SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 1999
or
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number 0-22055
TTR TECHNOLOGIES INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 11-3223672
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
1841 Broadway, New York, New York 10023
(Address of Principal Executive Offices)
212-333-3355
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes |_| No |X|
The number of shares outstanding of the registrant's Common Stock as of
August 24, 1999 was 5,646,971
Transitional Small Business Disclosure Format:
Yes |_| No |X|
<PAGE>
TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
(A Development Stage Company)
Index
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheet
December 31, 1998 and June 30, 1999 1
Consolidated Statement of Operations
For the Six Months and Three Months ended
June 30, 1998 and 1999 2
Consolidated Statement of Comprehensive Loss
For the Six Months and Three Months ended
June 30, 1998 and 1999 3
Consolidated Statement of Cash Flows
For the Six Months and Three Months ended
June 30, 1998 and 1999 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Managements Discussion and Analysis 7 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon senior securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-k 14
Exhibit 27 - Financial Data Schedule
Signatures
* The Balance Sheet at December 31, 1998 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 74,445 $ 119,869
Accounts receivabe 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
Long-term debt, less current portion 594,011 1,036,434
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.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception
Six Months (July 14, Three Months
Ended 1994) to Ended
June 30, June 30, June 30,
1998 1999 1999 1998 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 40,493 $ 95,415 $ -- $ 13,509
Expenses
Research and development 502,466 364,280 2,984,241 313,774 48,438
Sales and marketing 548,119 334,416 4,027,641 296,419 156,049
General and administrative 912,577 897,403 5,063,965 508,185 433,629
------------ ------------ ------------ ------------ ------------
Total expenses 1,963,162 1,596,099 12,075,847 1,118,378 638,116
------------ ------------ ------------ ------------ ------------
Operating loss (1,963,162) (1,555,606) (11,980,432) (1,118,378) (624,607)
Other (income) expense
Legal settlement -- -- 232,500 -- --
Loss on investment -- -- 17,000 -- --
Other income (25,000) -- (75,000) (25,000) --
Amortization of deferred financing costs 9,293 381,788 718,023 9,293 348,104
Interest income (687) (544) (58,850) (543) (544)
Interest expense 88,379 308,007 1,188,863 82,055 114,344
------------ ------------ ------------ ------------ ------------
Total other (income) expenses 71,985 689,251 2,022,536 65,805 461,904
------------ ------------ ------------ ------------ ------------
Net loss $ (2,035,147) $ (2,244,857) $(14,002,968) $ (1,184,183) $ (1,086,511)
============ ============ ============ ============ ============
Per share data:
Basic and diluted $ (0.61) $ (0.43) $ (0.36) $ (0.20)
============ ============ ============ ============
Weighted average number
of common shares used in
basic and diluted loss per share 3,311,161 5,236,970 3,328,647 5,481,828
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
From
Inception
Six Months (July 14, Three Months
Ended 1994) to Ended
June 30, June 30, June 30,
1998 1999 1999 1998 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (2,035,147) $ (2,244,857) $(14,002,968) $ (1,184,183) $ (1,086,511)
Other comprehensive income (loss)
Foreign currency translation adjustments (5,849) (16,350) 63,065 (2,797) (10,501)
------------ ------------ ------------ ------------ ------------
Comprehensive loss $ (2,040,996) $ (2,261,207) $(13,939,903) $ (1,186,980) (1,097,012)
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Six Months (July 14,
Ended 1994) to
June 30, 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) -- (675,763)
Increase in organization costs -- -- (7,680)
------------ ------------ ------------
Net cash used 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 -- 1,000,000 3,751,825
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.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of TTR
Technologies, Inc. and its Subsidiary ("the Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with Item 310(b) of Regulation SB. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended June
30,1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Company's Form 10-KSB for the year ended December 31, 1998 as filed
with the Securities and Exchange Commission.
Note 2 - Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
Note 3 - 10% Convertible Debentures
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 further 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.
Note 4 - Stockholders' Deficit
Stock Grants
In January and February 1999 the Company issued 627,000 shares of Common
Stock and 10,000 warrants exercisable at $1.75 to various consultants
pursuant to one-year consulting agreements. The Company has recorded a
charge to deferred compensation expense of $445,725 as a result of these
issuances. Also in January 1999, the Company issued 250,000 shares of
Common Stock as payment of an outstanding liability in the amount of
$168,750.
Private Placement
In February and April 1999, the Company received $160,000 from the
issuance of an additional 205,682 shares of its Common Stock.
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<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Commitments and Contingencies
Employment Agreement
Effective, June 1, 1999, The Company entered into an employment agreement
with its new Chief Operating Officer. The agreement is for a term of one
year and is automatically renewable for additional one-year terms, unless
terminated in accordance with the agreement upon 90 days prior notice. The
agreement provides for a monthly salary of $5,000 plus benefits and the
issuance of options under the 1996 Option Plan to purchase 235,000 shares
of our common stock, at an exercise price of $0.01 per share. The options
vest in equal monthly installments over three years.
Litigation
In June 1999, the Company received notice from a shareholder, threatening
to commence litigation, alleging that the Company failed to register his
stock. The shareholder is seeking the return of his investment in the
amount of $400,000 plus interest to date. The Company is seeking to settle
and is presently negotiating this matter. As present, management cannot
predict the outcome.
Note 6 - Subsequent Event
Warrants
In July 1999, the Company issued 400,000 warrants exercisable at $2.75 to
a consultant pursuant to a four-month consulting agreement.
Stock Grant
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.
-6-
<PAGE>
ITEM 2. Management's Discussions and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus.
General
Overview
We design, develop and market anti-piracy software technologies that
provide encryption and copy protection for software applications distributed on
CD-ROMs. Our proprietary product, DiscGuard, is designed to prevent unauthorized
CD-ROMS from operating as intended. Our copy protection technologies are
transparent to the legitimate end-user and do not require the user to install
hardware "keys" or "dongles" on the user's desk top or to obtain an "unlock
code" in order to run the protected application.
Since our inception in 1994, we have focused on
o developing our proprietary anti-privacy technologies; and
o in the last year, licensing a broad base of replicators,
representing a significant percentage of the world replication
market by disc volume, to use DiscGuard in their mastering
equipment, making DiscGuard readily available to software
publishers.
With our network of licensed replications in place to have
DiscGuard-protected software mass-produced on CD-ROMs, since the first
commercial release of DiscGuard in February 1998, we have begun marketing
DiscGuard to software publishers, directly and through distributors.
Approximately 24 software publishers market some or all of their titles on
DiscGuard-protected discs, representing approximately 400,000 CD-ROMs and
approximately 71 software titles.
Our goal is to establish DiscGuard as the leading product in our target
market segment of software-based CD-ROM copy protection for high-volume
multi-media consumer software, including games, entertainment and reference
software and other install-to-use applications.
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.
$1.5 million in aggregate principal amount of indebtedness is currently
due and payable together with interest thereon. The holders of an aggregate of
$562,500 in principal amount of such indebtedness have variously agreed to
extend the maturity thereof until 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
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<PAGE>
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 proceeds
(before deducting approximately $62,000 in fees and commissions) from the sale
of an additional $0.6 million in principal amount of our 10% Convertible
Debentures due April 30, 2001 not later than five days after the effective date
of a registration statement relating to the common shares issued upon (and in
connection with) the conversion of the Debentures (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 $0.6 million
in principal amount of Debentures.
We have not had any significant revenues to date. As of June 30, 1999, we
had an accumulated deficit of approximately $14 million. Our expenses have
related primarily to expenses related to and expenditures on research and
development, marketing, recruiting and retention of personnel, costs of raising
capital and operating expenses. The report of the independent auditors on our
financial statements for the year ended December 31, 1998 includes an
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 widely
distributed on DVDs.
We intend to ensure that DiscGuard remains integrated into the mastering
equipment of a broad base of replicators (i.e., mass producers of CD-ROMs),
affording software publishers convenient access to DiscGuard-licensed
replicators. We will continue our marketing efforts by directly distributing our
product in the United States, Europe and the Middle East, utilizing distributors
in Asia and acting on referrals from our replicators. If we do not succeed in
significantly increasing the number of licensed publishers generated by our
existing marketing efforts, we may also seek a strategic alliance with an
international marketing partner or increase our use of distributors in
particular countries outside of Asia. On June 1, 1999, we hired a Chief
Operating Officer to oversee our marketing efforts.
Revenue Sources
Our main source of revenue is from royalties payable by software
publishers under non-exclusive license agreements with such software publishers.
Typically, our license agreements relate to some or all of a publisher's
software titles on CD-ROMs. These license agreements have unit-based pricing
schedules, based on the number of CD-ROMs produced by a replicator. We recognize
revenue when CD-ROM discs are produced for our licensed software publishers by
our licensed replicators. We also receive a limited amount of revenue from our
licensed replicators.
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<PAGE>
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 six months ended June 30,
1998 and 1999.
Results of Operations
Six Months Ended June 30, 1999 ("1999 period") Compared to Six Months Ended June
30, 1998 ("1998 period")and Three Months Ended June 30, 1999 Compared to Three
Months Ended June 30, 1998.
Revenues for the 1999 period were $40,493 and were derived from licensing
fees of our DiscGuard product. We had no revenues for the 1998 period. Revenues
for the quarter were $13,509.
Research and development costs for the 1999 period were $364,280 as
compared to $502,466 for the 1998 period. Research and development costs for the
quarter ended June 30, 1999 were $48,438 as compared to $313,774 for the
comparable quarter in 1998. These decreases are attributable primarily to
reduced staffing effected in the latter part of 1998.
Sales and marketing expenses for the 1999 period were $334,416 as compared
to $548,119 for the 1998 period and for the quarter ended June 30, 1999 were
$156,049 as compared to $296,419 for the comparable quarter in 1998. This
decrease was primarily due to reduced staffing in 1999.
General and administration expenses for the 1999 period were $897,493 as
compared to $912,577 for the 1998 period and for the quarter ended June 30, 1999
were $433,629 as compared to $508,185 for the comparable quarter 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. For the quarter
ended June 30, 1999 amortization of stock based compensation was $268,000 as
compared to $50,380 in 1998.
Total operating expenses include $544,605 and $371,175 of stock-based
compensation for the six months ended June 30, 1999 and 1998, respectively.
As a result of the issuance of 1.3 million warrants in connection with the
10% Convertible Debentures, we recognized significant noncash financing costs.
Using the Black-Scholes model for estimating the fair value of the warrants, the
Company recorded $3,845,400 as deferred financing costs and will be amortizing
this amount over the two-year term of the debentures. Total amortization of
deferred financing costs for the 1999 period was $381,788 as compared to $9,293
for the 1998 period and for the quarter ended June 30, 1999 was $348,104 as
compared to $9,293 for the comparable quarter in 1998. As of June 30, 1999, we
have deferred financing costs remaining of $3,666,854.
Interest expense for the 1999 period increased to $308,007 compared to
$88,379 during the 1998 period due to the increase in debt financing activity in
the period. Included in interest expense is non-cash amortization of note
discount of $187,493 and $64,122 for 1999 and 1998, respectively. Note discounts
were imputed to reflect the equity component of the related financings.
The Company reported a net loss for the June 1999 period 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 June 1998 period. Net loss for the
quarter ended June 30, 1999 was $1,086,511, or $(.20) per share on a basic and
diluted basis, as compared to a net loss of $1,184,183, or $(.36) per share for
the comparable 1998 quarter.
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<PAGE>
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 expenses in many areas, including reductions in
personnel. We believe that ongoing investment in research and development
activities and marketing, especially to software publishers, will be critical to
our ability to generate revenue and operate profitably. We anticipate that we
will continue to expend significant funds in research and development activities
and marketing.
In May 1999, we issued $1.0, 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
Debenture 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 a registration statement relating to the common shares issued upon (and
in connection with) the conversion of Debentures (of which $0.4 million was
pre-funded in July 1999).
We have approximately $1.5 million in aggregate principal amount of
indebtedness is currently due and payable together with interest thereon. The
holders of an aggregate of $562,500 in principal amount of such indebtedness
have variously agreed to extend the maturity thereof until various dates from
April through July 2000. We are attempting to obtain similar extensions from the
holders of the balance of such indebtedness. There can be no assurance that any
extensions will be granted with regard to all or any part of such balance. We
will need to obtain additional financing or otherwise reallocate our available
funds in order to repay any amount of such indebtedness as to which no extension
is granted.
If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that cash on hand, as well as the $0.6 million
(before deducting approximately $62,000 in fees and commissions) due to be
invested upon purchase of the additional Debentures, will allow us to bring
several supplier 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
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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 is dependent on the operation of numerous systems that could
potentially be affected by Year 2000 related problems. Those systems include,
among others:
o software systems that we use internally in the management of our
business;
o hardware and software products that we have developed;
o the internal systems of our customers and suppliers; and
o non-information technology systems and services that we use in the
management of our business, such as telephone systems and building
systems.
Based on an analysis of the systems potentially affected by conducting
business in the twenty-first century, we are applying a phased approach to
making such systems, and accordingly our operations, Year 2000 ready. Beyond
awareness of the issues and scope of systems involved, the phases of activities
in progress include:
o an assessment of specific underlying computer systems, programs
and/or hardware;
o rededication or replacement of Year 2000 non-compliant technology;
o validation and testing of technologically Year 2000 ready solutions;
and
o implementation of the Year 2000 ready systems.
The table below provides the status and timing of these phased activities:
Affected Systems Status
- ---------------- ------
software Assessment completed; conducting ongoing
products that we validation and testing
license or sell (see details below)
Hardware and software Assessment completed;
systems that we use certain components replaced;
conducting validation and testing
Internal systems of our Assessment not yet completed
customers and suppliers
Non-information technology No assessment made
systems and certain services
-11-
<PAGE>
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--i.e., to manufacturers of mastering equipment, replicators
and software publishers--each of which are experiencing different issues with
Year 2000 readiness. Customer difficulties with Year 2000 issues could interfere
with the use of DiscGuard, which might require us to devote additional resources
to resolve the underlying problems. If the problem is found to lie in DiscGuard,
our business, financial condition and results of operations could be materially
adversely affected.
Furthermore, the purchasing patterns of these customers or potential
customers may be affected by Year 2000 issues as companies expend significant
resources to become Year 2000 ready. The costs of becoming Year 2000 ready for
current or potential customers may result in reduced funds available to purchase
and implement our products. In addition, we rely on various entities that are
common to many businesses, such as public utilities. If these entities were to
experience Year 2000 failures, our ability to conduct business would be
disrupted.
Although we believe that our Year 2000 readiness efforts are designed to
appropriately identify and address those Year 2000 issues that are within our
control, there can be no assurance that our efforts will be fully effective or
that the Year 2000 issues will not have a material adverse effect on our
business, financial condition or results of operations. The novelty and
complexity of the issues presented and our dependence on the preparedness of
third parties are among the factors that could cause our efforts to be less than
fully effective. Moreover, Year 2000 issues present many risks that are beyond
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.
-12-
<PAGE>
Contingency Plans
We have conducted an assessment of certain of our Year 2000 exposure areas
in order to determine what steps beyond those identified by our internal review
were advisable and no additional work was recommended. We do not presently have
a contingency plan for handling Year 2000 issues that are not detected and
corrected prior to their occurrence. Any failure by us to address any unforeseen
Year 2000 issue could adversely affect our business, financial condition and
results of operations. Any such occurrence could adversely affect our business.
Item 1. Legal Proceedings
In June 1999 we received notice from Biscount Overseas Ltd., a selling
stockholder, threatening to commence litigation for damages suffered as a result
of our failure to register shares of our common stock purchased by Biscount.
Biscount alleges that we owe them $400,000, the full amount of their investment,
plus approximately $60,000 in interest to date. We are attempting to settle this
matter.
Several suits have been filed and threats of litigation have been made
against us and our Israeli subsidiary by various vendors and former employees
for unpaid invoices and other amounts in an aggregate amount of approximately
$147,000.
Item 2. Change in Securities
1. (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.
2. (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.
3 (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.
-13-
<PAGE>
(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.
4 (a) 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.
(c) The options were issued in consideration of services
rendered.
(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.
Item 3. Default Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
Form 8-k for the month of May 1999
Exhibit 27. Financial Data Schedule
-14-
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TTR TECHNOLOGIES, INC.
By: /s/ MARC D. TOKAYER
--------------------------------
MARC D. TOKAYER,
Date: September 2, 1999
CHAIRMAN OF THE BOARD AND
PRESIDENT (PRINCIPAL EXECUTIVE
AND FINANCIAL OFFICER AND OFFICER
DULY AUTHORIZED TO SIGN ON
BEHALF OF REGISTRANT
-15-
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<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements accompanying the filing of Form 10-QSB and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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0
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