UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A
            Annual Report for the Fiscal year ended December 31, 2001

                             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.)

                           3 Gavish Street, Kfar Saba
                    (Address of Principal Executive Offices)

                               011-972-9-764-4160
              (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, 2001

|_|   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, 2002, the Registrant had outstanding 17,593,896 shares of
Common Stock, $0.001 par value per share. The aggregate market value of such
common stock held by non-affiliates of the Registrant at March 25, 2002 was
approximately $12.5 million. Such market value was calculated by using the
closing price of such common stock as of such date as reported on the NASDAQ
National Market.

                               Explanatory Notice

      The Registrant amends its Annual Report on Form 10-K to amend and restate
Part III in its entirety to provide the information called for therein which the
Registrant intended to be incorporated by reference to applicable information in
the Proxy Statement for the 2002 Annual Meeting of the Stockholders.

<PAGE>

      CERTAIN STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10K ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY
TERMINOLOGY SUCH AS "MAY", "WILL", "SHOULD", "EXPECTS", "INTENDS",
"ANTICIPATES", "BELIEVES", "ESTIMATES", "PREDICTS", OR "CONTINUE" OR THE
NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT
LIMITATION, STATEMENTS BELOW REGARDING: THE COMPANY'S JOINT VENTURE WITH
MACROVISION; THE COMPANY'S EXPECTATIONS AS TO SOURCES OF REVENUES; THE COMPANY'S
INTENDED BUSINESS PLANS; EXPECTATIONS AS TO PRODUCT PERFORMANCE; THE COMPANY'S
INTENTIONS TO ACQUIRE OR DEVELOP OTHER TECHNOLOGIES; THE PROSPECTS FOR COMSIGN;
AND BELIEF AS TO THE SUFFICIENCY OF ITS CASH RESERVES. BECAUSE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED
TO, THE COMPETITIVE ENVIRONMENT GENERALLY AND IN THE COMPANY'S SPECIFIC MARKET
AREAS; RAPID TECHNOLOGICAL CHANGES; CHANGES IN TECHNOLOGY; FAILURE OF THE
COMPANY'S TECHNOLOGY TO WORK; LACK OF MARKET ACCEPTANCE FOR SAFEAUDIO; INABILITY
OF MACROVISION TO SUCCESSFULLY MARKET SAFEAUDIO; PERFORMANCE OF COMSIGN; THE
AVAILABILITY OF AND THE TERMS OF FINANCING, INFLATION, CHANGES IN COSTS AND
AVAILABILITY OF GOODS AND SERVICES, ECONOMIC CONDITIONS IN GENERAL AND IN THE
COMPANY'S SPECIFIC MARKET AREAS, DEMOGRAPHIC CHANGES, CHANGES IN FEDERAL, STATE
AND /OR LOCAL GOVERNMENT LAW AND REGULATIONS; CHANGES IN OPERATING STRATEGY OR
DEVELOPMENT PLANS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; AND
CHANGES IN THE COMPANY'S ACQUISITIONS AND CAPITAL EXPENDITURE PLANS. ALTHOUGH
THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES
RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING
STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING
STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL
RESULTS.

                                     Part I

Item 1. Business

Introduction

      TTR Technologies, Inc. (hereinafter, the "Company" or "TTR") designs and
develops digital security technologies that provide copy protection for
electronic content distributed on optical media and over the Internet. Optical
media store data that 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. DVDs that store software, including games and
reference material, are referred to as DVD-ROMs. Copy-protected CDs are


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designed to be compatible with and to play on currently existing compact disc
players and other play-back devices.

      In November 1999, we entered into an agreement with Macrovision
Corporation to jointly design and develop a copy protection product designed to
thwart the illegal copying of audio content on CDs. The new product is currently
marketed under the brand name "SAFEAUDIO" and is based primarily upon our
proprietary MusicGuard technology, a unique media-based technology designed to
prevent the unauthorized copying of audio content distributed on CDs, as well as
related Macrovision technology. SAFEAUDIO(TM) is owned jointly by TTR and
Macrovision. Macrovision has an exclusive world-wide royalty bearing license to
market SAFEAUDIO and all other related technologies and products jointly
developed that are 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 royalties of thirty percent (30%) of the net revenues collected
by Macrovision or its affiliates from any products or components incorporating
SAFEAUDIO.

      We are continually working to expand our technologies in the areas of copy
protection and Internet security. Presently, we are aggressively engaged in the
design development and testing of technologies relating to DVD-ROMs and files
downloaded from the Internet.

      The Company was incorporated under Delaware law in July 1994. The
principal executive offices of the Company are located at 3 Gavish Street, Kfar
Saba, Israel. Additionally, the Company maintains executive and administrative
offices in New York City at 575 Lexington Avenue, New York, New York 10022.

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 currently about $4.2 billion
annually to global piracy of recorded music. The widespread use of new
technologies enables the distribution of music files electronically via the
Internet, further exacerbating the piracy problem.

      The cost of producing good quality copies of CDs has been declining
steadily over the past four years. Until recently, to produce good quality CDs
required a significant investment. Recent developments in consumer electronics
technology have enabled consumers to purchase a CD burner (recorder) from a
local retail outlet for as little as $100. CD burners now often are bundled with
new computers. Blank recordable discs are widely available for less than $0.50.
With this technology, even the casual user can easily copy unprotected CDs.

      Additionally, it is now possible to easily download music via the Internet
due to the 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 files in MP3 format.
According to a recent survey, 1.9 billion music tracks are exchanged or
downloaded each month on one popular website. Additionally, there exist today
many peer to peer file sharing services and software that facilitate the
exchange of music without a central server. Most of the music being downloaded,
however, is pirated; i.e., no royalties are being paid to the artists or to the
record companies that produced this music. The music industry, in an effort to
gain a foothold in this market and limit the consequences of piracy has launched
various subscription services allowing online access to music for a monthly fee.
Subscribers use the service to download music files to their computers. The
downloaded music is, however, locked to the computer and may not be


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moved from the computer to which it was downloaded, thereby interfering with
consumers' enjoyment of the music. According to a recent report by Jupiter,
portability is a priority for on-line music subscribers.

      Attempts by third parties to circumvent copy protection technologies have
been and are expected to be a persistent problem, despite the United States
Digital Millennium Copyright Act. Effective as of May 2000, the Act outlaws copy
protection circumvention devices and technologies 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.

      Several companies have developed copy protection technologies to prevent
unauthorized CD burning. These have gained the interest of the major music
labels and others in the music industry. To management's knowledge, to date no
commercial contracts have been announced respecting the license or other use of
any of the available technologies or products providing copy protection for
audio content distributed on CDs.

                               CD Copy Protection

      The Company's management believes that SAFEAUDIO offers recording studios
and artists a cost-effective solution to protect works distributed on CDs, while
offering convenience to the end-user. We believe that SAFEAUDIO embodies
proprietary know-how designed to prevent the unauthorized copying of CDs.

      SAFEAUDIO offers effective multi-level copy protection, enabling record
labels to choose one or more protection techniques, depending on the record
labels' requirements for a particular title or genre of music.

      SAFEAUDIO's "coding" protection is applied within the disc structure,
without altering the sound wave files produced by the studio and without
affecting the quality, original sound or clarity of the recording in any audible
manner. The process ensures that the SAFEAUDIO protection is applied at a
precisely targeted location on the CD, so that the CD player circuitry will be
able to play-back the music as originally intended without any unwanted
intrusion. If duplication of a protected disc is attempted, the unauthorized
copy will be flawed and rendered useless with bursts of loud clicks interlaced
within the music. The system is designed to be effective on all types of music
and is designed to be usable on nearly all major commercially available
play-back devices.

      SAFEAUDIO also contains "timing" and "hiding" options that may be used to
increase the effectiveness of the protection. The "timing" protection feature
offers increased security across all tracks by making it more difficult for PCs
to read the discs. Attempts to rip or copy music protected with this feature on
a conformant drive will result in either the attempt failing or in the music
"jumping" or being distorted. The "hiding" option prevents the CD Audio tracks
from being played on most PCs, and prevents the copying and ripping of audio by
common software. This feature reduces PC and DVD player compatibility. For music
protected with "hiding" or "timing" to play on a PC, the music must be recorded
in data (or Yellow Book) format which can be read by a PC. This Yellow Book
format music is encrypted and can be read by a PC player with digital rights
management technology. The music is locked to the PC (and cannot be enjoyed
elsewhere) using encryption to thwart copying.

      SAFEAUDIO protection does not affect the audio quality on compatible
players. When SAFEAUDIO protected discs (using only the coding protection
option) are played on PCs, consoles, Macs, etc., the user does not have to use a
different or unfamiliar player with a different user experience, as with
competing products. Users can choose their favorite software CD player. If
timing and/or hiding are used, the user will be restricted to using players that
have the digital rights management technology selected by the record label.


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<PAGE>

Mastering Equipment Manufacturers

      In order to produce SAFEAUDIO protected CDs, modifications to the encoder
portion of the laser optics system in CD mastering equipment are required. Under
the contract with Macrovision, Macrovision is responsible for coordinating with
the companies which produce and sell these encoders. As of March __, 2002,
SAFEAUDIO has been adopted and integrated by certain of the major encoder
manufacturers and glass mastering facilities (e.g., Toolex Data Handling,
Eclipse Data Technologies and Doug Carson & Associates, Inc.). Additionally,
DaTARIUS Technologies GmbH, a manufacturer of high-end optical media quality
control systems and process optimization solutions, has SAFEAUDIO-enabled its
test equipment.

      Macrovision has authorized 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, management believes that Macrovision is in a good position to
leverage its current business relationships to the benefit of SAFEAUDIO.
Currently, eighteen replicators have been authorized and outfitted to produce
SAFEAUDIO protected CDs.

Marketing and Sales

      Under the agreement with Macrovision, Macrovision is responsible, at its
expense, for the marketing of SAFEAUDIO 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.

      The Company is entitled to royalties of thirty percent (30%) of the net
revenues collected by Macrovision or its affiliates from any products or
components incorporating SAFEAUDIO. Under certain circumstances, the exclusive
license relating to MusicGuard and the jointly developed technology that the
Company granted to Macrovision reverts to a non-exclusive license as of the
second anniversary of the commercial launch. Under the 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.

      The Company has a limited internal sales and marketing capability. To
maintain its focus on product development and to avoid the expense of
establishing its own global sales and marketing staff, the Company does not
anticipate entering into any markets where a large sales force would be
required.

New Products and Technologies

      As of March 2002, the Company completed a proto-type for a DVD-ROM copy
protection solution and is continuing its development efforts toward a
commercial product/solution. A DVD-ROM is a digital versatile disc containing
read-only memory. This means that information content on a DVD-ROM cannot be
modified. Although DVD-ROM can contain all types of information content
including, software, music, video and text, conventionally, DVD-ROM refers to
DVDs containing software content. DVD-ROMs containing content other than
software are referred to simply as DVDs. Our solution is currently being tested
by replicators.

      We are also engaged in researching various technologies relating to the
distribution and security of content delivered over the Internet. To lead this
effort, we hired a vice-president of Internet-based technologies early in 2001.


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      Under the Company's agreement with Macrovision, we granted to Macrovision
an exclusive right of first refusal through December 31, 2009, with respect to
the acquisition of all rights in or worldwide exclusive marketing and
distribution rights to any music copy protection technology that we develop, and
any Internet digital rights management technologies developed by the Company
which are applicable to music, music video, video, software or data publishing
products or markets. The DVD and internet technologies noted above may, in
management's view, be subject to such right of first refusal.

      In connection with the design and development of DiscGuard, the Company's
proprietary software anti-piracy product, TTR's Israeli subsidiary has received,
through December 31, 2001, grants totaling $210,000 from the Office of the Chief
Scientist of the State of Israel. The Company is required to pay royalties to
the Chief Scientist on proceeds from the sale of products derived from the
research and development funded by such grants 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 such grants, plus accrued
interest. For example, royalties will be payable to the Chief Scientist based on
royalties the Company receives from Macrovision relating to DiscGuard. The
Company's obligation to pay royalties to the Chief Scientist is linked to the
exchange rate of the dollar and the New Israeli Shekel. Also, the Chief
Scientist places certain restrictions on the transfer of ownership of the
technology funded by that office. Management does not presently anticipate
transferring ownership of the technology developed by it to third parties.

Research & Development

      From the date of inception through December 31, 2001, the Company expended
approximately $5 million on research and development activities, including
approximately $950,000 for the year ended December 31, 2001, and approximately
$1.1 million for the year ended December 31, 2000. The amounts expended in 2001
were used primarily for the enhancement of SAFEAUDIO, developing and expanding
DVD anti-copying protection and security technologies relating to files
downloaded from the Internet. We expect to modestly increase our research and
development levels due to expanded activities in the new areas of development.

Competition

      To management's knowledge, there are currently three other companies
active in the field of designing and developing technology designed to prevent
the unauthorized copying of compact discs. MidbarTech, a private Israeli
company, has a solution that has been, to management's knowledge, tested by the
major labels in Europe and the United States and is currently marketed under the
tradename "Cactus Data Shield". We believe that Sony also has a product that it
is marketing to the industry under the tradename "Key2Audio". SunnComm, a U.S.
based company whose securities are traded on over-the-counter market, publicly
announced the execution of use agreements for CD anti-copy technology. There can
be no assurance that these technologies will not become more widely accepted
than SAFEAUDIO or that other companies will not enter the market in the future.
There can be no assurance that companies with substantially greater financial,
technological, marketing, personnel and research and development resources than
ours will not develop and begin marketing a similar technology.

      There can be no assurance that the Company 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 the Company's
products or technologies noncompetitive or obsolete.


                                       6
<PAGE>

Proprietary Rights

      The Company currently relies on a combination of trade secret, patent,
copyright and trademark law, as well as non-disclosure agreements and
invention-assignment agreements, to protect the technologies used in the
Company's products and other proprietary information. However, such methods may
not afford complete protection and there can be no assurance that competitors
will not independently develop such processes, concepts, ideas and
documentation. The Company has filed patent applications in the United States,
Israel, Brazil, Canada, Australia, Mexico, Europe, Britain, Germany, Russia,
China, Korea, Japan, New Zealand and under the Patent Cooperation Treaty with
respect to the technologies underlying DiscGuard and MusicGuard. As of March
2002, three patents have been issued to the Company with respect to
authenticating and copy protecting digital optical media, which patents are in
effect through 2018. The Company has also applied for and received a United
States trademark registration of MusicGuard. There can be no assurance that any
patent will be issued in respect of any currently pending application or that
the Company's proprietary technology will remain a secret or that others will
not develop similar technology and use such technology to compete with the
Company.

      The Company's policy is to require our employees, consultants, and other
advisors to execute confidentiality agreements upon the commencement of
employment, consulting or advisory relationships. These agreements generally
provide that all confidential information developed or made known to the
individual by the Company during the course of the individual's relationship
with the Company 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 the
Company shall be the Company's exclusive property. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for trade secrets in the event of unauthorized use or disclosure of
such information.

Employees

      The Company employs 13 full-time employees. Two of the employees, the
Company's Chief Financial Officer and its Vice-President for Corporate Strategy,
are based in the Company's offices in New York. The remaining employees are
based in Israel. Except as indicated below with respect to employees of our
Israeli subsidiary, none of the Company's employees is covered by a collective
bargaining agreement or is represented by a labor union. The Company considers
its relations with employees to be good.

      The Company's future performance depends highly upon the continued service
of Dr. Baruch Sollish, our Chief Technology Officer, as well as other members of
our senior management team.

      The Company believes that its future success will also depend upon its
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 the Company will be able to
retain its key employees or attract, assimilate or retain the qualified
personnel necessary for the development of its business.

Minority Subsidiary

      In July 2000, the Company purchased a 50% equity interest in ComSign Ltd.
("ComSign"), an Israeli based company which is the exclusive marketer in Israel
and in the territories controlled by the Palestinian Authority of VeriSign
Inc.'s digital authentication certificates and related services. The remaining
50% equity interest in ComSign is held by a private company based in Israel.
VeriSign, Inc. is a leading provider of Internet based trust services. The
agreement between ComSign and VeriSign provides ComSign with the rights to


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market these services in the designated territory for a period of six years and
a sharing of revenues derived from these activities. ComSign is to receive 50%
of net revenues from web certificates and between 50-70% for Onsite services (a
product designed to enable ComSign's customers to directly sign up their clients
to receive and use a digital certificate). ComSign is focusing on marketing the
VeriSign web certificates and onsite enterprise services. ComSign plans to
exploit VeriSign's brand and dominant position to build a key position in the
Israeli market for trust and Internet security services and products.

      According to the Teleseker/Taylor Nelson Sofres report, Israel has the
twelfth highest rate of Internet access in the world with approximately 20% of
the population over the age of 13 connected to the World Wide Web. There are
currently approximately 20,000 registered domains in Israel and according to the
IDC that number should reach 34,000 by mid- 2003. Domains primarily engaged in
commercial transactions over the Internet are, in management's view, candidates
to license the web certificate service. Management believes that large
corporations, educational institutions, financial institutions, health services
and government agencies are candidates to purchase the onsite services.

      In April 2001, ComSign upgraded its status to a full VeriSign processing
center and became a non-VeriSign Issuing Authority within the VeriSign Public
Certification Services. The upgrade from a service center to a processing center
allows ComSign to improve its service capabilities by issuing and distributing
certificates directly from its facility in Israel.

      ComSign is currently in discussion with VeriSign to resolve certain issues
between them, including the contract fees payable by ComSign under the terms of
the license agreement, though no assurance can be provided that ComSign will be
successful in reaching a mutually agreeable resolution of these issues. Despite
the opportunities referred to above, the Israeli market is facing a reduction in
demand for information technology and security products very similar to that
being experienced by United States based entities. Given the decrease in demand,
if the license fees payable by ComSign are not reduced upon terms mutually
agreeable to ComSign and VeriSign, then, in the view of management, ComSign may
not be able to continue operations as presently conducted.

                              CONDITIONS IN ISRAEL

      The following information discusses certain conditions in Israel that
could affect its 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 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. Additionally, from time to time since
December 1987, Israel has experienced civil unrest, primarily in the West Bank
and Gaza Strip territories administered by Israel since 1967. 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 Palestinian representatives have been signed. Since September 2000, however,
there has been intense violence, hostility and on-going clashes between the
Palestinians and Israeli Security Forces through-out the West Bank and the Gaza
Strip. Israel has not entered into any peace agreement with Syria or Lebanon and
is still in a state of war with these countries. Further, there have been delays
in the negotiations and implementation of the agreements with the Palestinians.
There can be no assurance as to whether or how the "peace process" will develop
or what effect it may have upon the Company. 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


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had an indeterminate negative effect upon trade with and foreign investment in
Israel. The Company does not believe that the boycott has had a material adverse
effect on it, 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 the Company's 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 the
Israeli subsidiary currently are obligated to perform annual reserve duty. While
the 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 the Company 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.

      During 1997, the monetary policy of the Bank of Israel changed in several
respects. These changes included a decision of the Bank of Israel to reduce its
intervention in the currency markets to allow the NIS to trade more freely. In
addition, the Bank of Israel has adopted and implemented certain measures to
liberalize foreign currency regulations. There are currently no Israeli currency
control restrictions on remittance of dividends or the proceeds from the sale of
the ordinary shares, although legislation remains in effect pursuant to which
currency controls may be imposed by administrative action at any time. The
Israeli government's monetary policy has contributed to relative price and
exchange rate stability in recent years, despite fluctuating rates of economic
growth and unemployment. The Israeli inflation rates for the years 2000 and 2001
were 0% and 1.4%, respectively. No assurance can be provided that the Israeli
government will be successful in its attempts to keep prices and exchange rates
stable.

Trade Relations

      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.

      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

      The 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


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

                                  Risk Factors

      In addition to the other information contained in this Annual Report on
Form 10-K, you should consider carefully the following risks. If any of these
risks occurs, our business, financial condition or operating results could be
adversely affected.

      The Company has lost money in every quarter and year, and it expects these
losses to continue in the foreseeable future.

      Since TTR began operations in 1994, the Company has lost money in every
quarter and year. As of December 31, 2001, the Company had an accumulated
deficit of approximately $35 million. The Company had no revenues in 2001. TTR's
ability to generate revenue depends primarily upon Macrovision's success in
promoting and marketing the technology, as well as the ability to independently
successfully develop and commercialize other products. There can be no assurance
that the Company will ever generate revenues and, if it ever does, that the
levels of revenues will allow the Company to become profitable.

      TTR's relationship with Macrovision is very important to TTR, since
Macrovision is the exclusive licensee of SAFEAUDIO and is responsible for
marketing SAFEAUDIO.

      As of November 24, 1999, the Company 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. The
Company granted to Macrovision exclusive worldwide royalty bearing rights to the
Company's proprietary anti-piracy technology, MusicGuard, which serves, in large
part, as the basis for SAFEAUDIO, the audio content protection technology
marketed by Macrovision. Under the terms of the agreement, Macrovision is
responsible for promoting and marketing SAFEAUDIO. 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. The Company also granted to Macrovision
exclusive rights to its proprietary CD software anti-piracy protection
technology, DiscGuard. 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. The Company expects that sales through
Macrovision, if any, will account for most of the Company's revenues for at
least the next two years. The Company believes that the rapid penetration by
SAFEAUDIO in the recording industry in the United States and Europe to be
crucial to its success. If the Company is unable to effectively manage and
maintain its relationship with Macrovision or for any reason Macrovision cannot
successfully market SAFEAUDIO, the Company's business will be materially
adversely affected. In addition, the Company's condition could be adversely
affected by changes in the financial condition of Macrovision or by any changes
to Macrovision's business.

      As discussed in "Business - CD Copy Protection", music in data (Yellow
Book) format is often locked to the PC (encrypted) to prevent copying of the
music in data format. Macrovision and the Company both have digital rights
management products to create the key


                                       10
<PAGE>

to unlock the encrypted Yellow Book format in which the music may exist. The
Company's operative assumption had been that Macrovision's product,
SafeAuthenticate, if ever sold in conjunction with SafeAudio, would be an
insignificant portion of the price of the SafeAudio product. However, it is
possible that Macrovision's pricing policy may potentially effectively reduce
the SafeAudio revenues for the Company.

      The Company currently has only one commercially viable product or
technology and it cannot assure you that it will develop any additional
commercially viable products or technologies.

      Other than SafeAudio, the Company has no other currently commercially
viable product. The Company has also given to Macrovision an exclusive worldwide
partially royalty-bearing license to DiscGuard, which the Company launched
commercially in February 1998. The Company expects that Macrovision will use
components of DiscGuard to support its CD-ROM product, SafeDisc(TM). Although
the Company is working to develop technologies with applications in other areas,
including DVD-ROM copy protection and Internet related security, these
technologies are not currently ready to be commercialized. Additonally, there
can be no assurance that the Company will have sufficient resources to
commercialize these technologies.

      Even if TTR develops other commercially viable technologies, the right of
first refusal granted to Macrovision with respect to certain products may impair
the Company's ability to exploit them.

      Under the terms of our agreement with Macrovision, the Company granted to
Macrovision first refusal rights until December 31, 2009 with respect to any
music protection technology that it develops which is not included in the
license to Macrovision and any Internet digital rights management technologies
that it develops which are applicable to music, music video, video, software or
data publishing products or markets. These rights include rights of ownership if
the Company decides to sell the technology or grant worldwide exclusive
marketing or distribution rights if it decides to license the technology. The
Company's obligation is to negotiate a sale or license to Macrovision in good
faith should it receive a bona fide offer from a third party to purchase or
license on an exclusive world-wide basis the technology. As is ordinarily the
case where a right of first refusal is granted, the existence of this right may
impair the Company's ability to fully exploit the commercial potential inherent
in other technology that the Company may develop which is subject to this right
by creating the possibility that an interested third party may abstain from
making an offer for such technology due to a possible concern on the part of
such third party that its offer will be utilized by the Company solely for
negotiating an offer from Macrovision on more favorable terms.

      The Company has only been in business for a limited period of time, so
your basis for evaluating it is limited.

      The Company is a development stage company with a limited history of
operations. Prior to the commencement of its joint efforts with Macrovision to
develop SAFEAUDIO and before its software product, DiscGuard, first became
commercially available in February 1998, the Company was engaged primarily in
research and development. As a result, there is a limited history of operations
for evaluating the Company's 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:

      * the successful commercial launch by Macrovision of SAFEAUDIO;


                                       11
<PAGE>

      * the Company's ability to stay ahead of the efforts of hackers and
counterfeiters to circumvent the Company's copy protection technologies;

      * the Company's ability to respond effectively to actions taken by
competitors;

      * the Company's ability to build organizational and technical
infrastructures to manage the Company's growth effectively;

      * the Company's ability to design, develop and implement effective
products for existing clients and new clients;

      * the Company's ability to extend copy protection to DVDs and content
delivered over the Internet; and

      * the Company's ability to attract, retain and motivate qualified
personnel.

If the Company is unsuccessful in addressing these risks and uncertainties, its
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 multimedia market, is unproven. For the
Company to be successful in entering this market, recording studios and artists
must accept copy protection generally and also adopt SAFEAUDIO, the solution
that the Company developed with Macrovision. There can be no assurance that copy
protection of multimedia audio content distributed on CDs will be widely
commercially accepted. For example, some consumers have reacted 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 the Company is
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
SAFEAUDIO does not achieve or sustain market acceptance, the Company's business,
financial condition and results of operations would be materially adversely
affected.

      There are several competitors in the copy protection industry and the
Company may not be able to compete effectively against them.

      To management's knowledge, MidbarTech, a private Israeli company markets a
CD copy protection product under the tradename "Cactus Data Shield" that, to
management's knowledge, has to date protected millions of discs. Sony has a
product that it is marketing to the industry under the tradename "Key2Audio".
SunnComm, a U.S. based company whose securities are traded on over-the-counter
market, publicly announced the execution of use agreements for CD anti-copy
technology and there are a number of companies who claim to have an audio CD
anti-piracy technology in some stage of development. There can be no assurance
that these technologies will not be more widely accepted than SAFEAUDIO or that
other companies will not enter the market in the future. There can be no
assurance that companies with substantially greater financial, technological,
marketing, personnel and research and development resources than those of the
Company will not develop and begin marketing a similar technology.

      Third parties may be able to circumvent the Company's anti-piracy
technology.

      The Company must continually enhance and upgrade audio content protection
technology to stay ahead of the efforts of counterfeiters and hackers to
circumvent its


                                       12
<PAGE>

technologies, despite the new United States Digital Millennium Copyright Act. It
is conceivable that counterfeiters and hackers could develop a way to circumvent
the Company's copy protection techniques or that the Company will not be
successful in designing and developing a version of SAFEAUDIO that is effective
at preventing copying on a sufficient number of CD-ROM drives to induce music
labels to adopt such technology. In either event, these may result in a
potentially substantial decrease in the demand for Company products.
Additionally, music rights owners could choose not to use the Company's
anti-piracy technology if they believe that such 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 the Company's
technologies could have a material adverse effect on its business, financial
condition and results of operations.

      The Company is vulnerable to technological obsolescence.

      The SAFEAUDIO technology is based upon a single set of core technologies.
The market for this technology is characterized by rapid change, often resulting
in product obsolescence or short product life cycles. Although the Company is
not aware of any developments in the audio content protection industry which
would render its 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. Additionally, it is possible that
the medium that SAFEAUDIO is applied to, CDs, will be responsible for fewer
purchases of music as alternate formats (e.g. digital downloads over the
Internet) are developed.

      The Company may soon be delisted from the NASDAQ National Market.

      Since August 16, 2001, the daily closing price of the Company's stock on
the NASDAQ National Market has fluctuated between $0.69 and $2.29. If the per
share closing price remains below $1.00 for 30 consecutive business days, then,
under certain conditions, the Company's stock could be delisted from trading on
the NASDAQ National Market. Additionally, under the standards by which the
Company shares remain qualified for listing on the NASDAQ National Market, until
November 2002 the Company will be required to maintain net tangible assets of at
least $4 million, at which time the Company must achieve stockholder equity of
at least $10.0 million to maintain its listing. The Company does not expect to
be able to record revenues in an amount to satisfy such requirement. If the
Company is unable to generate revenues, then it will need to raise capital. No
assurance can be furnished that the Company will be successful in raising such
capital on terms and conditions acceptable to it or at all. Alternatively, the
Company will be able to maintain its status on the NASDAQ National Market if the
market capitalization of the Company at such time is at least $50.0 million
(which translates into a per share price as of the date of the filing of this
report of approximately $3) and it has at least four registered and active
market makers. The Company has limited ability to control the price of the
Company's stock. Consequently, if the Company fails to meet the foregoing
standards, the Company's shares may soon be delisted from trading on the NASDAQ
National Market.

      The Company has a limited number of employees and is particularly
dependent on its Chief Technology Officer.

      The Company has a small number of employees. Although management believes
that the Company maintains a core group of employees sufficient for it to
effectively conduct its operations, the loss of certain key personnel could, to
varying degrees, have an adverse effect on the Company's operations and product
development. The loss of Dr. Baruch Sollish, the Company's Chief Technology
Officer, would have a material adverse affect. The Company has not obtained
"key-man" life insurance on the life of Dr. Sollish. Dr. Sollish resides in
Israel.


                                       13
<PAGE>

      The Company may be required to write off its investment in ComSign.

      ComSign is currently negotiating with VeriSign to reduce the license fees
payable by ComSign under the terms of the license agreement. The Israeli market
is facing a reduction in demand for information technology and security products
very similar to that being experienced by United States based entities. Given
the decrease in demand, if the license fees payable by ComSign are not reduced
upon terms mutually agreeable to ComSign and VeriSign, then, in the view of
management, ComSign may not be able to continue operations as presently
conducted. As of the date of the filing of this report, the Company does not
consider the investment in ComSign to be impaired. However, there can be no
assurance that the Company will not determine in the future that the investment
has become impaired and consequently write-off such investment.

      The Company is subject to risks associated with international operations.

      The Company conducts business from its facilities in Israel and the United
States, and through its exclusive licensee, Macrovision. Its international
operations and activities subject the Company 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. Although the Company Israeli subsidiary
receives most of its operating funds in U.S. dollars, a portion of its payroll
and other expenses are fixed in the currency of Israel. Because the Company's
financial results are reported in U.S. dollars, they are affected by changes in
the value of the various foreign currencies that the Company uses to make
payments in relation to the U.S. dollar. The Company does not currently cover
known or anticipated operating exposures through foreign currency exchange
option or forward contracts.

      The Company is subject to risks associated with operations in Israel.

      Although the Company's business plans envision that nearly all of the
prospective customers for SAFEAUDIO as well as any other technology which it may
in the future develop will be based outside of Israel, the Company's
wholly-owned Israeli subsidiary TTR Technologies, Ltd., as well as its 50% owned
subsidiary ComSign, maintains offices and research and development facilities in
Israel and is directly affected by prevailing economic, military and political
conditions that affect Israel. Any major hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading
partners might have a material adverse effect on the Company's business,
financial condition or results of operations.

      The Company needs to establish and maintain licensing relationships with
companies in related fields.

      The Company's success in developing and commercializing other technologies
will depend in part upon its ability to establish and maintain licensing
relationships with companies in related business fields, including international
distributors. The Company believes that these relationships can allow it 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 the Company's control. The Company may not be able
to maintain relationships or enter into beneficial relationships in the future.
Other parties may not perform their obligations as expected. The Company's
reliance on others for the development, manufacturing and distribution of its
technologies and products may result in unforeseen problems. There can be no
assurance that the Company's licensees will not develop or pursue alternative
technologies either on their own or in collaboration with others, including the
Company's competitors, as a means of developing or marketing products targeted
by the collaborative programs and by the Company's products.

      The Company's efforts to protect its intellectual property rights may not
be adequate.


                                       14
<PAGE>

      The Company's success depends on its proprietary technologies. The Company
relies on a combination of patent, trademark, copyright and trade secret laws,
nondisclosure and other contractual provisions, and technical measures to
protect its intellectual property rights. The Company's patents, trademarks or
copyrights may be challenged and invalidated or circumvented. Any patents that
issue from the Company's 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 the Company's products can be sold or its
technologies can be licensed to provide meaningful protection or any commercial
advantage to it. Others may develop technologies that are similar or superior to
the Company's technologies, duplicate its technologies or design around the
Company's 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 the Company regards as proprietary.
Policing unauthorized use of the Company's proprietary information is difficult,
and there can be no assurance that the steps we have taken will prevent
misappropriation of its technologies. In the event that the Company's
intellectual property protection is insufficient to protect its intellectual
property rights, the Company could face increased competition in the market for
its products and technologies, which could have a material adverse effect on the
Company's 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 the Company's 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 the Company's business, financial condition and
results of operations, whether or not this litigation is determined adversely to
the Company. In the event of an adverse ruling in any litigation, the Company
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. The Company's failure to
develop or license a substitute technology could have a material adverse effect
on the Company's business, financial condition and results of operations.

      The rights of first refusal granted to Macrovision relating to the sale of
our equity securities may impair the Company's ability to obtain other
financing.

      In the January 2000 stock purchase agreement under which the Company sold
to Macrovision $4 million of its common stock, the Company granted to
Macrovision rights of first refusal to purchase equity securities (including
securities convertible or exchangeable into common stock) that the Company
proposed to sell to third parties if the amount of the securities to be sold
would constitute a majority of the Company's outstanding common stock. Subject
to some exceptions, the Company 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 the Company offers in private
transactions above a certain dollar amount. The existence of these rights may
impair the Company's ability to obtain equity financing from third parties on
terms satisfactory to it or at all because investors may be reluctant to devote
the time and expense necessary to negotiate the terms of a transaction which the
Company may not be able to consummate if Macrovision elects to exercise its
rights. Although, 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
cannot assure you that Macrovision would do so with respect to any future
financing.

      The Company's stock price is volatile and could continue to be volatile.


                                       15
<PAGE>

      Investor interest in the Company's common stock may not lead to the
development of an active or liquid trading market. The market price of the
Company's 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 the
Company's common stock may decline. General economic, market and political
conditions could also materially and adversely affect the market price of the
Company's common stock and investors may be unable to resell their shares of
common stock at or above their purchase price.

      It may be difficult for a third party to acquire the Company.

      Provisions of Delaware law could make it more difficult for a third party
to acquire the Company, even if it would be beneficial to the Company's
stockholders.

Item 2. Properties

      We lease a 2,400 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 $2,292 and an expiration date of May 31, 2002.
Upon or near the expiration of the lease, we will move our research and
development and administrative activities to new premises in Kfar Saba.
Beginning April 1, 2002, we leased a 2,531 square foot facility at a monthly
rent of approximately $3,000. The new lease expires on March 31, 2003 but is
renewable, at the Company's option, for five one-year periods, with an increase
of 3% in the rent for each of the first three (3) extensions and an increase of
7% for the remaining last two (2) extension periods. We did not need to improve
this facility to meet the requirements of our research and development
activities but purchased fixtures from the former tenant at an aggregate
approximate cost of $20,000. Management believes that this facility is
sufficient to meet its current and anticipated future requirements for research
and development and administrative functions.

      We also lease 245 square feet of office space in midtown Manhattan, New
York City, for our executive and administrative activities out of which work the
Company's Chief Financial Officer, and its Vice-President of Corporate Strategy.
The lease provides for a monthly rent of approximately $2,700 and expires on May
31, 2002. Management believes that the Company will be able either to renew the
present lease or obtain suitable replacement facilities.

Item 3. Legal Proceedings

      The Company is not involved in any legal proceedings.

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

      None

                                     Part II

Item 5. Market for Common Equity and Related Stockholder Matters

      The Company's common stock, par value $0.001 per share (the "Common
Stock") began to be quoted on the NASDAQ National Market as of February 6, 2001
under the symbol "TTRE". Prior to its quotation of the NASDAQ National Market,
the Company's Common Stock, commencing October 23, 2000 through February 5,
2001, was quoted on the


                                       16
<PAGE>

NASDAQ SmallCap Market. Prior to the NASDAQ SmallCap listing, the Common Stock
was quoted on the OTC Electronic Bulletin Board.

      The following table sets forth the range of high and low bid prices for
the Common Stock as reported on the relevant NASDAQ National Market System, the
NASDAQ SmallCap Market and 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

  2001
December 31                                                   $ 2.29       $1.22
September 30                                                  $ 6.24       $0.69
June 30                                                       $ 6.33       $4.60
March 31                                                      $ 6.88       $4.75

  2000
December 31                                                   $ 8.75       $3.34
September 30                                                  $ 6.47       $3.31
June 30                                                       $ 6.69       $3.00
March 31                                                      $10.50       $4.97

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

      As of March 26, 2002, there were approximately 120 record holders of the
Common Stock of the Company. We believe that there are a significant number of
shares of 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 the 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.

Item 6. Selected Consolidated Financial Data

      The following table sets forth our consolidated financial data for the
five years ended December 31, 2001. The selected consolidated financial data for
the years ended December 31, 1997, 1998, 1999, 2000 and 2001 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 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.


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                 From inception
                                                          Year Ended December 31,                                (July 14,1994)
                                                                                                                   to December
Income Statement Data:           1997             1998             1999              2000             2001           31, 2001
<S>                         <C>              <C>              <C>               <C>                <C>             <C>
Revenues                             --      $    54,922      $     68,803      $      1,999               --      $   125,724
Total expenses                3,784,635        5,178,872         7,944,252         5,107,978        5,153,724      $28,685,702
Operating loss               (3,784,635)      (5,123,950)       (7,875,449)       (5,105,979)      (5,153,724)     $28,559,978
Net loss                    ($4,119,612)     ($5,578,540)     ($13,072,237)     $ (4,796,693)      (5,498,637)     $35,125,678

Net loss per share               ($1.35)          ($1.54)           ($2.07)           ($0.30)          ($0.31)
Weighted average shares
Outstanding                   3,054,519        3,615,908         6,321,719        16,006,403       17,560,013
</TABLE>

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                               1997            1998            1999            2000           2001
<S>                         <C>            <C>              <C>            <C>             <C>
Balance Sheet Data:

    Working  capital
      (deficiency)          $  448,679     ($2,834,448)     ($494,744)     $ 8,122,456     $4,495,617
    Total assets             1,188,627         490,545        467,867       10,348,713     $6,550,947
    Total liabilities          278,898       3,588,712        798,863          351,756     $1,134,730
    Total Stockholders'
     equity (deficit)       $  677,229     ($3,098,167)     ($330,996)     $ 9,996,957     $5,416,217
</TABLE>

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

      The Company designs and develops digital security technologies that
provide copy protection for electronic content distributed on optical media and
over the Internet. The Company has not had any significant revenues to date. As
of December 31, 2001, the Company had an accumulated deficit of approximately
$35.1 million. The Company's expenses 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 SOURCE

      The Company expects, for the near-term, that its primary source of revenue
will be royalties under the license agreement with Macrovision. However, no
assurance can be provided that the SAFEAUDIO technology will be commercially
successful or whether any royalties from the sale thereof will be generated. The
Company is currently seeking to develop or acquire other technologies that may
provide other sources of revenue. However, there can be no assurance that the
Company will develop or acquire other technologies or if it does, that such
technologies will generate any revenue or profits.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

      There were no revenues in 2001. Nominal revenues in 2000 were derived from
licensing fees of the Company's DiscGuard product, which has since been
discontinued.

      Research and development costs in 2001 were $949,766 as compared to
$1,111,889 in 2000. The 2000 period included the costs incurred in the
development of SAFEAUDIO. Research and development costs in 2001 included the
enhancement of SAFEAUDIO, developing and expanding DVD anti-copying protection
and designing an effective anti-copying solution for application to files
downloaded from the Internet. Commencing June 2001 and continuing through May
2002, the Company agreed to pay to Macrovision, on a monthly basis, $20,000 to
partially cover unanticipated expenses incurred in the development of SAFEAUDIO.


                                       18
<PAGE>

      Sales and marketing expenses in 2001 were $399,523 as compared to $579,006
in 2000. The decrease is primarily due to Macrovision's assumption (since 2000)
of most of the sales and marketing expenses for SAFEAUDIO, as provided for in
the agreement. The 2000 period includes approximately $132,800 of reimbursements
to Macrovision of certain sales and marketing expenses as required under the
agreement.

      General and administrative expenses in 2001 were $2,894,616 as compared to
$1,785,434 in 2000. The increase is primarily attributable to the adjustment of
senior management salaries, the hiring in June 2001 of a Chief Financial Officer
and Executive Vice President for Business Development, increased filing fees
associated with the commencement of the Company's NASDAQ listing and increased
expenditures in connection with public relations. Additionally, under the
employment agreement entered into by the Company and its former Chief Operating
Officer, the Company is obligated to pay the annual salary of such former
officer through September 2003. As of October 2001, such officer was no longer
employed by the Company. Accordingly, the Company accrued and charged during
2001 approximately $437,000, representing the aggregate salary payments through
September 2003 to such former officer.


      Stock-based compensation for the year ended 2001 was $909,819 as compared
to $1,631,649 for the year ended 2000. The 2000 period includes approximately
$656,000 from stock options granted to the Company's CEO and Chief Technology
Officer with exercise prices below the fair value of the underlying common
stock. At December 31, 2001, the Company had deferred compensation of
approximately $39,000, of which $31,000 will be amortized in the first quarter
of 2002.

      The Company's affiliate, ComSign Ltd., commenced operations in July 2000.
ComSign serves as VeriSign Inc.'s sole principal affiliate in Israel and the
Palestinian Authority and exclusive marketer of VeriSign's digital
authentication certificates and related services. The Company's share of net
losses for the year ended 2001 and for the seven-month period ended December 31,
2000 was, respectively, $618,090 and $209,157. The losses are primarily
attributable to the amortization of intangible assets. In order to address its
cash flow needs, in December 2001, ComSign entered into a three year commercial
secured loan agreement with an Israeli bank pursuant to which ComSign borrowed
the maximum available amount of $1,000,000. Loan amounts outstanding accrue
interest at a per annum rate of Libor plus 2.5% during the first year following
borrowing. The interest rate for subsequent years is to be fixed by agreement.
The Company does not provide any guaranty or other security for the loan. The
terms of the loan grant the lending bank options to purchase equity of ComSign
in an amount equal to that purchasable at an aggregate purchase price of
$300,000, based on ComSign's valuation at the time of exercise. ComSign's
valuation has been set at a minimum of $5 million. If exercised in full at the
minimum valuation of $5 million, the Company's equity in ComSign will be reduced
from the initial 50% interest originally purchased in June 2000 to 47% (on a
fully-diluted basis).

      Interest income for the year ended 2001 was $276,179 as compared to
$524,253 for the year ended 2000. The decrease is attributable to the lower cash
and cash equivalent balances, primarily resulting from the expenditure of cash
to finance Company operations as well as due to lower interest rates on invested
balances.

      The Company reported a net loss for the year ended 2001 of $5,948,637 or
$(0.31) per share on a basic and diluted basis, as compared to $4,796,693 or
$(0.30) per share on a basic and diluted basis, for the year ended 2000.


                                       19
<PAGE>

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.

      Revenues for the year ended 2000 were $1,999 and $68,803, respectively,
and were derived from licensing fees of the DiscGuard product, which has since
been discontinued.

      Pursuant to the agreement with Macrovision, the Company agreed to
reimburse Macrovision for up to $1.0 million for research and development and
sales and marketing expenses incurred within the first year of the joint
development of SAFEAUDIO. In 2000, the Company reimbursed Macrovision $1.0
million.

      Research and development costs for the year ended 2000 were $1,111,889
compared to $345,989 for the year ended 1999. The increase is primarily
attributable to the joint development efforts associated with SAFEAUDIO.

      Sales and marketing expenses for the year ended 2000 were $579,006 as
compared to $815,586 for the year ended 1999. This decrease was primarily
attributable to the Company's agreement with Macrovision whereby Macrovision
assumed most of the sales and marketing responsibilities associated with
SAFEAUDIO.

      General and administrative expenses for the year ended 2000 were
$1,785,434 as compared to $630,090 for the year ended 1999. The increase was
primarily due to increased general operations, additional legal and associated
fees incurred in connection with the Company's application to be listed on
NASDAQ's National Market System.

      Stock-based compensation for the year ended 2000 was $1,631,649 as
compared to $6,152,587 for the year ended 1999. Due to the shortage of available
funds in 1999, the Company compensated employees and other consultants by
issuing common stock, warrants and options.

      The Company's affiliate, ComSign Ltd., commenced operations in July 2000.
The Company's share of the net losses for the seven months ended December 31,
2000 was $209,157.

      Amortization of deferred financing costs for the year ended 1999 was
$4,180,540. A significant portion of the financing costs was a result of the
issuance of 1.3 million warrants in connection with the sale of the Company's
10% Convertible Debentures in 1999. Using Black-Scholes model for estimating
fair value of the warrants, the Company recorded $3,845,000 as deferred
financing costs and charged the entire balance to operations when the debentures
were converted in October 1999.

      Interest income for the year ended 2000 increased to $524,253 from $3,689
for the year ended 1999. The increase is primarily attributable to the higher
cash and cash equivalent balances resulting from the private placement of the
Company's securities in February 2000.

      Interest expense for the year ended 2000 decreased to $5,810 from
$1,109,937 for the year ended 1999. The decrease is primarily attributable to
the reduction in debt.

      The Company reported a net loss for the year ended 2000 of $4,796,693 or
$(0.30) per share on a basic and diluted basis, as compared to a net loss of
$13,072,237 or $(2.07) per share on a basis and diluted basis, for the year
ended 1999. Of the net loss for 2000, $1.0 million is attributable to the
reimbursement to Macrovision.

Liquidity and Capital Resources

      At December 31, 2001, the Company had cash and cash equivalents of
approximately $4.9 million, representing a decrease of approximately $3.3
million over December 31, 2000.


                                       20
<PAGE>

Cash used by operating activities during 2001 was $3.1 million compared to $3.4
million during 2000. In 2001, the Company used $214,000 in investing activities
of which $87,000 was used for the purchase of property and equipment, and
$130,000 was loaned to a consultant to the Company.

      The Company has no long-tem debt or any material commitments. The Company
believes, that cash on-hand is sufficient to meet its requirements for the next
12 months.

Recent Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations."
This statement eliminates the pooling of interests method of accounting for all
business combinations initiated after June 30, 2001, and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. The Company had no business combinations after June 30,
2001.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." With the adoption of this
Statement, goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value-based test. Similarly, goodwill
associated with equity method investments is no longer amortized. Equity method
goodwill is not, however, subject to the new impairment rules; the impairment
guidance in existing rules for equity method investments continues to apply.
Goodwill amortization associated with equity method investments in 2001
approximated $240,000.

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets". This statement supercedes Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." The Company adopted SFAS 144 as of January
1, 2002, but does not believe the statement will have a material effect on its
consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

      To date, the Company has not utilized derivative financial instruments or
derivative commodity instruments. The Company invests its cash primarily in
money market funds and certificates of deposit, which are subject to minimal
credit and market risk. The Company has no long-term debt.

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. Most of the Company cash
balances are held in dollar-based accounts. 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 2001 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

                                       21
<PAGE>

                                    Part III

Item 10. Directors and Executive Officer`s; Compliance with Section 16(a) of the
Exchange Act

Directors and Officers

      The Company's directors, officers and key employees are as follows:

Name                        Age         Position
----                        ---         --------
Marc D. Tokayer             45          Chairman of the Board, CEO, President,
                                        Treasurer and Director

Baruch Sollish, Ph.D        56          Vice President-Research and Development,
                                        Chief Technology Officer of the Israeli
                                        Subsidiary and Director

Sam Brill                   27          Chief Operating Officer, Director

Matthew L. Cohen            34          Chief Financial Officer

Michael Fine                50          Director

Michael Braunold            42          Director

Tom McIntyre                53          Director

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

      Baruch Sollish, Ph.D has been a director of the Company since December
1994 and has served as Vice-President-Research and Development and Secretary of
the Company 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.

       Sam Brill has been a director of the Company since February 2002 and the
Chief Operating Officer since April 15, 2002. From November 2001 to immediately
prior to his appointment as Chief Operating Officer, he served as the Company's
Vice-President, Corporate Strategy. Prior to joining the Company, from February
1998 through November 2001 Mr. Brill was employed by JDS Capital Management,
Inc., a New York based hedge fund and an affiliate of one of the Company's
largest stockholders, where he worked as a Senior Financial Analyst evaluating
for market viability and investment potential a diverse group of public and
private companies. Mr. Brill received a BS in Finance, cum laude, in January
1998 from Touro College.

      Matthew L. Cohen has been the Chief Financial Officer of the Company since
June 1, 2001. From December 2000 through May 2001, he was an independent
financial consultant primarily in the field of financial model and traffic
management. From September 2000 through November 2000, he was the chief
financial officer for ServiceChannel, Inc., a developer and distributor of work
flow management systems for the real estate services industry. From August 1998
through August 2000, he was the chief financial officer and executive

                                       22

<PAGE>

vice president of APB Online, Inc., a news media company covering the crime and
safety genre. From January 1995 through July 1998, he was an independent
financial consultant. He received a BA in Economics, Magna cum Laude, in June
1989 from Princeton University. The Company and Mr. Cohen have agreed that Mr.
Cohen's employment with the Company will terminate no later than June 17, 2002.

       Michael Fine has been a director of the Company since May 10, 2000. Since
November 1992, Mr. Fine has been President of Fine Sound Productions, an
independent music production firm. From April 1997 through May 1999, Mr. Fine
worked at Deutsche Grammophon GmbH, where he served as Vice President, Artists
and Repertoire, and was in charge of the music and recording program of one of
the world's oldest record labels, having been founded in 1898. From September
1989 through April 1997, he was Vice-President of KOCH International LP and
General Manager of KOCH International Classics. Koch International LP is a multi
national music and media technology company and one of the world's largest
independent distributors of recorded music. Mr. Fine is a Grammy Award winning
producer.

       Michael Braunold has been a director of the Company since May 2000. From
March 2000 through September 2000, Mr. Braunold has been the Chief Executive
Officer and Director of PLT Solutions, Inc., a company engaged in providing
solutions for rapid data telecommunication utilizing electrical power-lines.
Since March 1998 through the present time, Mr. Braunold also has been Chief
Executive Officer and Chairman of the Board of SPO Medical Equipment Ltd., an
Israeli company that specializes in medical technology related to pulse oximetry
techniques. Prior to this assignment, Mr. Braunold was Senior Director of
Business Development at Scitex Corporation Ltd. (stock symbol "SCIX"), a
multinational corporation specializing in visual information communication. In
such capacity, Mr. Braunold played a strategic role in managing a team of
professionals assigned to M&A activities. During his 12-year tenure at Scitex,
he held various positions within the worldwide organization including a period
in the United States as Vice President of an American subsidiary of Scitex
specializing in medical imaging. Mr. Braunold originates from the United Kingdom
where he obtained a B.Sc. in Management Sciences and a Master of Business
Administration from Imperial College Business School, London.

      Tom McIntyre has been a director of the Company since October 2001. From
January, 2001 through the present time, he has worked as an independent
consultant to the media and entertainment industry. From 1987 through September
2001, he worked at BMG Entertainment, a division of Bertelsmann A.G., where he
served as the Executive Vice President and Chief Financial Officer (1994 through
2001) and Senior Vice President and Chief Financial Officer (1987-1994). He
received an MBA from Rutgers University in 1978 and an MS in Computer Science in
1971 from the University of Pennsylvania.

      All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Mr. Tom McIntyre, a
non-employee director, has notified the Company that he will not be seeking
re-election in the Company's next scheduled annual stockholders meeting.
Directors receive no cash compensation for serving on the Board of Directors.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.

             SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Exchange Act, requires officers and directors of the
Company and persons who own more than ten percent of the Common Stock, to file
initial statements of beneficial ownership (Form 3), and statements of changes
in beneficial ownership (Forms 4 or 5), of Common Stock with the SEC. Officers,
directors and greater than 10% stockholders are required by SEC regulation to
furnish the Company with copies of all such forms they file.

                                       23

<PAGE>


      Based solely on review of the copies of such forms received by the Company
with respect to 2001, the Company believes that all of the filing obligations of
officers, directors and 10% stockholders under Section 16(a) during 2001 have
been complied with, except that neither Joe Samberg nor any affiliated entities
filed any Forms 3 or 4 with respect to purchases of Common Stock during 2001.

Item 11. Executive Compensation

      The following table sets forth all compensation earned by the Company's
Chief Executive Officer and President and the other executive officers of the
Company whose total annual salaries and bonuses exceeded $100,000 for the year
ended December 31, 2001 (the "Named Executive Officers"):


<TABLE>
<CAPTION>
                                          Annual Compensation                  Long-Term Compensation
                              -------------------------------------------      -------------------------
                                                                                             Securities
Name and                                                 Other Annual                        Underlying       All Other
------------------                                       ------------                        ----------       ---------
Principal Position    Year    Salary($)    Bonus($)    Compensation($)(1)                  Options (#)(2)    Compensation
------------------    ----    ---------    --------    ------------------                  --------------    ------------
<S>                  <C>       <C>          <C>              <C>                               <C>                <C>
Marc D. Tokayer      2001      250,922         --            71,181                               --              --
 Chief Executive     2000      194,307         --            42,968                            970,700            --
 Officer and         1999      108,075         --            27,676                               --              --
 President


Baruch Sollish
  Vice-President-    2001      213,000         --            51,366                               --              --
  Research &         2000      158,324      75,092           28,608                            382,050            --
  Development        1999      110,522         --            21,886                            130,000            --


Matthew L. Cohen     2001      105,000         --              --                              100,000            --
Chief Financial      2000         --           --              --                                 --              --
Officer (3)          1999         --           --              --                                 --              --


Emanuel Kronitz
 Former Chief        2001      191,603         --            53,861(4)                            --          $96,932 (5)
 Operating           2000      127,989      31,347           22,542                            582,750            --
 Officer(4)          1999       35,915         --             7,158                            279,500            --
</TABLE>

(1) Includes, for each Named Executive Officer, some or all of the following:
(i) Company contributions to insurance premiums and (ii) taxable automobile
related benefits and (iii) tax gross-ups for certain benefits.

(2) Represents shares of Common Stock issuable upon exercise of employee stock
options issued in the year indicated under the Company's 1996 Stock Option Plan
and 2000 Equity Incentive Plan and, in the case of Baruch Sollish, shares of
Common Stock issuable upon exercise of additional options not issued under any
stock plan.

(3) Matthew L. Cohen commenced employment with the Company in June 2001. The
Company and Mr. Cohen have agreed that Mr. Cohen's employment with the Company
will terminate no later than June 17, 2002.

(4) As of October 7, 2001, Emanuel Kronitz was no longer in the employ of the
Company.

(5) Comprised of (i) payments made in respect of accrued holidays in the amount
of $35,467, (ii) post-termination payments through December 31, 2001 in the
aggregate amount of $61,932, all of which were effected in connection with the
termination of Mr. Kronitz's employment.

                                       24

<PAGE>

Option Grants in 2001

       The following table sets forth certain information concerning the
individual option grants during the year ended December 31, 2001, to each of the
Named Executive Officers.


<TABLE>
<CAPTION>
                     Number of      % of Total
                     Securities      Options                             Potential Realizable
                     Underlying     Granted to   Exercise     Expir    Value at Assumed Annual
                      Options        Employees    Price       ation    Rates of Stock Price for
    Name            Granted (#)       in 2001     ($/sh)      date        Option Term (1)
    ----            -----------       -------     ------      ----        ---------------
                                                                           5%           10%
<S>                  <C>               <C>         <C>        <C>         <C>         <C>
Matthew L.
Cohen,               100,000(2)        22.9%       5.42       2011        $340,861    $863,808
</TABLE>


(1) Potential realizable values are based on the fair market value per share on
the date of the grant and represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the option term. The
dollar amounts set forth in these columns are the result of calculations at the
five percent and ten percent rates set by the SEC, and are not intended to
forecast possible future appreciation, if any, of the Common Stock There can be
no assurance that such potential realizable values will not be more or less than
that indicated in the table above.

(2) Represents shares of Common Stock issuable upon exercise of options issued
under the Company's 2000 Equity Incentive Plan scheduled to vest over the next
three years at the rate of 33,000 shares of Common Stock per year, commencing in
June 2002. The Company and Mr. Cohen have agreed that Mr. Cohen's employment
will terminate no later than June 17, 2002.

Aggregate Options Exercised in 2001 and 2001 Year End Option Values

<TABLE>
<CAPTION>
                                                   Number of Securities          Value of Unexercised
                                                  Underlying Unexercised         In-the-Money Options
                          Shares        Value     Options at Fiscal Year        At Fiscal Year End ($)
                        Acquired on   Realized           End (#)                     Exercisable/
Name                    Exercise (#)     ($)     Exercisable/Unexercisable         Unexercisable (1)
----                   -------------     ---     -------------------------         -----------------
<S>                       <C>          <C>           <C>                             <C>
Marc D. Tokayer             --           --          888,200 / 82,500                     0 / 0


Baruch Sollish            50,000       335,405       387,050 / 75,000                72,800 / 36,400


Matthew L. Cohen             -            -           33,336 / 66,664                     0 / 0


Emanuel Kronitz (2)       50,000       311,500      702,250 / 110,000 (2)           417,690 / 0 (2)
</TABLE>

(1) Based upon the difference between the exercise price of such options and the
closing price of the Common Stock ($1.83) on December 31, 2001, as reported on
the NASDAQ National Market.

(2) As of October 2001, Mr. Kronitz was no longer employed by the Company.

Employment Agreements

      The Company's Israeli subsidiary and Marc Tokayer entered into an
employment agreement in August 1994, pursuant to which Mr. Tokayer continues to
be employed as its President. In February 2001, the employment agreement was
amended to provide for a term ending in October 2003, whereupon the employment
agreement will be automatically renewable from year to year unless either party
gives notice of termination at least 90 days prior to the scheduled expiration
date. Mr. Tokayer currently receives an annual salary of $250,000, 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 or, if there is a change in control of the
Company (as defined in the employment agreement) and Mr. Tokayer does not
continue as President on terms and


                                       25
<PAGE>

conditions substantially similar to those contained in his agreement, he will be
entitled to receive the greater of the balance of the salary then due under the
agreement through the scheduled expiration date or the equivalent of 12 months'
salary.

      The Company's Israeli subsidiary and Dr. Baruch Sollish signed an
employment agreement in December 1994 which was amended in July 1998 and in
February 2001, pursuant to which, Dr. Sollish is employed as Director of Product
Research and Development of the Israeli subsidiary and 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 $213,000 subject
to increase and the grant of a performance bonus in the board's discretion. If
Dr. Sollish is terminated other than for engaging in willful misconduct or acts
of bad faith or conviction of a felony or in the event of a change in control of
the Company (as defined in the employment agreement) and Dr. Sollish does not
continue to be employed in a substantially similar position, Dr. Sollish will be
entitled to receive the greater of the balance of the salary then due under the
agreement through the scheduled expiration date or the equivalent of 12 months'
salary.

      The Company and Matthew L. Cohen entered into an employment agreement in
June 2001, pursuant to which Mr. Cohen is employed as the Company's Chief
Financial Officer. The initial term of the employment agreement is two years
and, at the end of such initial term, the employment thereunder is automatically
renewable for an additional one year unless either party gives notice of
termination at least 60 days prior to the scheduled expiration date. Mr. Cohen
currently receives an annual salary of $180,000, subject to increase and the
grant of a performance bonus in the Board's discretion. If Mr. Cohen is
terminated other than for engaging in willful misconduct or acts of bad faith or
conviction of a felony or, if there is a change in control of the Company (as
defined in the employment agreement) and Mr. Cohen does not continue as Chief
Financial Officer on terms and conditions substantially similar to those
contained in his agreement, he will be entitled to receive six months' salary
then due under the agreement. The Company and Mr. Cohen have agreed that Mr.
Cohen's employment with the Company will terminate no later than June 17, 2002,
at which time, Mr. Cohen will be entitled to receive, six months salary then due
under the agreement.

           Compensation Committee Interlocks and Insider Particiaption

      The Compensation/Stock Option Committee was established in October 2000
and is responsible for reviewing the compensation arrangements in effect for the
Company's executive officers and for administering the Company's 2000 Incentive
Plan. This committee currently consists of Mr. Braunold. Mr. Illick was a member
of the Compensation/Stock Option Committee from June 2000 through April 15,
2002, when he resigned from the Board of Directors of the Company. None of the
members of the Compensation Committee was employed by the Company or any of its
subsidiaries or had any other relationship requiring disclosure by the Company
under any paragraph of Item 404 of Regulation S-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information, as of April 30, 2002
(except as otherwise disclosed in the footnotes to the table), concerning the
ownership of the Common Stock by (a) each person who, to the Company's
knowledge, beneficially owned on that date more than 5% of the outstanding
Common Stock, (b) each of the Company's directors and Named Executive Officers
(as defined above under "Executive Compensation") and (c) all current directors
and executive officers of the Company as a group.

                                       26
<PAGE>


<TABLE>
<CAPTION>
                                                   Number of Shares               Percent of
Name of Beneficial Owner (1)                    Beneficially Owned (2)         Common Stock (2)
------------------------------                  ----------------------         ----------------
<S>                                                   <C>                            <C>
Marc D. Tokayer .........................             1,482,747(3)                   8.0%

Baruch Sollish ..........................               533,840(4)                   3.0%

Sam Brill................................                     0(5)                     *

Matthew L. Cohen.........................                36,336(6)                     *

Michael Braunold ........................                 5,000(7)                     *

Michael Fine ............................                 5,000(7)                     *

Tom McIntyre ............................                     0(8)                     *

Macrovision  Corporation ................             1,880,937(9)                   10.7%

Dimensional Partners Ltd. ...............             1,940,360(10)                  10.7%

Dimensional Partners, L.P ...............               959,640(11)                   5.4%

Joseph D. Samberg .......................             3,575,00 (12)                  19.6%

All directors and executive officers as
a group (7 persons) (13) ................             2,062,923(13)                  10.9%
</TABLE>

*     Indicates less than 1%.

(1) Unless otherwise indicated, the address of each person listed is c/o TTR
Technologies Ltd., 3 Gavish Street, Kfar Saba, Israel.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares of Common Stock issuable upon the exercise of options or warrants which
are currently exercisable or which become exercisable within 60 days following
the date of the information in this table are deemed to be beneficially owned
by, and outstanding with respect to, the holder of such options or warrants.
Except as indicated by footnote, and subject to community property laws where
applicable, to the knowledge of the Company, each person listed is believed to
have sole voting and investment power with respect to all shares of Common Stock
owned by such person.

(3) Comprised of (i) 270,273 shares of Common Stock, (ii) 888,200 shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 1996 Employee Stock Option Plan and 2000
Equity Incentive Plan and (ii) 324,274 shares of Common Stock held by The
Tokayer Family Trust (the "Trust"). Mr. Tokayer's wife is the trustee of the
Trust and Mr. Tokayer's children are its income beneficiaries. Mr. Tokayer
disclaims beneficial ownership of all shares held by the Trust. Does not include
(A) 82,500 shares of Common Stock issuable upon exercise of employee stock
options issued under the Company's 2000 Equity Incentive Plan, which are
scheduled to vest over the next one and one-half years and (B) 481,000 shares
issuable upon exercise of options held by Gershon Tokayer, Mr. Tokayer's
brother, as to which shares Mr. Tokayer disclaims beneficial ownership.

(4) Comprised of (i) 457,060 shares of Common Stock issuable upon the exercise
of currently exercisable employee stock options issued under the Company's 1996
Employee Stock Option Plan and 2000 Equity Incentive Plan and (ii) 76,780 shares
of Common Stock. Does not include employee stock options for an additional
95,000 shares of Common Stock , which are scheduled to vest over the next two
and one-half years.

                                       27

<PAGE>

(5) Does not include options for 250,000 shares of Common Stock issuable under
the 2000 Equity Incentive Plan scheduled to vest annually at the rate of 50,000
per year over the next five years, commencing in November 2002.

(6) Represents (i) 3,000 shares of Common Stock and (ii) 33,336 shares issuable
upon exercise of options scheduled to vest in June 2002. The Company and Mr.
Cohen have agreed that Mr. Cohen's employment with the Company will terminate no
later than June 17, 2002.

(7) Represents shares of Common Stock issuable upon exercise of currently
exercisable stock options issued under the 1998 Non-Executive Directors' Plan.
Does not include options for 10,000 shares of Common Stock issuable under the
1998 Non-Executive Directors' Plan of which options for 5,000 shares are
scheduled to vest in September 2002 and options for the remaining 5,000 shares
are scheduled to vest in September 2003.

(8) Does not include options for 10,000 shares of Common Stock issuable under
the 1998 Non-Executive Directors' Plan, of which options for 5,000 shares are
scheduled to vest in October 2002 and options for the remaining 5,000 shares are
scheduled to vest in October 2003.

(9) The address of Macrovision Corporation is 2830 De La Cruz Boulevard, Santa
Clara, California, 95050. The foregoing disclosure is based on a Schedule 13D
filed in June 2000.

(10) Includes 360,000 shares of Common Stock 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.
Dimensional Partners, Ltd. ("Dimensional II") is a Cayman Islands company with a
principal business office at Corporate Center, West Bay Road, P.O. Box 31106
SMB, Grand Cayman, Cayman Islands. The foregoing disclosure is based on the
amended schedule 13G filed in February 2002.

(11) Includes (i) 90,000 shares of Common Stock issuable on upon the exercise of
Class A warrants 45,000 shares issuable upon the exercise of Class B Warrants,
which warrants are to be issued upon the exercise of the Class A Warrants.
Dimensional Partner, L..P. ("Dimensional I") is a Delaware limited partnership
with a principal business office at 780 Third Avenue, 45th Floor, New York, NY
10017. The foregoing disclosure is based on the amended Schedule 13G filed in
February 2002.

(12) Mr. Samberg is the managing member of JDS Asset Management, LLC, a Delaware
limited liability company ("JDSAM") and the general partner of Dimensional I. As
such, Mr. Samberg has shared voting and dispositive power over the shares of
Common Stock and warrants held by Dimensional I and may be deemed a beneficial
owner of those shares and warrants. Mr. Samberg is a principal of JDS Capital
Management, Inc., a Delaware corporation ("JDSCM"), the investment manager and
subadvisor of Dimensional II. As such, Mr. Samberg has shared voting and
dispositive power over the shares of Common Stock and warrants held by
Dimensional II and may each be deemed a beneficial owner of those shares and
warrants. JDS Capital, L.P., a Delaware limited partnership ("JDSCAP")
beneficially owns 675,000 shares of Common Stock. The address of the principal
business office of JDSAM, JDSCM and Mr. Samberg is 780 Third Avenue, 45th Floor,
New York, New York 10017. The foregoing disclosure is based on the amended
Schedule 13G filed in February 2002.

(13) See Footnotes 3-8.

Item 13. Certain Relationships and Related Transactions

       In connection with certain financial consulting services rendered to the
Company by Mr. Jeffrey Guzofsky, the brother-in- law of the Company's Chairman
and Chief Executive Officer, Mr. Marc D. Tokayer, the Company paid to an entity
designated by Mr. Guzofsky in 2000 and 2001 the amounts of $80,000 and $90,000,
respectively. In addition, the Company paid in 2000 to this entity a $75,000
finders fee in respect of the $3 million raised by the Company in 1999 from its
10% convertible debenture offering and the exercise of related warrants. The
Company terminated its relationship with Mr. Guzofsky in December 2001.

                                       28

<PAGE>

       The Company and Ephod Israel Group ("Ephod") were party to a consulting
agreement dated as of March 1, 1997, pursuant to which Ephod provided financial
and investment consulting services to the Company. The Company and Ephod
subsequently entered into a settlement agreement dated as of January 28, 1999,
pursuant to which the Company issued to Ephod 265,000 shares of its Common Stock
as payment in full for the services performed by Ephod during the 24 months
immediately preceding the date of the settlement agreement. The Company has
recently been advised by Ephod that approximately one-third of the foregoing
compensation was paid to Avi Tokayer, the brother of the Company's Chairman and
Chief Executive Officer, Marc Tokayer.

       In October 2001, the Company issued to Mr. Tom McIntyre, one of the
Company's non-employee directors, options under the Directors' Plan to purchase
up to 10,000 shares of Common Stock, to vest over two years from the date of
issuance, at a per share exercise price of $1.29.

       In September 2001, the Company issued to each of Messrs. Michael Fine and
Michael Braunold, non-employee directors, options under the Directors' Plan to
purchase up to 10,000 shares of the Company's Common Stock, to vest over two
years from the date of issuance, at a per share exercise price $1.53.

       In June 2001, the Company and Macrovision Corporation, a Delaware
corporation ("Macrovision") amended the Alliance Agreement originally entered
into as of November 1999 providing for, inter-alia, the payment by the Company
to Macrovision of $20,000 per month from July 1, 2001 through May 2002.
Macrovision holds approximately 10.7% of the issued and outstanding shares of
the Company's Common Stock.

                                       29
<PAGE>

                                     Part IV

ITEM 14. Exhibits, Reports on Form 8-K and Financial Statements

(a) 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(2)
3.2 Certificate of Amendment to the Certificate of Incorporation of TTR, dated
January 30, 1999(3)
3.3 Certificate of Amendment to the Certificate of Incorporation of TTR, dated
December 21, 1999(3)
3.4 Certificate of Amendment to the Certificate of Incorporation of TTR, dated
July 15, 2000. (5)
3.4 By-Laws of TTR, as amended(2)


                                       30
<PAGE>

4.1 Specimen Common Stock Certificate(1)
4.2.1 Warrant dated November 29, 1999 between TTR and Biscount Overseas Ltd.(3)
4.2.2 Warrant dated November 29, 1999 between TTR and Biscount Overseas Ltd.(3)
4.2.3 Form of Class A Warrant between TTR and certain private investors(3)
4.2.4 Form of Agent Warrant between TTR and certain entities(3)
4.2.5 Form of Common Stock Purchase Warrant dated as of June, 2000, between TTR
and Brean Murray & Co., Inc(4)
4.2.6 Warrant dated October 2, 2000 between TTR and Mantle International
Investment Ltd(5)
4.2.7 Promissory Note made as of July 9, 2001 by Ripp Entertainment Group, Inc.
in favor of TTR(6)
10.1 1996 Incentive and Non-Qualified Stock Option Plan, as amended (2)
10.2 Non-Executive Directors Stock Option Plan(2)
10.3 Employment Agreement between TTR Technologies Ltd. and Marc D. Tokayer (1)+
10.4 Employment Agreement between TTR Technologies Ltd. and Baruch Sollish (1)+
10.5 Alliance Agreement between TTR and Macrovision Corporation effective as of
November 24, 1999(3)
10.6 Stock Purchase Agreement, effective as of January 10, 2000 between TTR and
Macrovision Corporation(3)
10.7 Agreement between TTR and H.C. Wainwright & Co. Inc. dated February 8,
2000(3)
10.8 Form of Subscription Agreement dated February 18, 2000 between TTR and
certain private investors and supplement thereto.(3)
10.9 Form of Registration Rights Agreement between TTR and certain private
investors and supplement thereto(3)
10.10 Amendment to Employment Agreement between TTR and Baruch Sollish, dated
July 22, 1998 (3)+
10.11 Agreement between TTR and Comda (1985) Ltd. and ComSign Ltd. dated as of
June 4, 2000(4)
10.12 Agreement between TTR and Brean Murray & Co., Inc. dated June 19,2000(4)
10.13 Agreement between TTR and Bluestone Capital dated August 23, 2000(4)
10.14 2000 Equity Incentive Plan(4)
10.15 Restated Employment Agreement between TTR and Emanuel Kronitz, dated
October 1, 2000 (5)+
10.16 Restated Employment Agreement between TTR Technologies Ltd and Emanuel
Kronitz, dated as of October 1, 2000(5)+
10.17 Amendment to Employment Agreement between TTR and Marc Tokayer, dated
February 1, 2001(5)+
10.18 Amendment to Employment Agreement between TTR and Baruch Sollish, dated
February 1, 2001(5)+
10.19 Amendment No. 2, dated as of June 29, 2001, to the Alliance Agreement,
dated as of November 24, 1999, between TTR and Macrovision Corporation (6)
10.20 Agreement dated as of June 22, 2001 between TTR and Ripp Entertainment
Group Inc. (6)
10.21 Pledge Agreement made July 9, 2001 by Ripp Entertainment Group Inc. in
favor of TTR (6)
10.22 Employment Agreement between TTR and Matthew L. Cohen dated June 1 2001
(6)+
10.23 Employment Agreement between TTR and Sam Brill dated as of November 5,
2001.*+
10.24 Amended 2000 Equity Incentive Plan*+
10.25 Amended Non-Executive Directors Stock Option Plan*+
21.1 Subsidiaries of TTR: TTR Technologies, Ltd., an Israeli corporation,
wholly-owned by TTR.
23.1 Consent of Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu,
certified public accountants.*

*     Filed herewith.
+     Management Agreement.


                                       31
<PAGE>

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

(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the year ended December 31, 1998 and incorporated herein by reference.

(3) Filed as an Exhibit to TTR's Registration Statement on Form S-1, No.
33-32662 and incorporated herein by reference.

(4) Filed as an Exhibit to TTR's Report on Form 10-Q for the third quarter of
2000 and incorporated herein by reference.

(5) Filed as an Exhibit to TTR's Report on Form 10-K filed for the year ended
December 31, 2000 and incorporated herein by reference.

(6) Filed as an Exhibit to TTR's Report on Form 10-Q for the second quarter of
2001 and incorporated herein by reference.

(b) Reports on Form 8-K

(i) Report on Form 8-K filed for the month October 2001

(ii) Report on Form 8-K filed for the month July 2001

                                   Signatures

      In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                        TTR TECHNOLOGIES, INC.


                                        By: /s/ MARC D. TOKAYER
                                        MARC D. TOKAYER,
                                        Chief Executive Officer,
                                        Chairman of the Board and
                                        Principal Executive Officer

Date: April 30, 2002


                                       32
<PAGE>

                             TTR TECHNOLOGIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Report of Independent Auditors                                              F-1

Consolidated Financial Statements

Balance Sheets as of December 31, 2001 and 2000                             F-2

Statements of Operations for the years ended December 31, 2001, 2000
  and 1999 and the period from July 14, 1994 (inception) to December
  31, 2001                                                                  F-3

Statements of Comprehensive Loss for the years ended December 31, 2001,
  2000 and 1999 and the period from July 14, 1994 (inception) to December
  31, 2000                                                                  F-4

Statements of Stockholder's Equity (Deficiency) for the period from
July 14, 1994 (inception) to December 31, 2001                              F-5

Statements of Cash Flows for the years ended December 31, 2001, 2000
 and 1999 and the period from July 14, 1994 (inception) to December
 31, 2001                                                                   F-6

Notes to the Consolidated Financial Statements                              F-7


                                      (i)
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
TTR Technologies, Inc.

We have audited the accompanying consolidated balance sheets of TTR
Technologies, Inc. ("the Company") (a development-stage company) and its
subsidiary at December 31, 2001 and 2000, and the related consolidated
statements of operations, comprehensive loss, stockholders' equity (deficit) and
cash flows for the three years ended December 31, 2001 and for the period from
December 5, 1994 (date of inception) to December 31, 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiary at December 31, 2001 and 2000, and the consolidated
results of operations, comprehensive loss, stockholders' equity (deficit) and
its cash flows for the three years ended December 31, 2001 and for the period
from December 5, 1994 (date of inception) to December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.

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

Tel-Aviv, Israel
February 28, 2002


                                      F-1
<PAGE>

                    TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               December 31,      December 31,
                                                                   2001              2000
                                                                   ----              ----
<S>                                                            <C>               <C>
ASSETS
Current assets
     Cash and cash equivalents                                 $  4,915,269      $  8,234,686
     Accounts receivable                                                 --             1,019
     Note receivable                                                130,000                --
     Prepaid expenses and other current assets                      155,156           101,208
                                                               ------------      ------------

     Total current assets                                         5,200,425         8,336,913

Property and equipment - net                                        201,453           220,957

Investment in ComSign, Ltd.                                       1,145,519         1,790,843
Other assets                                                          3,550                --
                                                               ------------      ------------

     Total assets                                              $  6,550,947      $ 10,348,713
                                                               ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Current liabilities
     Accounts payable                                          $    151,400      $     46,726
     Accrued expenses                                               553,408           167,731
                                                               ------------      ------------

     Total current liabilities                                      704,808           214,457

Accrued severance pay                                               429,922           137,299
                                                               ------------      ------------

     Total liabilities                                            1,134,730           351,756
                                                               ------------      ------------

STOCKHOLDERS' EQUITY
Preferred Stock,  $.001 par value;
  5,000,000 shares authorized; none issued and outstanding               --                --
Common stock,  $.001 par value;
  50,000,000 shares authorized; 17,593,896 and 17,356,340
   shares issued and outstanding, respectively                       17,594            17,357
Additional paid-in capital                                       40,526,583        40,340,966
Other accumulated comprehensive income                               36,934            46,246
Deficit accumulated during the development stage                (35,125,678)      (29,627,041)
  Less: deferred compensation                                       (39,216)         (780,571)
                                                               ------------      ------------

     Total stockholders' equity                                   5,416,217         9,996,957
                                                               ------------      ------------

     Total liabilities and stockholders' equity                $  6,550,947      $ 10,348,713
                                                               ============      ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-2
<PAGE>

                    TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                                    From
                                                                                                                  Inception
                                                                                Year                              (July 14,
                                                                               Ended                              1994) to
                                                                            December 31,                        December 31,
                                                              2001              2000              1999              2001
                                                              ----              ----              ----              ----
<S>                                                       <C>               <C>               <C>               <C>
Revenue                                                   $         --      $      1,999      $     68,803      $    125,724

Expenses
     Research and development (1)                              949,766         1,111,889           345,989         5,002,502
     Sales and marketing (1)                                   399,523           579,006           815,586         4,297,971
     General and administrative (1)                          2,894,616         1,785,434           630,090         8,020,820
     Stock based compensation                                  909,819         1,631,649         6,152,587        11,364,409
                                                          ------------      ------------      ------------      ------------

     Total expenses                                          5,153,724         5,107,978         7,944,252        28,685,702
                                                          ------------      ------------      ------------      ------------

Operating loss                                              (5,153,724)       (5,105,979)       (7,875,449)      (28,559,978)

Other (income) expense
     Legal settlement                                               --                --                --           232,500
     Loss on investment                                             --                --                --            17,000
     Other income                                                   --                --                --           (75,000)
     Net losses of affiliate                                   618,090           209,157                --           827,247
     Amortization of deferred financing costs                       --                --         4,180,540         4,516,775
     Interest income                                          (276,179)         (524,253)           (3,689)         (862,427)
     Interest expense                                            3,002             5,810         1,019,937         1,909,605
                                                          ------------      ------------      ------------      ------------

Total other (income) expenses                                  344,913          (309,286)        5,196,788         6,565,700
                                                          ------------      ------------      ------------      ------------

Net loss                                                  $ (5,498,637)     $ (4,796,693)     $(13,072,237)     $(35,125,678)
                                                          ============      ============      ============      ============

Per share data:

      Basic and diluted                                   $      (0.31)     $      (0.30)     $      (2.07)
                                                          ============      ============      ============

Weighted average number
  of common shares used in
  basic and diluted loss per share                          17,560,013        16,006,403         6,321,719
                                                          ============      ============      ============
</TABLE>

(1) Excludes non-cash, stock-based compensation expense as follows:

<TABLE>
<S>                                                       <C>               <C>               <C>               <C>
     Research and development                             $         --      $    230,258      $    200,878      $    456,239
     Sales and marketing                                       261,463            78,732         3,776,407         5,305,971
     General and administrative                                648,356         1,322,659         2,175,302         5,602,199
                                                          ------------      ------------      ------------      ------------

                                                          $    909,819      $  1,631,649      $  6,152,587      $ 11,364,409
                                                          ============      ============      ============      ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                    TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                                                              From
                                                                                                           Inception
                                                                   Year                                    (July 14,
                                                                  Ended                                     1994) to
                                                               December 31,                               December 31,
                                                          2001             2000             1999              2001
                                                          ----             ----             ----              ----
<S>                                                   <C>              <C>              <C>               <C>
Net loss                                              $(5,498,637)     $(4,796,693)     $(13,072,237)     $(35,125,678)

Other comprehensive income (loss)
         Foreign currency translation adjustments          (9,312)         (10,725)          (22,444)           36,934
                                                      -----------      -----------      ------------      ------------

         Comprehensive loss                           $(5,507,949)     $(4,807,418)     $(13,094,681)     $(35,088,744)
                                                      ===========      ===========      ============      ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                    TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                     Common Stock            Additional
                                                         Common Stock                 Subscribed               Paid-in
                                                     Shares       Amount        Shares        Amount           Capital
                                                     ------       ------        ------        ------           -------
<S>                                                <C>           <C>            <C>        <C>              <C>
Balances at July 14, 1994 (date of inception)              --    $     --            --    $         --     $         --

Issuances of common stock, par value $.001
     Services rendered                              1,200,000       1,200
     Cash                                           1,200,000       1,200                                         23,800

Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 1994                       2,400,000       2,400            --              --           23,800

Common stock contributed                             (561,453)       (561)                                           561
Issuances of common stock, par value $.001
     Services rendered                                361,453         361                                         17,712
Stock options and warrants granted                                                                                   600
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 1995                       2,200,000       2,200            --              --           42,673

Issuances of common stock, par value $.001
     Cash, net of offering costs of $11,467           850,000         850                                        362,683
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 1996                       3,050,000       3,050            --              --          405,356

Common stock contributed                             (135,000)       (135)                                           135

Issuances of common stock, par value $.001
     Cash, net of offering costs of $832,551          908,000         908                                      5,000,440
     Services rendered                                 74,000          74                                        832,551
     Exercise of options                              374,548         375                                          3,370
Common stock subscriptions                                                       16,000         100,000
Sale of Underwriters warrants                                                                                         80
Stock options and warrants granted                                                                             1,875,343
Amortization of deferred compensation
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 1997                       4,271,548       4,272        16,000         100,000        8,117,275

Common stock subscriptions                             16,000          16       (16,000)       (100,000)          99,984
Common Stock forfeited                             (1,000,000)     (1,000)                                          1000
Transfer of temporary equity to permanent capital      15,000          15                                         77,141
Issuances of common stock, par value $.001
     Cash                                              41,667          42                                         24,958
     Services rendered                                244,000         244                                        620,344
Stock options and warrants granted (cancelled)                                                                  (255,992)
Discount relating to shares and warrants issued       156,111         156                                        486,307
Amortization of deferred compensation
Warrant exchange                                      432,000         432                                           (432)
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 1998                       4,176,326       4,177                                      9,170,585

Issuances of common stock, par value $.001
     Cash                                             314,774         315                                        225,140
     Services rendered                              1,227,000       1,227                                      1,669,548
     Exercise of option                             1,714,952       1,715                                      1,401,660
Stock options granted  (cancelled)                                                                             4,449,015
Conversion of debt into common stock                3,220,508       3,221                                      3,376,748
Fair value of warrants associated with finacing
     agreement                                                                                                 3,845,400
Amortization of deferred compensation
Value assigned to beneficial conversion feature
     of convertible notes                                                                                        572,505
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 1999                      10,653,560      10,654                                     24,710,602

Issuances of common stock, par value $.001
     Cash, net of offering costs of $730,000        3,680,937       3,681                                     13,266,319
     Services rendered                                 16,269          16                                        114,609
     Exercise of options and warrants               3,005,574       3,006                                        220,716
Stock options granted                                                                                          2,028,720
Amortization of deferred compensation
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 2000                      17,356,340      17,357            --              --       40,340,966

Issuances of common stock, par value $.001
     Exercise of options and warrants                 237,556         238                                         17,012
Stock options granted                                                                                            168,604
Amortization of deferred compensation
Foreign currency translation adjustment
Net loss
                                                   ----------    --------       -------    ------------     ------------
Balances at December 31, 2001                      17,593,896    $ 17,594            --    $         --     $ 40,526,583
                                                   ==========    ========       =======    ============     ============

<CAPTION>
                                                                      Deficit
                                                     Foreign        Accumulated
                                                     Currency         During
                                                   Translation      Development          Deferred
                                                    Adjustment         Stage           Compensation        Total
                                                    ----------         -----           ------------        -----
<S>                                                <C>             <C>                <C>              <C>
Balances at July 14, 1994 (date of inception)      $         --    $         --       $         --     $         --

Issuances of common stock, par value $.001
     Services rendered                                                                                        1,200
     Cash                                                                                                    25,000

Net loss                                                                (42,085)                            (42,085)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 1994                                --         (42,085)                --          (15,885)

Common stock contributed
Issuances of common stock, par value $.001
     Services rendered                                                                                       18,073
Stock options and warrants granted                                                                              600
Foreign currency translation adjustment                  22,652                                              22,652
Net loss                                                               (896,663)                           (896,663)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 1995                            22,652        (938,748)                --         (871,223)

Issuances of common stock, par value $.001
     Cash, net of offering costs of $11,467                                                                 363,533
Foreign currency translation adjustment                  35,044                                              35,044
Net loss                                                             (1,121,211)                         (1,121,211)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 1996                            57,696      (2,059,959)                --       (1,593,857)

Common stock contributed                                                                                         --

Issuances of common stock, par value $.001
     Cash, net of offering costs of $832,551                                                              5,001,348
     Services rendered                                                                    (500,000)         332,625
     Exercise of options                                                                                      3,745
Common stock subscriptions                                                                                  100,000
Sale of Underwriters warrants                                                                                    80
Stock options and warrants granted                                                      (1,875,343)              --
Amortization of deferred compensation                                                      972,567          972,567
Foreign currency translation adjustment                 (19,667)                                            (19,667)
Net loss                                                             (4,119,612)                         (4,119,612)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 1997                            38,029      (6,179,571)        (1,402,776)         677,229

Common stock subscriptions                                                                                       (0)
Common Stock forfeited
Transfer of temporary equity to permanent capital                                                            77,156
Issuances of common stock, par value $.001
     Cash                                                                                                    25,000
     Services rendered                                                                    (620,588)
Stock options and warrants granted (cancelled)                                             255,992
Discount relating to shares and warrants issued                                                             486,463
Amortization of deferred compensation                                                    1,173,139        1,173,139
Warrant exchange
Foreign currency translation adjustment                  41,386                                              41,386
Net loss                                                             (5,578,540)                         (5,578,540)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 1998                            79,415    $(11,758,111)          (594,233)      (3,098,167)

Issuances of common stock, par value $.001
     Cash                                                                                                   225,455
     Services rendered                                                                    (445,725)       1,225,050
     Exercise of option                                                                                   1,403,375
Stock options granted  (cancelled)                                                        (613,435)       3,835,580
Conversion of debt into common stock                                                                      3,379,969
Fair value of warrants associated with finacing
     agreement                                                                                            3,845,400
Amortization of deferred compensation                                                    1,374,518        1,374,518
Value assigned to beneficial conversion feature
     of convertible notes                                                                                   572,505
Foreign currency translation adjustment                 (22,444)                                            (22,444)
Net loss                                                            (13,072,237)                        (13,072,237)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 1999                            56,971    $(24,830,348)          (278,875)        (330,996)

Issuances of common stock, par value $.001
     Cash, net of offering costs of $730,000                                                             13,270,000
     Services rendered                                                                                      114,625
     Exercise of options and warrants                                                                       223,722
Stock options granted                                                                   (2,028,720)
Amortization of deferred compensation                                                    1,527,024        1,527,024
Foreign currency translation adjustment                 (10,725)                                            (10,725)
Net loss                                                             (4,796,693)                         (4,796,693)
                                                   ------------    ------------       ------------     ------------
Balances at December 31, 2000                            46,246    $(29,627,041)         (780,571)       9,996,957

Issuances of common stock, par value $.001
     Exercise of options and warrants                                                                       17,250
Stock options granted                                                                    (168,604)
Amortization of deferred compensation                                                     909,959          909,959
Foreign currency translation adjustment                  (9,312)                                            (9,312)
Net loss                                                             (5,498,637)                        (5,498,637)
                                                   ------------    ------------      ------------     ------------
Balances at December 31, 2001                      $     36,934    $(35,125,678)     $    (39,216)    $  5,416,217
                                                   ============    ============      ============     ============
</TABLE>


                                      F-5
<PAGE>

                    TTR TECHNOLOGIES, INC. AND ITS SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                         Year
                                                                                                        Ended
                                                                                                     December 31,
                                                                                       2001              2000
                                                                                       ----              ----
<S>                                                                                <C>              <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                                      $(5,498,637)     $ (4,796,693)
     Adjustments to reconcile net loss
      to net cash used by operating activities:
          Depreciation and amortization                                                 85,597            58,066
          Amortization of note discount and finance costs                                   --                --
          Translation adjustment                                                                              --
          Beneficial conversion feature of convertible debt                                 --                --
          Stock, warrants and options issued for services and legal settlement         909,819         1,631,649
          Payment of common stock issued with guaranteed selling price                      --                --
          Net losses of affiliate                                                      618,090           209,157
          Increase (decrease) in cash attributable
           to changes in assets and liabilities
               Accounts receivable                                                         929             9,297
               Other current assets                                                    (57,063)          (62,030)
               Other assets                                                             (3,550)            3,700
               Accounts payable                                                        105,120          (355,881)
               Accrued expenses                                                        596,054          (171,181)
               Accrued severance                                                       122,141            97,962
               Interest payable                                                             --                --
                                                                                   -----------      ------------
        Net cash used by operating activities                                       (3,121,500)       (3,375,954)
                                                                                   -----------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sales of fixed assets                                                 2,837            28,637
     Purchases of property and equipment                                               (86,931)         (105,354)
     Investment in ComSign, Ltd.                                                            --        (2,000,000)
     Note receivable                                                                  (130,000)               --
     Increase in organization costs                                                         --                --
                                                                                   -----------      ------------
        Net cash used by investing activities                                         (214,094)       (2,076,717)
                                                                                   -----------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from issuance of common stock                                             17,250        13,493,722
     Stock offering costs                                                                   --                --
     Deferred financing costs                                                               --                --
     Proceeds from short-term borrowings                                                    --                --
     Proceeds from long-term debt                                                           --                --
     Proceeds from convertible debentures                                                   --                --
     Repayment of short-term borrowings                                                     --                --
     Repayments of long-term debt                                                           --           (16,308)
                                                                                   -----------      ------------
       Net cash provided by financing activities                                        17,250        13,477,414
                                                                                   -----------      ------------
Effect of exchange rate changes on cash                                                 (1,073)              363
                                                                                   -----------      ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    (3,319,417)        8,025,106

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     8,234,686           209,580
                                                                                   -----------      ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $ 4,915,269      $  8,234,686
                                                                                   ===========      ============
SUPPLEMENTAL DISCLOSURES OF
 CASH FLOW INFORMATION
  Cash paid during the period for:
       Interest                                                                    $     3,002      $        869
                                                                                   ===========      ============
Noncash financing activity
       Conversion of debt and accrued interest to common stock


<CAPTION>
                                                                                                          From
                                                                                                        Inception
                                                                                                        (July 14,
                                                                                                        1994) to
                                                                                                      December 31,
                                                                                        1999              2001
                                                                                        ----              ----
<S>                                                                                <C>               <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                                      $(13,072,237)     $(35,125,678)
     Adjustments to reconcile net loss
      to net cash used by operating activities:
          Depreciation and amortization                                                  94,016           865,308
          Amortization of note discount and finance costs                             4,394,216         4,666,225
          Translation adjustment                                                             --            (1,528)
          Beneficial conversion feature of convertible debt                             572,505           572,505
          Stock, warrants and options issued for services and legal settlement        6,266,398        11,537,370
          Payment of common stock issued with guaranteed selling price                       --          (155,344)
          Net losses of affiliate                                                            --           827,247
          Increase (decrease) in cash attributable
           to changes in assets and liabilities
               Accounts receivable                                                       (2,305)             (396)
               Other current assets                                                      (4,081)         (149,979)
               Other assets                                                                  --            (3,550)
               Accounts payable                                                        (694,469)          (46,165)
               Accrued expenses                                                        (109,220)        1,228,787
               Accrued severance                                                        (19,332)          278,341
               Interest payable                                                         160,099           251,019
                                                                                    -----------      ------------
        Net cash used by operating activities                                        (2,414,410)      (15,255,838)
                                                                                    -----------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sales of fixed assets                                                  6,098            37,572
     Purchases of property and equipment                                                 (6,822)         (874,870)
     Investment in ComSign, Ltd.                                                             --        (2,000,000)
     Note receivable                                                                         --          (130,000)
     Increase in organization costs                                                          --            (7,680)
                                                                                    -----------      ------------
        Net cash used by investing activities                                              (724)       (2,974,978)
                                                                                    -----------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from issuance of common stock                                           1,628,830        21,175,372
     Stock offering costs                                                                    --          (475,664)
     Deferred financing costs                                                          (276,901)         (682,312)
     Proceeds from short-term borrowings                                                     --         1,356,155
     Proceeds from long-term debt                                                            --         2,751,825
     Proceeds from convertible debentures                                             2,000,000         2,000,000
     Repayment of short-term borrowings                                                (307,480)       (1,357,082)
     Repayments of long-term debt                                                      (494,207)       (1,615,825)
                                                                                    -----------      ------------
       Net cash provided by financing activities                                      2,550,242        23,152,469
                                                                                    -----------      ------------
Effect of exchange rate changes on cash                                                      27            (6,384)
                                                                                    -----------      ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        135,135         4,915,269

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         74,445                --
                                                                                    -----------      ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          $   209,580      $  4,915,269
                                                                                    ===========      ============
SUPPLEMENTAL DISCLOSURES OF
 CASH FLOW INFORMATION
  Cash paid during the period for:
       Interest                                                                     $    50,046      $    476,028
                                                                                    ===========      ============
Noncash financing activity
       Conversion of debt and accrued interest to common stock                      $ 3,379,696
                                                                                    ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of Business

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

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

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

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

      In November 1999, the Company signed an agreement with Macrovision
      Corporation to jointly develop music copy protection technology for
      optical based media. In connection with the agreement the Company granted
      to Macrovision an exclusive world-wide, royalty-bearing license to use the
      Company's proprietary technology through December 31, 2009. The Company
      will be entitled to a 30% royalty. Also under certain conditions, the
      exclusive license may revert to a non-exclusive license as of the second
      anniversary of the Commercial Launch, as defined.

Note 2 - Summary of Significant Accounting Policies

      Principles of Consolidation

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

      Use of Estimates

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

      Cash Equivalents

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


                                      F-7
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Fair Value of Financial Instruments

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

      Revenue recognition

      Revenues were generated from licensing software. The Company recognizes
      this revenue in accordance with Statement of Position 97-2, "Software
      Revenue Recognition", and related interpretations, when delivery has
      occurred, the fee for the software is fixed or determinable,
      collectability is reasonably assured and a written software license
      agreement has been signed by the Company and the customer.

      Stock Based Compensation

      The Company accounts for stock-based compensation in accordance with APB
      Opinion No. 25, "Accounting for Stock Issued to Employees" and FASB
      Interpretation 44, "Accounting for Certain Transactions Involving Stock
      Compensation". Pursuant to these accounting standards, the Company records
      deferred compensation for share options granted to employees at the date
      of grant based on the difference between the exercise price of the options
      and the market value of the underlying shares at that date. Deferred
      compensation is amortized to compensation expense over the vesting period
      of the underlying options. No compensation expense is recorded for fixed
      stock options that are granted to employees and directors at an exercise
      price equal to the fair market value of the common stock at the time of
      the grant

      See Note 10 for pro forma disclosures required in accordance with SFAS No.
      123, "Accounting for Stock-Based Compensation".

      Stock options and warrants granted to non-employees are recorded at their
      fair value, as determined in accordance with SFAS No. 123 and Emerging
      Issues Task Force Consensus No. 96-18, and recognized over the related
      service period. Deferred charges for options granted to non-employees are
      periodically re-measured as the options vest.

      Foreign Currency Translations

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

      Net loss per share

      Basic earnings (loss) per share EPS is computed by dividing net income
      (loss) applicable to common shares by the weighted-average of common
      shares outstanding during the period.


                                      F-8
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Diluted earnings (loss) per share adjusts basic earnings (loss) per share
      for the effects of convertible securities, stock options and other
      potentially dilutive instruments, only in the periods in which such effect
      is dilutive. The shares issuable upon exercise of stock options and
      warrants are excluded from the calculation of net loss per share, as their
      effect would be antidilituve

      Depreciation and Amortization

      Furniture, equipment and vehicles are recorded at cost and depreciated
      using the straight-line method over the estimated useful lives of the
      assets, which range from three to fourteen years. For leasehold
      improvements, amortization is provided over the shorter of the estimated
      useful lives of the assets or the lease term.

      Research and Development Costs

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

      Income Taxes

      The Company uses the liability method to determine its income tax expense.
      This method requires the establishment of a deferred tax asset or
      liability for the recognition of future deductible or taxable amounts and
      operating loss carryforwards. Deferred tax expense or benefit is
      recognized as a result of the changes in the assets and liabilities during
      the year. Valuation allowances are established when necessary, to reduce
      deferred tax assets, if it is more likely than not that all or a portion
      of it will not be realized.

      Concentrations

      Cash and cash equivalents are, for the most part, maintained with major
      financial institutions. Deposits held with these banks exceed the amount
      of insurance provided on such deposits. Generally, these deposits may be
      redeemed upon demand and therefore, bear minimal risk.

      Impairment of Long-Lived Assets

      The Company reviews its long-lived assets for impairment whenever events
      or changes in circumstances indicate that the carrying amount of an asset
      may not be recoverable from future undiscounted cash flows. Impairment
      losses are recorded for the excess, if any, of the carrying value over the
      fair value of the long-lived assets.

      Comprehensive Income (loss)


                                      F-9
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Recently Issued Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards No. 141, "Business
      Combinations." This statement eliminates the pooling of interests method
      of accounting for all business combinations initiated after June 30, 2001,
      and addresses the initial recognition and measurement of goodwill and
      other intangible assets acquired in a business combination. The Company
      had no business combinations after June 30, 2001.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
      No. 142, "Goodwill and Other Intangible Assets." With the adoption of this
      Statement, goodwill is no longer subject to amortization over its
      estimated useful life. Rather, goodwill will be subject to at least an
      annual assessment for impairment by applying a fair-value-based test.
      Similarly, goodwill associated with equity method investments is no longer
      amortized. Equity method goodwill is not, however, subject to the new
      impairment rules; the impairment guidance in existing rules for equity
      method investments continues to apply. Goodwill amortization associated
      with equity method investments in 2001 approximated $240,000.

      In August 2001, the FASB issued Statement of Financial Accounting
      Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal
      of Long-Lived Assets". This statement supercedes Statement of Financial
      Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to be Disposed of." The Company will
      adopt SFAS 144 as of January 1, 2002, but does not believe the statement
      will have a material effect on its consolidated financial statements.

Note 3 - Note Receivable

      In July 2001, in connection with a consulting agreement, the Company
      advanced a loan to a consultant in the amount of $130,000, evidenced by a
      promissory note. The note bears interest at the rate of 8% per annum, and
      is due on June 27, 2002. As collateral for the loan, the consultant
      pledged 150,000 Company shares issuable to him upon the exercise of
      150,000 unexercised option. Prusuant to consulting agreements the
      consultant was granted 50,000 and 100,000 immediately vested options
      exercisable at $.35 and $6.00 per share, respectively.


                                      F-10
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Property and Equipment

      Property and equipment consist of the following:

                                                             December 31,
                                                         2001             2000
                                                         ----             ----

Computer equipment                                     $315,361         $220,640
Leasehold improvements                                  109,178          118,114
Office equipment                                         96,970          131,936
Vehicles                                                124,251          146,824
                                                       --------         --------
                                                        645,760          617,514
Less:  Accumulated depreciation                         444,307          396,557
                                                       --------         --------
                                                       $201,453         $220,957
                                                       ========         ========

      Depreciation expense was $85,597, $58,066, and $94,016 for the years ended
      December 31, 2001, 2000 and 1999, respectively.

Note 5 - Investment In Comsign, Ltd.

      In July 2000, the Company invested $2 million for a 50% equity interest in
      ComSign Ltd. ("ComSign") a newly established subsidiary of Comda Ltd.
      ("Comda"). ComSign is engaged in the distribution and delivery of digital
      authentication certificates of VeriSign, Inc.("VeriSign"). In June 2000,
      ComSign entered into an agreement with VeriSign to act as VeriSign's sole
      principal affiliate in Israel and the territories administered by the
      Palestinian Authority. Under the provisions of the agreement with Comda
      60% of any dividends up to an accumulated amount of $2,000,000 will first
      be distributed to TTR and 40% to Comda. Thereafter, 60% of dividends up to
      an accumulated amount of $2,000,000 will first be distributed to Comda and
      40% to TTR. Thereafter, all distributions will be 50% to each.

      In December 2001, ComSign entered into a three year commercial secured
      loan agreement with an Israeli bank pursuant to which ComSign borrowed the
      maximum amount available of $1,000,000 between December 2001 and February
      2002. Loan amounts outstanding accrue interest at the rate of Libor plus
      2.5% per annum during the first year following borrowing. The interest
      rate for subsequent years is to be fixed by agreement of ComSign and the
      Bank. The Company does not provide any guaranty or other security for the
      loan. The terms of the loan grant the lending bank options to purchase
      equity of ComSign in an amount equal to that purchasable at an aggregate
      purchase price of $300,000, based on ComSign's company valuation at the
      time of exercise. ComSign's company valuation has been fixed at not less
      than $5 million.

      ComSign is currently negotiating with VeriSign to reduce the license fees
      payable by ComSign under the terms of the license agreement. If the
      license fees payable by ComSign are not reduced upon terms mutually
      agreeable to ComSign and VeriSign, then, in the view of management,
      ComSign may not be able to continue operations as presently conducted.
      Based on the present negotiations, the Company does not consider the
      investment in ComSign to be impaired


                                      F-11
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Company applies the equity method of accounting for this investment.
      At the time of the investment the carrying value of the investment
      exceeded the Company's share of the underlying net assets of ComSign. The
      excess is considered to be goodwill and is being amortized on a
      straight-line basis over five years. Upon adoption of FASB No. 142 on
      January 1, 2002, the Company will no longer amortize the goodwill.
      Goodwill amortization expense has been included in net losses of affiliate
      in the accompanying Consolidated Statement of Operations.

      Condensed summarized financial data for ComSign, Ltd. as of and for the
      year ended December 31, 2001 are as follows:

Condensed balance sheet data
     Current assets                                                 $   176,712
     Noncurrent assets                                                1,720,611
     Current liabilities                                              1,002,784
     Noncurrent liabilities                                              87,500

Condensed statement of operations data
     Revenue                                                            341,525
     Net loss                                                       $  (751,575)

Note 6 - Accrued Expenses

      Accrued expenses consist of the following:

                                                              December 31,
                                                         2001             2000
                                                         ----             ----
Accrued payroll and related amounts                    $250,591         $135,144
Accrued severance, current portion *                    249,714               --
Other                                                    53,103           32,587
                                                       --------         --------
                                                       $553,408         $167,731
                                                       ========         ========

      * In October 2001, the Company's former Chief Operating Officer was no
      longer employed by the Company. Under the terms of his employment
      agreement, the Company is obligated to continue to pay his salary through
      September, 2003. The total amount due is $437,000, of which $249,714 is
      payable within the next twelve months.

Note 7- Accrued Severance Pay

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


                                      F-12
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Debt Financings

      o     In 1998, the Company issued $1,462,000 of its 10% Convertible
            Debentures to private investors. In December 1999, after repaying
            approximately $200,000 of principal, the Company offered any
            remaining note holders an option to convert their outstanding
            principal and accrued interest to shares of common stock. The
            conversion rate was based on 85% of the average closing bid price of
            the common shares for the 30 trading days preceding the date of
            conversion. In accordance with applicable accounting rules, the
            Company recorded a charge to interest expense in the amount of
            $572,505 to reflect this beneficial conversion feature. A total of
            $1,329,202 of note principal and accrued interest was converted to
            common stock.

      o     In 1999 the Company issued $2,000,000 of its 10% Convertible
            Debentures to private investors. The Debentures were convertible
            into shares of the Company's Common Stock at the rate of $.77 per
            share based on the closing trading prices of the Common Stock during
            certain specified periods. In addition, upon conversion, warrants
            were issued to purchase additional shares of Common Stock equal to
            one-half of the shares of Common Stock issued. The warrants were
            exercisable at $.92 per share.

            In October and November 1999, the investors converted all of the
            outstanding debentures and were issued 2,681,934 shares of common
            stock and 1,340,967 warrants exercisable at $.92 per share. In
            November 1999, the investors exercised of all the outstanding
            conversion warrants.

            In connection with the sale of Debentures, the Company also issued
            warrants to purchase up to 1.3 million shares of Common Stock at a
            nominal price per share, to an independent consultant. These
            warrants were exercised in 2000. Using the Black-Scholes model for
            estimating the fair value of the warrants, the Company recorded
            $3,845,400 as deferred financing costs, which was charged to
            operations in 1999.

Note 9 - Income Taxes

      At December 31, 2001, the Company had available approximately $13 million
      of net operating loss carryforwards for U.S. federal income tax purposes
      which expire in the years 2014 through 2021, and $9.7 million of foreign
      net operating loss carryforwards with no expiration date. Due to the
      uncertainty of their realization, no income tax benefit has been recorded
      by the Company for these net operating loss carryforwards as valuation
      allowances have been established for any such benefits. The use of the
      U.S. federal net operating loss carryforwards is subject to limitations
      under section 382 of the Internal Revenue code pertaining to changes in
      stock ownership.


                                      F-13
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                          December 31,
                                                          ------------
                                                     2001               2000
                                                     ----               ----

Net operating loss carryforwards                 $ 7,992,108        $ 7,626,174
Stock based compensation                             821,778            438,280
Other                                                282,099            229,747
                                                 -----------        -----------
      Total deferred tax assets                    9,095,985          8,294,201
      Valuation allowance                         (9,095,985)        (8,294,201)
                                                 -----------        -----------

      Net deferred tax assets                    $        --        $        --
                                                 ===========        ===========

Note 10 - Stockholders' Equity

      Stock option plans

      In July 1996, the Board of Directors adopted the Company's Incentive and
      Non-qualified Stock Option Plan (the " Plan") and has reserved up to
      450,000 shares of Common Stock for issuance thereunder. In December 1999,
      the Plan was amended to increase the total number of shares available for
      grant to 1.5 million. There are currently a total of 1,184,275 options
      outstanding under the 1996 Plan and future grants have been discontinued.

      In July 1998, the Board of Directors adopted the Non-Executive Directors
      Stock Option Plan ("the Directors' Plan") and has reserved up to 25,000
      shares of common stock for issuance thereunder. In May 2001, the Plan was
      amended to increase the total number of shares available for grant to
      75,000. The plan provides for the grant of options to directors who are
      not otherwise employed by the Company. As of December 31, 2001, 58,000
      options had been granted under the Directors' Plan.

      In July 2000, the Company adopted the 2000 Equity Incentive Plan (the
      "2000 Incentive Plan") and has reserved a total of 1.5 million shares of
      common stock for issuance thereunder. In May 2001, the Plan was amended to
      increase the total number of shares available for grant to 3,500,000. The
      2000 Incentive Plan provides for the grant of incentive stock options,
      nonqualified stock options, stock appreciation rights, restricted stock,
      bonus stock, awards in lieu of cash obligations, other stock-based awards
      and performance units. The 2000 Incentive Plan also permits cash payments
      under certain conditions.

      The Compensation Committee of the Board of Directors is responsible for
      determining the type of award, when and to who awards are granted, the
      number of shares and the terms of the awards and exercise prices. The
      options are exercisable for a period not to exceed ten years from the date
      of grant. Vesting periods range from immediately to four years.


                                      F-14
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Other Option Grants

      In addition to the options granted under the Stock Option Plans, the
      Company has issued options outside of the plans, pursuant to various
      agreements.

      Option activity for 1999, 2000 and 2001 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                       Weighted
                                                                                        Average
                                                            Options                    Exercise
                                               Plan         Non-plan        Total        Price
                                               ----         --------        -----
<S>                                         <C>            <C>            <C>            <C>
Options outstanding, January 1, 1999          157,750       128,872         286,622      $3.67
 Granted                                      736,500       196,000         932,500       0.39
 Exercised                                         --      (128,872)       (128,872)      0.01
 Forfeited                                   (144,850)           --        (144,850)      6.73
                                            ---------      --------       ---------

Options outstanding, December 31, 1999        749,400       196,000         945,400       0.47
 Granted                                    2,238,500            --       2,238,500       3.86
 Exercised                                   (200,000)     (146,000)       (346,000)      0.23
 Forfeited                                     (2,275)           --          (2,275)      5.19
                                            ---------      --------       ---------

Options outstanding, December 31, 2000      2,785,625        50,000       2,835,625       3.18
 Granted                                      575,000            --         575,000       3.53
 Exercised                                    (80,000)      (50,000)       (130,000)      0.01
 Forfeited                                     (4,000)           --          (4,000)      6.03
                                            ---------      --------       ---------

Options outstanding, December 31, 2001      3,276,625            --       3,276,625      $3.36
                                            =========      ========       =========

Shares of common stock available for
  future grant under the plan               1,466,000
                                            =========
</TABLE>


                                      F-15
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The following table summarizes information about stock options outstanding
      at December 31, 2001:

<TABLE>
<CAPTION>
                                                                             Options Exercisable
                                                 Weighted Average              Weighted Average
                                            Remaining
                           Number          Contractual      Exercise       Number          Exercise
Ranges of price          Outstanding           Life           Price      Exercisable         Price
---------------          -----------           ----           -----      -----------         -----
<S>                       <C>                  <C>            <C>         <C>                <C>
$0.01                       394,000            7.73           $0.01         374,000          $0.01
$0.35                        50,000            8.74            0.35          50,000           0.35
$1.29-1.66                  300,000            9.82            1.63              --             --
$2.56-3.56                  400,600            8.32            3.31         367,267           3.38
$3.91-5.72                2,024,025            8.60            4.21       1,464,191           4.15
$6.84-7.00                  108,000            2.77            6.07         108,000           6.07
                          ---------            ----           -----       ---------          -----

$.01-$7.00                3,276,625            8.38           $3.36       2,363,458          $3.38
                          =========            ====           =====       =========          =====
</TABLE>

      Weighted-average grant date fair value of options granted in 2001, 2000
      and 1999, under the Black-Scholes option pricing model, was $2.18, $2.10,
      and $2.20 per option, respectively.

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

                                                   Year ended
                                                  December 31,
                                     2001             2000             1999
                                     ----             ----             ----
Net loss
    As reported                  $(5,498,637)     $(4,796,693)     $(13,072,237)
    Proforma                     $(6,627,561)     $(8,118,242)     $(13,123,185)

Loss per share
    As reported                  $     (0.31)     $     (0.30)     $      (2.07)
    Proforma                     $     (0.38)     $     (0.51)     $      (2.08)


                                      F-16
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The fair value of each option granted in 2001, 2000 and 1999 is estimated
      on the date of grant using the Black-Scholes option-pricing model with the
      following weighted average assumptions:

                                              2001           2000          1999
                                              ----           ----          ----

Risk free interest rates                       3.97%         6.32%         5.52%
Expected option lives                          3.26          2.46          2.50
Expected volatilities                        106.00         70.00         46.50
Expected dividend yields                       None          None          None

      Warrants

      o     In May 1999, in connection with the sale of convertible debentures
            (see Note 8) the Company issued 1.3 million warrants exercisable at
            a nominal price per share. These warrants were exercised in 2000.

      o     In July 1999, the Company issued 200,000 warrants exercisable at
            $2.75 to a consultant pursuant to a three-month consulting
            agreement.

      o     In August 1999 a consultant was issued warrants to purchase up to 1
            million shares of common stock at a nominal price per share. The
            warrants are exercisable only upon the Company entering into an
            agreement with a strategic investor through the efforts of the
            consultant. In November 1999, upon the signing of an agreement with
            Macrovision, the warrants became exercisable. Using the
            Black-Scholes model for estimating the fair value of the warrants,
            the Company recorded a charge to operations of $2,741,000 in
            connection with the warrants. These warrants were exercised in 2000.

      o     In November 1999, in connection with a legal settlement, the Company
            issued a total of 50,000 warrants with exercise prices ranging from
            $2.50 to $3.50.

      o     In November 1999, the Company issued 25,000 warrants exercisable at
            a nominal price per share to a consultant.

      o     In May 2000, the Company granted 250,000, three-year warrants to a
            consultant pursuant to a one-year consulting agreement. The
            agreement was subsequently amended to reduce the number of warrants
            to 100,000 which vested immediately. The exercise prices of the
            warrants are $4.13 per share. Using the Black-Scholes model for
            estimating the fair value of the warrants, the Company recorded a
            charge to operations of $123,175 in connection with this grant.

      o     In June 2000, the Company granted 350,000 five-year warrants to a
            consultant pursuant to a one-year consulting agreement. The warrants
            become exercisable when the average weighted bid price of the
            Company's Common Stock exceeds $10 per share for twenty consecutive
            trading days. The exercise prices of the warrants are $6.50, $7.50
            and $8.50 for 125,000, 125,000 and 100,000 respectively.


                                      F-17
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            These warrants are accounted for in accordance with the provisions
            of EITF 96-18, Accounting for Equity Instruments that are Issued to
            Other than Employees for Acquiring or in Conjunction with Selling,
            Goods or Services. Due to the uncertainty of reaching the
            performance measures stipulated, the Company has not recorded any
            expense relating to the issuance of the unvested warrants. Upon
            determination that the achievement of the vesting thresholds is
            probable ("measurement date"), the Company will value the warrant
            and expense it over the remaining period until the performance
            criteria is met.

      o     In August 2000, the Company granted 200,000 five-year warrants to a
            consultant pursuant to a one-year consulting agreement. The
            agreement was subsequently amended to reduce the number of warrants
            to 100,000 which vested immediately. The warrants are not
            exercisable during the first two years from the date of grant unless
            the Company's Common Stock has traded at or above $10 per share for
            fifteen consecutive trading days. The exercise prices of the
            warrants are $7.50 per share. Using the Black-Scholes model for
            estimating the fair value of the warrants, the Company recorded a
            charge to deferred compensation of $262,670 and amortized this
            amount over the service period.

      o     In October 2000, the Company granted 400,000 four-year warrants to a
            consultant pursuant to a one-year consulting agreement. The warrants
            vest immediately but are not exercisable until one year from date of
            grant, unless there is a sale or merger involving a majority of the
            assets of the Company. The exercise prices of the warrants are
            $6.50, $7.50 and $8.50 for 134,000, 133,000 and 133,000,
            respectively. Using the Black-Scholes model for estimating the fair
            value of the warrants, the Company recorded a charge to deferred
            compensation of $483,772 and amortized this amount over the service
            period.

Stock Issuances

      During the year ended December 31, 1999, the Company completed the
      following common stock transactions:

      o     In January and February 1999 the Company issued 627,000 shares of
            Common Stock and 10,000 warrants exercisable at $1.75 to various
            consultants pursuant to one-year consulting agreements. The value of
            the services totaling $445,725 is being amortized over the one-year
            contract terms.

      o     In January 1999, the Company issued 265,000 shares of Common Stock
            to an entity as payment of an outstanding liability in the amount of
            $168,750. The Company has recently been advised by this entity, that
            approximately 1/3 of this compensation was paid to the brother of
            the CEO.

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

      o     In July 1999, the Company issued 150,000 shares of Common Stock in
            exchange for previously issued options in connection with the
            termination of, and settlement of certain claims by an ex-employee.


                                      F-18
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      o     In October 1999, the Company issued 200,000 shares of Common Stock
            to a consultant pursuant to a consulting agreement.

      o     In October 1999, the Company issued 2,681,934 shares of Common Stock
            as a result of the conversion of all the outstanding 10% convertible
            debentures plus accrued interest thereon.

      o     In December 1999, the Company issued 538,574 shares upon the
            conversion of long-term debt.

      o     In 1999, the Company issued 1,714,952 shares of Common Stock from
            the exercise of various outstanding warrants.

      During the year ended December 31, 2000, the Company completed the
      following common stock transactions:

      o     In January 2000, pursuant to its licensing and investment agreement
            with Macrovision, the Company issued 1,880,937 shares of its Common
            Stock for an aggregate purchase price of $4 million.

      o     In February 2000, the Company completed a private placement of
            1,800,000 shares of 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 60 months at an exercise price per share
            of $8.84. The Company may redeem the Class A Warrants for $0.10 per
            warrant if the common shares have traded at or above 200% of the
            exercise price for a period of twenty consecutive trading days. Upon
            exercise of the Class A Warrants, the Company will issue Class B
            Warrants for an additional 450,000 shares. The Class B Warrants are
            exercisable for a period of 36 months from the date of issuance at
            an exercise price per share of $21.22. The Class B Warrants may be
            redeemed by the Company if the common shares have trade at $26 or
            above for a period of twenty consecutive trading days. The Company
            paid a placement agent a fee of $500,000 and issued 180,000 warrants
            exercisable at $5.56 per share, 90,000 Class A Warrants exercisable
            at $8.84 and upon exercise an additional 45,000 Class B Warrants
            exercisable at $21.22. Also in connection with the private
            placement, the Company paid $200,000 and issued 200,000 warrants,
            exercisable at $2.75, as a finder's fee.

      o     In January 2000, the Company issued 15,000 shares of Common Stock to
            a consultant. The value of the services totaling $104,625 was
            charged to operations.

      o     In January 2000, the Company issued 1,269 shares of Common Stock in
            payment of an outstanding liability in the amount of $10,000.

      o     In 2000, the Company issued 3,005,574 shares of Common Stock from
            the exercise of various outstanding stock options and warrants.


                                      F-19
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      During the year ended December 31, 2001, the Company completed the
      following common stock transactions:

      o     In 2001, the Company issued 237,556 shares of Common Stock from the
            exercise of various outstanding stock options and warrants

Note 11 - Commitments And Contingencies

      Royalties

      TTR Ltd. is committed to pay royalties to the Office of the Chief
      Scientist of the Government of Israel (OCS) on proceeds from sales of
      products of which the OCS has participated by way of grants. The royalties
      are payable at the rate of 3% for the first three years of product sales,
      4% for the following three years, and 5% thereafter up to a maximum of
      100% of the grant plus accrued interest. The total amount of grants
      received as of December 31, 2001 was $210,000.

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

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

      Consulting Agreement

      The Company had a financial consulting agreement with an entity that is
      connected to a relative of the Company's CEO. The agreement was terminated
      in December 2001. Under the agreement the Company incurred fees of
      approximately $90,000, $80,000 and $60,000 for the years ended December
      31, 2001, 2000 and 1999, respectively. In addition, the Company paid a
      $75,000 finder fee to this entity in connection with its 10% convertible
      debenture offering in 1999.

      Employment Agreements

      The Company entered into, and amended various employment agreements in
      October 2000 and February 2001 with certain of its officers and an
      employee. The Company's aggregate commitments under these employment
      agreements are approximately $478,000 and $187,000 during 2002 and 2003,
      respectively. In addition each of the agreements provides for a
      termination payment, under certain circumstances, equal to 12 months
      salary. If a change in control (as defined) occurs the termination
      payments will be the greater of 12 months salary or the balance of the
      salary then due under the agreement through the scheduled expiration date.


                                      F-20
<PAGE>

                    TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Lease Commitments

      The Company leases its facility in Israel, and certain equipment under
      non-cancelable operating leases. Future minimum lease payments at December
      31, 2001, are as follows:

            Years ending December 31,
                    2002 .....................................     $48,628
                    2003 .....................................      17,885
                                                                   -------
                                                                   $66,513
                                                                   =======

Note 12 - Geographic Data

                                 U.S.      % of Total      Israel     % of Total

For the year ended
December 31, 2001
   Revenue                   $        --       0.00%    $        --       0.00%
   Operating loss             (2,589,846)     50.25%     (2,563,878)     40.71%
   Identifiable assets         5,163,161      78.82%      1,387,786      21.18%

For the year ended
December 31, 2000
   Revenue                   $        --       0.00%    $     1,999     100.00%
   Operating loss             (3,027,245)     59.29%     (2,078,734)     40.71%
   Identifiable assets         8,297,774      80.18%      2,050,939      19.82%

For the year ended
December 31, 1999
   Revenue                         5,550       8.07%    $    63,253      91.93%
   Operating loss            $(6,371,600)     80.90%     (1,503,849)     19.10%
   Identifiable assets           239,995      51.30%        227,872      48.70%

Note 13 - Quarterly Results of Operations (UNAUDITED)

<TABLE>
<CAPTION>
                                1st Qtr.           2nd Qtr.           3rd Qtr.           4th Qtr.          Total
                                --------           --------           --------           --------          -----
<S>                           <C>                <C>                <C>                <C>              <C>
2001
     Revenues                          --                 --                 --                 --               --
     Net loss                 $(1,291,867)       $(1,276,115)       $(1,355,739)       $(1,574,916)     $(5,498,637)
     Net loss per share -
basic and diluted                   (0.07)             (0.07)             (0.08)             (0.09)
2000
     Revenues                       1,999                 --                 --                 --            1,999
     Net loss                  (1,563,727)        (1,025,946)        (1,213,842)          (993,178)      (4,796,693)
     Net loss per share -
basic and diluted                   (0.12)             (0.06)             (0.07)             (0.06)
</TABLE>


                                      F-21