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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
__
|_X_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 Enterprize )
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(Exact name of registrant as specified in its charter)
Delaware 98-0167341
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HAMILTON HOUSE,111 MARLOWES, HEMEL HEMPSTEAD, HERTFORDSHIRE HP1 1BB UK
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(address of principal executive offices) (Zip Code)
(44) 1442 403600
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, 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. / /
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant on 14 April 1998, was $84,500,000 based on
the closing sales price of the Company's Common Stock as reported on The OTC
Bulletin Board National Market. As of 14 April 1998, the registrant had
outstanding 12,890,250 shares of Common Stock, par value $0.001, of which the
Company believes 7,390,250 are owned by persons other than the Company's
executive officers and members of the Board of Directors and the beneficial
owners of 5% or more of the voting stock of the Company.
<PAGE>
JYRA RESEARCH INC
1997 FORM 10-K REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
ITEM 1. Business
ITEM 2. Properties
ITEM 3. Legal proceedings
ITEM 4. Submission of matters to a vote of security holders
PART II
ITEM 5. Market for the registrant's common equity and related stockholder
matters
ITEM 6. Selected financial data
ITEM 7. Management's discussion and analysis of financial condition and
results of operations
ITEM 8. Financial statements and supplementary data
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosures
PART III
ITEM 10. Directors and executive officers of the registrant
ITEM 11. Executive compensation
ITEM 12. Security ownership of certain beneficial owners and management
ITEM 13. Certain relationships and related transactions
PART IV
ITEM 14. Exhibits, financial statement schedules and reports on Form 8-K
</TABLE>
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This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities 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 and, therefore, the actual
results may 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 contained under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below
and in other reports filed with the U.S. Securities and Exchange Commission
from time to time.
PART I
Item 1. Business.(1)
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.
Background
Over the past ten years corporations have moved rapidly from using mainframe
computers with numerous access terminals to individual personal computers
("PCs"), interconnected by networks. This has resulted in the network traffic
increasing to the point where it outstrips the capacity of the existing
networks.
A corporate network may connect thousands of individual PCs together. The
network, rather than a mainframe computer, now connects all the parts of the
organization together. This resulting increase in network use can result in
increased costs to a company including (i) uncontrolled and unknown network
traffic, (ii) unnecessary telephone costs, and (iii) poor usage accounting.
Management believes there a number of problems with the management of networks
today. One major problem with existing network management systems is their
inability to determine the reason why the link between two PCs is busy, or
which type of traffic is causing the congestion (i.e., processing,
spreadsheets, dealer feeds, games, etc.).
Management believes that another major problem with existing network
management systems is their inability to efficiently and cost-effectively do
anything other than real-time sampling. Real time sampling will only describe
the current state of the system, which immediately after a failure is "down".
Management believes that a real-time view is not effective for long-term
solving or diagnosis.
(1) Reference is made to "Glossary of Terms" at pages 11-13, for description
of terms used in this Annual Report.
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Management believes that existing network management devices are expensive,
while being limited to carrying out a single function. Existing networks
probe devices or network analyzers require other devices for these products to
work most effectively. Accordingly, the cost of deploying these network probes
and related devices can be quite expensive.
Planned Initial Products
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
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.
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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 Services 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.
This meant that 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 begun redesigning Version 2.0 of the SMA to meet
the requirements of distributed and scalable operations. The first significant
distributed components of SMA are planned to be available for customer release
at end of May 1998.
Service Management Architecture
The Service Management Architecture ("SMA") is a distributed network
management architecture designed to provide detailed, accurate overviews of
the network service being delivered to the actual end-user. It is intended
that this focus on the end-user allows the SMA to be used as a tool to ensure
both the integrity of a network and the ability to provide justification of
Service Level Agreements to important customers. By constantly monitoring the
services that are being provided, the SMA is designed to identify weak spots
in the network configuration brought on by hardware failure, congestion, or
other causes.
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The SMA is comprised of:
Mid-Level Manager; and
Service Level Monitor
The SMA mounts on Windows NT 4.0, platform and adheres to industry standards
for SNMPv1 & SNMPv2.Requirements for dedicated PC and workstations are
dependent upon specific traffic and monitoring environments. The SMA provides
a suite of tools and agents to the network manager through an ordinary
browser. These include:
Network equipment availability monitoring;
End-to-end application response time monitoring and trending of today's client
server based applications;
Internet/Intranet/Extranet response time monitoring of HTTP servers and proxy
agents;
Detailed end-to-end network latency monitoring and trending;
Network bottleneck/slow link identification;
Distributed SNMP data collection;
Distributed trap relay;
Standard World Wide Web browser-based configuration and reporting.
Mid-Level Manager
The MLM is the key unit of the SMA. It allows individual agents to be
configured to collect response time data from network devices by distributing
the task across its management architecture. In this way response time data can
be collected from the various Service Level Monitors and summarized into
reports which highlight the pertinent areas of the network.
Service Level Monitor
A Service Level Monitor ("SLM") gathers response time data from networks using
scheduled agents. The SLM has the ability to report the collected data to a
Mid-Level Manager which collates and summarizes the acquired data from multiple
SLMs into hierarchical report structures for accurate pinpointing of network
shortcomings and critical performance areas in large-scale networks.
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Intranet Service Monitor
The Company's Intranet Service Monitor ("ISM"), using Java based agents,
mimics real user behavior when accessing Intranet applications and records its
experience. The ISM is not part of the Service Management architecture but is
designed primarily as a demonstrator rather a commercial tool.
DISTRIBUTION, MARKETING AND CUSTOMERS
Distribution
The Company markets its products to end users in the United States and Europe
both through its direct sales force and authorized resellers. The companies do
not receive sales commissions, but are entitled to purchase at a discount
(relative to suggested end-user prices) for the products, which they resell.
The Company has authorized a number of smaller specialized resellers in the UK
and has recently concluded an agreement with Socrates Inc, who will be the
exclusive marketer of Jyra's software products and applications into key East
Coast markets, where it is already an established supplier of among others
Cisco, Hewlett Packard, and Sun Micro Systems products. This agreement greatly
expands the Company's existing coverage in the USA and broadens the range of
integration services that it can now offer to its software customers.
The Company is subject to the normal risks of conducting business
internationally, including longer payment cycles and greater difficulty in
accounts receivable collection. The Company generally offers 30 day net terms
in the United States, Canada and Europe.
The Company's resellers sell and represent other companies' products which may
be competitive with those of the Company. While the Company encourages these
integrators, and resellers to focus on its products through marketing and
support programs, there is risk they may give higher priority to products of
other suppliers, thus reducing their efforts to sell the Company's products.
In addition, these systems integrators and resellers may not have the
resources to expand their operations to meet increased demand for the
Company's products.
Marketing
The Company's marketing efforts focus on the Company's products and services to
meet customers' changing needs for service performance and fault management.
Some of the programs in which the Company are involved include participation in
industry trade shows, advertising in the trade press, conducting seminars and
electronic marketing through the Internet.
The Company established a sales presence in the United States during April
1997 and attended Interop in Las Vegas, Nevada in May 1997. At this show the
Company publicly launched its first product, the MLM.
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In addition, during May 1997, the Company opened a sales office in San Jose,
California. Initially, the Company hired two people for its United States
operations. As at 15 April 1998 the Company employed 3 people in the United
States. There can be no assurance that the Company will be able to attract
additional qualified salespeople or that any salespeople hired will be
successful. Moreover, there can be no assurance that the Company's products
will be well received or that the United States activities will result in
significant revenues for the Company.
MARKET FOR COMPANY'S PRODUCTS
Because the market for LAN and WAN fault and performance management tools and
systems is subject to changing competitive forces and new functionality in
products, it is difficult for the Company to precisely estimate the
requirements of its customers and, therefore, the size of its potential
market. To date, the Company has sold products to customers primarily in the
following industries - telecommunications and pharmaceuticals.
The market for network monitoring equipment is a result of the general
globalization of business. Corporations are increasing selling, developing
and supporting products at all times, throughout the world. This, in turn,
causes the creation of additional corporate networks.
Management believes there are millions of computers connected to local area
networks around the world. Management also believes that the growth of these
corporate networks will continue to grow rapidly, fueled, in part, by the
growth in the Internet and the telecommunications industry. Management
believes that the market for network monitoring equipment is growing and that
the opportunity exists for new products to find acceptance in the marketplace.
Management believes the market for its products is focused in two major areas
and has recruited a direct sales force, 3 in the USA and 4 in Europe, to target
key organizations in each sector described below.
1). Service Providers: Companies that provide information services, including
telecommunication carriers, Internet Service Providers, cable companies, and
wireless communication providers.
The Company has approached major telecommunications companies in the United
Kingdom and the United States with a view to initiating trials of the
Company's systems in the areas of networking and Internet problem solving.
The Company has trials underway at British Telecom and in January 1998, the
Company's Mid-Level Manager and Service Level Manager were chosen by MCI to
serve as a component in MCI's new Advanced Trouble Analysis Center (ATAC)
service. Jyra receives no revenues for the service sold by MCI to their
customers, but charges MCI for software licenses used in deployed in support
of the service. The Jyra element of the ATAC service is still at an early
stage, and although it is excepted that this service will begin generating
revenue for the Company there can be no guarantee that any significant revenue
will be received.
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2). Enterprises: Large organization with complex networking needs, usually
spanning multiple locations and types of computer systems. Enterprises are
major consumers of network management technology. Networks are crucial to the
success of these companies. Although networks are important strategic assets
for these companies, they also present major risks and constitute major
expenses.
The Company's strategy is to target Enterprises through telecommunications
companies as a delivery channel. Our sales force promotes our products within
an Enterprise but steers the customer towards a telecommunications partner such
as British Telecom or MCI.
However, there can be no assurance that the Company will be able to
successfully market its products to telecommunications companies or that these
companies would distribute the Company's products to their customers.
SUPPORT SERVICES
The Company supports its products domestically on a direct basis and
internationally through a combination of direct support and with the
assistance of systems integrators. The Company currently offers a range of
services, including product support, education and network consulting,
although management expects that its systems integrators will be the primary
providers of services associated with the Company's product range.
The Company's products are typically sold with a support agreement of up to
one year included in the sales price. The Company also offers support
services for its products beyond this initial period, for a fixed fee, through
its support program. Customers whose products are covered under support
agreements receive software updates, phone-in technical support, and various
electronic support options. Warranty costs to date have not been significant.
COMPETITION
Typical customers spend in excess of $250,000 on systems management products,
and an additional $250,000 to make the products perform. Jyra's distributed
approach, once implemented, will allow customers to buy individual components
as required with an entry level solution available from $30,000.
The Company competes for revenue within the network and systems management
market both with established and emerging; computer, communications,
intelligent network wiring, network management and test equipment companies.
The Company offers an alternative to these approaches and has not had its
pricing eroded by direct like for like competition; however there can be no
guarantee that such competition will not appear in the future.
Currently, the primary competitors for the Company's products are Hewlett-
Packard Company ("Hewlett-Packard") and the Tivoli product range from IBM.
IBM and Hewlett-Packard have greater name recognition, more extensive
engineering, manufacturing and marketing organizations and substantially
greater financial, technological and personnel resources than those available
to the Company. Other competitors include Azure Technologies Incorporated,
Netscout Software Development, Inc., Wandel & Goltermann, Inc.,Shomiti
Systems, Inc. and embedded systems companies
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In addition to its current principal competitors, the Company expects
substantial competition from established and emerging computer,
communications, intelligent network wiring, network management, embedded
systems and test instrument companies.
There can be no assurance the Company will be able to compete successfully in
the future with existing or anticipated competitors. Moreover, there can be
no assurance that the Company's products will ever receive commercial
acceptance or that there will ever be any meaningful sales of its products.
Furthermore, new companies may emerge at any time with products that are
superior, or that the marketplace perceives are superior, to the Company's
products. New entrants, new technology and new marketing techniques may cause
customer confusion, thereby lengthening the sales cycle process for the
Company. Increased competition may also lead to downward pricing pressure on
the Company's products.
The LAN and WAN industries are characterized by rapid technological advances
and can be significantly affected by product introductions and market
activities of industry participants.
Competitive pressures from companies which offer lower prices or introduce new
products may, in some instances, result in delayed or deferred purchasing
decisions by potential customers of the Company. Purchase delays or
deferrals by potential customers of the Company's products may require the
Company to reduce its prices. These competitive scenarios could materially
adversely affect the Company's revenues and operating margins.
EMPLOYEES
At December 31, 1997, the Company employed a total of 25 persons, including 5
in sales, marketing and services, 13 in product development and technical
support, and 7 in management, administration and finance. During fiscal year
1997, the vast majority of research and development efforts have been
performed by Company employees rather than outside consultants . None of the
Company's employees are represented by a labor union. The Company has
experienced no work stoppages and believes its employee relations are good.
Competition in the recruiting of personnel in the computer and communications
industry is intense particularly in the research and development and sales
arenas. The Company believes its future success will depend, in part, on its
continued ability to hire and retain qualified management, marketing, sales
and technical employees, of which there can be no assurance.
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LICENSE FROM SUN MICROSYSTEMS
On June 29, 1996, the Company entered into a Technology License and
Distribution Agreement ("Agreement") with Sun Microsystems, Inc. ("Sun").
Under the Agreement, the Company was granted a worldwide non-exclusive license
to develop and distribute products based upon Sun's Java technology (the "Java
Technology"). The Agreement does not prohibit the Company from using technology
which is competitive with Java Technology. Management expects Java Technology
to be a suitable basis for the Company's products and intends to develop the
Company's products based in a large part upon Java Technology.
Pursuant to the Agreement, the Company is required to meet three principal
payment obligations to Sun, consisting of: A. upfront license fees; B. per
unit royalties; and C. support and update fees.
The Agreement is capable of ending either by expiration or termination. The
Agreement is scheduled to expire at the end of its stated initial term of five
(5) years, after which the Company may, at its option, elect to renew the
Agreement for as many as five successive terms of one (1) year each. If the
Agreement ends by expiration of any such term, then, after expiration, the
Company may continue to sell its products incorporating Java Technology as
such technology existed at the time of expiration ,subject always to the
Company's continuing obligation to pay "per unit royalties."
Alternatively, if the Agreement ends by termination (as distinguished from
expiration), the Company would be required to cease selling any products
incorporating Java Technology immediately, at which point the Company would
very likely have no practical alternative but to rewrite its products based
upon alternative technology. There can be no assurance that such alternative
technology would prove equally suitable for the Company's products. It is
possible for either party to terminate the Agreement on grounds of the other
party's breach, or upon grounds stated in the Agreement. The Company also has
the contractual right, at its option, to elect to terminate Agreement for
its convenience effective as early as the end of the second year of the
initial term.
PROPRIETARY RIGHTS AND LICENSES
At the present time, the Company does not own any patents relating to any of
its Products. Management intends to rely primarily upon copyright, trademark
and trade secret laws to establish its proprietary rights in its products.
Because the LAN and WAN industry is characterized by rapid technological
change, the Company will be relying upon its innovative management, technical
expertise, and marketing skills to develop, enhance and market its products.
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Following is a glossary of terms used in this annual report.
GLOSSARY OF TERMS
Access Terminal A screen and keyboard solely to access information;
incapable of independent operation.
Agent A software component that can be loaded into different
parts of the network.
ATM Asynchronous Transfer Mode. A new method of allowing far
greater volumes of data to be passed through a network.
Backbone A series of devices used to guide and direct data
Routers efficiently to its destination by the most appropriate
path.
Bridges Devices that prevent local traffic from being flooded to
an entire network.
Broadcast Any data or signal that is transmitted throughout the
Entire network.
Code Language in which software programs are written.
Control Methods to inhibit the flow of data Mechanisms
communications traffic.
Dealer Feeds Electronic supply of financial market data.
Ethernet A standard that defines the way data is transmitted.
FDDI A standard that defines the way data is transmitted over
fiber optic cable.
Global Network A data communications network that connects interconnects
international operations worldwide.
IBM SNA A standard that defines the way in IBM computers are
connected.
Interface Adapters that connect a device to Modules the network.
Interop A major international trade show attended by leading
Internet and networking technology companies.
LAN Local Area Network. This is a network designed to
interconnect personal computers within a localized
environment by a type of highspeed data communications
arrangement.
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Management General term that refers to any system for administering
System network devices or traffic.
Mbps Millions of bits per second. A measurement of the amount
Of data passed. A bit is the smallest unit of data.
Modern Generic term for new applications that use the network.
Network Current applications are video, image and multi-media
Applications applications.
Network The infrastructure that interconnects computers to one
another.
Novell Netware A widely used network operating system that allows users
to share data.
OEM Original Equipment Manufacturer. An industry term for
equipment originally manufactured by a third party, but
branded and sold by a separate vendor.
On-line Active live connection.
Outsourcers Companies that are responsible for operating and
Maintaining networks on behalf of clients.
Probe A device that is connected to a network for the proper
Monitoring of networks.
Protocols The sets of rules or standards that describe the way in
which traffic is presented to devices on a network.
The most widely used of which are IP (often called
TCP/IP) and IPX (most often used by Novell Netware)
Protocols The ability to breakdown and analyze the way in which
Decoder traffic is presented to a network device.
RMON A standard for describing what should be monitored by a
Network device.
RMON 2 A revision of the RMON standard.
Serial Line Probe devices that monitor the lines that connect serial
Analyzers networks at different locations.
SNMP Simple Network Management Protocol. A Standard for
monitoring network hardware.
TCP/IP A standard that describes the way in which data traffic
is transmitted across a network.
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Trunk A line that connects remote locations over
Telecommunications networks.
Token Ring A form of Local Area Network (LAN).
Traffic The data that passes across a network.
UNIX A standard operating system for computers.
Usage The ability to identify the origin of Accounting traffic
and thereby charge back network costs to the source.
WAN Wide Area Network. A network that connects users via
telecommunications lines.
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ITEM 2. PROPERTIES
The Company's principal executive administrative, marketing and product
development facilities consist of approximately 2,700 square feet in buildings
in Hemel Hempstead, Hertfordshire HP1 1BB England. The Company pays an annual
rental of 23,500 pounds sterling. The lease expires in August 1999. In
addition, the Company is leasing an office in San Jose, California, on a month-
to- month basis, at a rental of $1,800 per month.
ITEM 3. LEGAL PROCEEDINGS
As of 15 April 1998, there are no material legal proceedings pending against
the Company that will have a material adverse effect on the consolidated
financial position, liquidity or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
TRADING MARKET OF COMPANY'S SHARES
The principal trading market for the Company's shares is the National
Association of Securities Dealers Over the Counter Bulletin Board ("OTC
Bulletin Board"), on which the Company's shares have traded since
September 24, 1996. The price range of trading in the Shares, on a quarterly
basis, since that time, is as follows:
<TABLE>
<CAPTION>
OTC BULLETIN
BOARD
1996 Trades Volume
Low |High
<S> <C> <C>
3rd Quarter 0.45 | 0.8125 364,400
4th Quarter 0.75 | 6.00 8,993,000
1997 Trades Volume
Low |High
1st Quarter 3.56 | 12.00 5,512,600
2nd Quarter 7.94 | 10.375 10,053,600
3rd Quarter 6.69 | 16.31 14,917,000
4th Quarter 7.25 | 11.75 5,503,600
1998 Trades Volume
Low |High
1st Quarter 8.50 | 13.50 3,162,800
2nd Quarter 11.19 | 14.13 956,900
(until 14th April 1998)
</TABLE>
Note: OTC Bulletin Board Quotations - The OTC Bulletin Board quotations
represent inter-dealer prices, without mark-ups, commissions, etc., and they
may not necessarily be indicative of actual sales prices.
The last trade of the Shares on the OTC Bulletin Board on 14 April 1998
was $11.4375.
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HOLDERS OF RECORD
As at 14 April 1998 the Company had 33 Holders of Record on its shareholder
register.
DIVIDEND INFORMATION
The Company has never declared or paid cash or other dividends on its Shares
and it is currently the intention of the Company not to declare or pay cash
dividends on its Shares. The payment of cash dividends in the future will
depend on the Company's earnings, financial condition, capital needs and other
factors deemed relevant by the Board, including statutory restrictions on the
availability of capital for the payment of dividends, the rights of holders of
any series of preferred stock that may hereafter be issued and the limitations,
if any, on the payment of dividends under any then-existing credit facility or
other indebtedness. It is the current intention of the Board to retain
earnings, if any, to finance the operations and expansion of the Company's
business.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF INCOME DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C>
Eight months
ended December
1997 1996
---------- ----------
<CAPTION>
Revenues............... . . 392,083 0$
Net income............ ... (2,422,705) (347,692)
Earnings per share..(2).... ... $(0.19) (0.04)
Weighted average common and common 12,587,367 8,876,364
equivalent shares outstanding..
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
<S> <C> <C>
Eight months
ended December
1997 1996
---------- ----------
<CAPTION>
<S> <C> <C>
Working capital............................ $ 3,323,030 3,449,489
Total assets............................... 3,811,266 3,547,695
Long-term obligations............................. 26,335 0
Total stockholders' equity.................... 3,567,833 3,446,701
</TABLE>
(1) Fiscal year 1997 and prior periods reflect the 2-for-1 stock Dividend, in
the form of a stock dividend, approved by the Company's Board of Directors
which was effective Sept 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During 1997 the Company commenced marketing its initial products the MLM and
Service Level Manager and Mid Level Manager.
Revenues for the fiscal year ended December 31, 1997 were $392,083 compared to
the eight months ended December 1996 (5 operating months) revenues of $0.
During the eight months ended December 1996 (5 months of operations) the
Company was purely developing its product range and hence did not generate any
revenue.
During the fiscal year ended December 31, 1997 the Company's revenue
derived from the sale of initial software to a number of international
companies who either own or operate large networks where measuring the quality
of service delivered to the desktop is mission critical in order to remain
competitive. During the fiscal year ended December 31, 1997 the Company's
product was re-engineered in order to meet its larger customers requirements.
The Company built relationships with among others: BT (" British Telecom) and
MCI as described (page 7 - Business) . The Company sees each of these
relationships as strategic, as these accounts have potential to grow
substantially during 1998 as the Company has, subsequent to year end adapted
and scaled its product to meet their initial requirements. The Company expect
that this process will be ongoing and provide new product ranges in the future.
The Company believes that these relationships will position Jyra at
the forefront of the emerging Internet service management market in effect
becoming the enabling technology for new carrier services.
GROSS MARGIN
Cost of revenues consists of manufacturing costs, relating to the packaging
and printing of CD's. Gross margin as a percentage of revenues was 97% for
fiscal year 1997. During the eight months ended December 1996 (5 months of
operations) the Company did not generate any revenue or incur any costs
associated with it. During fiscal year 1997, the Company incurred costs
associated with the sale of software these tend to be considerably lower that
selling Hardware.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $476,336 in fiscal year 1997 compared to
$0 in the eight months ended December 1996. The Company did not establish its
sales operation until the first quarter of 1997 and therefore did not incur any
costs during 1996. The Sales and marketing expenses primarily relates to the
recruitment of experienced sales executives from establish networking
companies, commission expenses and promotional activities required to support
the introduction of the Company's early products.
18
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $1,293,667 in fiscal year 1997
compared to $260,367 in the eight months ended December 1996 (5 months of
operations). As a percentage of revenues, research and development expenses was
329% for fiscal year 1997. The increase in actual spending was a result of
increased staffing and equipment expense to support growth in the Company's
breadth of product and services offerings, in particular in fulfilling the
Company's commitment to build a scalable service management architecture
capable of monitoring a carriers global network operations. Specific carrier
requirements, such as Router to Router response time (Ping MIB) for MCI, and
response time monitoring for Oracle 8 for British Telecom, have also been
staffed for with the result that these important features will be available for
customer release during 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for fiscal year 1997 were $774,051
compared to $194,566 for the eight months ended December 1996 (5 months of
operations). The increase in general and administrative expenses in the fiscal
year was primarily due to increased staffing to support operations. General and
administrative expenses as a percentage of revenues were 197% in fiscal year
1997.
INTEREST INCOME, NET
Interest income, net was $112,576 in fiscal year 1997 compared to $30,336
in the eight months ended December 1996 (5 months of operations). The increase
in interest income is primarily the result of higher balances of cash
equivalents during fiscal year 1997.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share for fiscal year 1997 was ($0.19) per share
compared to ($0.04) per share in the eight months ended December 1996 (5 months
of operations). The number of weighted average common shares outstanding for
fiscal year 1997 was 12,587,367 as compared to 8,876,364 in the eight months
ended December 1996 (5 months of operations)
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company's principal sources of liquidity
included cash, cash equivalents, totaling $3,244,101. The Company currently
has no outstanding bank borrowings and has no established lines of credit. The
Company believes cash to be generated from operations, together with existing
cash and investment balances, will be sufficient to satisfy operating cash and
capital expenditure requirements through at least the next twelve months. The
primary source of these funds was the proceeds from the issuance of common
stock, $2,519,633 in fiscal 1997 and $3,819,405 in fiscal 1996 and revenue from
the sale of the Company's product.
19
<PAGE>
Net cash used in operations in fiscal year 1997 was $2,422,705 compared to
$347,692 in the eight months ended December 1996 (5 months of operations).
Net cash used in investing activities was $490,312 in fiscal year 1997
compared to $104,743 in the eight months ended December 1996 (5 months of
operations). These funds were principally invested in additions to property and
equipment.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
None
BUSINESS RISKS
The following is a summary of risks affecting the business and results of Jyra
Research Inc. ("Jyra" or "the Company") and should be read in conjunction with
the description of the Company's business contained in the other sections of
the Company's Form 10-K for the year ended December 31, 1997 (the "1997 10-K").
FLUCTUATIONS IN PERIODIC RESULTS.
The Company's operating results can vary substantially from period to period
Planned operating expenses are normally targeted to planned revenue levels for
the period and are incurred ratably throughout the period. If expenses remain
relatively fixed, but the Company's revenues are less than planned in any
quarter, Jyra's operating results would be adversely affected for that
quarter. In addition, incurring unplanned expenses could adversely affect
operating results for the period in which such expenses are incurred.
Failure to achieve periodic revenue, earnings and other operating and
financial results as anticipated by brokerage firms or industry analysts could
result in an immediate and adverse effect on the market price of the Company's
common stock. The Company may not discover, or be able to confirm, revenue or
earnings shortfalls until the end of a quarter, which could result in a greater
immediate and adverse effect on the Company's stock price.
20
<PAGE>
PRODUCT DEVELOPMENT.
Jyra's long-term success will depend on its ability to enhance its product
offerings and to introduce new products on a timely and cost-effective
basis which meet the needs of its current and future customers. The Company
remains committed to adding new technologies and products through continued
investments in research and development and through strategic acquisitions.
During fiscal year 1997, the Company announced its SMA Version 2.0 service
management architecture intended to provide enterprise-wide management of
complex heterogeneous client-server environments. The success of the
architecture is dependent on the development of applications to help manage
key areas of interest for users and customer acceptance of those applications.
However, there can be no assurance Jyra will be successful in developing new
products or in enhancing existing products or that new or enhanced products
will meet market requirements. Jyra has, from time to time, experienced
delays in introducing new products. Future delays could adversely impact
acceptance of and revenue generated from the sale of any delayed products.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
The Company's operations are currently headquartered in the United Kingdom,
form where and it also engages in its European marketing effort. United States
sales and marketing are conducted from a separate sales office in San Jose
California. There are certain risks inherent in international operations
including, but not limited to, remote management, unexpected changes in
regulatory requirements, export restrictions, export controls relating to
technology, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates, seasonal reductions in business activity during the summer months in
Europe, and potential adverse tax consequences, which could materially adverse
affect the Company's business, operating results, and financial condition.
COMPETITION.
As described in the Business section of this document, the Company competes
with an array of established and emerging computer, communications, intelligent
network wiring, network management and test equipment companies. Many of these
companies have greater financial, technological and personnel resources than
those of Jyra. The smaller competitors are often willing to offer lower pricing
or other favorable terms for products competitive with those of the Company.
This could result in pressure on the Company to reduce pricing on its products
unless it is able to prevail on the sale by successfully differentiating the
benefits and functionality of the Company's products compared to those of the
competitor. Moreover, new competitors, new technology and new marketing
techniques may cause customer confusion, thereby lengthening the sales cycle
process for the Company's products.
21
<PAGE>
RETENTION OF KEY PERSONNEL.
The Company's ability to achieve its revenue and operating performance
objectives will depend in large part on its ability to attract and retain
technically qualified and highly skilled sales, consulting, technical,
marketing and management personnel. Jyra competes for engineers for
its development organization principally in the London, England area and in the
future within California's Silicon Valley against companies in the networking
industry with far greater resources. It vies for all of its personnel with
other members of the networking product industry, where competition for such
personnel is intense and is expected to remain so for the foreseeable future.
Failure to retain and grow its key employee population could adversely affect
Jyra's business and operating results.
INTELLECTUAL PROPERTY.
The Company relies on a combination of trade secret, copyright, and trademark
laws and contractual provisions to protect its proprietary rights in its
products. There can be no assurance these protections will be adequate or that
competitors will not independently develop technologies that are substantially
equivalent or superior to Jyra's products. There has been a trend toward
litigation regarding patent and other intellectual property rights in
the software industry. Although there are currently no lawsuits pending against
the Company regarding possible infringement claims, there can be no assurance
such claims will not be asserted in the future or that such assertions will not
materially adversely affect the Company's business, financial condition and
results of operation. Any such suit, whether or not having merit, would be
costly to the Company in terms of employee time and defense costs and could
materially adversely affect Jyra and its business, financial condition
and results of operations. If an infringement or misappropriation claim is
asserted against Jyra, the Company may need to obtain a license from
the claimant to use the intellectual property rights. There can be no assurance
that such a license will be available on reasonable terms or at all. Failure to
obtain a license on commercially reasonable terms could materially adversely
affect the Company's business, financial condition and results of operations.
SALES CHANNELS.
The Company has both indirect and direct product resale channels in both the
USA and Europe. The existence of direct and indirect sales channels may lead to
conflict for the same customer, pressure by current and prospective customers
for price reductions on the Company's products and reductions in the Company's
gross margin and operating profit.. For certain countries, the Company
maintains a resale agreement with a single reseller that either has exclusive
distribution rights for the territory or has no other Jyra reseller
competing with it in the territory. The failure of such a reseller to perform
its sales generation and support obligations under the distribution agreement
could adversely affect the Company's revenue from, and reputation with,
customers in the territory.
22
<PAGE>
SUPPLIER DEPENDENCE.
Certain of the Company's products may contain critical components supplied by a
single or a limited number of third parties. The Company may be required to
purchase and inventory certain of the computer platforms around which it
designs its products so as to ensure an available supply of the product for its
customers. Any significant shortage of these platforms or other components or
the failure of the third party supplier to maintain or enhance these products
could lead to cancellations of customer orders or delays in placement of orders
which could materially adversely affect the Company's results of operations. If
the Company's purchase of such components or platforms exceeds demand, the
Company could incur losses or other charges in disposing of excess inventory,
which could also materially adversely affect the Company's operating results.
DEPENDENCE UPON TECHNOLOGY FROM SUN MICROSYSTEMS - JAVA
The Company licenses Java technology from Sun Microsystems. The quality of
this technology can affect the Company's ability to deliver and market its
products in many ways, including, but not limited to, timely delivery of
product to market, quality of finished goods, and market acceptance
of the Company's products. If the Company's agreement with Sun Microsystems is
terminated, the Company would be required to cease selling any products
incorporating Java Technology immediately, at which point the Company would
very likely have no practical alternative but to rewrite its products based
upon alternative technology. There can be no assurance that such alternative
technology would prove equally suitable for the Company's products. It is
possible for either party to terminate the Agreement on grounds of the other
party's breach, or upon grounds stated in the Agreement. The Company also has
the contractual right, at its option, to elect to terminate Agreement for its
convenience effective as early as the end of the second year of the initial
term.
The Company is currently dependent on Sun Microsystems and the other Java
licensees to provide mutually consistent and high quality implementations of
Java for commonly used software platforms such Microsoft Windows 95, Microsoft
Windows NT, and Sun Solaris, and also for Internet browsers such as Microsoft
Information Explorer and Netscape Navigator. This consistency and quality of
implementation did not exist for Java 1.1 within 1997, and there can be no
guarantee that this will be achieved in the future, particularly as this is the
subject of litigation between Microsoft and Sun Microsystems. The impact of
this inconsistency has been and will be to reduce the available market for the
Company's products until additional development resources have been applied to
achieve a consistent and high quality of implementation by other means.
23
<PAGE>
FINANCIAL CONDITION OF COMPANY; DIFFICULTY IN FUNDING OPERATIONS.
Although Management believes it will receive significant revenues from sales of
its products during 1998, there can be no assurance that the Company will be
able to sell any products or ever receive any future revenues. After the
completion of the Company's November 97 Offering, the Company had approximately
$3,500,000 in funds. Management believes that these funds would be sufficient
to fund operations through 1999, assuming the Company receives no other funds
from sales or otherwise. There can be no assurance the Company would be able
to raise any additional necessary funds at that time.
The Company establishes its expenditure level based upon its expectations as to
future revenues and, if revenue levels were below expectations this could cause
expenses to be disproportionately high. Therefore, a decrease near term demand
would adversely affect the Company's results of operations.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------------
<S> <C>
Consolidated Balance Sheets............................... 26
Consolidated Statements of Income......................... 27
Consolidated Statements of Cash Flows..................... 28
Consolidated Statements of Stockholders' Equity........... 29
Notes to Consolidated Financial Statements................ 30
Report of Independent Auditors ................... 38
Report of Independent Public Accountants................... 39
</TABLE>
25
<PAGE>
Consolidated Balance Sheet 31-Dec-97
<TABLE>
<CAPTION>
$ $
31-Dec-97 31-Dec-96
<S> <C> <C>
Current Assets:
Cash & Cash Equivalents 3,244,101 3,398,855
Prepaid Expenses 26,867 50,634
Accounts Receivable (Net of provision 52,062 0
for doubtful debts of $165,425) --------- ---------
Total Current Assets 3,323,030 3,449,489
Property & Equipment:
Computers, Equipment & Motor Vehicles 595,055 104,743
-------- --------
595,055 104,743
Less Accumulated Dep'n 106,819 6,537
-------- --------
Net Property & Equipment 488,235 98,206
Total Assets 3,811,266 3,547,695
Current Liabilities
Accounts Payable 125,463 100,994
Accruals 80,134 0
Current Portion of long term lease obligations 11,501 0
Total 217,098 100,994
Creditors: Amount falling due 26,335 0
after more than one year
Stockholders Equity
Common stock--$.001 par value
Authorized--20,000,000 shares
Issued-12,890,250 shares at December 31, 1997
and 6,276,600 shares at December 31, 1996
Ordinary Share 6,614 6,277
Capital
Paid In Capital 6,339,068 3,819,405
6,345,682 3,825,682
Deficit Accumulated During
The Development Stage (2,770,397) (347,692)
Foreign Currency Translation Adj (7,452) (31,289)
Total Stockholders Equity 3,567,833 3,446,701
Total Liabilities & Stockholders Equity 3,811,266 3,547,695
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE>
Consolidated Statement of Operations
Period 1-Jan-97 Through 31-Dec-97
Cumulative Period 2-May-96(Date Of Inception) Through 31-Dec-.97
<TABLE>
<CAPTION>
Twelve Months Eight months to $
31-Dec-97 31-Dec-96 Cumulative
<S> <C> <C> <C>
Revenue 392,083 0 392,083
------- ------ -------
Total Revenue 392,083 0 392,083
Cost Of Revenue 10,307 0 10,307
------- ------ -------
Total Cost Of Revenue 10,307 0 10,307
------- ------ -------
Gross Margin 381,776 0 381,776
Operating Expenses
Sales & Marketing 476,336 0 476,336
General and Administrative 774,051 194,566 968,617
Research and Development 1,293,667 260,367 1,554,034
--------- -------- ----------
Total operating expenses 2,544,054 454,933 2,998,987
Other Income/Expense
Taxes (15,978) 0 (15,978)
Currency Exchange Differences (82,212) 83,412 1,200
Provision for doubtful debt (164,699) 0 (164,699)
Interest Income 112,576 30,366 142,942
Depreciation (110,114) (6,537) (116,651)
Total Other Income/Expense (260,427) 107,241 (153,186)
Loss Before Income Taxes (2,422,705) (347,692) (2,770,397)
Provision for Income Taxes - - -
Net Loss (2,422,705) (347,692) (2,770,397)
Earnings Per Share Of Common
Stock
Average Shares of Common Stock
Outstanding 12,587,367 8,876,364
Earnings/(Loss) Per Share Of
Common Stock (0.19) (0.04)
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE>
Consolidated Statement Of Cash Flows
Period 1-Jan-97 Through 31-Dec- 97
Cumulative Period 2-May-96(Date Of Inception) Through 31-Dec-97
<TABLE>
<CAPTION>
$ $
Twelve Months Eight months Cumulative
to 31-Dec-97 to 31-Dec-96
<S> <C> <C> <C>
Cash Flows From Operating Activitites
Net Income (Loss) (2,422,705) (347,692) (2,770,397)
Adjustments To Reconcile Net Loss To
Net Cash Used For Operating Activities:
Increase In Depreciation 100,282 6,537 106,819
Decrease/(Increase) In Prepaid Expenses 23,767 (50,634) (26,867)
Increase in Accrued Expenses 80,134 0 80,134
Increase in Accounts Payable 62,305 100,994 163,299
Increase In Accounts receivable (52,062) 0 (52,062)
(2,208,279) (290,795) (2,499,074)
Cash Flows From Investment Activities
Purchase of Computers Equipment (490,312) (104,743) (595,055)
& Vehicles
Cash Flows From Financing Activities
Proceeds From The Issuance Of 2,520,000 3,825,682 6,345,682
Common Stock
Effects Of Exchange Rate
Changes On Cash 23,837 (31,289) (7,452)
Net (Decrease)/Increase In Cash (154,754) 3,398,855 3,244,101
& Cash Equivalents
Cash & Cash Equivalents At Beginning 3,398,855 0 0
of Period
Cash & Cash Equivalents At End 3,244,101 3,398,855 3,244,101
of Period
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE>
Consolidated Statement of Stockholders Equity
Period From Inception Through 31-Dec-97
<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 for Cash - - - - 23,837
Balance At
31-Dec-97 12,868,200 6,592 6,339,090 (2,770,397) (7,453)
</TABLE>
The accompanying notes are an integral part of these financial statements
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996
under the laws of Delaware. The Company designs, develops, manufactures, and
markets its "Service management architecture" (SMA) to (i) measure application
response time, and (ii) identify network problems caused by the constant
increase in network traffic combined with the growing complexity of networks
and network ownership scenarios. These problems result in escalating costs and
major systems failures across the corporate spectrum. Management believes that
current device based network management systems do not have the capability to
effectively deal with these problems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary after elimination of
intercompany accounts and transactions.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts 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.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Substantially all cash accounts are interest bearing.
Property And Equipment
Property and equipment are stated at cost. Major expenditures for property and
those which substantially increase useful lives are capitalized. Maintenance
and repairs are expensed as incurred. Property and equipment are depreciated
using the straight-line method based on the expected useful life.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Per Unit Royalties and Support and Update Fees
The Company follows the policy of charging the costs of per unit royalties and
support and update fees to expense as incurred.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE. Earnings per share are computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Diluted earnings per share are the same as
primary earnings per share.
The Board of Directors authorized a 2-for-1 stock split in the form of a
stock dividend of the Company's $0.001 par value common stock which was
effective September 1997. All references in the accompanying consolidated
financial statements to the number of common shares and per share amounts for
fiscal year 1997 and prior periods presented have been restated to reflect the
stock split.
INCOME TAXES. Income taxes have been provided using the liability method
in accordance with FASB Statement No. 109, Accounting for income taxes.
3. CONCENTRATIONS OF CREDIT RISK
Foreign Currency Translation
Through December 31, 1997, the Company had determined that the U.S. dollar was
the "functional currency" of its operations. All foreign currency asset and
liability amounts were remeasured into U.S. dollars at end-of-period exchange
rates. Foreign currency income and expenses were remeasured at average
exchange rates in effect during the year. Unrealized currency adjustments in
the consolidated balance sheet are accumulated in stockholders equity.
Exchange gains and losses arising from remeasurement of foreign currency-
denominated monetary assets and liabilities were included in income in the
period in which they occur.
Software Development Costs
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, leased or otherwise
marketed, initial costs are charged to operations as research prior to the
development of a detailed program design or a working model. When
technological feasibility is established and before the product is released for
sale, the Company will capitalize the direct costs and allocated overhead
associated with the development of software products. Costs incurred subsequent
to the product release, and research and development performed under contract
will be charged to operations.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
LEASES
Property plant and equipment includes the following amounts for leases that
have been capitalised at December 31st, 1997
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
$ $
Vehicles 47,708 -
Less allowance for amortisation 5,744 -
41,964 -
</TABLE>
Amortisation of leased assets is included in depreciation expenses:
Future minimum payments under capital leases with initial terms of one year or
more consisted of the following at December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
$
1998 15,019
1999 14,888
2000 14,970
Minimum lease payments 44,877
Interest (6,809)
Fees (232)
Present value of net minimum lease payments 37,836
</TABLE>
The Company leases its United Kingdom facilities from a third party. The lease
is for three years at a rental rate of $38,666 per year. The current lease
expires August, 1999. Lease expense for the period ending December 31, 1996 is
$20,141.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has entered into an agreement with another corporation pursuant to
which the Company was granted a worldwide non-exclusive license to develop and
distribute products based upon the Corporation's technology. Also pursuant to
the agreement, the Company is required to meet three principal payment
obligations consisting of: (a) upfront license fees; (b) per unit royalties;
and (c) support and update fees, described as follows:
As an "upfront license fee", the Company has paid $50,000 for the first package
chosen by the Company. For each additional package that may be chosen by the
Company, the Company will be required to pay an additional "upfront license
fee" of $50,000.
In addition, as "per unit royalties", for each of the first 5,000 products
utilizing the Corporation's technology to be sold by the Company, the Company
will be required to pay a royalty of $66 per unit; for each such product in
excess of the first 5,000, the Company will be required to pay a royalty of $20
per unit.
In addition, as "support and update fees", the agreement requires the Company
to pay: (i) $50,000 per year for the period during which the Company is paying
"per unit royalties" of $66; and (ii) $300,000 per year for the period when the
Company is paying "per unit royalties" of $20.
The agreement is capable of ending either by expiration or termination. The
agreement is scheduled to expire at the end of its stated initial term of five
(5) years, after which the Company may, at its option, elect to renew the
agreement for as many as five successive terms of one (1) year each. If the
agreement ends by expiration of any such term, then, after expiration, the
Company may continue to sell its products incorporating the Corporation's
technology as such technology existed at the time of expiration, subject always
to the Company's continuing obligation to pay "per unit royalties".
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Income Tax
The Company's deferred tax assets, deferred tax liabilities and deferred tax
valuation allowances at December 31st are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996
$ $
<S> <C> <C>
Deferred Tax Asset - -
US Federal - -
US State - -
Outside US 600,000 124,000
Total deferred tax asset 600,000 124,000
Less: valuation allowance (600,000) 124,000)
Net deferred tax asset - -
</TABLE>
The deferred tax asset arises due to the net operating loss carry forwards.
Management has based the valuation allowance on the fact that it is in
development stage and because of the risky nature of the industry.
For tax purposes, the subsidiary company has approximately $1,900,000 (1996:
$375,000) of net operating loss carry forwards, which expire in the year 2011
through 2012.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMPENSATION AND BENEFIT PROGRAMS
EMPLOYEE STOCK PURCHASE PLAN.
The Company has adopted the Stock Option Plan (the "Plan") to attract and
retain officers, non-employee directors, employees, and consultants of the
Company or any of its subsidiaries or affiliates. The Plan authorizes the
purchase of up to 1,000,000 shares of Common Stock through the grant of stock
options and awards of restricted stock. The Company has granted options under
the Plan to purchase 904,000 Shares of the Company's Common Stock at varying
exercise prices. The Plan will be administered by either the Board of
Directors or a committee of two or more non-employee directors
("Administrator"). In general, the Administrator will determine which
eligible officers, directors, employees and consultants of the Company may
participate in the Plan and the type, extent and terms of the stock option
grants and awards of restricted
The Company has a stock option plan for key employees of the Company. The Plan
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 nonincentive 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.
Of the 904,000 shares granted, 130,000 are
exercisable according to the following schedule:
PERCENT
EXERCISABLE EXERCISE EVENT
50% On Or After The First
Customer shipment, or
Two Years From Grant
Date, whichever comes first
12.5% One Year From Grant Date
12.5% Two Years From Grant Date
25% Three Years From Grant Date
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION PLAN - CONTINUED
Of the 904,000 shares granted, 629,000 are exercisable
according 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%
Of the 904,000 shares granted, 145,000 are exercisable according to the
following schedule:
PERCENT
EXERCISABLE
EXERCISE EVENT
One Year From Grant Date 50%
Two Years From Grant Date 25%
Three Years From Grant Date 25%
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION PLAN - CONTINUED
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.
Transactions involving the Plan are summarized as follows:
<TABLE
[CAPTION]
[S] [C] [C] [C] [C]
AVERAGE
OPTION PRICE
OPTION PRICE PER
OPTION SHARE SHARES RANGE PER SHARE SHARE
Outstanding (1) At Beginning
Of Period 350,000 0.20 - 3.50 $1.65
Granted 698,000 4.50 - 9.25 $7.99
Exercise - -
Forfeited 144,000 0.20 - 8.50 $3.09
OUTSTANDING AT DECEMBER 31, 1997,
OF WHICH 51,250 ARE
EXERCISABLE AT
DECEMBER 31, 1997 904,000
(1) Fiscal year 1997 and prior periods have been adjusted for the 2-for-1
stock Dividend, in the form of a stock dividend, approved by the Company's
Board of Directors, which was effective Sept 1997.
Because of the development stage nature of the Company, the remaining
disclosures of FASB 123 are not determinable and, therefore, are not included.
37
<PAGE>
Report of Independent Auditors
To: The Shareholders and Board of Directors
Jyra Research Inc
We have audited the accompanying consolidated balance sheet of Jyra Research
Inc (a development stage enterprise) as of December 31, 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended and for the period May 2, 1996 (inception) through December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements as of December 31,
1996, and for the period May 2, 1996 (inception) through December 31, 1996 were
audited by other auditors whose report dated March 10, 1997 expressed an
unqualified opinion on those statements. The financial statements and for the
period May 2, 1996 (inception) through December 31, 1996 include a net loss of
$347,692. Our opinion on the consolidated statement of operations,
shareholders' equity and cash flows for the Period from May 2, 1996 (inception)
through December 31, 1996, is based solely on the report of other auditors.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Jyra Research Inc at December
31, 1997 and the consolidated results of its operations and its consolidated
cash flows for the year then ended and for the period May 2, 1996 (inception)
through December 31, 1997, in conformity with United States generally accepted
accounting principles.
Ernst & Young
Chartered Accountants
Luton, England
15 April, 1998
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS REPORT
BOARD OF DIRECTORS
JYRA RESEARCH INC & SUBSIDARY
London, England
We have audited the accompanying consolidated balance sheet of Jyra Research
Inc. And its Subsidiary as of December 31, 1996, and the related consolidated
statements of operations, stockholders equity and cash flows and the
supplementary information as listed in the Table of Contents for the period
then ended. These consolidated financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements and supplementary
information referred to above present fairly, in all material respects, the
financial position of Jyra Research Inc and its Subsidiary, at December 31,
1996, and the results of its operations and its cash flows for the period then
ended, in conformity with generally accepted accounting principles.
Faw Casson & Co., LLP
Dover, Delaware.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On October 21, 1997, the Registrant engaged Ernst & Young, to act as
the Registrant's independent certified public accountant. Ernst & Young
replaces Faw Casson & Co. LLP who the Registrant terminated its relationship
with on October 20, 1997.
Since the registrant appointed Faw Casson & Co. LLP. on July 8, 1996,
there have been no disagreements with Faw Casson & Co. LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure or any reportable events. The Auditors Report on the
financial Statements for the Registrants first Audited Year End December 31,
1996 prepared by Faw Casson & Co. LLP did not contain any adverse opinion or a
disclaimer of opinion.
The Registrant, due to its desire to operate on an international
basis, especially in the USA and United Kingdom, has concluded that the Company
as a whole would be better served by an accounting firm with international
presence and knowledge of international generally accepted auditing standards
GAAP. Faw Casson & Co LLP is not an international practice and therefore is
unable to fulfil this role without employing additional International
Accountancy Firms. The Registrant believes this to be uneconomical and
ineffective based on the anticipate future need for international advice and
services. At the request of the board members the Registrant terminated its
relationship with Faw Casson & Co. LLP and engaged Ernst & Young.
40
<PAGE>
ITEM 10. Directors and executive officers of the registrant
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Jyra Research Inc and their ages as of 15 April 1998
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
Paul Robinson 35 President, CEO, Chairman
of the Board
Peter Lynch 42 Director, VP - Technology
Roderick Adams 34 Director, VP-Corp. Development
Andy Mulholland 48 Director - Jyra Research Ltd.
Robin Elsom 38 Director - Jyra Research Ltd.
Philip Smith 40 Director
</TABLE>
Paul Robinson has served as Chairman of the Board of Directors,
President, and Chief Executive Officer of the Company since June 3, 1996. In
March 1998 Mr Robinson was appointed as a Director of Path 1 Network
Technologies Inc., a start-up company, which plans to be engaged in the
business relating to computer, telephone and video networks From August 1995 to
October 1, 1996, Mr. Robinson was an Account Manager for Cisco Systems,
handling customers in the United Kingdom financial sector. From 1992 to
August 1995 Mr. Robinson was employed by Biss Ltd. as a new business sales
executive. From 1989 to 1992 Mr. Robinson was a sales executive for Prime
Computers in the United Kingdom. In 1990, Mr. Robinson was transferred to
Thailand where he was sales manager for southeast Asia. Mr. Robinson intends
to spend all of his time on the Company's affairs.
Peter Lynch has served as a director of the Company since its inception
in May 1996. Since 1990 Mr. Lynch has held various management positions with
Wang Biss Ltd. in the areas of system engineering, product marketing, and
regional operations. Mr. Lynch intends to spend all of his time on the
Company's affairs.
Roderick Adams has served as a director of the Company since its
inception in May 1996. . In March 1998, Mr. Adams was appointed as a Director
of Path 1 Network Technologies Inc., a start-up company, which plans to be
engaged in the business relating to computer, telephone and video networks.
Since 1991 Mr. Adams has acted as a consultant to a number of companies
seeking financing. Mr. Adams provides services and advice on corporate
matters including fund raising, listings and quotes, investor and media
relations. Mr. Adams intends to spend all of his time on the Company's
affairs.
41
<PAGE>
Mr. Andy Mulholland has served as a director of Jyra Research Ltd., the
Company's wholly-owned English subsidiary, since January 14, 1997. Since July
1996, Mr. Mulholland has been a divisional director of Cap Gemini UK, part of
Europe's largest computer services business. From 1989, Mr. Mulholland was a
founder and marketing director (executive) of BISS Ltd. In 1993 he was a key
figure in raising more than 5.5 million pounds sterling for a management buy
out of BISS Ltd. BISS Ltd. was subsequently sold to Wang Laboratories, USA in
1995. Mr. Mulholland is an experienced senior manager with strong skills in
strategic, tactical, and management aspects of technology and services
provisions.
Robin Elsom has served as a director of Jyra Research Ltd., the Company's
wholly-owned English subsidiary, since April 6, 1997. Prior to that time, Mr.
Elsom was employed by Wang Laboratories where he reported to the President of
Wang. Mr. Elsom was responsible for developing Service Management
technologies, to be utilized by I-Net, the outsourcing division of Wang. Mr.
Elsom was part of the technology evaluation team which undertook the $250
million acquisition of I-Net in 1996. Previously, Mr. Elsom was a founder
and, from 1991, a Technical Director of BISS Ltd. In 1993, he was one of the
directors who secured funding for, and successfully completed a management buy-
out of, BISS Ltd.
Item 11. EXECUTIVE COMPENSATION.
REMUNERATION
SUMMARY COMPENSATION TABLE *
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
- - -----------------------------------------------------------------
NUMBER OF
NAME YEAR SALARY BONUS OPTIONS
AND PRINCIPAL
POSITION
<S> <C> <C> <C> <C>
Paul Robinson.............. 1997 46,500 0 0
Chairman, Chief Executive
Officer, President
Peter Lynch................ 1997 46,500 0 0
Director, VP-Technical
Roderick Adams.............. 1997 43,000 0 0
Director, VP-Corp.
Development
</TABLE>
* All monetary amounts in this table are in English pounds
sterling.
42
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TITLE OF CLASS NAME OF AMOUNT AND PERCENT
BENEFICIAL OWNER NATURE OF OF
BENEFICIAL CLASS
OWNERSHIP
Common Paul Robinson 1,470,000 11.4%
Direct
Common Peter Lynch 1,470,000 11.4%
Direct
Common Roderick Adams 1,460,000 11.3%
Direct
All executive officers and directors as a group
(3 persons) 4,400,000 34.1%
Common Timothy A.B. Mills 1,100,000 8.5%
Direct
</TABLE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
43
<PAGE>
PART IV
Item 14, Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Financial Statements
See list of financial statements set forth in "Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
(b) Reports on Form 8-K
(1)Form 8-K dated November 14, 1997
Item 4. Changes in Registrant's Certifying Accountant,
This Form 8-K related to the appointment of Ernst &
Young as the Company's Independent auditors.
(2)Form 8-K dated December 5, 1997
Item 9. Sales of Equity Securities Pursuant to
Regulation S.
This Form 8-K related to the sale of securities during
November 1997 pursuant to Regulation S.
(c) Exhibits
3. (i) Articles of Incorporation. Filed as exhibit 3.01 (i)
to Jyra Research Inc. Registration Statement on Form S-1. SEC
File No. 333-19183.
4. (ii) By-Laws. Filed as exhibit 3.01 (ii) to Jyra Research
Inc. Registration Statement on Form S-1. SEC File No. 333-19183.
5. Instruments defining the Rights of Security Holders,
Including Indentures. Reference is made to 3 (ii) above.
10. Material Contracts.
10.01 Amended and Restated Stock Option Plan. Filed as
exhibit 10.01 to Jyra Research Inc. Registration Statement on
Form S-1. SEC File No. 333-19183.
10.02 Technology License and Distribution Agreement
dated July 19, 1996 with Sun Microsystems, Inc. Filed as exhibit
10.02 to Jyra Research Inc. Registration Statement on form S-1.
SEC File No. 333-19183. (Confidential information has been
omitted and filed separately with the SEC).
10.03 Form of Indemnification Agreement of Directors.
Filed as exhibit 10.03 to Jyra Research Inc. Registration
Statement on Form S-1. SEC File No. 333-19183.
44
<PAGE>
10.04 Agreement dated March 26, 1998 between Jyra Research Inc.
and Socrates Inc.
21.01 Subsidiaries of the Registrant.
The only subsidiary of the Registrant is Jyra Research Ltd.,
a corporation organized under the laws of the United Kingdom.
45
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 or 15 (d) OF THE SECURITIES ACT OF
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorised. IN THE TOWN OF HEMEL HEMPSTEAD,
ENGLAND, ON 15 April 1998.
Jyra Research Inc.
By: /s /Paul Robinson/
____________________
Paul Robinson,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
By: /s/ Paul Robinson
____________________
Paul Robinson
President & CEO
15 April 1998
By: /s/ Roderick Adams
_____________________
Roderick Adams
Chief Financial Officer,
Director (Principal Financial
and Accounting Officer)
15 April 1998
By: /s/ Peter Lynch
_____________________
Peter Lynch
Director
15 April 1998
46
<PAGE>
[Jyra Research Inc. San Jose Letterhead]
March 26, 1998
Socrates, Inc.
9301 Peppercorn Place
Largo, Maryland 20774
Distributorship Agreement
Sir or Madam:
This Letter Agreement will confirm the agreement between Jyra Research Inc.
("Jyra") and Socrates, Inc. ("you"), regarding the terms and conditions under
which you will operate as a distributor of computer software of Jyra's line
(the "Line"):
1. Jyra's Representations. Jyra represents to you that:
(a) Jyra is a corporation duly organized and existing under the laws
of the State of Delaware, with its principal place of business at 2880 Zanker
Road, Suite 203, San Jose, California 95134; and
(b) Jyra is in the business of developing and licensing computer
software of the Line throughout the United States of America.
2. Your Representations. You represent to Jyra that:
(a) You are a corporation duly organized and existing under the laws
of the State of Maryland, with your principal place of business at 9301
Peppercorn Place, Largo, Maryland 20774. At the same time as you are
delivering this Letter Agreement, you are delivering to Jyra a current, true,
and complete certificate of good standing certified by the Secretary of State
of the State of Maryland;
(b) You are competent to make all representations and to make and
fulfill all promises which you make in this Letter Agreement; and
(c) You are, and will remain for the term of this Letter Agreement,
a wholly-owned subsidiary of MVSI, Inc. of Vienna, Virginia.
3. Exclusive Distributorship. During the term of this Letter
Agreement:
(a) Jyra grants you the exclusive right to buy from Jyra, for resale
into the "Territory," as that term is defined below, products (including parts
and accessories for such products) of the Lines (the "Products");
1
<PAGE>
(b) You will concentrate your service, promotion, and sales efforts
within the following geographical area (the "Territory"), consisting of five
subterritories (each, a "Subterritory"), as follows:
(i) the "Baltimore Subterritory", which shall mean a circle
having its center at the most central point in Baltimore, Maryland, and a
radius of twenty-five (25) miles;
(ii) the "Newport News Subterritory", which shall mean a circle
having its center at the most central point in Newport News, Virginia, and a
radius of twenty-five (25) miles;
(iii) the "New York Subterritory", which shall mean a circle
having its center at the World Trade Center in Manhattan and a radius of
twenty-five (25) miles;
(iv) the "Philadelphia Subterritory", which shall mean a circle
having its center at Independence Hall and a radius of twenty-five (25) miles;
and
(v) the "Washington Subterritory", which shall mean a circle
having its center at the Capitol Building and a radius of twenty-five (25)
miles.
(c) Jyra will not appoint another distributor located in or
primarily responsible for the Territory or any Subterritory, but Jyra itself
shall be permitted at all times to sell Products in the Territory and any
Subterritory.
4. Prices, Discounts and Conditions of Sale. Jyra's current prices are
as set forth in the Schedule of Current Prices and Available Discounts. Jyra
reserves the right to change its prices at any time, but will not change such
Available Discounts during the term of this Letter Agreement. Jyra's Standard
Conditions of Sale to Distributors (the "Standard Conditions") in effect on the
date of each order will govern your purchases of Products. You represent that
you have read Jyra's presently effective Standard Conditions. You acknowledge
and agree that Jyra's Standard Conditions govern numerous important terms,
including, but not limited to, Jyra's warranty and disclaimers and limitations
thereof.
5. Your Sales, Service, and Reporting Obligations. To Jyra's
reasonable satisfaction, you will:
(a) make purchases of the Products in amounts not less than the
Minimum Purchases specified in the Minimum Purchases Rider attached to this
Letter Agreement, and for Quarter 1 only, pay in full for all Products ninety
(90) days after delivery, provided, that any obligation on Jyra's part to
continue making deliveries will be subject to the Standard Conditions; All
purchases for subsequent quarters shall be paid in cleared funds not later than
the 14th day of the calendar month following receipt of the relevant license
fee or annual support charge from an End-User.
2
<PAGE>
(b) make sales of the Products in amounts not less than the Minimum
Resales specified in the Minimum Resales Rider attached to this Letter
Agreement, and maintain an adequate number of qualified sales personnel and
engage in adequate promotion for that purpose;
(c) refrain from making sales to resellers of the Products;
(d) display and demonstrate reasonable quantities of Products;
(e) operate a fully equipped first-rate demonstration facility
devoted exclusively to the Products and no competitive goods whatsoever at a
location within each Subterritory subject to the reasonable prior approval of
Jyra;
(f) provide (and pay the rent and charges for all reasonable tenant
services for) an office of reasonable size and quality located within your
offices in the Washington Subterritory to be occupied by a systems engineer to
be selected and hired by Jyra to support your trainers and sales staff;
(g) install and service Products in accordance with Jyra's
instructions from time to time;
(h) provide technical support to customers and prospective customers
of the Products by phone from Monday through Friday, 8 a.m. through 5 p.m.,
taking no longer than sixty (60) minutes to return calls;
(i) (for customers of the Products whose single purchase yields less
than $500,000 to Jyra) provide next-day response on-site maintenance from
Monday through Friday, 8 a.m. through 5 p.m.;
(j) (for customers of the Products whose single purchase yields
between $500,000 and $1 million to Jyra) provide four-hour response on-site
maintenance from Monday through Friday, 8 a.m. through 5 p.m.;
(k) (for customers of the Products whose single purchase yields more
than $1 million to Jyra) provide four-hour response on-site maintenance every
day, without exception, Monday through Sunday, twenty-four (24) hours per day;
(l) provide direct training to customers for the Products out of
your offices in Washington and New York and at the customer's site, reasonably
depending upon the size of the business opportunity and the customer's
convenience, and use your reasonable endeavors to persuade your customers to
complete training courses in accordance with Jyra's minimum recommendations
from time to time;
(m) make the Products available to licensees in object code form
only;
(n) refrain from delivering possession of any copies of Products or
Product documentation to any end-user unless accompanied by an end-user
license, and use reasonable efforts to cause each end-user to deliver to Jyra
an end-user license acknowledgement;
3
<PAGE>
(o) supply the Products only to prospective end-users whom you
reasonably believe are responsible and likely to comply with their obligations
under an end-user license;
(p) ensure that only the current versions of the Products supplied
to you from time to time are delivered to end-users, and make any new or
modified versions available to end-users promptly;
(q) if you fail to provide adequate support services to end-users
and Jyra chooses to provide such services on your behalf (after written notice
from Jyra providing you with not less than forty-eight (48) hours' opportunity
to cure), pay to Jyra on demand all reasonable costs and expenses incurred by
Jyra as a result;
(r) at Jyra's request from time to time, demonstrate your compliance
with all Minimum Resale Requirements to Jyra's reasonable satisfaction. Not
more often than once per contract year, Jyra may require you to provide (at
your sole expense) a written certification to Jyra of the results of an audit
performed by an independent certified public accountant subject to Jyra's prior
written approval; and
(s) compensate your sales personnel in connection with sales of all
Products at a rate no less favorable than that applicable to equivalent sales
of products produced by your most favored vendor.
6. Jyra's Support Obligations. Jyra will:
(a) offer you its Intranet Services Monitor ("ISM") for six-month
intervals at a monthly rental rate of $500 per customer per license;
(b) provide you with funding to develop marketing and training
capabilities in connection with the Products, including, but not limited to,
trade show fees, case studies, and promotions, as follows: $5,000 upon
execution of this Letter Agreement, and an additional $5,000 at the end of the
first 90 days of this Letter Agreement (provided, however, that such amount
shall not become payable if either this Letter Agreement is terminated pursuant
to Paragraph or you fail to meet your Minimum Purchase or Minimum Resale
obligations for such period (or both)); for each remaining quarter of the term,
an amount equal to ten (10%) percent of goods which you have purchased and paid
for in full in the immediately prior quarter;
(c) provide you with the following in readily downloadable or
reproducible electronic format:
(i) product description brochures and white papers;
(ii) user guides and system manuals; and
(iii) training tools, including trouble shooting techniques;
(d) cooperate with you in developing seminars and workshops on
network management and the strategic benefits of the Products, provided, that
you will assume primary responsibility and bear most of the expense of each
such endeavor; and
4
<PAGE>
(e) cooperate with you in placing booths that market the Products at
regional conferences and trade shows, provided, that you will assume primary
responsibility and bear most of the expense of each such endeavor.
7. Training of Your Personnel.
(a) During the first three (3) months of the term of this Letter
Agreement, Jyra will provide three (3) training sessions for your personnel in
the installation, implementation, and use of the Products, and will charge you
nothing for such sessions;
(b) Any additional training that your personnel may require will be
provided by Jyra at its site in San Jose in accordance with its standard scale
of charges in force from time to time. If, alternatively, you choose to have
your personnel trained on-site, then you will bear all reasonable travel and
lodging expenses to be incurred by Jyra personnel in connection with such
sessions;
(c) Except as expressly set forth in this Paragraph , each party
will bear all travel and lodging expenses of its respective personnel in
connection with training sessions.
8. Term and Termination.
(a) Subject to Paragraph 8.(b) and Paragraph 8.(d), this Letter
Agreement will commence on March 1, 1998, and will expire one (1) years from
that date;
(b) Subject to Paragraph 8.(d), either you or Jyra may terminate
this Letter Agreement for any reason or for no reason whatever on written
notice to be provided to the other at any time between 90 and 120 days from
March 1, 1998, such termination to be effective upon the giving of such notice.
In the event of such termination, you will, at your own expense, return all
Products to Jyra in exchange for a full refund of the purchase price actually
paid therefor, exclusive of shipping and taxes;
(c) Subject to Paragraph 8.(b) and Paragraph 8.(d), on condition
that you make (and are paid for) Minimum Resales in excess of $1,300,000 during
the first year of this Letter Agreement, then you will have the option to renew
this Letter Agreement for one additional year, during which additional year
your Minimum Resale Requirement shall be $7,500,000. Such option shall be
exercisable upon written notice to Jyra not later than fifteen (15) days
following the end of the first contract year;
(d) Regardless of anything else in this Letter Agreement:
(i) Jyra may terminate this Agreement at any time upon Jyra's
giving you thirty (30) days' written notice in the event of your breach of any
of the terms or conditions of this Agreement.
5
<PAGE>
(ii) In the event that any of the following enumerated
occurrences (each, an "Occurrence") shall occur:
(A) You become (or Jyra reasonably expects you to become)
insolvent;
(B) There are instituted by or against you proceedings in
bankruptcy or under any insolvency law or law
providing for reorganization, receivership or
dissolution; or
(C) You make (or Jyra reasonably expects you to make) an
assignment for the benefit of creditors;
then the term of this Agreement will expire on the earliest of the following
three (3) dates:
(X) the date on which this Agreement would expire under
Paragraph 8.(a), above;
(Y) the effective date of any termination by Jyra under
Paragraph 8. (d)(i) , above; or
(Z) the date occurring six months after the earliest
Occurrence.
(e) Regardless of anything else in this Letter Agreement, after the
expiration or earlier termination of this Letter Agreement, Jyra is hereby
released from any obligation or liability to you. Jyra reserves the right not
to renew this Letter Agreement and not to enter into any other agreement with
you regarding your distributorship. Jyra will not be responsible for any loss
which you may suffer because of the expiration, termination, or non-renewal of
this Letter Agreement or your distributorship.
9. Effect of Expiration or Termination. Upon expiration or termination
of this Letter Agreement:
(a) all rights and obligations of the parties under this Letter
Agreement shall automatically terminate except for such rights of action as
shall have accrued prior to such termination and any obligations which
expressly or by implication are intended to come into or continue in force on
or after such termination;
(b) you will immediately eliminate from all your literature,
business stationery, publications, notices and advertisements all references to
the title "Authorized Jyra Research Dealer" and all other representations of
your appointment under this Letter Agreement;
(c) you will, at your own expense immediately return to Jyra (or
otherwise dispose of as Jyra may instruct) all promotional materials and other
documents and papers whatsoever sent to you and relating to Jyra's business
(other than correspondence between you and Jyra), all property of Jyra, and
all copies of the Products in your possession or control;
6
<PAGE>
(d) each end-user agreement then subsisting shall continue in effect
and shall survive the termination of this Agreement.
10. Warranty to Your Customers.
(a)You will provide to each customer a copy of Jyra's warranty and
limitation of liability provisions in the form furnished by Jyra together with
each Product. You cannot and will not pretend to expand or change any such
warranty or limitation of liability.
(b)You will keep Jyra informed of any claims and complaints from
customers concerning any Product.
11. Trademarks.
(b) Except as provided below, you will not use nor authorize anyone
else to use Jyra's name or trademarks. Any use which you make of Jyra's name
or trademarks will inure to Jyra's sole benefit, and you will accrue no rights
in such name or trademarks. Under no circumstances shall you use any of Jyra's
names or trademarks in your corporate or business name.
(b) Jyra hereby grants you the non-exclusive, nontransferable,
royalty-free right to use Jyra's trademarks JYRA and JYRA RESEARCH and all
related logos, designs and presentations (altogether constituting the
"Trademark") in the Territory in connection with your sale of Products under
this Letter Agreement. In accordance with Jyra's instructions, you will
display the symbols (tm),K, or (r) adjacent to the Trademark at all times.
12. Independent Contractor. You are in no way the legal representative,
agent, or employee of Jyra, and you cannot bind Jyra to any obligation. You
will conduct your business as an independent contractor.
13. Indemnity. You will indemnify and hold Jyra harmless against, and
reimburse Jyra for, any loss, liability, damage (whether actual or
consequential), or taxes, and all reasonable costs and expenses of defending
any claim brought, or tax levied, against Jyra in any judicial, administrative,
or arbitration proceeding in which Jyra is named as a party (including, but not
limited to, reasonable accountants', attorneys', and expert witness fees, costs
of investigation and proof of facts, court costs, other litigation expenses and
reasonable travel and lodging expenses), which Jyra may suffer, sustain, or
incur by reason of, arising from, or in connection with the operation of your
business, except to the extent that any such claim arises out of an unlawful
and intentional act or omission by Jyra, relates to the alleged infringement of
another's trademark by your use of the Trademark pursuant to Jyra's authority,
or is governed by the Standard Conditions in a manner directly contrary to the
terms of this Paragraph .
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14. Jyra's Security Interest in Your Rights.
(a) Jyra hereby reserves, and you hereby irrevocably convey to Jyra,
a valid, enforceable, and perfected security interest in any and all of your
rights under this Agreement, including, but not limited to, any right which you
may have to use the Trademark. This security interest constitutes additional
collateral for your full and timely performance of all of your obligations
under this Letter Agreement and under the Standard Conditions, as they may be
in effect from time to time. The security interest reserved by and conveyed to
Jyra pursuant to this Paragraph is in addition to and not exclusive of any
other rights which Jyra may have under this Letter Agreement, under the
Standard Conditions, or otherwise pursuant to law; and
(b) You will execute and deliver to Jyra such recordable UCC-1
financing statements as may be requested by Jyra from time to time in form,
substance, and number sufficient to perfect first-priority security interests
reserved by Jyra in such jurisdictions as Jyra may from time to time deem
appropriate
15. Allotment of Production. In the event of a shortage of Products
resulting from any cause whatsoever, Jyra will endeavor to make Products
available as ordered to meet your reasonable requirements, but reserves the
right to allot its production as it deems best. You agree that any failure to
supply Products from time to time in the event of any such shortage, or making
only part shipment, or no shipment at all against any order, will not make Jyra
liable or responsible to you to any extent.
16. Choice of Law and Submission to Jurisdiction.
1.
(a) The validity and interpretation of this Letter Agreement will be
governed by and construed and enforced in accordance with the laws of the State
of New York applicable to contracts negotiated and entered into therein.
(b) Jyra and you hereby irrevocably appoint each other their
respective agents for submitting to the jurisdiction of any court located in
the County of New York, New York in any action arising out of any alleged
breach of this Letter Agreement or in any way connected with the subject matter
of, or performance of either party under, this Letter Agreement. Jyra and you
hereby irrevocably agree that any such action will be brought only in such a
court and no other.
17. General.
(a)This Letter Agreement supersedes all prior communications and
agreements, and will be deemed to be complete and will not in any way be
modified or waived except by agreement in writing by a duly authorized
representative of Jyra. A waiver by either party of any of the terms and
conditions of this Letter Agreement at any time or from time to time will apply
only to the particular instance or instances in which such waiver occurs, and
will not affect or impair in any way the further continuance in force of such
terms, conditions, or the right of either party to avail itself of such terms
or conditions in the event of any subsequent breaches.
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(b) Paragraph headings are for purposes of convenience only and are
not intended to form a part of nor to be used for purposes of interpretation of
the text of this Letter Agreement.
(c) Notices under this Letter Agreement must be mailed prepaid by
"certified mail, return receipt requested" or sent by receipted fax
transmission to the addresses shown above for the respective parties. However,
bulletins or other such information published by Jyra from time to time need
not be sent in such manner.
(d) If any provision of this Letter Agreement is for any reason held
invalid or unenforceable, such invalidity or unenforceability will not affect
any other provision or portion of this Letter Agreement. This Letter Agreement
will be construed as if it had never contained the invalid or unenforceable
provision or portion.
(e)The remedies expressly provided for in this Letter Agreement are
in addition to any other remedies which Jyra may have under the Uniform
Commercial Code or other applicable law.
(f) This Letter Agreement will not be effective until duly executed
by an officer of Jyra at its principal office.
(g) Any assignment of any rights under this Letter Agreement without
prior written consent of Jyra by its duly authorized representative will be
void.
If you are in agreement with the above, please sign and return the
enclosed photocopy of this Letter Agreement on or before March 25, 1998, and
this Letter Agreement will become our entire understanding.
Very truly yours,
JYRA RESEARCH INC.
by: /s/ Nigel Williams
Name: Nigel Williams
Office:
READ AND AGREED:
SOCRATES, INC.
by: /s/ James Abadian
Name: James Abadian
Office:
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Minimum Purchases Rider
This Minimum Purchases Rider forms a part of, and is
Subject to, the terms and conditions set forth in the
Letter Agreement between Jyra Research Inc. and Socrates, Inc.
Dated April 15, 1998.
Commencement of Period Close of Period Minimum Purchases
March 1, 1998 May 31, 1998 $100,000
June 1, 1998 August 31, 1998 $50,000
September 1, 1998 November 30, 1998 $100,000
December 1, 1998 February 28, 1999 $100,000
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Minimum Resales Rider
This Minimum Resales Rider forms a part of, and is
Subject to, the terms and conditions set forth in the
Letter Agreement between Jyra Research Inc. and Socrates, Inc.
Dated April 15, 1998.
Commencement of Period Close of Period Minimum Resales
March 1, 1998 May 31, 1998 $100,000
June 1, 1998 August 31, 1998 $150,000
September 1, 1998 November 30, 1998 $350,000
December 1, 1998 February 28, 1999 $700,000
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Schedule of Current Prices and Available Discounts
This Schedule of Current Prices and Available Discounts forms a part of, and is
Subject to, the terms and conditions set forth in the
Letter Agreement between Jyra Research Inc. and Socrates, Inc.
Dated April 15, 1998.
Current Software Prices (List):
Product Price
SLM10 $300 per application service
SLM50 $300 per application service
SLM100 $300 per application service
MLM1000 $8,000
MLM2000 $12,000
ISM $5,000
Cumulative Purchase Discounts (From List):
For each year's purchases from Jyra within each Percentage Discount
of the following brackets:
$0 -$249,999 30%
$250,000 - $749,999 33%
$750,000 - $999,999 35%
$1,000,000 - $1,349,999 41%
$1,350,000 and above 45%
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Large Opportunity Discounts (From List):
Size of Single-Purchase Opportunity Percentage Discount
$0 -$249,999 0%
$250,000 - $499,999 2%
$500,000 - $749,999 4%
$750,000 - $999,999 6%
$1,000,000 - $1,499,999 8%
$1,500,000 and above 10%
