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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



                                    FORM 10-K

            Annual Report for the Fiscal year ended December 31, 1999



                             TTR TECHNOLOGIES, INC.

             (Exact name of registrant as specified in its charter)



Delaware                            0-22055                  11-3223672

(State or Other Jurisdiction        Commission File          IRS Employer

of Incorporation)                   Number)                  Identification No.)



                           2 Hanagar Street, Kfar Saba

                    (Address of Principal Executive Offices)



                                  212-333-3355

              (Registrant's Telephone Number, including Area Code)



[Mark One]



|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of

1934 For the fiscal year ended December 31, 1999



|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act

of 1934



         Securities registered under Section 12(b) of the Exchange Act:



       Title of each Class:           Name of each exchange on which registered

               None                                    None



         Securities registered under Section 12(g) of the Exchange Act:



         Common Stock, par value $0.001

               (Title of Class)



      Check whether the issuer (1) has filed all reports required to be filed by

Section 13 or 15(d) of the Exchange Act during the past 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.



      |X|  Yes |_|   No



           Indicate by check mark if disclosure of delinquent filers pursuant to

Item 405 of Regulation S-K is not contained, and will not be contained, to the

best of registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K. |_|



           As of March 27, 2000, the Registrant had outstanding 15,967,890

shares of $0.001 par value Common Stock. The aggregate market value of such

common stock held by non-affiliates of the Registrant at March 27, 2000 was

approximately $69 million. Such market value was calculated by using the

closing price of such common stock as of such date as reported on the OTC

Electronic Bulletin Board.





Item 1. Business



Introduction



      We design and develop anti-piracy technologies that provide copy

protection for electronic content distributed on optical media and over the

Internet. Optical media store data which may be retrieved by utilizing a laser

and include compact discs which are commonly referred to as CDs and digital

versatile discs which are commonly referred to as DVDs. Our technologies utilize

both encryption and non-standard codewords on the optical media. As a result of

our research and development efforts we believe we have become the technological

leader in optical media authentication and verification. Our proprietary

anti-piracy technology, MusicGuard(TM), is a unique hardware-based technology

designed to prevent the unauthorized copying of audio content distributed on

CDs. MusicGuard leverages know-how we gained during the development of our

DiscGuard(TM) software protection product. Our copy protection technologies are

designed to be transparent to the legitimate end-user. Copy protected CDs are

compatible with and are designed to play on currently existing compact disc

players.



      As of November 24, 1999, we entered into an agreement with Macrovision

Corporation to jointly design and develop and market a copy protection product

designed to thwart the illegal copying of audio content on CDs, DVDs and other

optical media. The new product will be based primarily upon our MusicGuard

technology as well as related Macrovision technology. We granted to Macrovision

an exclusive world-wide royalty bearing license to market the copy protection

technology which we are jointly developing. The license to Macrovision relates

to all technologies and products designed to prevent the illicit duplication of

audio programs (including the audio portion of music videos, movies and other

video or audio content) distributed on optical media (not limited to CDs and

DVDs) and technologies for Internet digital rights management for audio

applications.



      We are entitled to thirty percent (30%) of the net revenues collected by

Macrovision or its affiliates from any products or components incorporating the

proposed music protection technology. Under certain conditions, our share of the

net revenues may be readjusted to twenty-five percent (25%) of net revenues. We

agreed to reimburse Macrovision for up to $1 million of its costs incurred in

the twelve months ending December 31, 2000 in co-developing and commercially

launching MusicGuard.



      As part of the agreement, we granted to Macrovision an exclusive

world-wide license to modify and market DiscGuard, our software anti-piracy

product. Part of the DiscGuard technology license is royalty free. The

encryption portion is royalty bearing. Macrovision has its own proprietary

software anti-piracy product known as Safe Disc. For five years we are entitled

to 5% of Macrovision's net revenues, if any, collected by Macrovision from the

licensing of Safe Disc to customers located in the Peoples Republic of China.

Other than for these revenues we do not anticipate that we will receive any

significant revenues as a result of our license of DiscGuard to Macrovision.



      Macrovision develops and markets content copy protection and rights

management technologies and products to prevent the illicit duplication,

reception or use of video and audio programs and computer software. Macrovision

provides its products and services primarily to the consumer multimedia and

business software publishers, home video, pay-per-view, cable, satellite and

video security markets. Macrovision has its headquarters in Sunnyvale,

California with subsidiaries in London and Tokyo.





                                       2





      Our immediate goal is to establish the proposed audio content copy

protection technology which we and Macrovision are developing as the leading

product in the target market of audio content copy protection for the

high-volume recording industry. Additionally, we are actively developing other

technologies and looking to acquire technologies which are synergistic with our

current business and will enable us to leverage our knowledge base and skill.



Industry Background



      Losses related to the unauthorized reproduction and use of music CDs

present a continuing concern for the recording industry as well as performing

artists. According to the Recording Industry Association of America, a national

trade organization, the recording industry loses about $5 billion annually to

global piracy of recorded music. Losses of up to $1 million a day have been

estimated in the U.S. alone. Two recent developments have exacerbated the

problem of piracy, causing it to become one the highest priorities of the

industry.



      First, the cost of producing good quality copies of CDs has been

drastically reduced. Until recently, to produce good quality CDs required a

significant investment. Recent developments in consumer electronics technology

have enabled consumers to purchase, for as little as $180, a CD burner

(recorder) from a local retail outlet. CD burners now often are bundled with new

computers. Blank recordable discs are widely available for less than $1. With

this technology, even the casual user can easily copy unprotected CDs.



      Second, it is now possible to easily download pirated music via the

Internet because of the acceptance and widespread use of MP3 compression

technology. This technology has made the Internet a feasible vehicle for the

electronic transmission of music. Today there are thousands of websites offering

music in MP3 format. Most of the music being downloaded is pirated; i.e., no

royalties are being paid to the artists or to the record companies which

produced this music. This form of piracy is rapidly growing.



      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 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 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 music piracy have not served as an effective

deterrent and the effect of the new legislation cannot yet be ascertained,

recording studios and artists are seeking more effective methods to prevent the

replication of unauthorized copies of their proprietary products. To combat

music piracy, leaders of the music recording industry have cooperated with

leaders of more than 120 companies and organizations representing a broad

spectrum of information technology and consumer electronics businesses, Internet

service providers and security technology companies to form the Secure Digital

Music Initiative. The Initiative is a forum for these industries to develop the

voluntary, open framework for playing, storing and distributing digital music

necessary to enable a new market to emerge. The Initiative has already produced

a standard, or specification, for portable devices. The longer-term effort is

focused upon completion of an overall architecture for delivery of digital music

in all forms which system will include anti-piracy protection.





                                       3





      The standard developed by the Initiative is intended to be applied to the

next generation of portable playback devices. It will not prevent currently

existing playback devices from playing pirated music. Since these devices will

likely be in use for quite some time we believe that there will be a need for

copy protection on the products played on the devices. To our knowledge there

are no commercially available technologies or products providing copy protection

for audio content distributed on CDs.



Our Solution



      We believe that the audio content copy protection which we and Macrovision

are jointly developing will offer recording studios and artists the most

effective solution to protect works distributed on CDs, while offering

convenience and cost effectiveness to the music rights owner and end-user. We

believe that the proposed technology embodies unique know-how designed to

prevent the unauthorized copying of CDs. The proposed music protection

technology will be based primarily on our proprietary technology, MusicGuard, as

well as related Macrovision technologies.



      Most music is currently offered for sale on a CD. To our knowledge, there

is no existing commercially available technology except MusicGuard, which

protects content on the original CD. Software-based technologies available today

claim to protect music during electronic transmission, but we believe that these

technologies are easily overcome. For example, according to an article appearing

in the August 18, 1999 edition of "Wired News", one month after Microsoft

released its software-based protection technology, Windows Media Audio, a

program was available on the Internet that removed the copying protection

afforded by the software. MusicGuard protection is embedded on the CD itself and

is introduced as part of the production process. The production process includes

the creation of a glass master from which metal molds, or stampers, used to mass

produce, or replicate, CDs are made.



      During the glass mastering process, a specially modified CD-encoder

introduces selective alternative alterations to the data placed on the glass

master. These alterations do not affect the audio quality of the original CDs in

any manner. CDs that will be protected by music copy protection technology we

are developing with Macrovision will be designed to play normally in the

currently existing CD and DVD players around the world. Music quality will not

be degraded as compared to the original. The technology will be designed so that

when one tries to make a copy of a protected CD with any of the many CD-to-CD

copying programs or "track rippers", the copy will be unusable. Either the

copying process itself will abort or the quality of the unauthorized copy will

be unacceptably inferior to the original music. Similarly, attempts to produce

MP3 files from a protected CD will either fail or result in inferior and

unusable audio. We will design the technology so that it will be easy to apply

and use. Record companies or recording studios need only inform an authorized

glass mastering facility that it wishes to protect against copying with the

technology. We don't envision any special preparation or changes that will be

needed to be made to the data which the recording mastering studio supplies to

the glass mastering facility. The technology will leverage existing encoder

technology used in our DiscGuard(TM) software protection product. Glass

mastering facilities worldwide will be able to simply, cheaply and immediately

upgrade their existing encoders to enable the use of the copy protection

technology. Since the protection will be applied only during the glass mastering

process, once a glass master and stampers have been produced, protected discs

can be mass-produced by any replicator. We are working together with Macrovision

and the encoder manufacturers to develop the most efficient and effective

manufacturing solution.





                                       4





Mastering Equipment Manufacturers



      In order to produce protected CDs, modifications to the encoder portion of

the laser optics system in CD mastering equipment are required. Under our

contract with Macrovision, Macrovision is responsible for coordinating with the

companies which produce and sell these encoders. We believe that three

companies, Doug Carson & Associates, Media Morphics and Eclipse, effectively

control the market for encoders. We will work with Macrovision and these encoder

producers to develop the necessary modifications to produce protected CDs.



      We envision that Macrovision will authorize licensed CD replicators to

replicate protected CDs. Macrovision has licensing arrangements in place with

more than 75 replication facilities worldwide including the largest

multinational replicators such as, Sonopress, MPO, Americ Disc, Nimbus, Cinram,

and JVC. Therefore, we believe that Macrovision is in a good position to

leverage its current business relationships to the benefit of the audio content

copy protection technology we will develop with Macrovision.



Marketing and Sales



      Under our agreement with Macrovision, Macrovision will be responsible, at

its expense, for the marketing of the proposed audio content copy protection

technology and will determine the staffing and other resources to be allocated

to the commercialization of the technology consistent with Macrovision's good

faith determination of its commercial potential.



      Macrovision markets its products, including video cassettes, digital PPV

and DVD copy protection and video scrambling technologies, through a combination

of direct sales and licensing as well as through independent distributors.

Macrovision has a network of authorized duplication, authoring and replication

facilities throughout the world.



      We are entitled to thirty percent (30%) of the net revenues received by

Macrovision from customers, distributors, OEM partners or other sublicensees of

the jointly developed technology. Under certain conditions, our share of net

revenues may be adjusted to twenty-five percent (25%) of the net revenues. Under

certain circumstances, the exclusive license relating to MusicGuard and the

jointly developed technology which we granted to Macrovision reverts to a

non-exclusive license as of the second anniversary of the commercial launch.

Under our agreement with Macrovision, commercial launch is deemed to occur when

a certain pre-designated number of protected music CDs are manufactured, with a

certain specified number being manufactured by at least one of certain

designated major commercial music labels. If certain conditions relating to the

timing of the commercial launch transpire, we will be entitled to minimum annual

guaranteed royalty advances, recoupable against royalties actually earned by us,

commencing on the first anniversary of the commercial launch and continuing

through the term of the development agreement which ends on December 31, 2009.



      Macrovision markets its video and consumer protection technologies

internationally from its Sunnyvale, California headquarters and through its

subsidiaries in Japan and the United Kingdom. It supplements its direct sales

efforts with a variety of marketing initiatives, including trade show

participation, trade advertisements, industry education and news letters.

Macrovision provides technical support to its licensed duplicators, including





                                       5





hardware installation assistance and quality control. As of December 1, 1999,

Macrovision employed 33 sales and marketing personnel and 38 additional

employees who assisted in customer support and operations.



      We have only a limited internal sales and marketing capability. 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

expanding our marketing capability until we are in a position to commercialize

products other than MusicGuard.



Research And Development



      We intend to maintain our position as the technological leader in

anti-piracy products by leveraging our existing knowledge base and skillset and

exploiting to the fullest our existing technologies. We are interested in

acquiring or establishing business arrangements with other parties which have

promising technologies that offer synergy to our technological and commercial

expertise. We are particularly focusing upon companies in Israel due to their

geographic proximity and because Israel has a large pool of startup companies

with raw technologies from which to choose.



      The software and entertainment industries in general are 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 anti-piracy products will depend

in large part on our ability to develop and apply our proprietary technology and

know-how. We believe that the key to ensuring that the audio content copy

protection technology we are developing with Macrovision becomes the industry

standard for CD copy protection lies in our and Macrovision's ability to

continually enhance and upgrade our unique anti-piracy technologies.



New Products and Technologies



      We intend to extend our range of activities in two specific directions:



      o     Exploiting existing technologies and expertise - the development and

            commercialization of products which are similar to and share common

            distribution channels with MusicGuard.



      o     Other technologies - the result of cooperation with outside parties,

            including applications which offer synergy with MusicGuard.



We have developed other technologies with applications in the following areas:



      o     DiscAudit - a system for identifying genuine disc replicas. During

            the mastering process, a special non-reproducible authenticating

            mark is embedded outside the data portion of the disc. The

            authenticating mark is not present in unauthorized replicas. By

            means of a laptop with CD or DVD drive and software supplied by us,

            law enforcement authorities, including customs inspectors, can

            quickly determine the authenticity of a disc. DiscAudit is

            applicable to CD and DVD, including both software and audio discs.

            The product has been tested with fully satisfactory results. Unlike

            the following three technologies, this technology is not subject to

            the right of first refusal we have granted to Macrovision to acquire

            rights in the technology if we decide to license or sell our rights

            in it.





                                       6





      o     Encryption Engine - a strong encryption engine for a variety of

            applications including electronic software distribution, secure

            electronic music distribution, dedicated music and video playback

            devices and dedicated games machines. We can supply the encryption

            technology and software library for the content to be protected.



      o     Smart Card Application Binding - Our DiscGuard technology "binds" a

            protected application to a signature on an authentic optical disc so

            that the protected application runs correctly only in the presence

            of the disc. In many applications, it would be desirable to run the

            protected application on any PC. This can be accomplished by

            transferring binding information to the user's smart card. Use of

            smart cards is expected to grow substantially. Reading devices are

            inexpensive and readers are included in Microsoft's PC hardware

            specifications. The binding could be by direct download via the

            Internet. For example, an end user can download a demo version of

            sample music. If he chooses, he can unlock the application by an

            on-line registration process that transmits the unlock key directly

            to the end users's smart card. As a result, the end user has

            complete mobility - he can run the application from any Internet

            connected PC, while the music publisher has no concerns about

            unauthorized replication.



      o     Dedicated Playback Devices with Smart Card - GSM (Global System for

            Mobile Communications) modules throughout the world work with small

            smart card modules containing the user's authorization and personal

            preferences. We intend to extend this concept to a wide range of

            consumer devices, including computers, video and audio playback

            devices and game stations. In all cases, protected content such as

            software, video, audio or games, must be bound to the user's smart

            card before it can be played correctly. The binding can be achieved

            by leveraging our existing encryption and binding mechanisms.



      Under our agreement with Macrovision, we granted to Macrovision an

exclusive right of first refusal through December 31, 2009, to any music copy

protection technology that we develop which is not included in the license to

Macrovision, and any Internet digital rights management technologies developed

by us which are applicable to music, music video, video, software or data

publishing products or markets. We are required to notify Macrovision of the

details of any bona- fide third party offers to purchase or license such

technologies. If Macrovision notifies us of its interest in such purchase or

license within 10 business days of Macrovision's receipt of our notification, we

are required to negotiate in good faith with them such purchase or license. The

encryption engine, smart card application binding and the GSM systems are

subject to Macrovision's first refusal rights.



      A major part of future business strategy will be the identification and

setting up of cooperation arrangements with the developers of technologies,

including those that share our anti- piracy theme.



      We are already active in the process of screening potential partners. The

model will be to invest in such companies and to allow them to benefit from our

strengths - technical knowledge (especially in optical media), professional

management, market awareness and established relationship with Macrovision and

other marketing partners. We believe that we can identify several early stage

technology companies and can provide the added value necessary to achieve

success and cut time to market.





                                       7





      In connection with the design and development of DiscGuard, our

proprietary software anti- piracy product, our Israeli subsidiary has received a

grant of $210,000 from the Chief Scientist of the State of Israel. We are

required to 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. For example, royalties will be payable to the Chief Scientist based on

royalties we receive from Macrovision relating to DiscGuard. We do not believe

that any royalties are payable to the Chief Scientist in respect of the proposed

audio content protection technology. 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 December 31, 1999, we have expended

approximately $3 million on research and development activities, including

approximately $2.6 million through the year ended December 31, 1998, and

approximately $.4 million for the year ended Dectember 31, 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



      We are not aware of the existence of any commercially available

anti-piracy technologies in the area of copy protection for electronic content

distributed on optical media. There can be no assurance that other companies

will not enter the market in the future, particularly if the audio content

protection technology we are developing with Macrovision is successfully

commercialized. 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. We have filed patent applications in the United States

and Israel and under the Patent Cooperation Treaty with respect to the

technology underlying DiscGuard and in Israel for MusicGuard. We have also

applied for a United States trademark registration of MusicGuard. There can be

no assurance that any patent or trademark 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 and audio content protection products and

technologies are 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





                                       8





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.



      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 5 full-time employees, all of whom work in Israel. 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 consider

our relations with our employees to be good.



      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 dependupon 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.



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 --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. Although Israel and Syria have resumed negotiations, Israel

has not entered into any peace agreement with Syria or Lebanon. Recently there

has been stagnation in the peace process in the Middle East. There can be no





                                       9





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 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





                                       10





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





                                       11





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.





Factors that May Influence Future Results and Accuracy of Forward-Looking

Statements



      In an effort to help keep our stockholders and the public informed about

the Company's operations, we may from time to time issue certain statements,

either in writing or orally, that contain or may contain forward- looking

information. Such statements can be identified by the use of forward- looking

terminology such as "believes," "expects," "may," "will," "should," or

"anticipates" or the negative thereof or comparable terminology, or by

discussions of strategy. You are cautioned that our business and operations are

subject to a variety of risks and uncertainties and, consequently, our actual

results may materially differ from those projected by any forward-looking

statements. Certain of such risks and uncertainties are discussed below. We make

no commitment to revise or update any forward-looking statements in order to

reflect events or circumstances after the date any such statement is made.



      Our relationship with Macrovision is very important to us, since it will

be the exclusive licensee of our anti-piracy products and it is responsible for

marketing them.



      As of November 24, 1999, we entered into a ten year agreement with

Macrovision to jointly develop a commercially viable anti-piracy protection

technology and product for audio content distribution on optical media. We

granted to Macrovision exclusive worldwide royalty bearing rights to our

proprietary anti-piracy technology, MusicGuard, which serves as the primary

basis for the proposed audio content protection technology. Under the terms of

our agreement, Macrovision is responsible for promoting and marketing the

proposed music protection technology or product. Macrovision has the discretion

to determine the staffing and resources it allocates to commercialize the

technology consistent with Macrovision's good faith determination as to the

technology's commercial potential. We also granted to Macrovision exclusive

rights to our proprietary CD software anti-piracy protection technology,

DiscGuard, which is the only commercially available product we currently have.

Only a limited portion of the license for DiscGuard is royalty bearing and

Macrovision is not required to pay any minimum royalties in order to retain its

exclusivity. We expect that sales through Macrovision will account for most of

our revenues for at least the next two years. We believe that the rapid

penetration of the proposed music protection technologies in the recording

industry in the United States and Europe to be crucial to our success. If we are

unable to effectively manage and maintain our relationship with Macrovision or

for any reason Macrovision cannot successfully market MusicGuard, our business

will be materially adversely affected. In addition, our condition could be

adversely affected by changes in the financial condition of Macrovision or by

any other changes to Macrovision's business.



      We do not currently have any commercially viable products or technologies

and we cannot assure you that we will develop any.



      MusicGuard, our proprietary anti-piracy protection technology for audio

content distributed on CDs, is not currently commercially viable but will serve

as the primary basis for the proposed music protection technology that we and

Macrovision are jointly designing and developing. Under the terms of our

agreement with Macrovision, we will work jointly with Macrovision to complete a

product suitable for commercial launch. We estimate that this project will take

nine months, six months until the commercial launch and three months following

the commercial launch. We have also given to Macrovision an exclusive worldwide

partially royalty bearing license to DiscGuard, which we launched commercially

in February, 1998. We expect that Macrovision will use components of DiscGuard

to support its CD-ROM product, SafeDisc(TM). Although we are working to develop

technologies with applications





in other areas, these technologies are at an early stage. Currently, we have no

other commercially viable product or technology.



      Even if we develop other commercially viable technologies, the right of

first refusal we have granted to Macrovision with respect to certain products

may impair our ability to exploit them.



      Under the terms of our agreement with Macrovision, we have granted to

Macrovision first refusal rights until December 31, 2009 with respect to any

music protection technology we develop which is not included in the license to

Macrovision and any Internet digital rights management technologies we develop

which are applicable to music, music video, video, software or data publishing

products or markets. These rights include rights of ownership if we decide to

sell the technology or worldwide exclusive marketing or distribution rights if

we decide to license the technology. Our obligation is to negotiate a sale or

license to Macrovision in good faith should we receive a bona fide offer from a

third party to purchase or license the technology and should Macrovision notify

us of its interest in acquiring the technology. As is ordinarily the case where

a right of first refusal is granted, the existence of this right may impair our

ability to fully exploit the commercial potential inherent in other technology

we may develop which is subject to this right by creating the possibility that

an interested third party may abstain from making an offer for our technology

due to a possible concern on the part of such third party that its offer will be

utilized by us solely for negotiating an offer from Macrovision on more

favorable terms.



      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 December 31, 1999, we had an accumulated deficit of

approximately $24.8 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 jointly

develop with Macrovision the audio content copy protection technology to the

point it becomes commercially viable and Macrovision's success in promoting and

marketing the technology.



      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.

Prior to the commencement of our joint efforts with Macrovision to develop a

commercially viable audio content protection product and before our software

product, 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 audio content copy protection and

anti-piracy market. Some of these risks and uncertainties relate to our ability

to:



o     complete, together with Macrovision, the design and development of audio

      content protection technology of a commercially viable product or

      technology;



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     extend MusicGuard protection to DVDs; and



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 audio content copy protection technology is unproven.



      The market for copy protection technology for audio content distribution

on CDs, especially in the consumer multi-media market, is unproven. For us to be

successful in entering this market, recording studios and artists must accept

copy protection generally and also adopt the solution that we are developing

with Macovision. There can be no assurance that copy protection of multi-media

audio content distributed on CDs will be widely commercially accepted. For

example, consumers may react negatively to the introduction of copy protected

CDs if they are prevented from copying the content of their favorite audio

content. Moreover, copy protection may not be effective or compatible with all

hardware platforms or configurations or may prove to be easily circumvented.

Further, the technology we are developing with Macrovision may not achieve or

sustain market acceptance under emerging industry standards. If the market for

copy protection of audio content distributed on CDs fails to develop or develops

more slowly than expected, or if MusicGuard 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 success of Macrovision in promoting and marketing any music protection

      technology developed through our joint efforts.



o     the demand for audio content anti-piracy protection in general and for CDs

      in particular, and, potentially, for DVDs;



o     the degree of acceptance of our copy protection technologies by recording

      studios and artists;



o     changes in our operating expenses;



o     changes in fees paid for copy protection of audio content distributed on

      CDs resulting from competition or other factors;



o     economic conditions specific to the recording industry;



o     anticipated seasonality of revenues relating to sales of music CDs 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.



      For at least the next two years, we expect to derive most of our net

revenues and operating income from royalties collected from Macrovision in

respect of sales of copy protection technology or products. We cannot assure you

that we will receive any revenues from these royalties or if revenues are

received, that they will grow significantly or at all. Any growth in revenues

from these fees will depend on the use of our copy protection technology by a

larger number of recording studios and artists. In order to increase our market

penetration, we must persuade recording studios and artists that the cost of

licensing our technology is outweighed by the increase in revenues from

additional sales of the copy protected material that the recording studios and

artists would achieve as a result of using copy protection. There are many

competitors in the copy protection industry and we may not be able to compete

effectively against them.



      There is currently no commercially available technology which prevents the

faithful copying of compact discs. There can be no assurance that companies with

substantially greater financial, technological, marketing, personnel and

research development resources than ours will not develop and begin marketing a

similar technology. While no technology is currently available, the Secure

Digital Music Initiative is a forum of companies who have agreed to develop a

standard for copy protection of digital music. The standard developed and being

improved upon by the Initiative will apply to next generation portable playback

devices. There can be no assurance that if and when the standard is implemented,

the MusicGuard technology will be able to effectively compete against copy

protection technologies based on the Initiative's standard.



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



    We must continually enhance and upgrade audio content protection technology

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, music rights owners could

choose not to use our anti-piracy technology if they 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, the

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.



      The proposed audio protection technology is based upon a single set of

core technologies. The market for this technology and products is characterized

by rapid change, often resulting in product obsolescence or short product life

cycles. Although we are not aware of any developments in the audio content

protection industry which would render our planned products less competitive or

obsolete, there can be no assurance that future technological changes or the

development of new or competitive products by others will not do so.



      We have very few employees and are particularly dependent on our Chief

Technology Officer.



      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

Chief Technology Officer, 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 our exclusive licensee, Macrovision. 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 currently cover known or anticipated operating exposures through

foreign currency exchange option or forward contracts.



      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 success in developing and commercializing other technologies will

depend in part upon our ability to establish and maintain licensing

relationships with companies in related business fields, including international

distributors. We believe that these 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 may not

be within our control. We may not be able to maintain 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. 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.



      The rights of first refusal we have granted to Macrovision relating to the

sale of our equity securities may impair our ability to obtain other financing.



      In the January 12, 2000 stock purchase agreement under which we sold to

Macrovision $4 million of our common stock, we granted to Macrovision rights of

first refusal to purchase equity securities (including securities convertible or

exchangeable into common stock) we propose to sell to third parties if the

amount of the securities to be sold would constitute a majority of our

outstanding common stock. Subject to some exceptions, we further granted to

Macrovision a right to purchase its pro rata share (based on Macrovision's then

current ownership of common stock) of any equity securities we offer in private

transactions above a certain amount. The existence of these rights may impair

our ability to obtain equity financing from third parties on terms satisfactory

to us or at all because investors may be reluctant to devote the time and

expense necessary to negotiate the terms of a transaction which we may not be

able to consummate with them if Macrovision elects to exercise its rights.

However, Macrovision waived its right of first refusal with respect to our

private placement in February 2000 of 1,800,000 shares of Common Stock and

900,000 Class A Warrants for an aggregate purchase price of $10 million.





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

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. Some of these concerns have continued to persist after

January 1, 2000. Our business depends on the operation of numerous systems that

could potentially be affected by Year 2000 related problems. Those systems

include hardware and software systems used internally by us in the management of

our business; hardware and software products developed by us; 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. Success of our Year 2000 readiness efforts may

depend on the success of our customers in dealing with their Year 2000 issues.

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.



Future sales of our common stock by our holders of outstanding stock, options

and warrants could have an adverse effect on the market price of our common

stock.



      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, 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.



      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 "high tech" 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 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 may be 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 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.



Item 2. Properties



      We lease a 2400 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 $2292 and an expiration date of May 31, 2000

subject to one optional annual renewal through May 2001. We have improved this

facility to meet the requirements of our research and development activities. We

believe that this facility is sufficient to meet our current and anticipated

future requirements. We believe that we will be able either to renew our present

lease or obtain suitable replacement facilities. In the opinion of management,

our leased facility is adequately covered by insurance.



Item 3. Legal Proceedings



      Our Israeli subsidiary is party to various litigation matters, in most

cases involving ordinary and routine claims incidental to our business. We

cannot estimate with certainty its ultimate legal and financial liability with

respect to such pending litigation matters. However, the Company believes, based

on its examination of such matters, that the Company's ultimate liability will

not have a material adverse effect on its financial position, results of

operations or cash flows.



Item 4. Submission of Matters to a Vote of Security Holders



      The Company held its Annual Meeting of Shareholders on December 21, 1999

and the shareholders voted as to the following: (a) election of Marc D. Tokayer

and Dr. Baruch Sollish as directors to serve for a term of one (i) year or until

a successor is duly elected; (ii) to increase the number of common shares that

the Company is authorized to issue from time to time 25,000,000 common shares;

(iii) approval of an increase in the number of common shares reserved for

issuance under the Company 1996 Stock Option Plan to 1,500,000 common shares and

to amend such stock plan to permit the acceleration of vesting for certain

options granted thereunder; (iv) approval of the ratification of Brightman

Almagor & Co., a member of Deloitte Touche Tohmatsu as auditors for the year

ending December 31, 1999. All matters were approved by the shareholders.



      Voting results are as follows:



                                                  For        Against     Abstain

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



1. Directors                                   8,421,001          --      16,100

2. Amendment to Certificate of Incorporation   8,406,251      30,000         850

3. Stock Option Plan Amendment                 4,609,696      50,650      14,783

4. Auditors                                    8,426,101       6,500       4,500



      No other matters were submitted to a vote of shareholders during the year

ended December 31, 1999.



                                     Part II



Item 5. Market for Common Equity and Related Stockholder Matters



      The Company's Common Stock is traded on the OTC Electronic Bulletin Board

under the symbol 'TTRE'. The following table sets forth the range of high and

low bid prices for the Common Stock as reported on the OTC Electronic Bulletin

Board by the National Association of Securities Dealers, Inc., Automated

Quotations System for the periods indicated.



                                             Common Stock



Quarter Ended                             High          Low



       1999

       ----

       December 31                        $6.00        $2.45





                                       12





       September 30                       $4.80        $2.45

       June 30                            $3.125       $ .75

       March 31                           $1.4375      $ .75



       1998

       ----



       March 31                           $6.00        $4.00

       June 30                            $5.50        $2.625

       September 30                       $3.25        $ .875

       December 31                        $3.0625      $.6875



      The foregoing represent inter-dealer prices, without retail mark-up,

mark-down or commission, and may not necessarily represent actual transactions.



      As of March 27, 2000, there were approximately 171 record holders of the

Common Stock of the Company. We believe that there are a significant number of

shares of our common stock held either in nominee name or street name brokerage

accounts and consequently, we are unable to determine the number of beneficial

owners of our common stock.



      The Company has paid no dividends on its Common Stock and does not expect

to pay cash dividends in the foreseeable future. It is the present policy of the

Board of Directors to retain all earnings to provide funds for the growth of the

Company. The declaration and payment of dividends in the future will be

determined by the Board of Directors based upon the Company's earnings,

financial condition, capital requirements and such other factors as the Board of

Directors may deem relevant. The Company is not under any contractual

restriction as to its present or future ability to pay dividends.



Sales of Unregistered Securities During 1999



      Set forth below is a listing of all sales by the Company of unregistered

equity securities during 1999, excluding sales that were previously reported on

a Quarterly Report on Form 10-QSB. Unless otherwise indicated (i) such sales

were exempt from registration under the Securities Act of 1933, as amended (the

"Act"), pursuant to Section 4(2) of the Act, as they were transactions not

involving a public offering and (ii) the sales were made by the Company without

the assistance of any underwriters.



1. In January 1999, the Company issued to a consultant 297,000 shares of common

stock.



2. In January 1999, the Company 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.



3. In February 1999, the Company issued to certain employees warrants to

purchase an aggregate of 196,000 shares, at an exercise price per share of

$0.01. As of March 10, 2000 an aggregate of 146,000 shares had been issued upon

exercise of these warrants.



4. In February and March 1999, the Company 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.



5. In April 1999, the Company issued to a consultant 75,000 shares at a price of

$0.60 per share.



6. In May, July, September and October 1999, the Company issued $1,000,000,

$400,000, $100,000 and $500,000, respectively, in principal amount of its 10%

Convertible Debentures due April 30, 2001 to certain private investors. In

October 1999, the outstanding principal amount and accrued interest on the

Convertible Debentures were converted into an aggregate of 2,681,934 shares of

the Company's common stock. Upon the issuance of the conversion shares, the

Company issued to these investors warrants to purchase an aggregate of 1,340,970

shares of the Company's common stock at an exercise price of $0.92 per share. In

November 1999, all of these warrants were exercised by the investors. The

Company paid commissions to Wall & Broad Equities, Inc. of approximately

$240,000.



7. In May 1999 the Company issued to a consultant options to purchase up to an

aggregate of 1,300,000 shares at a nominal exercise price per share. As of March

10, 2000, the Company had issued 796,798 shares upon the partial exercise of

these options.



8. In July 1999, the Company issued to a consultant warrants to purchase up to

an aggregate of 400,000 shares at an exercise price of $2.75 per share. In

settlement of certain disputes between the consultant and the Company, the

Comapny re-issued warrants for an aggregate of 200,000 at an exercise price of

$2.75 per share and the consultant waived any rights to the warrants for the

remaining 200,000 shares.



9. In October 1999, the Company issued to a consultant 200,000 shares and an

option to purchase an aggregate of 1,000,000 shares at an exercise price per

share of $0.01. The option was exercised in full in January 2000.



10. In November 1999, the Company issued to a shareholder warrants to purchase

an aggregate of 15,000 shares at an exercise price per share of $2.50 and

warrants to purchase an





aggregate of 35,000 shares at an exercise price per share of $3.50 in settlement

of certain disputes between the Company and such shareholder.



11. In November 1999, TTR issued to a consultant warrants to purchase an

aggregate of 25,000 shares at an exercise price per share of $0.01.



12. During 1999, the Company issued, pursuant to its 1996 Option Plan, the

following stock options:



            (i) In June 1999, the Company issued to an employee options to

      purchase 235,000 shares of common stock, vesting in 36 equal monthly

      installments, for a nominal exercise price.



            (iii) In November, 1999, the Company issued to employees (a) fully

      vested options to purchase an aggregate of 298,500 shares with an exercise

      price of $0.01 per share, (b) options vesting over 2 years to purchase an

      aggregate of 100,000 shares at an exercise price per share of $2.56.



Item 6. Selected Consolidated Financial Data



      The following table sets forth our consolidated financial data for the

five years ended December 31, 1999. The selected consolidated financial data for

the years ended December 31, 1997, 1998 and 1999 are derived from our

consolidated financial statements for such years, which have been audited by

Brightman Almagor & Co., a member of Deloitte Touch Tohmatsu, independent

auditors. The selected consolidated financial data for the years ended December

31, 1995 and 1996 are derived from our consolidated financial statements for

such period and years, which have been audited by Schneider Ehrlich & Associates

LLP (formerly known as Schneider Ehrlich & Wengrover LLP), independent auditors.

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.







                                                  Year

                                          Ended December 31,

                                                                                                          From Inception

Income Statement                                                                                          (July 14, 1994) to

Data:                          1995           1996          1997           1998           1999            December 31,1999

                                                                                         

Revenues                           --             --             --         54,922         68,803              123,725

Total expenses                692,801        790,108      3,784,635      5,178,872      7,944,252           18,424,000

Operating loss               (692,801)      (790,108)    (3,784,635)    (5,123,950)    (7,875,449)         (18,300,275)

Net loss                     (896,663)    (1,121,211)    (4,119,612)    (5,578,540)   (13,072,237)         (24,830,348)



Net loss per

Share                        (0.37)       (0.62)          1.35)         (1.54)         (2.07)



Weighted average shares

Outstanding                 2,399,793      1,801,366      3,054,519      3,615,908      6,321,719







                                       13









                                                              December 31,

                               1995           1996          1997           1998           1999

                                                                        

Balance Sheet

 Data:



Working capital

(deficiency)                 (616,839)     (2,563,908)      448,679    (2,834,448)     (494,744)

Total assets                  403,204       1,191,688     1,188,627       490,545       467,867

Total liabilities           1,274,427       2,785,545       278,898     3,588,712       798,863

Total Stockholders'

equity (deficit)             (871,223)     (1,593,857)      677,229    (3,098,167)     (330,996)





Item 7. Management's Discussion and Analysis of Financial Condition and Results

of Operation



      The following discussion should be read in conjunction with our

consolidated financial statements and the notes thereto included elsewhere in

this prospectus.



General



      We design and develop anti-piracy software technologies that provide copy

protection for electronic content distributed on optical media and over the

Internet. Our proprietary anti-piracy technology, MusicGuard, is a unique

hardware-based technology designed to prevent the unauthorized copying of audio

content distributed on CDs.



      As of November 24, 1999, we entered into an agreement with Macrovision

Corporation to jointly design and develop and market a copy protection product

designed to thwart the illegal copying of audio content on CDs, DVDs and other

optical media. Optical media store data which may be retrieved by utilizing a

laser and include compact discs which are commonly referred to as CDs and

digital versatile discs which are commonly referred to as DVDs. The new product

will be based primarily upon our MusicGuard technology, as well as related

Macrovision technology, and will be jointly owned by us and Macrovision. We

expect that the immediate application of the technology we are developing with

Macrovision will be of interest for the music distribution business and

recording studios whose products are customarily distributed on CDs. We granted

to Macrovision an exclusive world-wide royalty bearing license to design,

develop and market the copy protection technology which we are jointly

developing. The license to Macrovision relates to all technologies and products

designed to prevent the illicit duplication of audio programs (including the

audio portion of music videos, movies and other video or audio content)

distributed on optical media (not limited to CDs and DVDs) and technologies for

Internet digital rights management for audio applications. The proposed copy

protection technology we are developing with Macrovision will be transparent to

the legitimate end-user.



      Our immediate goal is to establish the proposed audio content protection

technology which we and Macrovision are developing as the leading product in the

target market of audio content copy protection for the high-volume recording

industry. Additionally, we are actively developing other technologies and

looking to acquire technologies which are synergistic with our current business

and will enable us to leverage our knowledge base and skill.





                                       14





      We have not had any significant revenues to date. As of December 31, 1999,

we had an accumulated deficit of approximately $24.8 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.



Revenue Sources



      We expect, for the near-term, that our primary source of revenue will be

royalties under our license agreements with Macrovision. We are currently

seeking to develop or acquire other technologies that will provide other sources

of revenue. However, there can be no assurance that we will develop or acquire

other technologies or if we do, that such technologies will generate any revenue

or profits.



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 1997, 1998 and 1999.



Results of Operations



Year Ended December 31, 1999 Compared to Year Ended December 31, 1998.



      Revenues for the year ended December 31, 1999 and 1998 were $68,803 and

$54,922, respectively and were derived from licensing fees of our DiscGuard

product.



      Research and development costs for the year ended December 31, 1999 were

$345,989 as compared to $1,017,073 for 1998. These decreases are attributable

primarily to reduced staffing effected in the latter part of 1998.



      Sales and marketing expenses for the year ended December 31, 1999 were

$815,586 as compared to $1,155,998 for 1998. This decrease was primarily due to

reduced staffing in 1999.



      General and administrative expenses for the year ended December 31, 1999

were $630,090 as compared to $1,663,912 for 1998. This decrease was primarily

due to reduced staffing in 1999.



      Stock-based compensation for the year ended December 31, 1999 was

$6,152,587 as compared to $1,341,889 for 1998. Due to the shortage of available

funds in 1999, we compensated employees and other consultants by issuing common

stock, warrants and options.



      Amortization of deferred financing costs for the year ended December 31,

1999 period was $4,180,540 as compared to $72,288 for the same period in 1998.

As a result of the issuance of 1.3 million warrants in connection with the sale

of our 10% Convertible Debentures, we recognized significant non-cash financing

costs. Using the Black-Scholes





                                       15





model for estimating the fair value of the warrants, we recorded $3,845,400 as

deferred financing costs and charged the entire balance to operations when the

debentures were converted.



      Interest expense for the year ended December 31, 1999 increased to

$1,019,937 as compared to $410,715 during 1998. Included in interest expense is

non-cash amortization of note discount in the amount of $272,009 and $214,454

for the years ended December 31, 1999 and 1998, respectively. Note discounts

were imputed to reflect the equity component of the related financings. Also

included in interest expense for 1999 was $572,505, which represents the value

of the beneficial conversion feature relating to the conversion of outstanding

debt into shares of our Common Stock.



      We reported a net loss for the year ended December 31, 1999 of $13,072,237

or $(2.07) per share on a basis and diluted basis, as compared to a net loss of

$5,578,540 or $(1.54) per share for the year ended December 31, 1998.



Year Ended December 31, 1998 Compared to Year Ended 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

$1,017,073 as compared to $957,232 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

$1,155,998 as compared to $914,060 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 $1,663,912 as compared to $604,151 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.



      Stock-based compensation for the year ended December 31, 1998 was

$1,341,889 and $1,309,192 for 1997.



      Interest expense for the year ended December 31, 1998 increased to

$410,715 as compared to $113,445 during 1997 due 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.





                                       16





Liquidity and Capital Resources



      At December 31, 1999, we had cash of approximately $210,000, representing

an increase of approximately $135,000 over December 31, 1998. In February 2000,

we completed a private placement of 1,800,000 shares of our common stock and

900,000 Class A Warrants for an aggregate purchase price of $10,000,000. The

Class A Warrants are exercisable for a period of five years at an exercise price

of $8.84 per share and upon exercise, we will issue Class B Warrants for an

additional 495,000 shares. The Class B Warrants are exercisable for a period of

three years from the date of issuance at an exercise price of $21.22. Under

certain circumstances the Class A and Class B Warrants may be redeemed.



      In November 1999, we signed an agreement with Macrovision Corporation

("Macrovision") to jointly develop and market music copy protection technology

for optical based media. In connection with the agreement, We granted to

Macrovision an exclusive world-wide, royalty-bearing license to use our

proprietary technology through December 31, 2009. We will be entitled to a 30%

royalty which may be adjusted to twenty five 25%, under certain conditions. Also

under certain conditions, the exclusive license may revert to a non-exclusive

license as of the second anniversary of the commercial launch of the product

that we are jointly developing. If certain conditions relating to the timing of

such commercial launch transpire, We will be entitled to minimum annual

guaranteed royalty advances, commencing on the first anniversary of the

Commercial Launch and continuing through the ninth year, aggregating $25

million.



      Also under the Agreement, in January 2000, Macrovision made a $4 million

equity investment in the Company for an 11.4% interest and received an exclusive

license to our proprietary DiscGuard(TM) technology.



      In the fourth quarter of 1999, we significantly reduced our accrued

interest and long-term debt through a series of conversions to Common Stock. We

also realized proceeds of approximately $1.4 from the exercise of outstanding

warrants and options.



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk



To date, we have not utilized derivative financial instruments or derivative

commodity instruments. We invest our cash primarily in money market funds, which

are subject to minimal credit and market risk. The interest payable on our

long-term debt is variable based on the prime rate and, is therefore, affected

by changes in market interest rates. However, we believe the market risks

associated with these financial instruments are immaterial.



Foreign Currency Risk



The Company is exposed to foreign exchange rate fluctuations as they relate to

operating expenses as the financial results of foreign subsidiaries are

translated into U.S. dollars in consolidation. As exchange rates vary, these

results, when translated, may vary from expectations and adversely impact

overall expected profitability. The effect of foreign exchange rate fluctuations

on the Company in 1999 was not material.



Item 8. Financial Statements



The information called for by this Item 8 is included following the "Index to

Financial Statements" contained in this Annual Report on Form 10-K.



Item 9. Changes in and Disagreements With Accountants on Accounting and

Financial Disclosure



None



                                    Part III



Item 10. Directors and Executive Officers; Compliance with Section 16(a) of the

Exchange Act



Directors and Officers



      Our directors, officers and key employees are as follows:



Name                            Age             Position

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





                                       17





Marc D. Tokayer                  43     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, Marc

Tokayer and Baruch Sollish. 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





                                       18





serving on the Board of Directors. Officers are elected annually by the Board of

Directors and serve at the discretion of the Board.



Section 16 Filings



      The Company believes that (i) each of Marc D. Tokayer and Baruch Sollish

failed to timely file a Form 3 in connection with their appointment as executive

officers and directors, (ii) the Tokayer Family Trust failed to file a Form 3 to

report its their shareholdings in the Company, (iii) each of Marc D. Tokayer,

Baruch Sollish and the Tokayer Family Trust have failed to file a Form 4 to

reflect the voting agreement among them, (iv) Marc Tokayer and the Tokayer

Family Trust have failed to file Form 4s relating to their waiver with respect

to and the Company's cancellation of 750,000 shares of common stock placed in

escrow, (iv) Messrs. Shavit and Barsh each failed to file a Form 3 to report

their respective appointment as executive officers and, in the case of Mr.

Shavit, as a director, and a Form 4 to report the grant of options to purchase

shares of common stock of the Company. The exchange of such options for stock

and, in the case of Mr. Shavit, a Form 4 relating to the termination of his

employment.



Item 11. Executive Compensation



      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 serving as such at the end of 1999

whose salary and bonus exceeded $100,000 for the year ended December 31, 1999 or

who, as of December 31, 1999, was being paid a salary at a rate in excess of

$100,000 per year.







                                                    Long Term Compensation

                     Annual Compensation                    Awards                                    Payouts



Name and                                                              Restricted     Securities

Principal                                                               Stock        Underlying        LTI          All Other

Position              Year      Salary      Bonus         Other        Awards(#)     Options(#)        Payouts     Compensation



                                                                                                

Marc D. Tokayer       1999     $108,075         --      $ 27,676(1)         --           --              --             --

Chairman and          1998     $ 64,430   $ 12,019      $ 14,423(1)         --           --              --             --

President             1997     $ 73,850   $  7,647      $ 26,307(1)         --           --              --             --



Emanuel

Kronitz(2)            1999     $ 35,915         --      $  7,158       304,500           --              --             --

Chief Operating       1998           --         --            --            --           --              --             --

Officer               1997           --         --            --            --           --              --             --



Baruch Sollish        1999     $110,522         --      $ 21,886(1)         --       80,000

Vice-President-       1998     $ 91,678   $ 42,105      $ 13,927(1)         --           --

Research &            1997     $ 99,931   $ 50,000(3)   $ 24,875(1)         --           --

Development







(1)   Includes contributions to insurance premiums, car allowance and car

      expenses.

(2)   Mr. Kronitz' employment by TTR commenced on June 1, 1999.

(3)   Comprises a one-time payment made in consideration of Dr. Sollish's waiver

      of incentive bonus payments due to him under his employment agreement.



                       Options Granted In Last Fiscal Year





                                       19





      The following table sets forth certain information concerning options

granted during 1999 to the executive officers named in the Summary Compensation

Table. Since January 1, 2000 we have also granted options to Mr. Tokayer and Dr.

Sollish, which grants are discussed in Item 13 below below:







                                                                Market                  Potential Realizable Value

                                      Percentage                Price of                At Assumed Annual Rates

                     Number of        of Total                  Common                  of Stock Price

                     Securities       Options                   Stock on                Appreciation for

                     Underlying       Granted to      Exercise  Date of                 Option Term

Name                 Options          Employees       Price     Grant       Expiration

                     Granted (#)      in 1999        ($/Share)  ($/Share)      Date     5%($)             10%($)

                                                                                     

Marc Tokayer         0                --              --        --          --           --               --

Emanuel Kronitz      235,000          31.7%           $.01      $2.906      2009         $1,110,038       $1,768,943

Emanuel Kronitz      69,500           9.4%            $.01      $2.56       2009           $289,118         $460,784

Baruch Sollish       20,000           2.7%            $.01      $2.56       2009            $83,999         $132,600

Baruch Sollish       60,000    `      8.1%            $2.56     N/A         2009            $96,598         $244,799









                 Aggregate Options Exercised In Last Fiscal year

                        And Fiscal Year End Option Values



                     Number of                                                                  Value of Unexercised

                     shares                                   Number of Un-exercised            In-the-money Options

                     Acquired on          Value               Options at December 31, 1999     at December 31, 1999(1)

Name                 Exercise             Realized   (#)                ($)

                     (#)                  ($)                 Exercisable/Unexercisable        Exercisable/Unexercisable

                                                                                 

Emanuel Kronitz      --                   --                  108,666/195,834(2)             $650,909/$1,173,045

Baruch Sollish       --                   --                  20,000/60,000                  $119,800/$206,400





(1) Based upon the difference between the exercise price of such options and the

closing price of the common stock ($6.00) on December 31, 1999, as reported on

the OTC Electronic Bulletin Board.



(2) On January 12, 2000, the terms of options to purchase an aggregate of

235,000 shares were amended to provide that options to purchase 150,000 shares

became immediately vested and exercisable.



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 our common stock. A

total of 1,500,000 shares of





                                       20





our 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 the Board of Directors. The board

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 incentive stock

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 board may, in its discretion

(i) accelerate the date or dates on which all or any particular option or

options granted under the 1996 Option Plan may be exercised, or (ii) extend the

dates during which all, or any particular, option or options granted under the

1996 Option 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 Exchange Act of 1934, as

amended. Except as otherwise determined by the board 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 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 January 31, 2000, options to purchase 1,166,400 shares of our 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 our 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 a

person's services as a director, the options expire within two months of such

termination. The exercise price of the option will be the fair market value of

our 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 March 1, 2000, no options were outstanding under the Directors Plan.





                                       21





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 currently receives an annual salary of $120,000,

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.



      Our Israeli subsidiary entered into an employment agreement with Dr.

Baruch Sollish in December 1994 which was amended in July 1998. Pursuant to the

agreement Dr. Sollish is employed as Director of Product Research and

Development of our Israeli subsidiary. The agreement is renewable for terms of

three years, subject to termination by either party on not less than 60 days

notice prior to the end of any term. The current term expires on December 1,

2001. Dr. Sollish currently receives an annual base salary of $120,000 subject

to increase and the grant of a performance bonus in the board's discretion.



      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.



Item 12. Security Ownership of Certain Beneficial Owners and Management



      The following table provides information as of March 1, 2000 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 to us to

be the beneficial owner of more than 5% of the outstanding common stock and (iv)

the directors and officers as a group.



Name of                          Shares of Common Stock     Percent of Class (2)

Beneficial Owner                 Beneficially Owned (1)



Macrovision Corporation          1,880,937                  11.78%



Wall & Broad Equities, Inc.      1,300,000 (3)              7.89%



Dimensional Partners Ltd.        1,260,000(4)               7.63%



Machtec Limited                  1,202,000                  7.53%



Marc D. Tokayer(5)               766,547(6)                 4.75%



Baruch Sollish(5)                195,000(7)                 1.21%



Emanuel Kronitz(5)               194,500(8)                 1.20%



All directors and officers as

a group (3 persons)              1,156,047                  7.09%





                                       22





(1) Beneficial ownership is determined in accordance with the rules of the 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 are deemed to be

outstanding, but not for the purpose of calculating the percentage ownership of

any other person.



(3) Includes 503,202 shares issuable upon exercise of warrants. As required by

SEC rules, 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 warrants held by this selling stockholder specify that

the stockholder can not exercise its warrants to the extent that such exercise

would result in the selling stockholder and its affiliates beneficially owning

more than 4.99% 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

stockholder during that 60 day period, they are nevertheless included in this

table. The actual number of shares of common stock issuable upon the 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.



(4) Includes 360,000 shares issuable upon exercise of Class A Warrants and

180,000 shares issuable upon the exercise of Class B Warrants, which warrants

are to be issued upon the exercise of the Class A Warrants.



(5) The address of such person is c/o TTR Technologies Ltd., 2 Hanagar Street,

Kfar Saba, Israel.



(6) 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. Also

includes 173,000 shares issuable upon the exercise of fully vested employee

stock options issued from the Company 1996 Employee Stock Option Plan. Does not

include 249,500 shares issuable upon exercise of options held by Gershon

Tokayer, Mr. Tokayer's brother, as to which shares Mr. Tokayer disclaims

beneficial ownership.



(6) Includes 120,000 shares issuable upon exercise of fully vested options.



(7) Represents shares issuable upon exercise of fully vested options.



Item 13. Certain Relationships and Related Transactions



      In January 2000, we issued to Mr. Tokayer, options under the 1996 Stock

Option Plan to purchase 347,000 shares of our common stock at an exercise price

per share of $4.00, of which options to purchase 173,000 shares were vested upon

issuance and options to purchase 174,000 shares will vest over 12 months.





                                       23





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

shares of our common stock. All of the options vested at the time they were

issued. In November 1999, we issued to Dr. Sollish options to purchase 80,000

shares of our common stock under the 1996 Stock Option Plan, with 20,000 of

these options being vested upon issuance with an exercise price of $.01 per

share and 60,000 of these options vesting over a 3 year period with an exercise

price per share of $2.56. In January 2000, we issued to Dr. Sollish additional

options to purchase 70,000 shares of our common stock under our 1996 Stock

Option Plan, of which 30,000 options were fully vested upon grant at an exercise

price of $4 per share, 20,000 options were fully vested upon grant at an

exercise price of $.01 per share and the remaining 20,000 options with an

exercise price of $.01 per share will vest upon the commercial launch of the

audio content protection product being jointly developed by us and Macrovision.



      In June 1999, we granted options to purchase 235,000 shares of our common

stock under the 1996 Stock Option Plan to Emanuel Kronitz, our Chief Operating

Officer, which options were to vest, subject to Mr. Kronitz's continued

employment with us, in 36 equal monthly installments and have an exercise price

of $.01 per share. On January 12, 2000, at the direction of the board, the

options were amended to provide that 150,000 of Mr. Kronitz's options became

vested and the balance of 85,000 options will vest in one lump sum on November

12, 2000. In November, 1999, we issued to Mr. Kronitz fully vested options to

purchase an additional 69,500 under the 1996 Stock Option Plan at an exercise

price of $.01 per share.



      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 our 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.



      In November 1999, we issued to Gershon Tokayer, our sales manager and the

brother of Marc D. Tokayer, the Chairman of the Board, options to purchase

249,500 shares of our common stock under the 1996 Stock Option Plan, of which

options to purchase 209,500 shares were immediately vested upon issuance at an

exercise price of $.01 per share and 40,000 options were to vest over a 3 year

period at an exercise price of $2.56 per share.



                                     Part IV



ITEM 14. EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENTS



Exhibits



3.1   Certificate of Incorporation of TTR dated July 14, 1994 and Certificate of

      Amendment to the Certificate of Incorporation of TTR dated August 17,

      1994(4)



3.2   Certificate of Amendment to the Certificate of Incorporation of TTR, dated

      January 30, 1999(5)



3.3   Certificate of Amendment to the Certificate of Incorporation of TTR, dated

      December 21, 1999(5)



3.4   By-Laws of TTR, as amended(4)



4.1   Specimen Common Stock Certificate(1)





                                       24





4.2.1 Form of 10% Convertible Debenture due April 30, 2001(2)



4.2.2 Form of 10% Promissory Note dated variously as of April through August

      1998 between TTR and each of certain investors, in an aggregate principal

      amount of $1,462,500(4)



4.2.3 Form of Promissory Note dated as of December, 1998 between TTR and each of

      certain investors, in an aggregate principal amount of $150,000(4) Certain

      instruments which define the rights of holders of long-term debt of the

      TTR 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 TTR and its subsidiary on a consolidated basis, as of December

      31, 1999.



4.3   Form of Common Stock Purchase Warrant(2)



4.4.1 Warrant Agreement dated as of May 25, 1999 between TTR and Wall & Broad

      Equities, Inc.(2)



4.4.2 Warrant Agreement dated as of December 23, 1997 between TTR and Biscount

      Overseas Ltd.(3)



4.4.3 Warrant Agreement dated as of February 26, 1998 between TTR and Biscount

      Overseas Ltd.(3)



4.4.4 Warrant dated January 15, 1998 between TTR and Mu & Kang Consultants(4)



4.4.5 Warrant Agreement dated as of June 11, 1998 between TTR and Plans, Inc.(2)



4.4.6 Warrant Agreement dated as of July 31, 1999 between TTR and K & D Equities

      Inc.(2)



4.4.7 Form of Warrant dated as of December 1998 between TTR and certain private

      investors.(4)



4.4.8 Form of Warrant variously dated April through August 1998 between TTR and

      certain private investors.(4)



4.4.9 Warrant dated June 11, 1998 between TTR and Plans, Inc.(4)



4.4.10 Warrant dated November 29, 1999 between TTR and Biscount Overseas Ltd.(5)



4.4.11 Warrant dated November 29, 1999 between TTR and Biscount Overseas Ltd.(5)



4.4.12 Form of Class A Warrant between TTR and certain private investors(5)



4.4.13 Warrant dated February 15, 2000 between TTR and Mantle International

       Investment, Ltd.(5)



4.4.14 Form of Agent Warrant between TTR and certain entities.(5)



9.1   Voting Trust Agreement(1)



9.2   Instrument terminating Voting Trust Agreement(1)



10.1  Financial Consulting Agreement with Josephthal & Co., Inc.(4)





                                       25





10.2  1996 Incentive and Non-Qualified Stock Option Plan, as amended(4)



10.3  Non-Executive Directors Stock Option Plan(4)



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(4)



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 Agre