. and Aladdin
Knowledge Systems Ltd. each have an established installed product base in the
market for hardware key-based software copy protection products and could expand
into our target market of copy protection products for consumer software
contained on optical media such as CD-ROMs. There can be no assurance that other
software companies will not enter the market in the future. Many of our
competitors have existing relationships with major software developers in the
United States, some of which are dominant software producers worldwide, and
those existing relationships may impede our ability to sell our products to
those customers and expand our market share. For example, C-Dilla has been
acquired by Macrovision Corporation, a leader in the market for video security
technology and products. There can be no assurance that we will be able to
continue developing products with innovative features and functions, or that
development by others of similar or more effective products will not render our
products or technologies noncompetitive or obsolete.

Proprietary Rights

We currently rely on a combination of trade secret, copyright and
trademark law, as well as non-disclosure agreements and invention-assignment
agreements, to protect the technologies used in our products and other
proprietary information. In addition, we have filed patent applications in the
United States and Israel and under the Patent Cooperation Treaty with respect to
the technology underlying DiscGuard. There can be no assurance that any patent
will be issued or that our proprietary technology will remain a secret or that
others will not develop similar technology and use such technology to compete
with us.

We believe that our software product is proprietary and are protected by
copyright law, non-disclosure and secrecy agreements. We also rely on
proprietary know-how and employ various methods, such as proper labeling of
confidential documents and non-disclosure agreements, to protect our processes,
concepts, ideas and documents associated with proprietary products. However,
such methods may not afford complete protection and there can be no assurance
that others will not independently develop such processes, concepts, ideas and
documentation.

We believe that product recognition is an important competitive factor.
Accordingly, we intend to promote the DiscGuard trademark in connection with our
marketing activities. We have filed an application for the DiscGuard trademark
in the United States and Canada. An application with the Community Trademark
Office for the trademark rights to DiscGuard was recently denied. We are
considering the possibility of applying for the trademark in certain European
countries. There can be no assurance that prior registrations and/or uses of one
or more of such marks (or a confusingly similar mark) do not exist in one or
more of these jurisdictions, in which case we might thereby be precluded from
registering and/or using such marks in such jurisdiction. Our use and
registration rights with respect to any trademark do not ensure that we have
superior rights to others that may register or use identical or similar marks on
related goods or services.

Our policy is to require our employees, consultants, and other advisors to
execute confidentiality agreements upon the commencement of employment,
consulting or advisory relationships with us. These agreements generally provide
that all confidential information developed or made known to the individual by
us during the course of the individual's relationship with us is to be kept
confidential and not to be disclosed to third parties except in specific
circumstances. In the case of employees and consultants, the agreements provide
that all inventions conceived by the individual in the course of their
employment or consulting relationship with us shall be our exclusive property.
There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for our trade secrets in the event of
unauthorized use or disclosure of such information.

Employees

We have 11 full-time employees, including seven in Israel and four in the
U.S., including two in New York and two in California. None of our employees is
covered by a collective bargaining agreement or is represented by a labor union.
We have not experienced any organized work stoppages and considers our relations
with our employees to be good.

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Our future performance depends highly upon the continued service of
members of our senior management and of Dr. Baruch Sollish, our
Vice-President-Research and Development, in particular. We believe that our
future success will also depend upon our continuing ability to identify,
attract, train and retain other highly skilled managerial, technical, sales and
marketing personnel. Hiring for such personnel is competitive, and there can be
no assurance that we will be able to retain our key employees or attract,
assimilate or retain the qualified personnel necessary for the development of
its business.

Properties

We lease a 4,860 square foot facility used in our research and development
and administrative activities in Kfar Saba, Israel. The lease provides for a
monthly rent of approximately $4,045 and an expiration date of May 31, 1999,
subject to two optional annual renewals through May 2001. We have improved these
facilities to meet the requirements of our research and development activities.
We lease executive offices in New York City, comprised of 650 square feet leased
at a monthly rental of $1,660 with a scheduled expiration date of June 30, 2002.
We lease offices in Campbell, California which are used for sales and marketing.
This lease is for 663 square feet at a monthly rental of $1,591 with an
expiration date of January 31, 2000. We believe that these facilities are
sufficient to meet the current and anticipated future requirements. We believe
that we will be able either to renew our present leases or obtain suitable
replacement facilities. In the opinion of management, our leased facilities in
the United States are adequately covered by insurance. Our facilities in Israel
are not insured.

Litigation

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 it $400,000, the full amount of its 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
$147,000.

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CONDITIONS IN ISRAEL

The following information discusses certain conditions in Israel that
could affect our Israeli subsidiary, TTR Technologies, Ltd. All figures and
percentages are approximate. A portion of the information with respect to Israel
presented hereunder has been taken from Annual Reports of the Bank of Israel and
publications of the Israeli Central Bureau of Statistics.

Political Conditions

Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and the
Palestine Liberation Organization ("PLO")--Palestinian Authority representatives
have been signed. In addition, Israel and several other Arab states have
announced their intention to establish trade and other relations and are
discussing certain projects. As of the date hereof, Israel has not entered into
any peace agreement with Syria or Lebanon. There can be no assurance as to
whether or how the "peace process" will develop or what effect it may have upon
us. Beginning in 1948, nearly all Arab countries formally adhered to a boycott
of Israel and Israeli companies and, since the early 1950's of non-Israeli
companies doing business in Israel or with such companies. Despite measures to
counteract the boycott, including anti-boycott legislation in the United States,
the boycott has had an indeterminate negative effect upon trade with and foreign
investment in Israel. We do not believe that the boycott has had a material
adverse effect on us, but there can be no assurance that restrictive laws,
policies or practices directed toward Israel or Israeli businesses will not have
an adverse impact on the operation or expansion of our business.

Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform certain military duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Some of the employees of our
Israeli subsidiary currently are obligated to perform annual reserve duty. While
our Israeli subsidiary has operated effectively under these and similar
requirements in the past, no assessment can be made of the full impact of such
requirements on us in the future, particularly if emergency circumstances occur.

Economic Conditions

Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts,
security incidents and for at least the five years preceding 1997, expansion.
The Israeli government has, for these and other reasons, intervened in the
economy by utilizing, among other means, fiscal and monetary policies, import
duties, foreign currency restrictions and control of wages, prices and exchange
rates. The Israeli government periodically changes its policies in all these
areas.

The economic recession which began in 1997 continued during 1998, with a
further decline in the rate of GDP growth and an increase in unemployment,
despite a significant decrease in the balance of payments deficit and in the
growth rate of the public sector deficit. These developments reflect the
continued slow growth of domestic demand, the global economic slowdown,
instability in international financial markets and continued tight fiscal and
monetary policies aimed at maintaining economic stability and achieving budget
deficit and inflation targets determined by the government. Other factors
contributing to the continued economic slowdown were security and political
uncertainty, and changes in the labor market, such as increases in the minimum
wage and public sector employment.

Despite improvements during 1998, Israel maintains a significant balance
of payments deficit, primarily as a result of its defense burden, the absorption
of immigrants, especially from the former Soviet Union, the provision of a
minimum standard of living for lower income segments of the community and the
maintenance of a minimum level of net foreign reserves. In order to finance this
deficit, Israel must sustain an adequate inflow of capital from abroad. The
major sources of the country's capital imports

30
<PAGE>

include U.S. military and economic aid, personal remittances from abroad, sales
of Israeli government bonds (primarily in the United States) and loans from
foreign governments, international institutions and the private sector.

Assistance From The United States

The State of Israel receives significant amounts of economic and military
assistance from the United States, averaging approximately $3 billion annually
over the last several years. In addition, in 1992, the United States approved
the issuance of up to $10 billion in loan guarantees during United States fiscal
years 1993-1998 to help Israel absorb a large influx of new immigrants,
primarily from the republics of the former Soviet Union. Under the loan
guarantee program, Israel may issue up to $2 billion in principal amount of
guaranteed loans each year, subject to reduction in certain circumstances. There
is no assurance that foreign aid from the United States will continue at or near
amounts received in the past. If the grants for economic and military assistance
or the United States loan guarantees are eliminated or reduced significantly,
the Israeli economy could suffer material adverse consequences.

Trade Agreements

Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.

Israel and the European Union concluded a Free Trade Agreement in July
1975 which confers certain advantages with respect to Israeli exports to most
European countries and obligates Israel to lower its tariffs with respect to
imports from these countries over a number of years.

In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area, under which most products received immediate
duty-free status, and by 1995 all other tariffs and certain non-tariff barriers
on most trade between the two countries were ultimately eliminated.

On January 1, 1993, an agreement between Israel and EFTA, which at present
includes Norway, Switzerland, Iceland and Liechtenstein, established a
free-trade zone between Israel and the EFTA nations.

In recent years, Israel has established commercial and trade relations
with a number of other nations, including Russia, China and nations in Eastern
Europe, with which Israel had not previously had such relations.

Employees

Our Israel subsidiary is subject to various Israeli labor laws and
collective bargaining agreements between Histadrut and the federation of
industrial employers. Such laws and agreements cover a wide range of areas,
including hiring practices, wages, promotions, employment conditions (such as
working hours, overtime payment, vacations, sick leave and severance pay),
benefits programs (such as pension plans and education funds) and special
issues, such as equal pay for equal work, equal opportunity in employment and
employment of women. The collective bargaining agreements also cover the
relations between management and the employees' representatives, including
Histadrut's involvement in certain aspects of hiring and dismissing employees
and procedures for settling labor disputes. Our Israel subsidiary continues to
operate under the terms of Israel's national collective bargaining agreement,
portions of which expired in 1994. Israeli employers and employees are required
to pay predetermined sums to the National Insurance Institute, an organization
similar to the United States Social Security Administration. These contributions
entitle the employees to receive a range of medical services and other benefits.
Certain employees of our Israel subsidiary are covered by individual employment
agreements.

31
<PAGE>

MANAGEMENT

Directors and Officers

Our directors, officers and key employees are as follows:

Name Age Position
---- --- --------

Marc D. Tokayer ............ 42 Chairman of the Board, Chief Executive
Officer, President and Treasurer; and
President and Director of our Israeli
subsidiary

Emanuel Kronitz ............ 40 Chief Operating Officer

Baruch Sollish ............. 52 Director, Vice President-Research and
Development, Secretary; Chief Technology
Officer of our Israeli subsidiary

All officers serve until the next annual meeting of directors and until
their successors are elected and qualified.

MARC. D. TOKAYER, has been Chairman of the Board of Directors, President,
and Treasurer of TTR since he founded TTR in July 1994 and has been Chief
Executive Officer of TTR since he resumed the position in January 1999. He has
served as President and Chairman of the Board of Directors of TTR's Israeli
subsidiary since its inception in December 1994.

EMANUEL KRONITZ, has been the Chief Operating Officer of TTR since June 1,
1999. From January through May 1999 he served as CEO of Smart Vending Solutions
Inc., a Delaware corporation, which developed a novel vending machine based on
free access technology. From November 1997 through January 1999, he was
president of Orgad Creations Ltd., an Israeli company engaged in the
electroforming of gold jewelry. From January 1996 through November 1997, he was
a Senior Investment Manager at Leumi & Co, Investment Bankers Ltd., an Israeli
investment bank, where he was in charge of an investment portfolio of
approximately 30 high-tech and industrial companies. Between January 1994 and
December 1995, he was a Vice President of Business Development at the Elul
Group, an Israeli high tech marketing and investment company, where he was
primarily responsible for identifying and negotiating new business ventures. He
received an LLB (law degree) from Bar Ilan University, Tel Aviv in 1983 and an
MBA from York University in Toronto in 1988.

BARUCH SOLLISH, PH.D, has been a Director of TTR since December 1994 and
has served as Vice President--Research and Development and Secretary of TTR
since September 1996. From June 1987 through December 1994, Dr. Sollish founded
and managed Peletronics Ltd., an Israel software company, engaged primarily in
the field of smart cards and software design for personnel administration,
municipal tax authorities and billing procedures at bank clearance centers. Dr.
Sollish holds six United States patents in the fields of electro optics,
ultrasound and electronics and has published and lectured extensively. Dr.
Sollish received a Ph.D. in Electrical Engineering from Columbia University in
1973.

There are no family relationships between any of the above executive
officers, and there is no arrangement or understanding between any of the above
executive officers and any other person pursuant to which he was selected as an
officer.

Our Board of Directors is currently comprised of two Directors. All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.

The Board of Directors has created a Stock Option Committee to administer
our 1996 Stock Option Plan. This Committee is currently composed of Marc
Tokayer.

The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to, or earned by, our Chief Executive
Officer and to all other executive officers (the "Named Executive Officers")
serving as such at the end of 1998 whose compensation exceeded $100,000 for
fiscal 1998.

32
<PAGE>

Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------------------- ----------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options Payouts Compensation
- ------------------ ---- ------ ----- ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Marc D. Tokayer 1998 $64,430 $12,019 $14,423(1)

Chairman, 1997 73,850 7,647 26,307(1) 0 0 0 0
President & CEO 1996 66,686 12,876 19,278(1) 0 0 0 0

Baruch Sollish 1998 $91,678 $42,015 $13,927(1) 0 0 0 0
Vice-President- 1997 99,931 50,000(2) 24,875(1) 0 0 0 0
Research and 1996 69,517 0 14,037(1) 0 0 0 0
Development

Steven L. Barsh 1998 93,334(4) 0 0 0 250,000(5) 0 0
Former Chief 1997 0 0 0 0 0 0 0
Executive Officer(3) 1996 0 0 0 0 0 0 0
</TABLE>

- ----------

(1) Includes contributions to insurance premiums, car allowance and car
expenses.
(2) Comprises a one-time payment made in consideration of Dr. Sollish's waiver
of incentive bonus payments due to him under his employment agreement.
(3) Mr. Barsh's employment commenced in July 1998 and terminated as of January
1, 1999. See "Certain Relationships and Related Transactions."
(4) Reflects a reduction in annual salary from $210,000 to $70,000 in October
1998. See "Certain Relationships and Related Transactions."
(5) Reflects the exchange on October 20, 1998 of 250,000 options granted under
the 1996 Stock Option Plan at an exercise price of $2 15/16 per share for
250,000 non-plan options with an exercise price of $15/16 per share. In
July 1999 such options were exchanged for 150,000 shares of our common
stock. See "Certain Relationships and Related Transactions."

Options Granted in Last Fiscal Year

The following table sets forth certain information concerning options
granted to the Named Executive Officers during 1998:

Number of % of Total
Shares Options
Underlying Granted to Exercise or Market
Options Employees Base Price Price on Expiration
Name Granted in 1998 ($/Share) Grant Date Date
- ----- ------------ --------- --------- ---------- ---------
Steven Barsh.. 250,000(1) 86% $.93(1) $.93(1)(2) 2007

- ----------
(1) Reflects the exchange on October 20, 1998 of 250,000 options granted under
the 1996 Stock Option Plan at an exercise price of $2 15/16 per share for
250,000 non-plan options with an exercise price of $15/16 per share. In
July 1999 such options were exchanged for 150,000 shares of our common
stock. See "Certain Relationships and Related Transactions."
(2) Based on the closing price of the common stock ($.93) on October 20, 1998,
as reported on the OTC Electronic Bulletin Board.

Aggregate Options Exercised in Last Fiscal year
and Fiscal Year End Option Values

The following table sets forth information with respect to option
exercises during the year ended December 31, 1998 and the number and value of
options outstanding at December 31, 1998 held by the Named Executive Officers:

<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised
Shares Options at
Acquired December 31, 1998 Value of Unexercised
on Value Exercisable ("E") In-the-Money Options at
Name Exercise Realized Unexercisable ("U") December 31, 1998 (1)
- ---- -------- -------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Steven Barsh .... 0 0 250,000(E)/0(U) $48,750
</TABLE>

- ----------
(1) Based upon the difference between the exercise price of such options
($.93) and the closing price of the common stock ($1.125) on December 31,
1998, as reported on the OTC Electronic Bulletin Board.

33
<PAGE>

Stock Option Plans

1996 Stock Option Plan. Our current policy is that all full time key
employees be considered annually for the possible grant of stock options,
depending upon employee performance. The criteria for the awards are experience,
uniqueness of contribution and level of performance shown during the year. Stock
options are intended to improve loyalty to the company and help make each
employee aware of the importance of our business success.

We have adopted our 1996 Incentive and Non-Qualified Stock Option Plan.
The 1996 Option Plan provides for the grant to qualified employees (including
officers and directors) of options to purchase shares of common stock. A total
of 750,000 shares of common stock have been reserved for issuance upon exercise
of stock options granted under the 1996 Option Plan.

The 1996 Option Plan is administered by a Stock Option Committee of the
Board of Directors. The Committee consists of Mr. Tokayer. Members of the
Committee are not eligible for awards. The Committee has discretion to select
the optionee and to establish the terms and conditions of each option, subject
to the provisions of the 1996 Option Plan. Options granted under the 1996 Option
Plan may be non-qualified stock options or Incentive Stock Options (an option
which qualifies under Section 422 of the Internal Revenue Code) but in any case
the exercise price of options granted may not be less than 100% of the fair
market value of the common stock as of the date of grant (110% of the fair
market value if the grant is an Incentive Stock Option to an employee who owns
more than 10% of the outstanding common stock). Options may not be exercised
more than 10 years after the grant (five years if the grant is an Incentive
Stock Option to any employee who owns more than 10% of the outstanding common
stock). The Committee may, in its discretion (i) accelerate the date or dates on
which all or any particular option or options granted under the 1996 Stock Plan
may be exercised, or (ii) extend the dates during which all, or any particular,
option or options granted under the 1996 Stock Plan may be exercised, provided,
that no such extension will be permitted if it would cause the 1996 Option Plan
to fail to comply with Section 422 of the Code or with Rule 16b-3 of the
Securities and Exchange Act of 1934, as amended. Except as otherwise determined
by the Committee at the date of the grant of the option, and subject to the
provisions of the 1996 Option Plan, an optionee may exercise an option at any
time within one year (or within such lesser period as may be specified in the
applicable option agreement) following termination of the optionee's employment
or other relationship with us if such termination was due to the death or
Disability (as defined) of the optionee but in no event later than the
expiration date of the Option. Except as otherwise determined by the Board of
Directors or the Committee at the date of the grant of an Option, if the
termination of the optionee's employment or other relationship is for any other
reason the Option will expire immediately upon such termination. Options granted
under the 1996 Option Plan are not transferable and may be exercised only by the
respective grantees during their lifetimes or by their heirs, executors or
administrators in the event of death. Under the 1996 Option Plan, shares subject
to canceled or terminated options are reserved for subsequently granted options.
The number of options outstanding and the exercise price thereof are subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends.

As of August 31, 1999, 423,700 options to purchase shares of common stock
were outstanding under the 1996 Option Plan.

Non-Executive Directors Stock Option Plan. We adopted our 1998
Non-Executive Director Stock Option Plan in July 1998 to provide an incentive
for attracting and retaining on our Board the service of qualified individuals
who are not otherwise employed by us or any subsidiary.

The Directors Plan is administered by the Board of Directors. We have
reserved 25,000 shares of common stock under the Directors Plan for issuance
upon the exercise of stock options. Options are exercisable upon the date of
grant and expire five years from the date of grant. Upon termination of any
director, the options expire within two months of such termination. The exercise
price of the option will be the fair market value of the Common Stock on the
date of the grant of the option. The number of options and prices at which they
are exercisable are subject to adjustment in the case of certain transactions
such as mergers, recapitalizations, stock splits or stock dividends. No options
may be granted under the Directors Plan after July 2008. As of August 31, 1999,
no options were outstanding under the Directors Plan.

34
<PAGE>

Employment Agreements

Our Israeli subsidiary signed an employment agreement in August 1994 with
Marc Tokayer, pursuant to which Mr. Tokayer is employed as its General Manager
for a term which is automatically renewable from year to year unless either
party gives notice of termination at least 90 days prior to the current
expiration date. Mr. Tokayer receives an annual salary of $74,232, subject to
increase and the grant of a performance bonus in the Board's discretion. If Mr.
Tokayer is terminated other than for engaging in willful misconduct or acts of
bad faith or conviction of a felony, he will be entitled to continue to receive
his salary and benefits for an additional 12 months, subject to certain
limitations.

We signed an employment agreement with Emanuel Kronitz as of June 1, 1999,
pursuant to which Mr. Kronitz is employed as our Chief Operating Officer. The
agreement is for a term of one year and is automatically renewable for
additional one year terms, unless terminated by either party upon 90 days prior
notice. Mr. Kronitz is paid a monthly salary of $5,000 plus benefits and was
granted options under the 1996 Option Plan to purchase 235,000 shares of our
common stock, at an exercise price of $0.01 per share, which options vest in
equal monthly installments over three years.

Our Israeli subsidiary entered into an employment agreement with Dr.
Baruch Sollish in December 1994, pursuant to which Dr. Sollish is employed as
Director of Product Research and Development of TTR Israel. The agreement is
renewable from year-to-year, subject to termination by either party on not less
than 60 days notice prior to the end of any calendar year. Dr. Sollish receives
an annual base salary of $91,678 subject to increase and the grant of a
performance bonus in the Board's discretion. In March 1997, in consideration of
Dr. Sollish's waiver of certain incentive bonus payments due payable to him
under the agreement based on revenues from certain products, Dr. Sollish
received a one-time bonus payment of $50,000.

Each of the executives with an agreement has agreed to certain customary
confidentiality and non-compete provisions that prohibit him from competing with
us for one year, or soliciting our employees for one year, following the
termination of his employment.

Report on Repricing of Options

In connection with the termination of Steven Barsh as our Chief Executive
Officer, the Board of Directors approved the exchange of 250,000 options granted
to Mr. Barsh under the 1996 Stock Option Plan at an exercise price of $2 15/16
per share, the fair market value of the common stock on the date of the original
grant, for 250,000 immediately exercisable, non-plan options with an exercise
price of $15/16 per share, the fair market value of the common stock on October
20, 1998, the effective date of the exchange. In approving the exchange and the
repricing of the non-plan options granted in exchange for the plan options
surrendered, the Board based the repricing on a comparison of the fair market
value of the common stock on the date of the original grant to its fair market
value on the date of the exchange and on the desirability of effecting a
settlement with Mr. Barsh. See "Certain Relationships and Related Transactions."

35
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In June 1998 Mr. Tokayer and The Tokayer Family Trust waived their rights
to 750,000 shares of Common Stock which had been placed in escrow and were
subject to release upon our achieving certain revenue or stock price levels.
Such shares have been returned to treasury and cancelled.

In February 1999, we issued to Dr. Sollish 50,000 vested options.

In June 1999, we granted 235,000 options under the 1996 Stock Option Plan
to Emanuel Kronitz, our Chief Operating Officer. Subject to Mr. Kronitz's
continued employment with us, these options vest in 36 equal monthly
installments and have a nominal exercise price. We have agreed to register, and
Mr. Kronitz is offering for sale, under this prospectus 78,333 of the shares
issuable upon exercise of such options, representing the number of shares
expected to vest during the first year of his employment.

Marc D. Tokayer, Chairman of the Board, The Tokayer Family Trust, Baruch
Sollish, Director, and four other stockholders with an aggregate of 1,137,430
shares of common stock, entered into a voting arrangement dated August 10, 1996,
whereby they agreed to vote their respective shares to elect directors and in
support of positions favored by a majority of the shares held among them. This
arrangement was terminated in July 1999.

We signed an employment agreement in July 1998 with Mr. Steven L. Barsh
pursuant to which Mr. Barsh was employed as Chief Executive Officer through
January 1999. Under the agreement, Mr. Barsh received an annual salary of
$210,000 and pursuant to the 1996 Stock Option Plan, we issued to him 250,000
stock options which were to vest equally over a five-year period, and have an
exercise price of $2-15/16 per share. In October 1998, Mr. Barsh agreed to
accept $70,000 per annum and to defer payment of the balance owed until such
time as we raised $3,000,000. In connection with the salary adjustment, Mr.
Barsh returned the options issued to him, and we issued to Mr. Barsh, on October
20, 1998, non-plan options for 250,000 shares of common stock, with an exercise
price of $15/16 per share. Mr. Barsh resigned effective February 12, 1999. The
employment agreement provided that we would owe Mr. Barsh salary and benefits
for six months following his resignation. We also owed Mr. Barsh approximately
$40,000 in unreimbursed expenses and $60,000 in unpaid salary earned prior to
his resignation. In consideration of the waiver by Mr. Barsh of the amounts owed
to him and in settlement of a dispute as to the number of stock options to which
he was entitled, in July 1999 we issued to Mr. Barsh 150,000 shares of common
stock and Mr. Barsh waived his rights and released his claims to the 250,000
options previously issued to him, which options have been cancelled. Mr. Barsh
is offering the 150,000 shares for sale pursuant to this prospectus. Mr. Barsh
has agreed not to sell more than 10% of such shares in any 30-day period.

Our Israeli subsidiary signed a three-year employment agreement in July
1996 with Arik Shavit, pursuant to which Mr. Shavit was employed as President
and General Manager. Pursuant to the agreement, Mr. Shavit received an annual
salary of $110,628, subject to adjustment, and was issued options to purchase an
aggregate of 217,473 shares of common stock. The options are exercisable for a
price of $.01 per share until September 2006, subject to a vesting schedule
pursuant to which 72,491 and 48,328 options vested in September 1997 and 1998,
respectively, and 48,327 options vest in each of September 1999 and September
2000. Effective December 1, 1998, Mr. Shavit resigned from all positions he held
with us and our Israeli subsidiary. In connection with his resignation, we
signed an agreement pursuant to which Mr. Shavit is to continue to receive the
salary and benefits received at the time of his resignation through September
1999. Additionally, warrants for 48,326 shares which would have otherwise vested
in September 2000 were terminated. To date, Mr. Shavit has exercised options for
128,872 shares. Mr. Shavit and we released each other from any claims arising
prior to his termination, except that Mr. Shavit's obligations respecting
confidentiality, non-competition and non-solicitation remain in effect for one
year following his termination. In consideration of Mr. Shavit's waiver of
certain amounts owed to him under the separation agreement, we agreed to vest
his remaining 40,273 options and to register the shares issuable upon the
exercise thereof for sale under this prospectus. Mr. Shavit has agreed that he
will not sell more than 25,000 shares during the 180 days after the effective
date of this prospectus. See "Plan of Distribution."

36
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table provides information as of August 31, 1999 concerning
the beneficial ownership of our common stock by (i) each director, (ii) each of
the Named Executive Officers, (iii) each stockholder (or group) known by us to
be the beneficial owner of more than 5% of its outstanding common stock, (iv)
the directors and officers as a group and (v) each selling stockholder.

<TABLE>
<CAPTION>
Common Stock to be
Beneficially Owned if All
Shares Offered
Shares of Shares Hereunder Are Sold
Name of Common Stock Percent of Offered -------------------------
Beneficial Owner(1) Beneficially Owned(1) Class(2) Hereby Shares(3) Percent(2)(3)
- ------------------- --------------------- -------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
Wall & Broad Equities, Inc. ......... 1,300,000(4) 18.71 1,300,000 0 0
Blumfield Investment Inc. ........... 837,209(5)(6) 12.91 837,209 0 0
Wayne Invest & Trade Inc. ........... 837,209(5)(6) 12.91 837,209 0 0
Burstein & Lindsay Securities Corp. . 837,209(5)(6) 12.91 837,209 0 0
Madison Trading ..................... 837,209(5)(6) 12.91 837,209 0 0
Marc D. Tokayer(7) .................. 618,547(8) 10.95 0 618,547 10.98
L&H Foundation ...................... 418,605(9)(6) 6.90 418,605 0 0
Econor Investment Corporation ....... 418,605(9)(6) 6.90 418,605 0 0
K & D Equities, Inc. ................ 400,000(4) 6.61 400,000 0 0
Jarvis Developments Limited ......... 287,426 5.09 287,426 0 0
Machtec Ltd. ........................ 200,000 3.54 200,000 0 0
Arik Shavit ......................... 169,145(10) 2.91 40,273 128,872 2.23
Dalimore Consulting Limited ......... 150,758 2.67 150,758 0 0
Steven L. Barsh ..................... 150,000 2.66 150,000 0 0
Baruch Sollish(7)(11) ............... 150,000 2.66 0 150,000 2.66
Solomon Mayer ....................... 99,500(12) 1.75 134,500 0 0
Yeshiva Darchei Torah (Rabbis Fund) . 84,500(12) 1.49 84,500 0 0
Biscount Overseas Ltd. .............. 77,000(13) 1.36 33,000 44,000 *
Parnell Limited ..................... 75,000 1.33 75,000 0 0
Mylock Holdings Inc. ................ 74,500(12) 1.31 74,500 0 0
Yaakov Bender ....................... 53,191 * 53,191 0 0
Yeshiva Darchei Torah (Building Fund) 53,191 * 53,191 0 0
Abraham Stephansky .................. 51,637 * 51,637 0 0
CYGNI S.A ........................... 50,000 * 50,000 0 0
Neve Yerushalayim ................... 43,750 * 43,750 0 0
Mordecai Lerer ...................... 40,000 * 40,000 0 0
Bnos Bais Yaaakov ................... 38,096(14) * 38,096 0 0
Emanuel Kronitz(7) .................. 32,639(4) * 32,639 0 0
Mitchell Hirth ...................... 26,596 * 26,596 0 0
Plans Inc. .......................... 25,000(4) * 25,000 0 0
Cherson Ltd. ........................ 23,000(4) * 23,000 0 0
Catamaran Corp. ..................... 23,000(4) * 23,000 0 0
Wayne M. Wilde Revocable Trust ...... 23,000(4) * 23,000 0 0
Rivka Perlstein ..................... 23,000(4) * 23,000 0 0
Abraham & Barabara Stefansky ........ 17,613 * 17,613 0 0
Yitzchak Stefansky .................. 15,682 * 15,682 0 0
Philip Kenneth Wood ................. 14,000(15) * 14,000 0 0
Ralph Cotton ........................ 11,500(4) * 11,500 0 0
Leon Goldstein ...................... 11,500(4) * 11,500 0 0
Earl Freeman ........................ 11,500(4) * 11,500 0 0
K. David Isaacs ..................... 11,500(4) * 11,500 0 0
Donald K. Currie .................... 11,500(4) * 11,500 0 0
Ralph Falk .......................... 11,500(4) * 11,500 0 0
Murray Kimmel ....................... 11,500(4) * 11,500 0 0
Judith Wohlberg ..................... 11,500(4) * 11,500 0 0
Robert D. Zucker .................... 11,500(4) * 11,500 0 0
</TABLE>

37
<PAGE>

* Indicates less than 1%.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting
or investment power with respect to securities. In accordance with SEC
rules, shares which may be acquired upon exercise of stock options which
are currently exercisable or which become exercisable within 60 days after
the date of the information in the table are deemed to be beneficially
owned by the optionee. Except as indicated by footnote, and subject to
community property laws where applicable, to our knowledge, the persons or
entities named in the table above are believed to have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.

(2) For purposes of calculating the percentage of outstanding shares held by
each person named below, any shares which such person has the right to
acquire within 60 days after the date of the information in the table (or
later with respect to the persons subject to notes 5 and 9 below) are
deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person. For purposes of presentation in
this table, the 9.99% limit referred to in notes 5 and 9 below has been
disregarded.

(3) Assumes the sale of all of the shares offered hereby. We have agreed to
maintain the effectiveness of the registration statement of which this
prospectus forms a part for two years following the date of this
prospectus.

(4) Represents shares issuable upon the exercise of warrants or options.
Warrants held by Wall & Broad Equities, Inc. for 1.3 million shares have a
nominal exercise price.

(5) Represents (i) shares issuable upon conversion of the entire $400,000 in
aggregate principal amount of 10% Convertible Debentures due April 30,
2001 held by the selling stockholder, based on an assumed conversion price
of $.86, together with interest thereon accrued through the maturity date
thereof, and (ii) 279,070 shares issuable upon the exercise of Warrants
issuable upon conversion of the Debentures at such assumed conversion
price.

(6) We are registering 200% of the total number of all such shares. In
accordance with the terms of the Debentures, the assumed conversion price
reflects the average of the closing trading prices of the common stock on
the three days during the 30 day period preceding May 19, 1999, the
initial closing date of sales of the Debentures, on which the closing
price of the common stock was lowest. The actual conversion price will be
based on a formula stated in the Debentures and may be higher or lower
than the assumed price. As required by SEC regulations, the number of
shares shown as beneficially owned includes shares which could be
purchased within 60 days after the date of this prospectus. However, the
terms of the Debentures and Warrants of this selling shareholder specify
that the shareholder can not convert the Debentures or exercise its
Warrants to the extent that such conversion or exercise would result in
the selling shareholder and its affiliates beneficially owning more than
9.99% of our then outstanding common stock. Thus, although some of the
shares listed in the table might not be subject to purchase by the selling
shareholder during that 60 day period, they are nevertheless included in
this table. The actual number of shares of common stock issuable upon the
conversion of the Debentures and exercise of the Warrants is subject to
adjustment and could be materially less or more than the number estimated
in the table. This variation is due to factors that cannot be predicated
by us at this time. The most significant of these factors is the future
market price of our common stock.

(7) The address of such person is c/o TTR Technologies Ltd., 2 Hanagar Street,
Kfar Saba, Israel.

(8) Includes 324,274 shares held by The Tokayer Family Trust. Mr. Tokayer's
wife is the trustee and Mr. Tokayer's children are the income
beneficiaries of the Trust. Mr. Tokayer disclaims beneficial ownership of
all such shares. Does not include 15,000 shares issuable upon exercise of
options held by Gershon Tokayer, Mr. Tokayer's brother, as to which shares
Mr. Tokayer disclaims beneficial ownership.

38
<PAGE>

(9) Represents (i) shares issuable upon conversion of the entire $200,000 in
aggregate principal amount of 10% Convertible Debentures due April 30,
2001 held by this selling stockholder, based on an assumed conversion
price of $.86, together with interest thereon accrued through the maturity
date thereof, and (ii) 139,535 shares issuable upon the exercise of
Warrants issuable upon conversion of the Debentures at such assumed
conversion price.

(10) Includes 40,273 shares issuable upon exercise of warrants.

(11) Includes 50,000 shares issuable upon exercise of options.

(12) Includes 34,500 shares issuable upon exercise of warrants.

(13) Includes 33,000 shares issuable upon exercise of warrants.

(14) Includes 11,500 shares issuable upon exercise of warrants.

(15) Includes 4,000 shares issuable upon the exercise of warrants.

(16) Includes 2,000 shares issuable upon the exercise of warrants.

(17) See notes 8 and 11 above. Includes 78,333 shares issuable upon the
exercise of options held by Emmanuel Kronitz, of which 32,639 are
currently exercisable.

39
<PAGE>

DESCRIPTION OF SECURITIES

Common Stock

We are authorized to issue 15,000,000 shares of common stock, $.001 par
value per share, of which 5,616,921 shares were outstanding and held of record
as of August 31, 1999, by approximately 142 shareholders of record and
approximately 859 stockholders of our common stock whose stock is held in either
nominee name or street name brokerage accounts. Holders of shares of common
stock are entitled to one vote for each share held of record on all matters to
be voted on by stockholders. There are no preemptive, subscription, conversion
or redemption rights pertaining to the shares of common stock. Holders of shares
of common stock are entitled to receive dividends when, as and if declared by
the Board of Directors from funds legally available therefor and to share
ratably in our assets available upon liquidation, dissolution or winding up. The
holders of shares of common stock do not have cumulative voting rights for the
election of directors and, accordingly, the holders of more than 50% of the
shares of common stock are able to elect all directors.

Preferred Stock

We are authorized to issue 5,000,000 shares of preferred stock, $.001 par
value per share, of which no shares are issued and outstanding. The shares of
preferred stock may be issued from time to time in one or more series, in any
manner permitted by law, as determined from time to time by the Board of
Directors, and stated in the resolution or resolutions providing for the
issuance of such shares adopted by the Board of Directors pursuant to authority
vested in it. Without limiting the generality of the foregoing, shares in such
series shall have voting powers, full or limited, or no voting powers, and shall
have such designations, preferences and relative, participating, optional, or
other special rights, and qualifications, limitations, or restrictions thereof,
permitted by law, as shall be stated in the resolution or resolutions providing
for the issuance of such shares adopted by the Board of Directors. The number of
shares of any such series so set forth in the resolution or resolutions may be
increased (but not above the total number of authorized shares of preferred
stock) or decreased (but not below the number of shares thereof then
outstanding) by further resolution or resolutions adopted by the Board of
Directors.

Effect of Delaware Anti-takeover Statute

We are subject to Section 203 of the DGCL (the anti-takeover law), which
regulates corporate acquisitions. The anti-takeover law prevents certain
Delaware corporations, including those whose securities are listed for trading
on the Nasdaq National Market, from engaging, under certain circumstances in a
"business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of the anti-takeover law, a "business combination" includes, among
other things, a merger or consolidation involving us and the interested
shareholder and the sale of more than 10% of our assets. In general, the
anti-takeover law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more our outstanding voting stock and any entity or
person affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original articles of incorporation or an express provision in
its certificate of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority of our outstanding voting shares. We have not
"opted out" of the provisions of the anti-takeover law.

Anti-takeover Effects of By-laws

Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the president, the board of directors, the Chairman of the
Board, the President or the holders of a majority of all shares entitled to vote
at the meeting.

Transfer Agent

North America Transfer Co., 147 W. Merrick Road, Freeport, New York, is
the transfer agent for our common stock.

40
<PAGE>

Certain Limited Liability and Indemnification Provisions

Pursuant to our Certificate of Incorporation and By-laws, as amended, our
officers and directors shall be indemnified by us to the fullest extent allowed
under Delaware law for claims brought against them in their capacities as
officers and directors. Indemnification is not allowed if the officer or
director does not act in good faith and in a manner reasonably believed to be in
our best interest, or if the officer or director had no reasonable cause to
believe his conduct was lawful. Accordingly, indemnification may occur for
liabilities arising under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for our directors,
officers and controlling persons pursuant to the foregoing provisions or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.

41
<PAGE>

PLAN OF DISTRIBUTION

Our obligations to Debenture Holders

We are registering the shares offered hereby in order to satisfy our
obligations to the holders of our 10% Convertible Debentures due April 30, 2001.
Under a Securities Purchase Agreement and a related Registration Rights
Agreement dated May 13, 1999 between us and the holders of the Debentures, we
are obligated to register with the SEC 200% of the number of shares issuable on
conversion of $2.0 million in aggregate principal amount of the Debentures plus
interest thereon accrued through the maturity date thereof and 200% of the
number of shares of common stock issuable upon exercise of the Warrants that are
issuable upon conversion of the Debentures. We are also obligated to keep the
Registration Statement of which this prospectus forms a part effective until the
earliest of October 31, 2001, the date on which the Debenture holders may sell
all shares registered on their behalf under this prospectus under Rule 144 of
the Securities Act of 1933, as amended, or the date on which the Debenture
holders no longer own any of those shares. The Debentures are convertible into
shares of our common stock at a rate based on the lower of the closing trading
prices of the common stock during certain specified periods prior to the closing
date of the sale of the Debentures or the conversion date of the Debentures,
subject to certain minimum conversion rates. We have the right to pay accrued
interest in shares of our common stock at the same conversion price instead of
cash. Upon conversion of the Debentures, the holders thereof will also receive
Warrants to purchase a number of additional shares of common stock equal to 50%
of the shares of common stock issued upon conversion of the Debentures,
exercisable at a price per share equal to 120% of the conversion rate, subject
to certain maximum exercise prices. The Warrants expire in April 2002. We are
also registering 1,613,551 shares held by certain other selling stockholders and
2,224,981 shares issuable upon exercise of certain other warrants and options
held by certain selling stockholders.

The Securities Purchase Agreement between us and the Debenture holders
provides as follows:

We have agreed that we will not, without the prior consent of the
Debenture holders, enter into any offer or sale of our common stock (or
securities convertible into common stock) with any third party pursuant to a
transaction which permits the sale of such common stock or convertible
securities on any date which is earlier than 180 days after the effective date
of this prospectus, provided that this restriction will not apply to (a) the
issuance of securities (other than for cash) in connection with an acquisition,
merger, consolidation, or a sale or disposition of assets, (b) the exchange of
capital stock for assets, stock or other joint venture interests so long as any
registration rights granted in connection with such action do not require the
filing of a registration statement in respect of such stock or convertible
securities prior to 180 days after the effective date of this prospectus, (c)
the issuance of securities to a Strategic Partner (as defined) or (d) the
issuance of securities under our 1996 Stock Option Plan or our Non-Executive
Directors Stock Option Plan.

Each of our directors and principal officers and their respective family
members (including The Tokayer Family Trust) has signed a Principal's Agreement
which provides that, without the prior consent of the Debenture holders in each
instance, he will not sell or otherwise transfer or offer to sell or otherwise
transfer (except in a private transaction in which the transferee agrees to be
bound by the Principal's Agreement) any shares of common stock directly or
indirectly held by him prior to 180 days after the date of this prospectus;
provided, that 25,000 shares of common stock held by each of Marc D. Tokayer,
Emmanuel Kronitz, Robert Friedman and Baruch Sollish are excluded from such
restrictions.

If we breach our obligations relating to any such third party transactions
or the Principal's Agreements, the Conversion Rate (as defined in the
Debentures) will be amended to be equal to (x) 90% of (y) the amount otherwise
determined in accordance with the Debentures and the Debenture holders will be
entitled to require us to immediately redeem all outstanding Debentures.

If we are limited in the number of shares of common stock we may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the common stock is
listed or traded, including, but not limited to, NASDAQ, (a) we must take all
steps reasonably necessary to be in a position to issue shares of common stock
on conversion of the Debentures without violating such rules and regulations and
(b) if, despite taking such steps, we still cannot issue such

42
<PAGE>

shares of common stock without violating such rules and regulations, the holder
of a Debenture which can not be converted as result of such rules and
regulations shall have the option, (x) if permitted by the regulations, require
us to issue shares of common stock at a conversion purchase price equal to the
average of the closing price per share of common stock for any five consecutive
trading days (subject to certain equitable adjustments for certain events
occurring during such period) during the 60 trading days immediately preceding
the date of notice of conversion or (y) require us to redeem each unconverted
Debenture for an amount, payable in cash, determined pursuant to a formula
provided in the Debentures.

We have agreed that if, during the 270 day period after the date of this
prospectus, we elect to enter into any transaction other than with a Strategic
Partner for the sale of new common stock or securities convertible into common
stock, we must offer the Debenture holders the right, pro rata to their
respective holdings, to participate in all or any part of the proposed
transaction on the same terms thereof.

If we consummate such a transaction at any time prior to the 90th day
after the effective date of this prospectus on terms providing for (x) either a
sale price equal to or computed or based on, or a determination of a conversion
price based on, a lower percentage of the then current market price than
provided in the Debentures for determining the Conversion Rate through or a
lower Base Price (however defined or computed) and/or (y) the issuance of
warrants at an exercise price lower than that provided in the Warrants issuable
upon issuance of the Debentures, the terms of any unissued or unconverted
Debentures or any unissued or unexercised Warrants shall be modified to reduce
the relevant Conversion Rate, Base Price or Warrant exercise price (as defined)
to be equal to that provided in the transaction as so consummated.

Under the Registration Rights Agreement, we were obligated to pay late
fees as liquidated damages to the Debenture holders because both the initial
filing date and the effective date of the Registration Statement of which this
prospectus forms a part occurred after certain prescribed deadlines. However,
the Debenture holders have waived their right to payment of these fees. We will
be obligated to pay liquidated damages if the Debenture holders are restricted
from making sales of the shares offered hereby covered by a previously effective
Registration Statement at any time (the date such restriction commences, a
"Restricted Sale Date") after the date of the prospectus other than during a
Permitted Suspension Period (as defined). The amount that we must pay to the
Debenture holders in respect of the fees associated with the Restricted Sale
Date will be determined as of each Computation Date (as defined) and will be
equal to the Periodic Amount Percentage of the aggregate principal amount of all
Debentures for the period from the date following the relevant Restricted Sale
Date to the first relevant Computation Date, and thereafter to each subsequent
Computation Date. The Periodic Amount Percentage means (A) 2% of the principal
amount of all the Debentures for the period from the date following the relevant
Restricted Sale Date, as the case may be, to the first relevant Computation
Date, and (B) 3% of the Purchase Price of all Debentures to each Computation
Date thereafter. The Purchase Price means the sum of (X) the principal amount of
all Debentures not yet converted and (Y) the Held Shares Value. The Held Shares
Value means, with certain exceptions, for shares acquired upon a conversion of a
Debenture within the 30 day preceding the Restricted Sale Date, but not yet
sold, the principal amount of the Debentures converted into such shares.

Our Obligations to all Selling Stockholders; Sales of Registered Shares.

As used in this prospectus, stockholders selling our shares pursuant to
this prospectus includes donees and pledgees selling shares received after the
date of this prospectus from a selling stockholder named in this prospectus.
Upon our being notified by a selling stockholder that a donee or pledgee intends
to sell more than 500 shares, a supplement to this prospectus will be filed.

We have agreed to bear all costs, expenses and fees of registration of the
shares of common stock offered by the selling stockholders for resale other than
the legal fees and expenses of counsel or other advisors to the selling
stockholders. Any brokerage commissions, discounts, concessions or other fees,
if any, payable to broker-dealers in connection with any sale of the shares of
common stock will be borne by the selling stockholders selling those shares or
by the purchasers of such shares.

Sales of shares may be effected by selling stockholders from time to time
in one or more types of transactions, including block transactions,
over-the-counter markets, negotiated transactions, put or call options on the
shares and short sales of shares. Shares may be sold at market prices prevailing
at the time

43
<PAGE>

of sale or at negotiated prices. The stockholders selling shares pursuant to
this prospectus may effect such transactions by selling shares directly to
purchasers or to or through broker-dealers as principals or agents or to
broker-dealers who may purchase shares of common stock as principals and
thereafter sell the shares from time to time in any one or more of such
transactions. In effecting sales, broker-dealers engaged by a selling
stockholder may arrange for other broker-dealers to participate. Such
brokers-dealers may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders and/or the purchasers of the shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation, as a particular broker-dealer, might be
in excess of customary commissions). The selling stockholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.

The selling stockholders and any broker-dealers that act in connection
with the sale of shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act. We have agreed to indemnify each
Debenture holder against certain liabilities, including liabilities arising
under the Securities Act. The selling stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.

Because selling stockholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling stockholders will be
subject to the prospectus delivery requirements of the Securities Act. We have
informed the selling stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.

Selling stockholders also may resell all or a portion of the shares under
this prospectus in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of that rule.

Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing:

o The name of each such selling stockholder and of the participating
broker-dealer(s);

o The number of securities involved;

o The price at which such securities were sold;

o The commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;

o That such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and

o Other facts material to the transaction.

We have agreed to indemnify certain selling stockholders or their
transferees or assignees against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments to which such
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest may be required to make in respect thereof.

Pursuant to the Registration Rights Agreement, each of the selling
stockholders (other than the Debenture holders and Wall and Broad Equities,
Inc., which is offering 1,300,000 shares) has agreed with the Debenture holders
not to sell more than 25% of the shares offered by such selling stockholder
under this prospectus in any 30 day period, except that an aggregate of 69,250
shares held by certain selling stockholders (48,250 of which shares are issuable
upon exercise of options or warrants) are not subject to that agreement. Each of
such other selling stockholders who holds warrants has also agreed with the
Debenture holders not to sell any of the common stock underlying such warrants
for 30 days after the effective date of this prospectus.

44
<PAGE>

LEGAL MATTERS

The legality of the securities offered by this prospectus will be passed
upon for us by Golenbock, Eiseman, Assor & Bell, New York, New York.

EXPERTS

The consolidated financial statements of TTR for the years ended December
31, 1998, and December 31, 1997, included in this prospectus have been included
in reliance upon the report of Brightman Almagor & Co. (formerly known as BDO
Almagor & Co.), a member of Deloitte Touche Tohmatsu, independent certified
public accountants, given upon the authority of said firm as experts in
accounting and auditing.

Auditor Change

On June 30, 1998, we appointed Brightman Almagor & Co. to re-issue a
report on our consolidated financial statements for the year ended December 31,
1997. On July 3, 1998, Schneider Ehrlich & Wengrover LLP (or SE&W) resigned as
our independent auditors by mutual agreement. The decision to change accountants
was approved by the Board of Directors.

During the fiscal years ended December 31, 1997 and 1996 and the period
between January 1, 1998, up to and including the day of its resignation, there
were no disagreements between us and SE&W on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedures
which if not resolved to SE&W's satisfaction would have caused them to make
reference in connection with their opinion to the subject matter of the
disagreement. SE&W's report on our financial statements for such fiscal years
indicated that substantial doubt exists regarding our ability to continue as a
going concern.

The audit of Brightman Almagor & Co., a member of Deloitte Touche
Tohmatsu, as our independent accountants did not result in any changes to such
financial statements, and the related audit report of Brightman Almagor & Co., a
member of Deloitte Touche Tohmatsu, also states that substantial doubt exists
regarding our ability to continue as a going concern.

AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). You may
read and copy any reports, statements or other information on file at the
Commission's public reference room in Washington, D.C. You can request copies of
those documents, upon payment of a duplicating fee, by writing to the
Commission.

We have filed a Registration Statement on Form SB-2 with the Commission.
This prospectus, which forms a part of the Registration Statement, does not
contain all of the information included in the Registration Statement. Certain
information is omitted and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document, such references are not necessarily complete and you should
refer to the exhibits attached to the Registration Statement for copies of the
actual contract or document. You may review a copy of the Registration Statement
at the Commission's public reference room at 450 N.W. Fifth Street, N.W.,
Washington, D.C., 20549 and at the Commission's regional offices at CitiCorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and at 7
World Trade Center, Suite 1300, New York, New York 10048. Please call the
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our Commission filings and the Registration Statement
can also be reviewed by accessing the Commission's Internet web site at
http://www.sec.gov.

45
<PAGE>

T.T.R. TECHNOLOGIES INC.
(A Development Stage Company)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report ........................................... F-2
Consolidated Balance Sheets ............................................ F-3
Consolidated Statements of Operations .................................. F-4
Consolidated Statements of Comprehensive Loss .......................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) .............. F-6
Consolidated Statements of Cash Flows .................................. F-8
Notes to the Consolidated Financial Statements ......................... F-10

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
TTR Technologies, Inc.

We have audited the accompanying consolidated balance sheets of TTR
Technologies Inc. (formerly TTR Inc.) (the "Company") (a development stage
company) as of December 31, 1998, and the related consolidated statements of
operations, comprehensive loss, stockholders' equity (deficit), and cash flows
for each of the two years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TTR Technologies Inc. (a development stage company) as of December 31, 1998, and
the consolidated results of its operations and its cash flows for each of the
two years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency and stockholders' deficit that raise
substantial doubt about its ability to continue as a going concern. The
Company's plans are also referred to in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu

Ramat Gan, Israel
June 30, 1999

F-2
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................................... $ 74,445 $ 119,869
Accounts receivable .......................................... 7,793 37,886
Other current assets ......................................... 21,250 10,980
------------ ------------
Total current assets ....................................... 103,488 168,735
Property and equipment-- net .................................... 311,493 258,499
Deferred financing costs, net ................................... 70,712 3,666,854
Other assets .................................................... 4,852 4,074
------------ ------------
Total assets ............................................... $ 490,545 $ 4,098,162
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

LIABILITIES
Current liabilities
Current portion of long-term debt ............................ $ 873,153 $ 1,518,879
Short-term borrowings, net of discount ....................... 264,335 111,750
Accounts payable ............................................. 744,103 763,613
Accrued expenses ............................................. 1,056,345 1,019,767
------------ ------------

Total current liabilities .................................. 2,937,936 3,414,009

10% convertible debentures ...................................... -- 1,000,000
Long-term debt, less current portion ............................ 594,011 36,434
Accrued severance pay ........................................... 56,765 57,934
------------ ------------
Total liabilities .......................................... 3,588,712 4,508,377

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 5,496,972
issued and outstanding, respectively ......................... 4,177 5,497
Additional paid-in capital ...................................... 9,170,585 14,520,978
Other accumulated comprehensive income .......................... 79,415 63,065
Deficit accumulated during the development stage ................ (11,758,111) (14,002,968)
Less: deferred compensation .................................. (594,233) (996,788)
------------ ------------

Total stockholders' deficit ................................ (3,098,167) (410,215)
------------ ------------

Total liabilities and stockholders' deficit ................ $ 490,545 $ 4,098,162
============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
From From
Year Inception Six Months Inception
Ended (July 14, Ended (July 14,
December 31, 1994) to June 30, 1994) to
----------------------------- December 31, ---------------------------- June 30,
1997 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................ $ -- $ 54,922 $ 54,922 $ -- $ 40,493 $ 95,415
Expenses
Research and development ....... 967,155 1,032,253 2,619,961 502,466 364,280 2,984,241
Sales and marketing ........... 1,421,496 1,837,931 3,693,225 548,119 334,416 4,027,641
General and
administrative .............. 1,395,984 2,308,688 4,166,562 912,577 897,403 5,063,965
------------ ------------ ------------ ------------ ------------ ------------
Total expenses .............. 3,784,635 5,178,872 10,479,748 1,963,162 1,596,099 12,075,847
------------ ------------ ------------ ------------ ------------ ------------

Operating loss ..................... (3,784,635) (5,123,950) (10,424,826) (1,963,162) (1,555,606) (11,980,432)

Other (income) expense
Legal settlement .............. 232,500 -- 232,500 -- -- 232,500
Loss on investment ............ -- -- 17,000 -- -- 17,000
Other income .................. (50,000) (25,000) (75,000) (25,000) -- (75,000)
Amortization of deferred
financing costs ............. 81,101 72,288 336,235 9,293 381,788 718,023
Interest income ............... (42,069) (3,413) (58,306) (687) (544) (58,850)
Interest expense .............. 113,445 410,715 880,856 88,379 308,007 1,188,863
------------ ------------ ------------ ------------ ------------ ------------
Total other (income)
expenses ................. 334,977 454,590 1,333,285 71,985 689,251 2,022,536
------------ ------------ ------------ ------------ ------------ ------------
Net loss ........................... $ (4,119,612) $ (5,578,540) $(11,758,111) $ (2,035,147) $ (2,244,857) $(14,002,968)
============ ============ ============ ============ ============ ============

Per share data:

Basic and diluted ............ $ (1.35) $ (1.54) $ (0.61) $ (0.43)
============ ============ ============ ===========

Weighted average number
of common shares used
in basic and diluted loss
per share ....................... 3,054,519 3,615,908 3,311,161 5,236,970
============ ============ ============ ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Other comprehensive
income (loss)
Foreign currency
translation
adjustments .. (19,667) 41,386 79,415 (5,849) (16,350) 63,065
------------ ------------ ------------ ------------ ------------ ------------
Comprehensive loss. (4,139,279) $ (5,537,154) $(11,678,696) $ (2,040,996) $ (2,261,207) $(13,939,903)
============ ============ ============ ============ ============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Other Deficit
Common Stock Accumulated Accumulated
Common Stock Subscribed Additonal Comprehensive During
---------------------- ------------------- Paid-in Income Development
Shares Amount Shares Amount Capital (Loss) Stage
------ ------ ------ ------ ------- ------ -----

<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 14, 1994
(date of inception) ....... -- $ -- -- $ -- $ -- $ -- $ --
Issuances of common
stock, par value $.001
Services rendered ........... 1,200,000 1,200
Cash ........................ 1,200,000 1,200 23,800
Net loss .................... (42,085)
--------- ----- ------ -------- ---------- ------- ----------
Balances at
December 31, 1994 ......... 2,400,000 2,400 -- -- 23,800 -- (42,085)
Common stock
contributed ............... (561,453) (561) 561
Issuances of common
stock, par value $.001
Services rendered ........... 361,453 361 17,712
Stock options and
warrants granted .......... 600
Foreign currency
translation adjustment .... 22,652
Net loss .................... (896,663)
--------- ----- ------ -------- ---------- ------- ----------
Balances at
December 31, 1995 ......... 2,200,000 2,200 -- -- 42,673 22,652 (938,748)
Issuances of common
stock, par value $.001

Cash, net of offering
costs of $11,467 .......... 850,000 850 362,683
Foreign currency
translation adjustment .... 35,044
Net loss .................... (1,121,211)
--------- ----- ------ -------- ---------- ------- ----------
Balances at
December 31, 1996 ......... 3,050,000 $3,050 -- $ -- $ 405,356 $57,696 $(2,059,959)
Common stock
contributed ............... (135,000) (135) 135
Issuances of common
stock, par value $.001 ....
Cash, net of offering
costs of $832,551 ......... 908,000 908 5,000,440
Services rendered ........... 74,000 74 832,551
Exercise of options ......... 374,548 375 3,370
Common stock
subscriptions ............. 16,000 100,000
Sale of Underwriters warrants 80
Stock options and
warrants granted .......... 1,875,343
Amortization of
deferred compensation .....
Foreign currency
translation adjustment .... (19,667)
Net loss .................... (4,119,612)
--------- ----- ------ -------- ---------- ------- ----------
<CAPTION>
Deferred
Compensation Total
------------ -----
<S> <C> <C>
Balances at July 14, 1994
(date of inception) ....... $ -- $ --
Issuances of common
stock, par value $.001
Services rendered ........... 1,200
Cash ........................ 25,000
Net loss .................... (42,085)
----------- -----------
Balances at
December 31, 1994 ......... -- (15,885)
Common stock
contributed ............... --
Issuances of common
stock, par value $.001
Services rendered ........... 18,073
Stock options and
warrants granted .......... 600
Foreign currency
translation adjustment .... 22,652
Net loss .................... (896,663)
----------- -----------
Balances at
December 31, 1995 ......... -- (871,223)
Issuances of common
stock, par value $.001
Cash, net of offering
costs of $11,467 .......... 363,533
Foreign currency
translation adjustment .... 35,044
Net loss .................... (1,121,211)
----------- -----------
Balances at
December 31, 1996 ......... $ -- $(1,593,857)
Common stock
contributed ............... --
Issuances of common
stock, par value $.001 .... --
Cash, net of offering
costs of $832,551 ......... 5,001,348
Services rendered ........... (500,000) 332,625
Exercise of options ......... 3,745
Common stock
subscriptions ............. 100,000
Sale of Underwriters warrants 80
Stock options and
warrants granted .......... (1,875,343) --
Amortization of
deferred compensation ..... 972,567 972,567
Foreign currency
translation adjustment .... (19,667)
Net loss .................... (4,119,612)
----------- -----------
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Con't)

<TABLE>
<CAPTION>
Other Deficit
Common Stock Accumulated Accumulated
Common Stock Subscribed Additonal Comprehensive During
--------------------- ---------------- Paid-in Income Development
Shares Amount Shares Amount Capital (Loss) Stage
------ ------ ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1997 .............. 4,271,548 $ 4,272 16,000 $100,000 $ 8,117,275 $38,029 $ (6,179,571)
Common stock
subscriptions .................. 16,000 16 (16,000) (100,000) 99,984
Common Stock
forfeited ...................... (1,000,000) (1,000) 1,000
Transfer of temporary
equity to permanent
capital ........................ 15,000 15 77,141
Issuances of common
stock, par value $.001
Cash ............................. 41,667 42 24,958
Services rendered ................ 244,000 244 620,344
Stock options and
warrants granted
(cancelled) .................... (255,992)
Discount relating to
shares and warrants
issued ......................... 156,111 156 486,307
Amortization of
deferred compensation ..........
Warrant exchange ................. 432,000 432 (432)
Foreign currency
translation adjustment ......... 41,386
Net loss ......................... (5,578,540)
--------- ----------- ------ -------- ------------ ------- ------------
Balances at
December 31, 1998 .............. 4,176,326 $ 4,177 -- $ -- $ 9,170,585 $79,415 $(11,758,111)
xIssuances of common
stock, par value
$.001 (Unaudited)
Cash ............................. 314,774 314 225,140
Services rendered ................ 877,000 877 613,598
Exercise of options .............. 128,872 129 1,160
Stock options granted
(cancelled)
(Unaudited) .................... 665,095
Fair value of warrants associated
with financing agreements
(Unaudited) .................... 3,845,400
Amortization of deferred
compensation
(Unaudited) ....................
Foreign currency
translation adjustment
(Unaudited) .................... (16,350)
Net loss (Unaudited) ............. (2,244,857)
--------- ----------- ------ -------- ------------ ------- ------------
Balances at
June 30, 1999 .................. 5,496,972 $ 5,497 -- $ -- $ 14,520,978 $63,065 $(14,002,968)

<CAPTION>
Deferred
Compensation Total
------------ -----
<S> <C> <C>
Balances at
December 31, 1997 .............. $(1,402,776) $ 677,229
Common stock
subscriptions .................. --
Common Stock
forfeited ...................... --
Transfer of temporary
equity to permanent
capital ........................ 77,156
Issuances of common
stock, par value $.001
Cash ............................. 25,000
Services rendered ................ (620,588) --
Stock options and
warrants granted
(cancelled) .................... 255,992 --
Discount relating to
shares and warrants
issued ......................... 486,463
Amortization of
deferred compensation .......... 1,173,139 1,173,139
Warrant exchange ................. --
Foreign currency
translation adjustment ......... 41,386
Net loss ......................... (5,578,540)
---------- -----------
Balances at
December 31, 1998 .............. $ (594,233) $(3,098,167)
Issuances of common
stock, par value
$.001 (Unaudited)
Cash ............................. 225,455
Services rendered ................ (445,725) 168,750
Exercise of options .............. 1,289
Stock options granted
(cancelled)
(Unaudited) .................... (501,435) 163,660
Fair value of warrants associated
with financing agreements
(Unaudited) .................... 3,845,400
Amortization of deferred
compensation
(Unaudited) .................... 544,605 544,605
Foreign currency
translation adjustment
(Unaudited) .................... (16,350)
Net loss (Unaudited) ............. (2,244,857)
---------- -----------
Balances at
June 30, 1999 .................. $ (996,788) $ (410,215)
</TABLE>

See Notes to Consolidated Financial Statements.

F-7
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
From
Year Inception
Ended (July 14,
December 31, 1994) to
--------------------------- December 31,
1997 1998 1998
---- ---- ----
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................... $(4,119,612) $(5,578,540) $(11,758,111)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ................ 184,290 187,298 627,629
Amortization of note discount ................ -- 272,009 272,009
Translation adjustment ....................... -- -- (1,528)
Amortization of deferred compensation ........ 972,567 1,173,139 2,145,706
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 ....................... 478 (8,480) (8,317)
Other current assets ...................... (7,204) 99,113 (26,805)
Other assets .............................. (72,700) 69,000 (3,700)
Accounts payable .......................... (72,401) 624,547 730,315
Accrued expenses .......................... 22,297 958,098 1,081,884
Accrued severance ......................... 26,299 33,009 77,570
Interest payable .......................... (234,508) 90,920 90,920
----------- ----------- ------------
Net cash used by operating activities .......... (2,735,369) (2,235,231) (6,343,974)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ............ (175,507) (64,363) (675,763)
Increase in organization costs ................. -- -- (7,680)
----------- ----------- ------------
Net cash used by investing activities .......... (175,507) (64,363) (683,443)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ......... 5,520,837 125,000 6,035,570
Loans to officer ............................... 10,000 16,000 --
Deferred stock offering costs .................. (309,565) -- (475,664)
Deferred financing costs ....................... (19,000) (143,000) (405,411)
Proceeds from short-term borrowings ............ 200,000 206,553 1,256,155
Proceeds from long-term debt ................... -- 1,737,688 2,851,825
Repayment of short-term borrowings ............. (1,049,602) -- (1,049,602)
Repayments of long-term debt ................... (1,053,455) (15,839)
----------- ----------- ------------
Net cash provided by financing activities .... 3,299,215 1,926,402 7,107,563
----------- ----------- ------------
Effect of exchange rate changes on cash ........... (1,955) (2,403) (5,701)
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................... 386,384 (375,595) 74,445
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............................ 63,656 450,040 --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........ $ 450,040 $ 74,445 $ 74,445
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ..................................... $ 345,258 $ 42,609 $ 422,111
=========== =========== ============
Transfer of common stock issued with guaranteed
selling price to permanent capital ........... $ 77,156
===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-8
<PAGE>
TTR TECHNOLOGIES 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,
1998 1999 1999
---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ..................................................... $(2,035,147) $(2,244,857) $(14,002,968)
Adjustments to reconcile net loss to net
cash used by operating activities:

Depreciation and amortization .............................. 86,614 438,803 1,066,432
Amortization of note discount .............................. 64,122 187,493 459,502
Translation adjustment ..................................... -- -- (1,528)
Amortization of deferred compensation ...................... 371,175 544,605 2,690,311
Stock and warrants issued for services and
legal settlement ......................................... -- 163,660 747,458
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 ..................................... -- (29,945) (38,262)
Other current assets .................................... (19,858) 10,711 (16,094)
Other assets ............................................ 69,000 -- (3,700)
Accounts payable ........................................ 229,414 (139,103) 759,962
Accrued expenses ........................................ 6,699 182,191 1,095,325
Accrued severance ....................................... 42,130 -- 77,570
Interest payable ........................................ 17,199 90,276 181,196
----------- ----------- ------------
Net cash used by operating activities ........................ (1,323,996) (796,166) (7,140,140)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed assets .......................... -- 2,748 2,748
Purchases of property and equipment .......................... (34,227) 0 (675,763)
Increase in organization costs ............................... -- -- (7,680)
----------- ----------- ------------
Net cash (used) provided by investing activities ............. (34,227) 2,748 (680,695)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ....................... 100,000 239,994 6,275,564
Stock offering costs ......................................... -- -- (475,664)
Deferred financing costs ..................................... (92,332) (132,530) (537,941)
Proceeds from other loans .................................... (78,000) -- --
Proceeds from short-term borrowings .......................... 1,080,487 -- 1,356,155
Proceeds from long-term debt ................................. -- -- 2,751,825
Proceeds from issuance of convertible debentures ............. -- 1,000,000 1,000,000
Repayment of short-term borrowings ........................... -- (211,005) (1,260,607)
Repayments of long-term debt ................................. (3,890) (57,617) (1,162,927)
----------- ----------- ------------
Net cash provided by financing activities .................... 1,006,265 838,842 7,946,405
----------- ----------- ------------
Effect of exchange rate changes on cash ......................... (606) -- (5,701)
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................................. (352,564) 45,424 119,869
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .......................................... 450,040 74,445 --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 97,476 $ 119,869 $ 119,869
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ................................................... $ 4,519 $ 2,500 $ 424,611
=========== =========== ============
Transfer of common stock issued with guaranteed
selling price to permanent capital ......................... $ 77,156
===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-9
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

NOTE 1 -- DESCRIPTION OF BUSINESS

TTR Inc. (the "Company") was incorporated on July 14, 1994 under the laws
of the State of Delaware. In December 1998 the Company amended its certificate
of incorporation to change its name to TTR Technologies, Inc.

TTR Technologies Ltd., ("TTR Ltd.") was formed under the laws of the State
of Israel on December 5, 1994 as a wholly owned research and development
subsidiary of the Company.

The Company is engaged in the design, development and commercialization of
proprietary software security products.

The Company is considered to be in the development stage and has earned
limited revenues to date. Business activities to date have focused on product
and marketing research, product development, and raising capital.

The Company anticipates that it will continue to incur significant
operating costs and losses in connection with the development of its products
and increased marketing efforts and is subject to other risks affecting the
business of the Company (see Note 3).

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, TTR Ltd. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain consolidated
financial amounts have been reclassified for consistent presentation.

Use of Estimates

Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported revenues
and expenses. Actual results could vary from the estimates that were used.

Cash Equivalents

Cash equivalents consist of short-term, highly liquid debt investments
that are readily convertible into cash with original maturities when purchased
of three months or less.

Fair Value of Financial Instruments

Substantially all of the Company's financial instruments, consisting
primarily of cash equivalents, current receivables, accounts payable and notes
payable, are carried at, or approximate, fair value because of their short-term
nature or because they carry market rates of interest.

Revenue recognition

In October 1997, the American Institute of Certified Public Accountants
recently issued Statement of Position (SOP) 97-2, "Software Revenue
Recognition", which supersedes SOP 91-1. SOP 97-2 provides guidance in
recognizing revenue on software transactions and is required for transactions
entered into after December 15, 1997.

The Company recognizes revenues from software transactions upon delivery
to the customer. Revenues from maintenance and engineering services will be
recognized over the term of the respective contracts.

F-10
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

Stock Based Compensation

Compensation expense arising from stock grants, and options and warrants
issued at exercise prices below the quoted market price of the underlying Common
Stock as of the grant date, is recognized over the vesting periods of the
related grants. Such stock-based compensation resulted in an aggregate charge to
operations of approximately $1,305,000, $1,173,000, $372,000 and $708,000 for
the years ended December 31, 1997 and 1998 and for the six months ended June 30,
1998 and 1999, respectively.

Foreign Currency Translations

The financial statements of TTR Ltd. have been translated into U.S.
dollars in accordance with Statement No. 52 of the Financial Accounting
Standards Board (FASB). Assets and liabilities have been translated at year-end
(period-end) exchange rates and statement of operations has been translated at
average rates prevailing during the year. The translation adjustments have been
recorded as a separate component of stockholders' deficit (cumulative
translation adjustment).

Net loss per share

The Company has adopted the provisions of Statement of Financial
Accounting Standards No.128 (SFAS 128) "Earnings per Share". 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 1998 and 1997 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 (see Note 9).

Statement of Cash Flows

For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents.

Depreciation and Amortization

Equipment, vehicles and leasehold improvements are stated at cost.
Equipment and vehicles are depreciated over the estimated useful lives of the
related assets, which range from three to seven years. Leasehold improvements
are amortized over the related lease term. Depreciation is computed on the
straight-line method.

Research and Development Costs

Research and development expenditures are charged to operations as
incurred. Software development costs are required to be capitalized when a
product's technological feasibility has been established by completion of a
working model of the product and ending when a product is available for general
release to customers. To date, completion of a working model of the Company's
products and general release have substantially coincided. As a result, the
Company has not capitalized any software development costs since such costs have
not been significant.

Income Taxes

The Company uses the liability method to determine its income tax expense
as required under the Statement of Financial Accounting Standards No. 109, (SFAS
109). SFAS 109 requires the establishment of a deferred tax asset or liability
for the recognition of future deductible or taxable amounts and operating loss

F-11
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

carryforwards. Deferred tax expense or benefit is recognized as a result of the
changes in the assets and liabilities during the year. Valuation allowances are
established when necessary, to reduce deferred tax assets, if it is more likely
than not that all or a portion of it will not be realized.

Long-lived assets

In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company
records impairment losses on long-lived assets used in operations, including
goodwill and intangible assets, when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.

Stock Options

Under SFAS No. 123, "Accounting for Stock-based Compensation", the Company
must either recognize in its financial statements costs related to its employee
stock-based compensation plans, such as stock option and stock purchase plans,
using the fair value method, or make pro forma disclosures of such costs in a
footnote to the financial statements. The Company has elected to continue to use
the intrinsic value-based method of APB Opinion No. 25, as allowed under SFAS
No. 123, to account for its employee stock-based compensation plans, and to
include the required pro forma disclosures based on fair value accounting.

Comprehensive Income (loss)

In January 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," which establishes standards for reporting the components of
comprehensive income. The foreign currency translation adjustment is the
Company's only component of comprehensive income.

NOTE 3 -- GOING CONCERN

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has a limited operating history, has sustained losses since its
inception and has an accumulated deficit of $11,758,111 and $14,002,968 at
December 31, 1998 and June 30, 1999, respectively. The Company faces a number of
risks and uncertainties regarding its business, including among other factors,
the demand and market acceptance of its products, dependence on a single product
line, the effects of technological change, and the development of new products.
The Company anticipates that it will continue to incur significant operating
costs and losses in connection with the development of its products and
increased marketing efforts which raises substantial doubt about its ability to
continue as a going concern.

The Company is continuing to pursue various alternatives for additional
financing. From April 1998 to April 1999, the Company realized net proceeds of
approximately $1,820,000 from various private placements. In May 1999, the
Company entered into an agreement for the sale of up to $2,000,000 of 10%
convertible debentures (see Note 14).

During 1998, due to its financial difficulties, the Company was forced to
terminate most of its employees. The abovementioned financing will allow the
Company to bring several suppliers and vendors current and to maintain
operations through November 1999. Thereafter, the Company will need additional
financing.

The ability of the Company to continue as a going concern is dependent
upon the success of the Company's products and its access to sufficient funding
to enable it to continue operations. There is no

F-12
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

assurance that sufficient revenues will be generated or that adequate financing
will be available to the Company. Insufficient funds from operations or the
inability to obtain adequate financing would have a material adverse effect on
the Company.

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

December 31, June 30,
1998 1999
---- ----
Leasehold improvements ....................... $109,350 $111,604
Office equipment ............................. 150,608 157,534
Computer equipment ........................... 205,477 202,397
Vehicles ..................................... 84,601 86,345
-------- --------
550,036 557,880
Less: Accumulated depreciation ............... 238,543 299,381
-------- --------
$311,493 258,499
======== ========

Depreciation expense was $113,858, $88,311, $76,553 and $52,653 for the
years ended December 31, 1998 and 1997, and for the six months ended June 30,
1998 and 1999, respectively.

NOTE 5 -- ACCRUED EXPENSES

Accrued expenses consist of the following:

December 31, June 30,
1998 1999
---------- ----------
Accrued payroll and related amounts .......... $ 749,371 $ 815,028
Taxes ........................................ 24,257 --
Accrued interest ............................. 90,920 181,196
Other ........................................ 191,797 23,543
---------- ----------
$1,056,345 $1,019,767
========== ==========

NOTE 6 -- ACCRUED SEVERANCE PAY

Under Israeli law, TTR Ltd. is required to make severance payments to
dismissed employees (including officers) and to employees leaving employment
under certain other circumstances. This liability is calculated based on the
years of employment for each employee, in accordance with the "severance pay
laws." The Company's liabilities for required severance payments are partially
covered by funding into severance pay funds and the purchase of insurance
policies.

F-13
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

NOTE 7 -- DEBT FINANCINGS

Short-term Borrowings

December 31, June 30,
1998 1999
---- ----
(a) Promissory Note (net of discount of $42,555 and -0-) . $ 57,445 $100,000
(b) Other loans .......................................... 81,455 11,750
Bank Loan ............................................ 125,435 --
-------- --------
$264,335 $111,750
======== ========

- ----------

(a) In September 1998, the Company issued a short-term non-interest bearing
$100,000 promissory note to a private investor. In connection with the
loan, the Company also sold to the investor 111,111 shares of Common Stock
at par. For financial reporting purposes, the Company recorded a note
discount totaling $87,500, to reflect the value of the stock. The discount
is being amortized on a straight-line basis over the term of the note. The
note became due on March 31, 1999 and has not been formerly extended.

(b) This amount represents non-interest bearing advances which were used
primarily to purchase 100,517 additional shares of Common Stock in
February 1999.

Long-Term Debt

December 31, June 30,
1998 1999
----------- -----------
(a) Bank loan ...................................... $ 26,563 $ 19,774
(b) 10% Promissory Notes (net of discount
of $130,475 and $6,123) ........................ 1,332,025 1,406,377
(c) 8% Promissory Notes (net of discount
of $41,424 and $26,961) ........................ 108,576 129,162
---------- ----------
1,467,164 1,555,313
---------- ----------
Less: current portion .............................. 873,153 1,518,879
---------- ----------
$ 594,011 $ 36,434
========== ==========

- ----------

(a) These loans are denominated in "New Israeli Shekel" (NIS), bear interest
at the Israeli prime rate (15% at December 31, 1998) plus 2.4%-3% per
annum, and are secured by substantially all the assets of TTR Ltd.
Principal payments are due in various installments through 2001.

(b) From April through August 1998, the Company realized gross proceeds of
$1,462,500 from a private offering of 29.25 Units, each Unit consisting of
a $50,000 10% Promissory Note and Warrants to purchase 11,500 shares of
Common Stock. For financial reporting purposes, the Company recorded a
total discount of $357,450, to reflect the value of the Warrants. The
discount is being amortized on a straight-line basis over the terms of the
respective notes. The notes and accrued interest are due at the earlier of
one year or 30 days following any public or private equity or debt
financing exceeding $1,000,000.

As of June 30, 1999, a total of $1,122,500 of note principal plus accrued
interest became due. The Company has obtained extensions for one
additional year with respect to note principal totaling $562,500 and is
awaiting approval to extend from the other note-holders. In consideration
of the extension, the Company has reduced the warrant exercise prices to
$1.50 per share.

F-14
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

(c) In December 1998, the Company realized gross proceeds of $150,000 from a
private offering of 5 Units, each Unit consisting of a $30,000 8%
Promissory Note, 9,000 shares of Common Stock and Warrants to purchase an
additional 3,000 shares. For financial reporting purposes, the Company
recorded a total note discount of $41,513, to reflect the value of the
Stock and Warrants. The discount is being amortized on a straight-line
basis over the term of the notes. The notes and accrued interest are due
at the earlier of two years or 5 days following any public or private
equity or debt financing exceeding $800,000.

The aggregate maturities of long-term debt for the next three years ending
December 31, are as follows: 1999 - $873,153; 2000 - $586,541; and 2001 -
$7,470.

10% Convertible Debentures

In May 1999, the Company issued $1,000,000 of its 10% Convertible
Debentures to private investors. The Debentures were issued pursuant to the
terms of an agreement which provides that, subject to certain conditions, the
investors will purchase an additional $1,000,000 of Debentures no later than
five days after the effective date of a registration statement covering the
Common Stock into which the Debentures may be converted. In July 1999, the
investors pre-funded $400,000 of this obligation. The Debentures mature on April
30, 2001.

The Debentures 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, subject to certain minimum conversion rates.
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, subject to certain maximums and expire in April 2002.

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 to be
amortized on a straight-line basis over the term of the Debentures.

F-15
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

NOTE 8 -- INCOME TAXES

At December 31, 1998, the Company had available $3,750,000 of net
operating loss carryforwards for U.S. federal income tax purposes which expire
in the years 2014 through 2019, and $5,471,000 of foreign net operating loss
carryforwards with no expiration date. Due to the uncertainty of their
realization, no income tax benefit has been recorded by the Company for these
net operating loss carryforwards as valuation allowances have been established
for any such benefits. The use of the U.S. federal net operating loss
carryforwards is subject to limitations under section 382 of the Internal
Revenue code pertaining to changes in stock ownership.

Significant components of the Company's deferred tax assets for U.S.
federal and Israel income taxes are as follows:

December 31,
1998
-----------
Net operating loss carryforwards ................. $ 3,094,809
Research and development ......................... 227,000
Stock based compensation ......................... 40,313
Accrued vacation and severance ................... 32,000
-----------
Total deferred tax assets ...................... 3,394,122
Valuation allowance ............................ $(3,394,122)
-----------
Net deferred tax assets ........................ $ --
===========

Pre-tax losses from foreign (Israeli) operations were $2,927,080 and
$5,471,000 for the years ended December 31, 1997 and 1998, respectively.

NOTE 9 -- STOCKHOLDERS EQUITY

Stock Options

1996 Incentive and Non-qualified Stock Option Plan

In July 1996, the Board of Directors adopted the Company's Incentive and
Non-qualified Stock Option Plan (the "Plan") and has reserved up to 450,000
shares of Common Stock for issuance thereunder. In December 1998, the Plan was
amended to increase the number of shares available for grant to 750,000. The
Plan provides for the granting of options to officers, directors, employees and
advisors of the Company. The exercise of incentive stock options ("ISOs") issued
to employees who are less than 10% stockholders shall not be less than the fair
market value of the underlying shares on the date of grant or not less than 100%
of the fair market value of the shares in the case of an employee who is a 10%
stockholder. The exercise price of restricted stock options shall not be less
than the par value of the shares to which the option relates. Options are not
exercisable for a period of one year from the date of grant. Thereafter, options
may be exercised as determined by the Board of Directors, with maximum terms of
ten and five years, respectively, for ISOs issued to employees who are less than
10% stockholders and employees who are 10% stockholders. The Plan will terminate
in 2006.

Non-Executive Directors Stock Option Plan

In July 1998, the Board of Directors adopted the Non-Executive Directors
Stock Option Plan (the "Directors' Plan") and has reserved up to 25,000 shares
of common stock for issuance thereunder. The Directors Plan provides for the
grant of options to directors who are not otherwise employed by the

F-16
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

Company. Options are exercisable upon the date of grant and expire five years
from the date of the grant. Upon the termination of director, the options expire
within two months of such termination. The exercise price of the option will be
the fair market value of the share on the date of the grant of the option. The
Directors' Plan will terminate in 2008. As of December 31, 1998, no options had
been granted under the Directors' Plan.

A summary of the status of the Plan as of December 31, 1998 and 1997 and
changes during the years ending on that date are presented below:

Range of
Exercise
Shares Prices
--------- -----------
Options outstanding, January 1, 1997 ............. 5,000 6.00
Granted ....................................... 175,600 5.00-13.94
Canceled ...................................... (19,500) 7.00-13.94
Exercised ..................................... -- --
-------- -----------
Options outstanding, December 31, 1997 ........... 161,100 $5.00-13.88
Granted ....................................... 291,600 3.03-7.00
Canceled ...................................... (294,950) 3.03-13.88
Exercised ..................................... -- --
-------- -----------
Options outstanding, December 31, 1998 ........... 157,750 $4.00-13.88
======== ===========
Shares of common available for future grant ...... 592,250
========

The following table summarizes information about stock options under the
Plan outstanding at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Weighted Average Options Exercisable
-------------------------------------- Weighted Average
Remaining -----------------------
Number Contractual Exercise Number Exercise
Range of price Outstanding Life Price Exercisable Price
- ------------- ----------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
$ 4.00 - $6.00 106,000 8.54 $ 5.13 19,975 $ 5.23
7.00 8,000 8.07 7.00 1,875 7.00
10.00 - 13.88 43,750 8.20 10.33 10,938 10.33
- -------------- ------- ---- ------ ------ ------
$ 4.00-$13.88 157,750 8.42 $ 6.66 32,788 $ 7.03
============= ======= ==== ====== ====== ======
</TABLE>

The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for all of its employee stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the accompanying
financial statements for stock options issued to employees where the exercise
price of the option equals or exceeds the fair value of the underlying common
stock as of the grant date.

In March 1997, in connection with an employment agreement, the Company
granted 60,000 options with an exercise price below the fair value of the
underlying common stock. The issuance of the options resulted in a charge to
deferred compensation in the amount of $300,000 which is being amortized over
the four year vesting period.

A total of 24,000 stock options granted under the Plan to non-employees in
1997 resulted in a charge to deferred compensation of $53,032, which is being
amortized over the four-year vesting period.

F-17
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

Weighted-average grant date fair value of options granted in 1998 and
1997, under the Black-Scholes option pricing model, was $1.14 and $5.82 per
option, respectively.

Other Option Grants

In 1997, the Company issued options to purchase 217,473 shares to the
Chief Executive Officer of TTR Ltd. The options have an exercise price of $.01
per share and vest over a four-year period. The issuance of the options
resulted in a charge to deferred compensation expense of $1,522,300 which was
being amortized over the service period. In November 1998 the officer resigned
and a settlement agreement was executed. Pursuant to the agreement, 48,328
options were cancelled and the remaining 169,145 become exercisable at various
dates in 1999.

In 1998, the Company issued options to purchase 250,000 shares to the
Company's Chief Executive Officer. The options have an exercise price of $.93
per share, which was equal to the fair value of the share on the date of the
grant, and vest immediately.

The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost for all of the Company's stock-based compensation
grants been determined in a manner consistent with the fair value approach
described in SFAS No. 123, the Company's net loss and net loss per share as
reported would have been increased to the pro forma amounts indicated below:

Net loss 1997 1998
----- -----
As reported ................................. $(4,119,612) $(5,578,540)
Proforma .................................... $(4,342,194) $(5,635,574)

Loss per share
As reported ................................. $(1.35) $(1.54)
Proforma .................................... $(1.42) $(1.56)

The fair value of each option granted in 1997 and 1998 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:

1997 1998
---- ----
Risk free interest rates ............................ 6.23% 5.51%
Expected option lives ............................... 2.5 years 2.5 years
Expected volatilities ............................... 46.5% 46.5%
Expected dividend yields ............................ None None

Warrants

o In 1994 and 1995, the Company granted warrants to consultants to
purchase 200,000 shares of Common Stock at $.01 per share. These
warrants were exercised in February 1997.

o In April 1996, in connection with a private placement, the Company
issued warrants to purchase an additional 1,000,000 shares of Common
Stock. The warrants were exercisable for a period of three years
commencing February 1997 at an exercise price of $7.00 per share. In
July 1998, the warrants were exchanged for 400,000 shares of Common
Stock.

o In February 1997, in connection with the Company's initial public
offering the Company sold to the underwriter, for $80, five-year
warrants to purchase up to an additional 80,000 shares of the
Company's Common Stock at an exercise price equal to $11.20 per
share. In July 1998, the warrants were exchanged for 32,000 shares
of Common Stock.

F-18
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

o In December 1997, in connection with a private placement, the
Company issued warrants to purchase an additional 33,000 shares of
Common Stock. The warrants are exercisable for a period of four
years at an exercise price of $7.80 per share. However, in lieu of
cash payments for exercising the shares, the investor is entitled to
accept a smaller number of shares of Common Stock based on the
spread between the exercise price and the then public market price
of the Company's Common Stock.

o In April 1998, in connection with a proposed public offering of
additional shares of Common Stock, the Company issued to an
underwriter four-year Warrants to purchase up to 25,000 shares of
the Company Stock at an exercise price of $5.63.

o From April through August 1998, in connection with a private
placement, the Company issued warrants to purchase an additional
336,375 shares of Common Stock. The warrants are exercisable for a
period of four years at exercise prices ranging from $3.41 to $6.47
per share. In consideration of extending the term of the related
notes, the Company has reduced the exercise price to $1.50 per share
on a total of 117,875 warrants.

o In June 1998 the Company issued warrants to purchase 25,000 shares
of Common Stock to a consultant pursuant to a one-year consulting
agreements. The warrants were exercisable for a period of four years
at an exercise price of $5.75. In April 1999, the exercise price was
reduced to $1.50 per share

o In December 1998, in connection with a private placement, the
Company issued warrants to purchase an additional 15,000 shares of
Common Stock. The warrants are exercisable for a period of five
years at an exercise price of $6.00.

At December 31, 1998, the Company had outstanding warrants to purchase a
total of 434,375 shares of Common Stock with exercise prices ranging from $1.50
to $7.80 per share.

Stock Issuances

During the year ended December 31, 1997, the Company completed the
following common stock transactions:

o In February 1997, the Company completed an initial public offering
of 860,000 shares of its Common Stock and realized net proceeds of
approximately $4,700,000 after stock offering costs. The Company
also made an advance payment of $120,000 to the underwriter for a
two-year management and financial consulting agreement.

o In March 1997, the Company issued 5,000 shares of Common Stock to a
consultant and recorded a $50,000 compensation charge.

o In March 1997, the Company issued 50,000 shares of Common Stock to
an employee, pursuant to a one-year employment agreement. The
Company recorded deferred compensation in the amount of $500,000
relating to the issuance of the shares, and amortized this over the
term of the agreement.

o In April 1997, the Company issued 19,000 shares of Common Stock to
two consultants and recorded a $282,625 compensation charge.

F-19
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

o On December 24, 1997, the Company entered into a stock subscription
agreement for the sale of 64,000 shares of Common Stock for an
aggregate purchase price of $400,000. Pursuant to the agreement,
48,000 shares were paid for and issued on that date and the
remaining 16,000 shares were paid for and issued on February 20,
1998. The Company also issued warrants to the investor to purchase
an additional 33,000 shares of Common Stock.

During the year ended December 31, 1998, the Company completed the
following common stock transactions:

o An aggregate of 250,000 shares of the Company's Common Stock, owned
beneficially by its President, and designated as escrow shares were
forfeited and returned to the Company. In June 1998, the Company's
President waived his rights to the remaining 750,000 escrowed
shares.

o During 1998, the Company issued a total of 244,000 shares of Common
Stock and 25,000 warrants to various consultants for services
rendered. The value of the services totaling $642,700 is being
amortized over the one-year contract terms.

o In December 1998, the Company entered into an agreement with a
private investor for the sale of an additional 150,758 shares of
Common Stock. The total purchase price was $90,455, of which $25,000
was received in 1998.

During the six months ended June 30, 1999, the Company completed the
following common stock transactions:

o 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 value of
the services totaling $445,725 is being amortized over the one-year
contract terms.

o In January 1999, the Company issued 250,000 shares of Common Stock
as payment of an outstanding liability in the amount of $168,750.

o In February and April 1999, the Company received $160,000 from the
issuance of an additional 205,682 shares of its Common Stock.

NOTE 10 -- COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE

In 1997, the Company and TTR Ltd. 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.

In May 1997, pursuant to a settlement agreement, the Company issued to the
individual 15,000 shares of Common Stock subject to a guaranteed selling price
of $15.50 per share. In 1998, the individual sold his shares in the open market
for $77,156, and the Company paid the shortfall of $155,344, as required by the
guarantee. In 1997, the Company recorded an expense of $232,500 in connection
with the settlement agreement.

F-20
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

Royalties

TTR Ltd. is committed to pay royalties to the Office of the Chief
Scientist of the Government of Israel (OCS) on proceeds from sales of products
of which the OCS has participated by way of grants. The royalties are payable at
the rate of 3% for the first three years of product sales, 4% for the following
three years, and 5% thereafter up to a maximum of 100% of the grant. The total
amount of grants received at December 31, 1998 was $210,000.

The research and development grants are presented in the statement of
operations as a reduction of research and development expenses.

The refund of the grant is contingent on future sales and the Company has
no obligation to refund these grants if sufficient sales are not generated.

Operating Leases

The Company and TTR Ltd. have each entered into lease agreements for
office space expiring through 2002. Future minimum rentals on these leases as of
December 31, 1998 are as follows:

December 31,
- ------------
1999 ......................................................... $ 68,549
2000 ......................................................... 68,549
2001 ......................................................... 40,785
2002 ......................................................... 10,263
--------
$188,146
========

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 the Company's
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 its stock.
The shareholder is seeking the return of its 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.

F-21
<PAGE>

TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended June 30,
1998 and 1999 is Unaudited]

NOTE 12 -- GEOGRAPHIC DATA

<TABLE>
<CAPTION>
U. S. % of Total Israel % of Total
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1998:
Revenue $ -- -- $ 54,922 100%
Operating loss (2,162,337) 39.65% (3,033,901) 60.35%
Identifiable assets 100,966 24.05% 318,867 75.95%

For the year ended December 31, 1997:
Revenue -- -- -- --
Operating loss (1,495,108) 38.68% (2,370,628) 61.32%
Identifiable assets 633,285 53.28% 555,342 46.72%
</TABLE>

NOTE 13 -- RELATED PARTY TRANSACTION

In October 1997, TTR Ltd. entered into a two-year management agreement
with Ultimus LTD, (Ultimus) an Israeli company. Under the agreement, the Company
provided management and administrative services relating to Ultimus' day-to-day
operations and earned fees totaling $75,000. The agreement was terminated in
April 1998. An ex-officer of the Company holds approximately 7.5% of the
outstanding shares of Ultimus and, together with the Company's Chairman, served
on their Board of Directors.

NOTE 14 -- SUBSEQUENT EVENTS

Stock Grants

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.

Warrants

In July 1999, the Company issued 400,000 warrants exercisable at $2.75 to
a consultant pursuant to a three-month consulting agreement.

F-22
<PAGE>

Prospective investors may rely only on the information contained in this
prospectus. Neither we nor the selling stockholders have authorized anyone to
provide prospective investors with information different from that contained in
this prospectus. The information in this prospectus is correct only as of the
date of this prospectus, regardless of the time of delivery of this prospectus
or any sale of these securities.

TTR TECHNOLOGIES, INC.

Up to 12,055,513 shares of Common Stock

-----------------------------------

PROSPECTUS

-----------------------------------

September __, 1999

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law, among other things,
and subject to certain conditions, authorizes TTR to indemnify its officers and
directors against certain liabilities and expenses incurred by such persons in
connection with the claims made against them as a result of their being an
officer or director. TTR's By-Laws provide that TTR will indemnify its
directors, executive officers, other officers, employees and agents to the
fullest extent permitted by Delaware law. TTR shall indemnify any person who is
or was a director or officer of TTR and is a party or is threatened to be made a
party to any action or proceeding to the fullest extent permitted by Delaware
law.

TTR's Certificate of Incorporation, as amended, provides for the
elimination of liability for monetary damages for breach of the director's
fiduciary duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to TTR, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provisions
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws

Item 25. Other Expenses of Issuance and Distribution.

The following expenses will be paid by TTR, and not the selling
stockholders, in connection with the distribution of the securities registered
hereby. All of such expenses, except for the SEC registration fee, are
estimated.

SEC Registration Fee ............................................... $ 9,919
Legal Fees ......................................................... 50,000
Accountants' Fees and Expenses ..................................... 10,000
Printing Expenses .................................................. 7,000
Blue Sky Fees and Expenses ......................................... 1,000
Transfer Agent Fees and Expenses ................................... 1,000
Miscellaneous ...................................................... 1,000
-------
Total ............................................................ $79,919
=======

Item 26. Recent Sales of Unregistered Securities.

The following paragraphs set forth certain information with respect to all
securities sold by TTR within the past three years without registration under
the Securities Act. The information includes the names of the purchasers, the
dates of issuance, the title and number of securities sold and the consideration
received by TTR for the issuance of these shares.

1. (a) In September 1996, TTR agreed to issue 217,473 options to an
officer and director of TTR. The options are exercisable at $.01 per share until
September 2006 and are subject to a four-year vesting schedule. In connection
with such person's resignation in December 1998, we agreed that he will be
entitled to exercise options for a total of 169,145 shares.

(b) There were no underwriters with respect to the above transaction.

(d) TTR 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.

II-1
<PAGE>

2. (a) From December 1996 through January 1997, TTR issued short-term 15%
promissory notes in an aggregate principal amount of $450,000 to certain
accredited investors.

(b) TTR paid fees in the aggregate amount of $45,000 to placement agents.

(c) TTR believes that the notes were issued in a transaction not involving
a public offering in reliance upon an exemption from registration provided by
Sections 4(2) and 4(6) of the Securities Act, and Regulation D promulgated
thereunder.

3. (a) In connection with TTR's initial public offering, TTR issued to
First Metropolitan Securities, Inc. warrants to purchase up to 80,000 shares of
common stock at an exercise price per share of $11.20. In July 1998, the
Warrants were exchanged for 32,000 shares of common stock.

(b) There were no underwriters with respect to the above transaction.

(d) TTR believes that the warrants and the shares for which they were
exchanged were issued in transactions not involving a public offering in
reliance upon an exemption from registration provided by Section 4(2) of the
Securities Act.

4. (a) In March 1997, TTR issued 5,000 shares of common stock to a former
consultant to TTR.

(b) There were no underwriters with respect to the above transaction.

(d) 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.

5. (a) In March 1997, TTR issued 50,000 shares of common stock to an
employee, of which 25,000 shares vested on July 31, 1997 and the remaining
25,000 shares vested on January 31, 1998.

(b) There were no underwriters with respect to the above transaction.

(d) 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.

6. (a) In April 1997, TTR issued 15,000 and 4,000 shares of common stock
to two private investors.

(b) There were no underwriters with respect to the above transaction.

(d) TTR believes that the shares were issued in transactions not involving
a public offering in reliance upon an exemption from registration provided by
Section 4(2) of the Securities Act.

7. (a) In May 1997, TTR issued 15,000 shares of common stock to a former
consultant to TTR.

(b) There were no underwriters with respect to the above transaction.

(d) 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.

8. (a) In December 1997, TTR issued to a private investor 64,000 shares of
common stock and four year warrants to purchase 33,000 shares of common stock at
an exercise price per share of $7.80.

(b) There were no underwriters with respect to the above transaction.

(d) TTR 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.

II-2
<PAGE>

9. (a) In April 1998, TTR issued to a consultant four 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.

(d) 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.

10.(a) In July 1998, TTR completed a private placement of 10% promissory
notes for an aggregate amount of $1,462,500. In connection therewith TTR issued
warrants to purchase an aggregate of 336,375 shares of common stock at an
exercise price equal to 115% of the price per share of common stock in TTR's
then proposed public offering or as the date of grant if no offering took place
by December 31, 1998. The exercise price was subsequently amended to $1.50 per
share.

(b) TTR paid commissions to the placement agents of approximately $96,000.

(c) TTR believes that the promissory notes 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.

11.(a) In June 1998, TTR issued to three consultants a total of 125,000
shares of Common Stock and warrants for an additional 25,000 shares of common
stock. The warrants are exercisable at a price per share equal to $1.50.

(b) There were no underwriters with respect to the above transaction.

12.(a) In July 1998 TTR issued to certain holders of warrants issued in
April 1996 an aggregate of 400,000 shares in exchange for warrants to purchase
up to 1,000,000 shares at an exercise price of $7.00.

(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.

13.(a) In September 1998, TTR issued to an investor 111,111 shares of
common stock for $100,000.

(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.

14.(a) In October and November 1998, TTR issued to two consultants an
aggregate of 119,000 shares of common stock.

(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.

15.(a) In December 1998, TTR completed a private placement of an aggregate
of 45,000 shares of common stock and warrants to purchase an aggregate of 15,000
shares of common stock at an exercise price of $6.00 per share.

(b) TTR paid commissions to placement agents of approximately $19,500.

(c) TTR 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.

16. (a) In December 1998, TTR issued to an investor 150,758 shares at a
price per share of $0.60.

II-3
<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.

17.(a) In January 1999, TTR issued to a consultant 297,000 shares of
common stock.

(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.

18.(a) In January 1999, TTR issued warrants to purchase up to 10,000
shares at an exercise price per share of $1.75 to a consultant and an aggregate
of 380,000 shares of common stock to three other consultants.

(b) There were no underwriters with respect to the above transaction.

19.(a) In February 1999, TTR issued to certain employees warrants to
purchase an aggregate of 196,000 shares, at an exercise price per share of
$0.01.

(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.

20.(a) In February and March 1999, TTR issued to certain investors an
aggregate of 130,682 shares at a price per share of $0.86 and issued to a
consultant 200,000 shares of common stock.

(b) There were no underwriters with respect to the above transactions.

(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.

21.(a) In April 1999 TTR issued to a consultant 75,000 shares at a price
of $0.60 per share.

(b) There were no underwriters with respect to the above transaction.

(c) TTR 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.

22.(a) In May and July 1999, TTR issued $1,000,000 and $400,000,
respectively, 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 $128,000.

(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.

23.(a) In May 1999 TTR issued to a consultant options to purchase up to an
aggregate of 1,300,000 shares at a nominal exercise price per share.

(b) There were no underwriters with respect to the above transaction.

(c) TTR 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.

24.(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.

II-4
<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.

25. (a) TTR issued, pursuant to its 1996 Option Plan, the following stock
options:

(i) In July 1996, TTR issued 5,000 options to a former director of
TTR. The options are exercisable at $6.00 per share until January 15,
2001.

(ii) In January through February 1997 TTR issued to eight employees
and two consultants options to purchase in the aggregate 34,000 shares of
common stock. The options are exercisable at $7.00 per share until 2006.

(iii) In March 1997, TTR issued to an employee (A) non-qualified
options to purchase up to 40,000 shares of common stock at an exercise
price per share of $10.00 and (B) incentive stock options to purchase up
to 60,000 shares of common stock at an exercise price per share of $5.

The options are exercisable until 2006.

(iv) In May 1997, TTR issued to a total of three consultants and
employees options to purchase 15,000, 5,000 and 3,000 shares of common
stock, respectively, at an exercise price per share equal to $13 7/8, $13
15/16 and $14 1/2, respectively. All of these issuances were subsequently
canceled and such consultants and employees were issued on December 31,
1997 options for an identical number of shares of common stock at an
exercise price per share of $5 13/16. The options are exercisable until
2006.

(v) In July and October 1997, TTR issued to a consultant and an
employee options to purchase 2,000 and 2,500 shares of common stock,
respectively, at an exercise price per share equal to $11 and $11 1/4,
respectively. Such issuances were subsequently canceled and the employees
were issued on December 31, 1997 options for an identical number of shares
of common stock at an exercise price per share of $5 13/16. The options
are exercisable until 2006.

(vi) In November 1997 TTR issued to an employee options to purchase
1,600 shares of common stock, at an exercise price per share of $10 1/4.
Such issuance was subsequently canceled and the employee was issued on
December 31, 1997 options for an identical number of shares of common
stock at an exercise price per share of $5 13/16. The options are
exercisable until 2006.

(vii) In January 1998, TTR issued to a consultant options to
purchase 4,000 shares of common stock, at an exercise price per share of
$5 7/8. The options are exercisable until 2006.

(viii) In April 1998, TTR issued to employees options to purchase an
aggregate of 7,000 shares of common stock at an exercise price per share
of $5 3/8.

(ix) In June 1998, TTR issued to an employee options to purchase
4,000 shares of common stock at an exercise price per share of $4 5/8.

(x) In July 1998, TTR issued to an employee options to purchase
250,000 shares of common stock at an exercise price per share of $2 15/16.
In October 1998, these options were exchanged for options to purchase
250,000 shares at an exercise price of $15/16. In July 1999, TTR issued
150,000 shares in exchange for such options in connection with the
termination of, and settlement of certain claims by, such employee.

(xi) In June 1999, TTR issued to an employee options to purchase
235,000 shares of common stock, vesting in 36 equal monthly installments,
for a nominal exercise price.

(b) There were no underwriters with respect to the above transactions.

(d) TTR believes that the securities were issued in transactions not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.

II-5
<PAGE>

Item 27. Exhibits

3.1 Certificate of Incorporation of TTR, as amended.(3)

3.2 By-Laws of TTR, as amended.(3)

4.1 Specimen Common Stock Certificate.(1)

4.2.1 Form of 10% Convertible Debenture due April 30, 2001**

4.2.2 Form of 10% Promissory Note dated variously as of April through August
1998 between Registrant and each of certain investors, in an aggregate
principal amount of $1,462,500.(3)

4.2.3 Form of Promissory Note dated as of December, 1998 between Registrant and
each of certain investors, in an aggregate principal amount of
$150,000.(3)

Certain instruments which define the rights of holders of long-term debt
of the Registrant and its consolidated subsidiary have not been filed as
Exhibits to this Registration Statement since the total amount of securities
authorized under any such instrument does not exceed 10% of the total assets of
the Company and its subsidiary on a consolidated basis, as of June 30, 1999.

4.3 Form of Common Stock Purchase Warrant.**

4.4.1 Warrant Agreement dated as of May 25, 1999 between Registrant and Wall &
Broad Equities, Inc.**

4.4.2 Warrant Agreement dated as of December 23,1997 between Registrant and
Biscount Overseas Ltd.(2)

4.4.3 Warrant Agreement dated as of February 26, 1998 between Registrant and
Biscount Overseas Ltd.(2)

4.4.4 Warrant dated January 15, 1998 between Registrant and Mu & Kang
Consultants.(3)

4.4.5 Warrant Agreement dated as of June 11, 1998 between Registrant and Plans,
Inc.**

4.4.6 Warrant Agreement dated as of July 31, 1999 between Registrant and K & D
Equities Inc.**

4.4.7 Form of Warrant dated as of December 1998 between Registrant and certain
private investors.(3)

4.4.8 Form of Warrant variously dated April through August 1998 between
Registrant and certain private investors.(3)

4.4.9 Warrant dated June 11, 1998 between Registrant and Plans, Inc.(3)

5.1 Opinion of Golenbock, Eiseman, Assor & Bell.*

9.1 Voting Trust Agreement.(1)

9.2 Instrument terminating Voting Trust Agreement.**

10.1 Financial Consulting Agreement with Josephthal & Co., Inc.(3)

10.2 1996 Incentive and Non-Qualified Stock Option Plan, as amended.(3)

10.3 Non-Executive Directors Stock Option Plan.(3)

10.4 Employment Agreement between TTR Technologies Ltd. and Marc D. Tokayer.(1)

10.5 Employment Agreement between TTR Technologies Ltd. and Baruch Sollish.(1)

10.6 Employment Agreement between TTR Technologies Ltd. and Arik Shavit, as
amended.(1)

10.7 Employment Agreement between TTR Technologies Inc. and Steven L. Barsh.
(3)

10.8 Unprotected Tenancy Agreement between TTR Technologies Ltd. and
Pharmastate Ltd. dated June 10, 1996.(1)

10.9 Consulting Agreement dated November 1, 1994 between TTR and Shane
Alexander Unterburgher Securities Inc.(1)

10.10 Consulting Agreement dated October 1, 1995 between TTR and Holborn Systems
Ltd.(1)

10.11 Loan and Security Agreement dated September 30, 1996 between TTR and
732498 Ontario Ltd.(1)

10.12 Form of Note Extension Agreement.(1)

10.13 Form of Promissory Note.(1)

10.14 Settlement Agreement dated May 6, 1997 between TTR and Henry Israel.(2)

10.15 Agreement dated January 19, 1998 between TTR and Henry Israel.(2)

10.16 Development and OEM Licensing Agreement dated October 31, 1997 between TTR
and Doug Carson & Associates Inc.(2)

II-6
<PAGE>

10.17 Development and OEM Licensing Agreement dated October 31, 1997 between
TTR, Doug Carson & Associates Inc. and Nimbus CD International, Inc.(2)

10.18 Management Agreement dated October 1, 1997 between TTR and Ultimus Ltd.(2)

10.19 Stock Purchase Agreement dated December 20, 1997 between TTR and Biscount
Overseas Ltd.(2)

10.20 Consulting Agreement between TTR and Pioneer Management Corporation.(1)

10.21 Purchase Agreement and Assignment dated January 5, 1995 between TTR Israel
and Rina Marketing R&D Ltd.(1)

10.22 Form of Securities Purchase Agreement between TTR and certain
securityholders dated as of May 13, 1999.**

10.23 Form of Registration Rights Agreement dated as of May 13, 1999 between TTR
and certain investors.**

10.24 Form of Subscription Agreement dated as of December 1998 between TTR and
certain investors. (3)

10.25 Form of Subscription Agreement dated variously as of April through August
1998 between TTR and certain investors.(3)

10.26 Agreement dated as of July 27, 1999 between Registrant and Arik Shavit.**

10.27 Agreement dated as of July 27, 1999 between Registrant and Steven C.
Barsh.**

10.28 Consulting Agreement between Registrant and Jarvis Developments Ltd. dated
November 20, 1998 and amendment thereto dated January 28, 1999.**

10.29 Consulting Agreement between Registrant and Biscount Overseas Ltd. dated
October 1, 1998.(3)

10.30 Consulting Agreement between Registrant and Mordecai Lerer dated January
28, 1999.(3)

10.31 Settlement Agreement between Registrant and Ephod Israel Group dated
January 28, 1999.(3)

10.32 Consulting Agreement between Registrant and CYGNI S.A. dated January 28,
1999.(3)

10.33 Marketing Agreement between Registrant and Machtec Ltd.(3)

10.34 Stock Purchase Agreement between Registrant and Dalimore Consulting Ltd.
dated December 10, 1998.(3)

10.35 Stock Purchase Agreement between Registrant and Abraham Stephansky dated
February 1, 1999.(3)

10.36 Stock Purchase Agreement between Registrant and Parnell Ltd. dated April
1, 1999.(3)

10.37 Consulting Agreement between Registrant and Limelkin Ltd. dated June 1,
1998.(3)

10.38 Consulting Agreement between Registrant and Trax Investments Ltd. dated
June 11, 1998.(3)

10.39 Consulting Agreement between Registrant and Plans Inc. dated June 11,
1998.(3)

10.40 Lease between Registrant and Peppertree Properties, Inc. dated January 23,
1999.**

10.41 Employment Agreement dated June 1, 1999 between Registrant and Emmanuel
Kronitz.*

16.1 Letter on change in certifying accountant.**

21.1 Subsidiaries of TTR.**

23.1 Consent of Golenbock, Eiseman, Assor & Bell (included in Exhibit 5.1).*

23.2 Consent of Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu,
certified public accountants.*

24.1 Powers of Attorney (included on page II-9).*

27.1 Financial Data Schedule.*

- ----------

* Filed herewith.

** Previously filed.

(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
SB-2, dated February 10, 1997, No. 333-11829, and incorporated herein by
reference.

(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the Year ended December 31, 1997, No. 0-22055, and incorporated herein
by reference.

(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the Year ended December 31, 1998, No. 0-22055, and incorporated herein
by reference.

II-7
<PAGE>

Item 28. Undertakings.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned Registrant further undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

The undersigned Registrant further undertakes that it will:

(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) include any prospectus required by section 10(a)(3) of the
Securities Act;

(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;

(iii) include any additional or changed material information on the
plan of distribution;

(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at the time
to be the initial bona fide offering; and

(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

II-8
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of New York,
State of New York, on September 23, 1999.

TTR TECHNOLOGIES, INC.

By: /s/ MARC D. TOKAYER
------------------------------------
Marc D. Tokayer, Chairman of the
Board and President (Principal
Executive and Financial Officer and
Officer Duly Authorized to Sign on
Behalf of Registrant)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Marc D. Tokayer, or David
Aboudi, or either of them, as his true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, to sign in any and all capacities any and all amendments
(including post-effective amendments) to this Registration Statement on Form
SB-2 and to file the same, with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Titles Date
--------- ------ ----

/s/ MARC D. TOKAYER Chairman of the Board and, September 23, 1999
- ----------------------- President (Principal Executive
Marc D. Tokayer and Financial Officer)

/s/ BARUCH SOLLISH Vice President--Research and September 23, 1999
- ----------------------- Development, Chief
Baruch Sollish Technology Officer and
Director

II-9

GOLENBOCK, EISEMAN, ASSOR & BELL
437 Madison Avenue
New York, New York 10022-7302

October 4, 1999

TTR Technologies, Inc.
1841 Broadway
New York, New York 10023

TTR Technologies, Inc.--Registration Statement on Form SB-2

Dear Sirs:

We have acted as counsel to TTR Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of an aggregate of
12,055,513 shares of the Company's Common Stock, par value $.001 (the "Common
Stock"), for offer and sale by certain stockholders of the Company (the "Selling
Stockholders"). The registered shares consist of: (i) 8,372,092 shares (the
"Debenture Shares"), representing 200% of (a) up to 2,325,581 shares issuable
upon conversion of $2 million in aggregate principal amount of the Company's 10%
Convertible Debentures due April 30, 2001 (the "Debentures"), at an assumed
conversion price of $0.86, plus (b) up to 465,116 shares issuable upon
conversion of the Debentures with respect to interest accrued thereon through
the maturity date thereof, plus (c) up to 1,395,349 shares issuable upon
exercise of warrants (the "Warrants") issuable upon conversion of the
Debentures, (ii) 1,458,440 shares (the "Other Selling Stockholder Shares") held
by certain Selling Stockholders who do not hold Debentures, and (iii) 2,224,981
shares (the "Other Warrant Shares") issuable upon the exercise of certain
warrants and options other than the Warrants (collectively the "Other
Warrants").

This opinion is being furnished to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-B under the Securities Act, in
connection with the filing of the Registration Statement on Form SB-2 (File No.
333-85085) as filed

<PAGE>

TTR Technologies, Inc.
Page 2

with the Securities and Exchange Commission (the "Commission") on August 12,
1999 under the Securities Act, and Amendment No. 1 thereto as filed with the
Commission on September 24, 1999 (such Registration Statement, as so amended,
being referred to herein as the "Registration Statement"), and for no other
purpose.

In rendering the opinions set forth herein, we have examined
originals, telecopies or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.

In our examinations, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons signing or delivering any
instrument, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies or by electronic means and the authenticity of
the originals of such latter documents. We have also assumed in our examination
of documents executed by the Company that all parties thereto, other than the
Company, have duly authorized, executed and delivered each such document so that
each such document constitutes the legally valid and binding obligation of each
such party, enforceable against it in accordance with its terms. As to any fact
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others, but we have not
independently verified such factual matters.

In addition, we have assumed that there will be no changes in
applicable law between the date of this opinion and the date of issuance and
delivery of the Debenture Shares and Other Warrant Shares.

We are attorneys admitted to practice in the State of New York and
we express no opinion with regard to any matter which may be governed by any law
other than the federal law of the United States of America, the laws of the
State of New York

<PAGE>

TTR Technologies, Inc.
Page 3

and, to the extent necessary to render this opinion, the General Corporation Law
of the State of Delaware.

Based on the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:

1. The Debenture Shares and Other Warrant Shares, upon the valid
conversion of the Debentures or exercise of the Warrants and Other Warrants, and
issuance thereof in accordance with the terms of the Debentures, Warrants or the
Other Warrants, as the case may be, shall be duly authorized, validly issued,
fully paid and non-assessable.

2. The Other Selling Stockholder Shares are duly authorized, validly
issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion with the Commission
as an exhibit to the Registration Statement and to the reference to this our
firm under the heading "Legal Matters" in the Registration Statement and the
Prospectus which forms a part thereof. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
promulgated thereunder.

Very truly yours,

/s/ GOLENBOCK, EISEMAN, ASSOR & BELL

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is entered into as of the 1 day of June, 1999
between Emanuel Kronitz (the "Employee") and TTR Technologies Inc., a Delaware
company (the "Company").

W I T N E S S E T H

WHEREAS, the Company is wishes to employ the Employee in accordance with
the terms and conditions of this Agreement, and the Employee wishes to be so
employed.

NOW THEREFORE the parties hereto agree as follows:

1. Employment. With effect from the effective date (as defined in section 2),
the Company hereby engages Employee to serve as Chief Operating Officer who
shall perform such duties, undertake such responsibilities and exercise such
authority as the Board of Directors or the Chief Executive Officer of the
Company shall designate and shall report to the Chief Executive Officer. The
Employee shall devote his full time to the affairs of the Company as required
without any right or entitlement to additional or overtime compensation except
as expressly provided herein.

2. Term.

2.1 Employee's employment under this Agreement shall commence not later
than June 1, 1999 (the "Effective Date") and, unless otherwise provided, shall
end on the earlier of (i) the death or disability (as defined herein ) of the
Employee, (ii) termination of Employee's employment by Company with cause (as
defined herein); (iii) after one year from the Effective Date (the "initial
term"), (vi) termination of Employee's employment without cause by the Company
or Employee upon 90 days prior written notice any time. After the expiration of
such initial term (other than for reasons set forth in clauses (i), (ii) and
(vi) this Agreement shall automatically be renewed for an additional one (1)
year periods on the same terms and conditions set forth herein (unless mutually
agreed otherwise).

Notwithstanding the foregoing, in the event that Company or Employee shall have
terminated this Agreement without cause, upon the request of the Company the
Employee shall vacate his position and the premises on a date specified by the
Company which is earlier than the end of the notice period specified in (vi)
above upon payment to Employee, in one lump sum on the effective date of
termination, the amount of pro rata Gross Salary payable under Section 3.1 from
the effective date of termination until the end of such notice period.

2.2 For the purpose of this paragraph 2, "disability" shall mean any
physical or mental illness or injury as a result of which Employee remains
absent from work for a period of two (2) successive months, or an aggregate of
two (2) months in any twelve (12) month period. Disability shall occur at the
end of any such period.

2.3 For the purpose of this paragraph 2, "cause" shall exist if Employee
(i) breaches any of the material terms or conditions of this Agreement; (ii)
substantially fails to perform the Employee's areas of responsibility set forth
herein, (iii) engages in willful misconduct or acts in bad faith with respect to
the Company, in connection with and related to the employment
<PAGE>

hereunder, (iv) is convicted of a felony, (v) fails to comply with the
instructions of the Company's Board; provided that with respect to clauses (i)
and (ii), if Employee has cured any such condition within 15 days following
delivery of the advance notice, then "cause" shall be deemed not to exist. For
purposes of this Paragraph 2, "advance notice" shall constitute a written notice
delivered to Employee that sets forth with particularity the facts and
circumstances relied upon by the Company as the basis for cause.

3. Compensation

3.1 During the term hereof, and subject to the performance of the services
required to be performed hereunder by Employee, the Company shall pay to the
Employee for all services rendered hereunder, as salary, payable not less often
than once per month and in accordance with the Company's normal and reasonable
payroll practices, a monthly gross amount equal to U.S. $5000 (the "Gross
Salary") payable in NIS (according to the representative rate of exchange at the
Company's bank on the date of payment) or US dollars, less required employee
deductions under law.

3.2 The Company and the Employee will obtain and maintain Manager's
Insurance (Bituach Menahalim) under Israeli law for the benefit of the Employee
in the customary form in Israel. Each of the Company and the Employee shall
contribute toward the premiums payable in respect of such insurance those
amounts which would be recognized under applicable law, but in no event shall
such contributed amounts be more than thirteen and one third percent (13 1/3%)
of each monthly Gross Salary payment from the Company and five percent (5 %) of
such amount from the Employee. In Addition, the Company shall pay 2.5% of each
monthly Gross Salary payment for Disability Insurance in Israel. It is hereby
agreed that provided Employee is not terminated under section 2.3 (iii or iv),
he shall be entitled upon termination or expiration of this Agreement to the
amount paid by the Company (13 1/3%) hereunder, and to the extent available,
(and without derogating from section 2.1 above) such payment shall be in lieu
and in full and final substitution of any severance pay required under law.

3.3 The Company and the Employee shall maintain an advancement fund under
Israeli law (keren Heshtamlut) for exclusive benefit of the Employee. The
Company shall contribute to such fund an amount equal to 7-1/2% of each monthly
Gross Salary payment and the employee shall contribute to such fund an amount
equal to 2-1/2% of each monthly Gross Salary payment. The Employee hereby
instructs the Company to transfer to such advancement fund the amount of the
Employee's and the Company's contribution from each monthly Gross Salary
payment.

3.4 Company shall provide Employee with use of automobile and Company
shall pay for registration, gas, maintenance and insurance; and shall provide
the Employee with a cell phone and pay for its maintenance and use.

3.5 Options. (i) Employee shall be issued options to acquire up to 235,000
shares of Common Stock ("Options") of the Company exercisable at par value of
the shares. At the option of the Company, these Options may be issued from and
pursuant to a Company employee stock option plan or otherwise. Such Options
shall vest in the Employee equally over three (3) years, so long as Employee
remains in the employ of the Company and in accordance with the terms and
subject to Employee executing the Company's standard
<PAGE>

Employee Stock Option Plan. The options shall vest in the Employee pro-rata to
the number of complete months which Employee was employed hereunder.

If the Company sells all or substantially all of its assets, the Employee shall
be entitled to exercise, immediately prior to such sale the Options which have
not yet vested.

(ii) Registration Rights

The Company hereby agrees to include 78.333 of the shares underlying the
Options in the registration statement contemplated by that certain Registration
Rights Agreement, dated as of May 11, 1999, to which the Company and certain
purchasers of the Company's 10% convertible debentures are parties.

(iii) If subsequent to registering the 78,333 shares under the Securities Act of
1933, as amended (the "Act"), pursuant to section 3.5(ii) above, the Company
proposes to register any of its stock or other securities under Act in
connection with the public offering of such securities solely for cash, the
Company shall include the shares underlying the remaining 156,667 of the
Employee's Options (or, in the event that the Company does not complete the
registration referred to in section 3 (ii), 235,000 shares underlying the
Options).

(iv) In the event that there is a managing underwriter of the offering of shares
referred to in the registration statement in section 3(ii) or (iii), the Company
shall not be required to include such shares unless the Employee accepts the
terms of any underwriting as agreed between the Company and the underwriter.

4. Vacation. The Employee shall be entitled to 22 working days of paid vacation
during each fiscal year that this Agreement is in effect to be taken at times as
agreed upon by the parties.

5. Development Rights. The Employee agrees and declares that all proprietary
information including but not limited to trade secrets, know-how, patents and
other rights in connection therewith developed by or with the contribution of
Employee's efforts during his employment with the Company shall be the sole
property of the Company. Upon the Company's request (whenever made), Employee
shall execute and assign to the Company all the rights in the proprietary
information.

6. Secrecy and Nondisclosure The Employee shall treat as secret and confidential
all of the processes, methods, formulas, procedures, techniques, software,
designs, know-how, data, and other information which are not of public knowledge
or record pertaining to the Company's business (existing, potential, and
future), including without limitation all business information relating to
customers and supplies and products of which the employee becomes aware during
and as a result of employment with the Company, and Employee shall not disclose,
use, publish, or in any other manner reveal, directly or indirectly, at any time
during and after the term of this Agreement, any such information detailed
herein.

7. Non-Competition & Poaching

7.1 During the term of this Agreement and for a term of one (1) year after
Employee ceases to be employed by the Company, Employee will not, directly or
indirectly,
<PAGE>

for his own account or as an employee, officer, director, partner, joint
venturer, shareholder, investor, consultant or otherwise (except as an investor
in a corporation whose stock is publicly traded and in which Employee holds less
than 5% of the outstanding shares) engage in or contribute his knowledge to any
work or activity that involves a product, process, service or development which
directly competes with the business of the Company, now or hereafter existing.

7.2 Employee acknowledges that the restricted period of time and
geographical location specified under this Section 7 are reasonable, in view of
the nature of the business in which the Company is engaged and Employee's
knowledge of the Company's business and products. If such period of time or
geographical location should be determined to be unreasonable in any judicial
proceeding, then the period of time and area of restriction shall be reduced so
that this Agreement may be enforced in such area and during such period of time
as shall be determined to be reasonable by such judicial proceeding.

7.3 The Employee shall not at any time during the period from the
termination of this Agreement or any extension hereof, to the expiry of six (6)
months, employ or attempt to employ or solicit or endeavor to entice away from
or discourage from being employed by the Company any person who is, or shall at
any time until the termination of this Agreement or any extension hereof, one of
the employees of the Company.

8. Expenses

Employee is authorized to incur reasonable and proper expenses for
promoting the business of the Company including expenses for entertainment,
travel, lodging, and similar items. The Company will reimburse Employee promptly
for all such expenses upon presentation by Employee, of receipts or other
appropriate evidence of expenses.

9. Miscellaneous

9.1 Employee Representations. The Employee represents and warrants to the
Company that the execution and delivery of this Agreement and the fulfillment of
the terms hereof (i) will not constitute a breach of any agreement or other
instrument to which he is party, (ii) does not require the consent of any
person, and (iii) shall not utilize during the term of his employment any
proprietary information of any third party, including prior employers of the
Employee.

9.2 Entire Agreement. This Agreement constitutes the entire understanding
and agreement between the parties and supersedes any and all prior discussions
and agreements and correspondence, and may not be amended or modified in any
respect except by a subsequent writing executed by both parties.

9.3 Notices. All notices or other communications required or desired to be
sent to either Party shall be in writing and shall be sent by hand or by
Registered or Certified mail, postage prepaid, return receipt requested, or sent
by telegram or facsimile to the address set forth in the Preamble to this
Agreement or to such other address as the recipient may designate by notice in
accordance with the provisions of this Clause. Any such notice shall have been
deemed to have been delivered if served by hand when delivered, if by Registered
or Certified Mail 48 hours after posting if within the same country or 14 days
if posted from another
<PAGE>

country, and by telex or facsimile transmission when dispatched and receipt
confirmed by recipient party.

9.4 Severability. Any term or provision of this Agreement which is found
by a court, tribunal or arbitration panel to be invalid or unenforceable shall
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the other terms
or provisions of this Agreement. In the event that any term or provision of this
Agreement is found to be unenforceable or ineffective, then the reviewing court,
tribunal or arbitration panel may modify such term or provision to the extent
necessary to render it enforceable and the parties agree to be bound by and
perform this Agreement as modified.

9.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, USA.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
signed by the date stated above.

TTR Technologies Inc.

- ------------------------- ------------------------
Emanuel Kronitz

[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]

CONSENT OF INDEPENDENT AUDITORS

As independent auditors of T.T.R. Technologies, Inc. (the "Company") (a
development-stage company), we hereby consent to the inclusion of our report,
dated June 30, 1999, on the Company's consolidated balance sheets as of December
31, 1998 and 1997 and the related consolidated statements of operations,
comprehensive loss, stockholders' equity (deficit) and cash flows for each of
the two years in the period ended December 31, 1998 and to the references to our
firm under the heading "Experts" in the Company's Registration Statement on Form
SB-2 and related prospectus to be filed in September 1999.

/s/ Brightman Almagor & Co.

Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu

Ramat-Gan, Israel
October 4, 1999

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements accompanying the filing of Form SB-2 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 74,445 119,869
<SECURITIES> 0 0
<RECEIVABLES> 7,793 37,886
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 103,488 168,735
<PP&E> 311,493 258,499
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 490,545 4,098,162
<CURRENT-LIABILITIES> 2,937,936 3,414,009
<BONDS> 0 0
0 0
0 0
<COMMON> 4,177 5,497
<OTHER-SE> (3,102,344) (415,713)
<TOTAL-LIABILITY-AND-EQUITY> 490,545 4,098,162
<SALES> 54,922 40,493
<TOTAL-REVENUES> 54,922 40,493
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 5,251,160 1,596,099
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 410,715 308,007
<INCOME-PRETAX> (5,578,540) (2,244,857)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,578,540) (2,244,857)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,578,540) (2,244,857)
<EPS-BASIC> (1.54) (0.43)
<EPS-DILUTED> (1.54) (0.43)

</TABLE>