<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__
|_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Sept 30, 1998
OR
__
|__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to____________
Commission file number 333-19183
JYRA RESEARCH INC ( A Development Stage Enterprise )
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0167341
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HAMILTON HOUSE,111 MARLOWES, HEMEL HEMPSTEAD, HERTFORDSHIRE HP1 1BB UK
- ------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
(44) 1442 403600
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
As of Sept 30,1998, there were outstanding 12,906,250 shares of the
Registrant's Common Stock (par value $0.001 per share).
<PAGE>
FORM 10-Q
INDEX
PAGE
Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
Sept 30, 1997, Sept 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
three months ended Sept 30, 1997, Sept 30, 1998,
Nine months ended Sept 30, 1997, Sept 30, 1998,
and Cumulative since Incorporation May 2, 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended Sept 30, 1997, Sept 30, 1998
and Cumulative since Incorporation May 2, 1996 5
Consolidated Statement of Stockholders' Equity 6
from Incorporation through Sept 30, 1998
Notes to Condensed Consolidated Financial
Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Item 3 Quantitative and Qualitative Disclosures
about market risk
-(Not applicable)
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET SEPT 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Sept 30, 1997 Sept 30, 1998 Dec 31, 1997
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 1,402,071 754,394 3,244,101
Prepaid expenses 49,347 162,646 26,867
Accounts receivable 302,189 212,905 52,062
---------- ---------- ----------
Total current assets 1,753,607 1,129,945 3,323,030
Property and Equipment, at cost:
Computers, Equipment & Motor Vehicles 497,360 704,510 595,055
Less accumulated depreciation and 86,853 255,262 106,819
amortization
---------- ---------- ----------
Net property and equipment 410,507 449,248 488,236
Investment in Securities 0 166,211 0
---------- ---------- ----------
Total Assets $2,164,114 $1,745,404 $3,811,266
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 106,472 217,299 125,463
Accruals 72,378 45,752 80,134
Current portion of long term 0 12,844 11,501
lease obligations
---------- ---------- ----------
Total current liabilities 178,850 275,895 217,098
Creditors: Amount falling due after more than one year
Long term Lease obligations 0 16,548 26,335
Stockholders' Equity:
Common stock par value $0.001
Issued :
12,906,250 shares at Sept 30, 1998
12,890,250 shares at Dec 31,1997
and 12,553,200 at Sept 30, 1997 6,277 6,630 6,614
Additional paid-in-capital 3,819,405 6,505,263 6,339,068
Deficit Accumulated During the
development stage (1,771,596) (4,982,706) (2,770,397)
Foreign Currency Transaction Adjustment (68,822) (76,226) (7,452)
---------- ---------- ----------
Total stockholders' equity 1,985,264 1,452,961 3,567,833
---------- ---------- ----------
Total liabilities & stockholders' equity 2,164,114 1,745,404 3,811,266
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine months Ended Cumulative since
Sept 30 Sept 30 Incorporation
May 2, 1996
1997 1998 1997 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Product & Services 118,010 190,780 344,286 454,247 846,330
------- -------- -------- -------- --------
Total Revenues 118,010 190,780 344,286 454,247 846,330
-------- -------- ------- ------- --------
Cost of Revenues:
Product & Services (48) 7,736 9,865 29,664 39,970
-------- -------- ------- -------- --------
Total Cost of Revenues (48) 7,736 9,865 29,664 39,970
-------- -------- ------- -------- --------
Gross margin 118,058 183,044 334,421 424,583 806,360
Operating Expenses:
Sales & Marketing 159,100 199,531 317,110 790,144 1,266,480
General and admin 149,320 242,221 469,022 641,621 1,610,238
Research and development 453,895 407,909 984,786 1,218,432 2,772,466
-------- -------- -------- -------- ---------
Total Operating Expenses (762,315) (849,661)(1,770,918)(2,650,197)(5,649,184)
-------- -------- -------- -------- ---------
Loss from operations (644,257) (666,617)(1,436,497)(2,225,614)(4,842,824)
Other Income(Expense):
Taxes (ex Income Taxes) 0 5,120 0 (800) (16,778)
Currency Exchange diff 58,953 49,197 (484) 81,312 82,512
Provision for Doubtful Debt 0 0 0 0 (164,699)
Interest Income 22,661 10,879 93,393 74,831 217,773
Depreciation (42,054) (48,247) (80,316) (142,038) (258,689)
-------- -------- -------- -------- --------
Total other Income
(Expenses) 39,560 16,949 12,593 13,305 (139,881)
Income before provision
for income taxes (604,697) (649,668) (1,423,904)(2,212,309)(4,982,706)
Provision for Income Taxes 0. 0. 0 0 0
-------- -------- --------- -------- --------
Net Profit (Loss) (604,697) (649,668).(1,423,904)(2,212,309)(4,982,706)
-------- -------- -------- -------- --------
Statement of Comprehensive Income
Foreign Currency
Translation Adjustment (51,654) (39,351) (37,533) (68,773) (76,225)
Comprehensive Income/
(Loss) (656,351) (689,019)(1,461,437)(2,281,082)(5,058,931)
-------- -------- -------- -------- --------
Earnings Per Share - Basic
and Diluted (0.05) (0.05) (0.11) (0.17)
-------- -------- --------- --------
Weighted Average 12,553,200 12,906,250 12,553,200 12,889,803
Common and Common -------- -------- -------- --------
Equivalent Shares Outstanding
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months Nine months Cumulative since
Ended Ended Incorporation
Sept 30, 1997 Sept 30, 1998 May 2, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) (1,423,904) (2,212,309) (4,982,706)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 80,316 148,443 255,262
Decrease/(Increase) in Prepaid Expenses 1,287 (135,779) (162,646)
(Decrease)/Increase in accrued Expenses 0 (34,382) 45,752
(Decrease)/Increase in Accounts Payable 77,856 83,391 246,690
Increase in Accounts receivable (302,189) (160,843) (212,905)
--------- -------- ---------
Net cash provided (used) (1,566,634) (2,311,479) (4,810,553)
by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Computers, (392,617) (109,455) (704,510)
Equipment & Vehicles
--------- -------- ---------
Net cash used in investing activities (392,617) (109,455) (704,510)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, 0 0 6,345,682
net of issuance costs
--------- -------- ---------
Net cash from financing activities 0 0 6,345,682
Effects of exchange rate changes on Cash (37,533) (68,773) (76,225)
Net increase/(decrease) in cash and
cash equivalents (1,996,784) (2,489,707) 754,394
Cash and cash equivalents at 3,398,855 3,244,101 0
beginning of period --------- --------- ---------
Cash and cash equivalents at 1,402,071 754,394 754,394
end of period -------- --------- ---------
-------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCORPORATION THROUGH SEPT 30, 1998 (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Foreign
Common Stock Paid-In During Currency
Shares Amount Capital Development Translation
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Balance At Inception - - - - -
Net Loss from 2-May-96
To 31-Dec-96 - - - (347,692) -
Issuance of Common Stock
to 31-Dec-96 Public And Private
Offerings:
May, 1996 At
$.001 Per Share 2,750,000 2,750 - - -
August, 1996
At $.40 Per Share 2,392,500 2,393 954,607 - -
December, 1996
At $3 Per Share 1,000,000 1,000 2,999,000 - -
Stock Issued As
Commissions:
August, 1996
At $.40 Per Share 91,000 91 36,309 - -
November, 1996
At $3 Per Share 43,100 43 129,257 - -
Issuance Expenses
Of Capital Stock - - (299,768) - -
Translation Adjustment
For The Period - - - - (31,289)
Balance At ---------------------------------------------------------
31-Dec-96 6,276,600 6,277 3,819,405 (347,692) (31,289)
September 8,1997
Script Div Share
Issue 1 for 1 6,276,600
November 25 Issuance
of Common Stock
at $8 Per Share 315,000 315 2,519,685
Stock Issued As
Commissions:
November 1997
At $8.00 Per Share 22,050 22 176,378 - -
Issuance Expenses (176,400)
of Capital stock
Net Loss For The
Period To 31-Dec-97 - - - (2,422,705) -
Translation Adjustment
For The Period - - - - 23,837
Balance At ------------------------------------------------------------
31-Dec-97 12,890,250 6,614 6,339,068 (2,770,397) (7,452)
Issuance of Common
Stock at $10.38 16,000 16 166,195
Net Loss For The
Period To 30-September-98 - - - (2,212,309) -
Translation Adjustment
For The Period - - - - (68,773)
Balance At ------------------------------------------------------------
30-September-98 12,906,250 6,630 6,505,263 (4,982,706) (76,225)
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sept 30, 1998
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Jyra Research Inc ("Jyra" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 1997 included in the Company's Form 10K. The results of operations
for the three months ended Sept 30, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. CASH AND CASH EQUIVALENTS
For purposes of the condensed consolidated balance sheets and statements of
cash flows, the Company considers money market funds and other similar
financial instruments with an original maturity date of three months or less
to be cash equivalents.
C. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares of
common stock outstanding during the period.
D. STOCK OPTION PLAN
The Company has adopted two separate stock option plans. The first is for key
employees and the second for key executives.
Stock option plan for Key Employees
The Plan for key employees was adopted July 20, 1996. The Plan provides for
the granting of incentive stock options as defined in Section 422 of the
Internal Revenue Code, as well as non incentive stock options. All options are
awarded at not less than the market price of the Company's common stock on the
date of grant. Such options expire on the fifth anniversary of the date on
which the option was granted. On March 30, 1997, the original Stock Option
Plan dated July 20, 1996 allowing for the grant of up to a total of 300,000
common shares was amended to allow for the grant of up to a total of 500,000
common shares. The stock option plan has been adjusted for the 100% stock
dividend and allows for the grant of up to a total of 1,000,000 common shares.
7
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During the 2nd quarter 1998, 10,000 shares were granted at an option price per
share of $8.00 to the following schedule:
PERCENT
EXERCISABLE
EXERCISE EVENT
One Year From Grant Date 25%
Two Years From Grant Date 25%
Three Years From Grant Date 25%
Four Years From Grant Date 25%
The number of shares for which options may be granted cannot exceed
1,000,000 shares of the Company's common stock. The Plan shall terminate on
the tenth anniversary of its original effective date, July 20, 1996, after
which no awards may be granted.
At Sept 30, 1998 there were 954,000 shares under option plan for key employees.
At Sept 30, 1998 there were 46,000 shares available for future grants under
the option plan for key employees.
Stock option plan for key executives
The Plan for key executives was adopted Sept 1, 1998. All options are awarded
at not less than the market price of the Company's common stock on the date of
grant. Such options expire on the fifth anniversary of the date on which the
option was granted. The Plan allows for the grant of up to a total of 300,000
common shares.
During the 3rd quarter 1998, 250,000 shares were granted at an option price per
share of $5.50 and were fully exercisable from the date of grant.
At Sept 30, 1998 there were 250,000 shares under option plan for key employees.
At Sept 30, 1998 there were 50,000 shares available for future grants under
the option plan for key employees.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
section 27A of the Securities and Exchange Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which reflect the
Company's current judgement on those issues. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause the
actual results to differ materially. Important factors which could cause
actual results to differ materially are described in the following paragraphs
and are particularly noted under BUSINESS RISKS on page 14 and in the Company's
Annual Report on Form 10K for the year ended December 31, 1997 which is on file
with the Securities and Exchange Commission.
Business. (Introduction & Background)
The Company was incorporated on May 2, 1996 under the laws of Delaware. The
Company is in the business of designing, developing, and marketing computer
network management systems to (i) maximize network productivity, (ii) minimize
network downtime, and (iii) solve network problems caused by the constant
increase in network traffic, combined with the growing complexity of networks.
These problems result in escalating costs and major systems failures across
the corporate spectrum. Management believes that current network management
systems do not have the capability to effectively deal with these problems.
Initially, during 1997 the Company planned to design a range of portable
software tools and centralized systems that would combine advanced protocol
decode and expert analysis capabilities. These tools were planned to
facilitate identification, diagnosis and resolution of network problems.
The Company's planned initial products had diagnostic and service level
monitoring components and are listed below:
PRODUCT APPLICATION
1. Mid-Level Manager Service Level Monitoring
2. Diagnosis Pack Diagnostic
3. Analysis Pack Diagnostic
4. Probe Diagnostic
5. Service Level Manager Service Level Monitoring
As the Company began detailed design work for each of the products listed
above, the Company shared its plans with a number of its major potential
customers, in order to obtain their input at an early stage. The Company
learned from this input and from its own research that customer demand was
much stronger for service level monitoring products than it was for diagnostic
products. In particular, Management of the Company believed that the demand
for products that monitored network performances in support of commercial
service level agreements would be much greater than purely diagnostic devices.
Accordingly, Management emphasized development of the Mid-Level Manager and
Service Level Manager and launched an initial version of the Mid-Level Manager
during the second quarter of 1997. The Mid-Level Manager was designed to
9
<PAGE>
provide an interface between the raw statistics gathered at a probe and the
presentation layer software used to display this data. The Mid-Level Manager
supports (i) RMON data capture interface, allowing data capture from existing
RMON probes, and (ii) SNMP data capture interface allowing data capture from
existing SNMP devices. At the present time the Company is not expending any
material resources on the development of the Diagnosis Pack, Analysis Pack or
Probe.
Version 1.0 of the Mid-Level Manager was purchased, in small quantities, by,
among others, MCI, Glaxo and British Telecom. The Service Level Manager
initially focused on measuring and reporting on response time as experienced by
network users.
Throughout 1997 Management of the Company continued to work closely with major
potential customers, particularly telecommunications companies, to learn more
about their needs, with a view towards incorporating their requirements in the
Company's products. This process resulted in the Company arriving at the
concept of a Service Management Architecture ("SMA"). SMA is an architecture
in which multiple Service Level Managers and Mid-Level Managers act as a
single distributed system reporting on network response time, or network
performance, as experienced by users at different locations. The initial
version of the SMA was released in the third quarter of 1997, and Version 2.0
of the SMA was launched in September 1997.
After Version 2.0 of the SMA was launched the Company continued to communicate
with customers and potential customers to ascertain how well the product was
meeting their needs. Based upon feedback and the constantly evolving market
place and needs of customers and potential customers, Management of the
Company determined that the greatest potential for revenue growth was in
monitoring large networks.
The SMA needed to operate in a distributed manner whereby semi-autonomous
components of the software could be spread across a large network to monitor
network response times from multiple locations, reporting back to a central
console as required, and so scaling to manage up to carrier class networks.
Management made the decision to redesign the service level and mid level
manager to be components of a potentially large distributed system.
Accordingly, the Company has been redesigning Version 2.0 of the SMA to meet
the requirements of distributed and scalable operations. The first significant
distributed components of SMA were made available for customer release at end
of May 1998.
The Company continues to engineer its product to meet the current and evolving
requirements of the telephone and Service Provider companies and plans to
exploit this market through its direct sales operations and through forming
partnerships with major equipment vendors and has recently announced a joint
marketing arrangement with Cisco Systems.
Jyra was chosen during October 1998 by Cisco Systems, from a very competitive
field, to provide and jointly market the Performance Management element of the
Cisco Service Management System, CSM. The Company expended considerable
resource during the quarter in securing this arrangement with Cisco Systems.
Management felt justified in committing resources to this project because of
the enormous potential revenues represented by access to Cisco's Service
Provider and telecommunication company customer base and sales force.
RESULTS OF OPERATIONS
Revenues for the third quarter ended Sept 30, 1998 increased 61% to $190,780
compared to $118,010 for the three months period ended Sept 30, 1997. The
Company's strategy for the third quarter was to exploit our product's
capabilities in the Service Provider space. Specifically, the Company allocated
10
<PAGE>
resources to build a sales alliance with Cisco Systems and establish our
product as the basis of an applications monitoring service that could be
provided by major telecommunications companies to all of their major customers.
The value to Jyra Research of major telecommunications companies as customers
is that, in addition to their purchasing software to monitoring their own
network, it is anticipated that they will sell Jyra's product to each of their
customers to monitor their own networks. It is necessary to install Jyra's
product at each customer location that requires monitoring for application and
network response time. For example, a customer with ten locations would require
the telecommunications company to purchase 11 copies of Jyra's product, one for
each of the customer locations and one for themselves which would act as a
console. The next customer requiring for example only four locations to be
monitored, would require the telecommunications company to purchase a further
five copies of Jyra's product.
One example of the Company's success in the telecommunications sector was with
TeleDenmark. Jyra SMA, competing with a major well established competitor, was
selected by TeleDenmark as the performance management element of TeleDenmark's
next generation service offering. Jyra SMA has been chosen by TeleDenmark
specifically to monitor standard Frame Relay networks and other services in
terms of "Quality of Service" by measuring response times for mission critical
business applications. The Jyra SMA will initially collect usage statistics and
response times experienced by TeleDenmark's major users of frame relay and
other services, as well directly measuring end to end performance. Going
forward, this will be a standard key part of the service offering for
TeleDenmark which they can promote to all of their customers.
Management believes that a typical medium sized European telecommunications
company would have between 100 and 150 customers interested in this kind of
service, most of these would have in excess of 10 locations. The potential to
scale revenues going forward as more telecommunications adopt Jyra as the tool
with which monitor each of their customer networks is significant.
Now that initial sales to this large potential market have been achieved,
Management is confident that the Company has the potential to market its
products globally through major telecommunications companies. However, in order
to exploit this global market, Management believes it is necessary to work with
a major vendor with global resources and an established record in this market.
Management identified Cisco Systems as an ideal company with which to work.
Cisco has a strong and growing presence in the telecommunications space, and
the most effective sales force in the industry. Management assigned specific
executives to work exclusively on achieving an arrangement with Cisco Systems,
and by October 1998 were successful in reaching a joint marketing arrangement
with Cisco Systems. The effect of this is that both Jyra and Cisco sales teams
will position Jyra's product to telecommunications companies as a part of Cisco
Service Management System, (CSM).
Management believes that the joint marketing arrangement with Cisco provides
the Company with the reach and credibility to succeed in becoming a standard
tool among telecommunications companies over the course of next year.
During the third quarter ended Sept 30, 1998 the Company also began to see some
initial results of its efforts to target high-end resellers. The Company was
able in this period to announce a significant arrangement with Siemens whereby
Siemens would resell Jyra's product to major users in Switzerland. Management
believes that Siemens has the technical and sales capability to be an effective
channel to the corporate sector for the Company's product. Siemens have already
installed Jyra product on a trial basis with four major Swiss financial
institutions.
11
<PAGE>
Cisco Systems have also, during the third quarter, chosen Jyra's SMA as
offering value to their next generation web based management system Cisco Works
2000. Jyra provides a connection to Cisco Works 2000 customers with allows them
to monitor performance of e-commerce and web sites.
The Company's sales efforts during this period were focused primarily on
strategic goals, specifically on establishing the relationship with Cisco
Systems, and establishing Jyra SMA as a mainstream service offered by a major
telecommunications company or Service provider. Jyra's sales team was
successful in achieving both of these strategic aims. However, the process
consumed more time and resources than anticipated at the outset and did impact
revenues for the period.
Management believes that the Jyra solution being provided to TeleDenmark and
their customers has universal application among telecommunications companies
and Service Providers.
Management feels that acceptance by the telecommunications industry and
endorsement by Cisco Systems are highly significant and now feel confident in
scaling sales and marketing operations to address a global market.
Research and development expenses decreased 10% to $407,909 for the quarter
ended Sept 30, 1998 compared to $453,895 for the three months period ended
Sept 30, 1997. This decrease in spending was due to a levelling off of capital
equipment purchasing. The Company continued to work on the its existing
development program while expanding its ability to respond to the requirements
of Cisco and its major customers and also continues to update the core of the
product for enhanced scalability.
General and administrative expenses for the quarter ended Sept 30, 1998
increased 62% to $242,221 compared to $149,320 for the quarter ended Sept 30,
1997. This increase in general and administrative expenses was partially due
to the Company's implementation of a Management and Administrative structure to
allow the Company to deal with the anticipated future growth of customer
requirements. In addition during the third quarter expenses were incurred
specifically because of the protracted contractual and technical negotiations
with TeleDenmark and Cisco
Sales and Marketing expenses for the quarter ended Sept 30, 1998 increased 25%
to $199,531 compared to $159,100 for the quarter ended Sept 30, 1997. The
Company's investment in a sales force has allowed the Company both to focus on
the strategic telecommunications sector in preparation for the release of its
version 2 product, and to develop a sales process that takes advantage of the
telephone Company's own sales force and customer base to provide the Company
with the potential to build revenues. In addition the Company incurred expenses
associated with increased sales & marketing and training activities to in
Europe and the US.
Interest income was $10,879 in the third quarter of fiscal year 1998. The
interest was generated from funds held on deposit and fixed term of one month
or less.
Earnings(Loss) per share for the quarter ended Sept 30, 1998 was ($0.05). The
number of weighted average common shares outstanding was 12,906,250.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($2,311,479) for the nine months ended
Sept 30, 1998. The primary expenditure of this cash was to fund the operating
expenses offset against initial revenue adjusted for depreciation, offset by
Prepaid Expenses, Accounts Payable and Accounts receivable.
Net cash used in investing activities was $109,455 for the nine months ended
Sept 30, 1998. These funds were principally invested in additions to property
and equipment.
The Company did not raise any funds through the issue of equity therefore
net cash provided by financing activities was nil.
As of Sept 30, 1998, the Company's principal sources of liquidity included
Cash and cash equivalents, totalling $754,394. In addition the Company made an
investment (5%) in Path 1 Network technologies Inc.(see below). Path 1 Network
Technologies now trades on the OTC Bulletin Board (PNWK). The Company currently
has no outstanding bank borrowings and has no established lines of credit. The
Company believes cash expected to be generated from operations, together with
existing cash and investment balances, should be sufficient to satisfy
operating cash and capital expenditure requirements through the next twelve
months.
Share exchange with Path 1 Network Technologies Inc.
The Company has entered into an agreement dated March 16, 1998 (the
"Agreement") with Path 1 Network Technologies Inc. ("Path 1"). Path 1 was
incorporated on January 30, 1998 under the laws of Delaware. Path 1 is
developing technology to enable existing and new computer, telephone and video
broadcast (including cable TV) networks and systems to each transmit all three
types of information over one line at the same time with excellent quality of
service, and provide expanded capabilities. Path 1's technology will act
as a "traffic cop," prioritizing packet flow, eliminating traffic congestion
and packet collision of digital information. The Agreement allowed for Jyra to
make a strategic investment in Path 1 and for Path 1 to make a strategic
investment in Jyra by Path 1 exchanging its Preferred Stock for common stock of
Jyra. The agreement became effective on April 21, 1998. The Board of Directors
of Path 1 approved the creation of a class of Preferred Stock to be issued upon
the completion of the Path 1 Public Offering in order to fulfil its obligations
under the agreement for the purpose of Path 1 making a strategic investment in
Jyra, and for Jyra making a strategic investment in Path 1. The Preferred Stock
issued to Jyra is non-assignable for 2 years, non-voting and will not bear
interest. After nine months, it will be convertible, at Jyra's option, into
277,018 Shares. The Preferred Stock will be redeemable by Path 1, at its
option, at any time after nine months by Path 1 issuing to Jyra 277,018 Shares.
The Preferred Stock will provide that Path 1 shall neither issue any debt
securities for a period of two (2) years from the completion of the Offering,
nor issue any warrants in connection with an equity financing, without Jyra's
consent, which will not be unreasonably withheld.
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BUSINESS RISKS
The Company's future operating results may be adversely affected by certain
factors and trends of its market which are beyond its control. The market for
Jyra's products is characterized by rapidly changing technology and evolving
industry standards. Jyra believes its future success will depend, in part, on
its ability to continue to develop, introduce and sell new products. The
Company is committed to continuing investments in research and development;
however, there is no assurance these efforts will result in the development of
products for the appropriate platforms or operating systems, or the timely
release or market acceptance of new products.
The Company's results may be adversely affected by the actions of existing or
future competitors including established and emerging computer, communications,
intelligent network wiring, network management and test instrument companies.
New and competitive entrants into the field of network fault and performance
management may come from such diverse entities as established network hardware
companies which have embedded systems in their network hardware and smaller
companies which market their software products as having "network management"
functionality. There can be no assurance Jyra will be able to compete
successfully in the future with existing or future competitors. New entrants,
new technology and new marketing techniques may cause customer confusion,
thereby lengthening the sales cycle process for the Company's products,
particularly the Company's system products. Increased competition may also
lead to downward pricing pressure on the Company's products.
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PART II. OTHER INFORMATION
ITEM 6. Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended Sept 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JYRA RESEARCH INC
(Registrant)
By: /s/ Paul Robinson
____________________
Paul Robinson
President & CEO
November 16, 1998
By: /s/ Roderick Adams
_____________________
Roderick Adams
Chief Financial Officer,
Director (Principal Financial
and Accounting Officer)
November 16, 1998
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