<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__
|_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
__
|__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to____________
Commission file number 333-19183
JYRA RESEARCH INC ( A Development Stage Enterprize )
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0167341
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HAMILTON HOUSE,111 MARLOWES, HEMEL HEMPSTEAD, HERTFORDSHIRE HP1 1BB UK
- ------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
(44) 1442 403600
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
As of June 30,1998, there were outstanding 12,906,250 shares of the
Registrant's Common Stock (par value $0.001 per share).
<PAGE>
FORM 10-Q
INDEX
PAGE
Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997, June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
three months ended June 30, 1997, June 30, 1998,
Six months ended June 30, 1997, June 30, 1998,
and Cumulative since Incorporation May 2, 1996 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1997, June 30, 1998
and Cumulative since Incorporation May 2, 1996 5
Consolidated Statement of Stockholders' Equity 6
from Incorporation through June 30, 1998
Notes to Condensed Consolidated Financial
Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
Item 3 Quantitative and Qualitative Disclosures
about market risk
-(Not applicable)
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET JUNE 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1998 Dec 31, 1997
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 2,096,917 1,391,525 3,244,101
Prepaid expenses 51,976 154,857 26,867
Accounts receivable 227,993 209,943 52,062
---------- ---------- ----------
Total current assets 2,376,886 1,756,325 3,323,030
Property and Equipment, at cost:
Computers, Equipment & Motor Vehicles 400,612 676,901 595,055
Less accumulated depreciation and 45,712 202,603 106,819
amortization
---------- ---------- ----------
Net property and equipment 354,900 474,298 488,236
Investment in Securities 0 166,211 0
---------- ---------- ----------
Total Assets $2,731,786 $2,396,834 $3,811,266
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 91,084 170,895 125,463
Accruals 0 51,903 80,134
Current portion of long term 0 12,844 11,501
lease obligations
---------- ---------- ----------
Total current liabilities 91,084 235,642 217,098
Creditors: Amount falling due after more than one year
Long term Lease obligations 0 19,212 26,335
Stockholders' Equity:
Common stock par value $0.001
Issued :
12,906,250 shares at June 30, 1998
12,890,250 shares at Dec 31,1997
and 6,276,600 at June 30, 1997 6,277 6,630 6,614
Additional paid-in-capital 3,819,405 6,505,263 6,339,068
Deficit Accumulated During the
development stage (1,166,899) (4,333,039) (2,770,397)
Foreign Currency Transaction Adjustment (18,081) (36,874) (7,452)
---------- ---------- ----------
Total stockholders' equity 2,640,702 2,141,980 3,567,833
---------- ---------- ----------
Total liabilities & stockholders' equity 2,731,786 2,396,834 3,811,266
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended Cumulative since
June 30 June 30 Incorporation
May 2, 1996
1997 1998 1997 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Product & Services 226,276 232,442 226,276 263,467 655,550
------- -------- -------- -------- --------
Total Revenues 226,276 232,442 226,276 263,467 655,550
-------- -------- ------- ------- --------
Cost of Revenues:
Product & Services 9,913 6,291 9,913 21,928 32,235
-------- -------- ------- -------- --------
Total Cost of Revenues 9,913 6,291 9,913 21,928 32,235
-------- -------- ------- -------- --------
Gross margin 216,363 226,150 216,363 241,538 623,314
Operating Expenses:
Sales & Marketing 158,010 310,806 158,010 590,613 1,066,949
General and admin 145,002 264,483 319,702 399,400 1,368,017
Research and development 303,267 362,364 530,891 810,523 2,364,557
-------- -------- -------- -------- ---------
Total Operating Expenses 606,279 937,653 1,008,603 1,800,536 4,799,523
-------- -------- -------- -------- ---------
Income from operations (389,916) (711,503) (792,240)(1,558,998)(4,176,209)
Other Income(Expense):
Taxes (ex Income Taxes) 0 (5,120) 0 (5,920) (21,898)
Currency Exchange diff (116,678) (12,805) (59,437) 32,115 33,315
Provision for Doubtful Debt 0 0 0 0 (164,699)
Interest Income 43,739 25,698 70,732 63,952 206,894
Depreciation (26,004) (45,484) (38,262) (93,791) (210,442)
-------- -------- -------- -------- --------
Total other Income
(Expenses) (98,943) (37,711) (26,967) (3,644) (156,830)
Income before provision
for income taxes (488,859) (749,214) (819,207)(1,562,642)(4,333,039)
Provision for Income Taxes 0 0 0 0 0
-------- -------- --------- -------- --------
Net Profit (Loss) (488,859) (749,214) (819,207)(1,562,642)(4,333,039)
-------- -------- -------- -------- --------
Statement of Comprehensive Income
Foreign Currency
Translation Adjustment 128,056 7,768 14,121 (29,422) (36,874)
Comprehensive Income/
(Loss) (360,803) (741,446) (805,086)(1,592,064)(4,369,913)
-------- -------- -------- -------- --------
Earnings Per Share - Basic
and Diluted (0.04) (0.06) (0.07) (0.12)
-------- -------- --------- --------
Weighted Average 12,553,200 12,902,734 12,553,200 12,896,526
Common and Common -------- -------- -------- --------
Equivalent Shares Outstanding
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Six Months Cumulative since
Ended Ended Incorporation
June 30, 1997 June 30, 1998 May 2, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) (819,207) (1,562,642) (4,333,039)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 38,262 95,784 202,603
Decrease/(Increase) in Prepaid Expenses (1,342) (127,990) (154,857)
Increase/(Increase) in accrued Expenses 0 (28,231) 51,903
Decrease/(increase) in Accounts Payable (9,910) 39,652 202,951
Increase in Accounts receivable (227,993) (157,881) (209,943)
--------- -------- ---------
Net cash provided (used) (1,020,190) (1,741,308) (4,240,382)
by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Computers, (295,869) (81,846) (676,901)
Equipment & Vehicles
--------- -------- ---------
Net cash used in investing activities (295,869) (81,846) (676,901)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, 0 0 6,345,682
net of issuance costs
--------- -------- ---------
Net cash from financing activities 0 0 6,345,682
Effects of exchange rate changes on Cash 14,121 (29,422) (36,874)
Net increase/(decrease) in cash and
cash equivalents (1,301,938) (1,852,576) 1,391,525
Cash and cash equivalents at 3,398,855 3,244,101 0
beginning of period --------- --------- ---------
Cash and cash equivalents at 2,096,917 1,391,525 1,391,525
end of period -------- --------- ---------
-------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCORPORATION THROUGH JUNE 30, 1998 (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Foreign
Common Stock Paid-In During Currency
Shares Amount Capital Development Translation
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Balance At Inception - - - - -
Net Loss from 2-May-96
To 31-Dec-96 - - - (347,692) -
Issuance of Common Stock
to 31-Dec-96 Public And Private
Offerings:
May, 1996 At
$.001 Per Share 2,750,000 2,750 - - -
August, 1996
At $.40 Per Share 2,392,500 2,393 954,607 - -
December, 1996
At $3 Per Share 1,000,000 1,000 2,999,000 - -
Stock Issued As
Commissions:
August, 1996
At $.40 Per Share 91,000 91 36,309 - -
November, 1996
At $3 Per Share 43,100 43 129,257 - -
Issuance Expenses
Of Capital Stock - - (299,768) - -
Translation Adjustment
For The Period - - - - (31,289)
Balance At ---------------------------------------------------------
31-Dec-96 6,276,600 6,277 3,819,405 (347,692) (31,289)
September 8,1997
Script Div Share
Issue 1 for 1 6,276,600
November 25 Issuance
of Common Stock
at $8 Per Share 315,000 315 2,519,685
Stock Issued As
Commissions:
November 1997
At $8.00 Per Share 22,050 22 176,378 - -
Issuance Expenses (176,400)
of Capital stock
Net Loss For The
Period To 31-Dec-97 - - - (2,422,705) -
Translation Adjustment
For The Period - - - - 23,837
Balance At ------------------------------------------------------------
31-Dec-97 12,890,250 6,614 6,339,068 (2,770,397) (7,452)
Issuance of Common
Stock at $10.38 16,000 16 166,195
Net Loss For The
Period To 30-June-98 - - - (1,562,642) -
Translation Adjustment
For The Period - - - - (29,422)
Balance At ------------------------------------------------------------
30-June-98 12,906,250 6,630 6,505,263 (4,333,039) (36,874)
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Jyra Research Inc ("Jyra" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 1997 included in the Company's Form 10K. The results of operations
for the three months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. CASH AND CASH EQUIVALENTS
For purposes of the condensed consolidated balance sheets and statements of
cash flows, the Company considers money market funds and other similar
financial instruments with an original maturity date of three months or less
to be cash equivalents.
C. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares of
common stock outstanding during the period.
D. STOCK OPTION PLAN
The Company has 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 non incentive stock options. All options are awarded at not less than the
market price of the Company's common stock on the date of grant. Such options
expire on the fifth anniversary of the date on which the option was granted.
On March 30, 1997, the original Stock Option Plan dated July 20, 1996 allowing
for the grant of up to a total of 300,000 common shares was amended to allow
for the grant of up to a total of 500,000 common shares. The stock option plan
has been adjusted for the 100% stock dividend and allows for the grant of up to
a total of 1,000,000 common shares.
7
<PAGE>
During the 2nd quarter 1998, 10,000 shares were granted at an option price per
share of $8.50 and 20,000 shares were granted at an option price per share of
$7.75 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%
80,000 shares were granted at an option price per share of $7.75 to the
following schedule:
PERCENT
EXERCISABLE
EXERCISE EVENT
One Year From Grant Date 33 1/3%
Two Years From Grant Date 33 1/3%
Three Years From Grant Date 33 1/3%
The number of shares for which options may be granted cannot exceed
1,000,000 shares of the Company's common stock. The Plan shall terminate on
the tenth anniversary of its original effective date, July 20, 1996, after
which no awards may be granted.
At June 30, 1998 there were 974,000 shares under option.
At June 30, 1998 there were 26,000 shares available for future grants under
the Plan.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
section 27A of the Securities and Exchange Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which reflect the
Company's current judgement on those issues. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause the
actual results to differ materially. Important factors which could cause
actual results to differ materially are described in the following paragraphs
and are particularly noted under BUSINESS RISKS on page 13 and in the Company's
Annual Report on Form 10K for the year ended December 31, 1997 which is on file
with the Securities and Exchange Commission.
Business.
The Company was incorporated on May 2, 1996 under the laws of Delaware. The
Company is in the business of designing, developing, and marketing computer
network management systems to (i) maximize network productivity, (ii) minimize
network downtime, and (iii) solve network problems caused by the constant
increase in network traffic, combined with the growing complexity of networks.
These problems result in escalating costs and major systems failures across
the corporate spectrum. Management believes that current network management
systems do not have the capability to effectively deal with these problems.
Initially, during 1997 the Company planned to design a range of portable
software tools and centralized systems that would combine advanced protocol
decode and expert analysis capabilities. These tools were planned to
facilitate identification, diagnosis and resolution of network problems.
The Company's planned initial products had diagnostic and service level
monitoring components and are listed below:
PRODUCT APPLICATION
1. Mid-Level Manager Service Level Monitoring
2. Diagnosis Pack Diagnostic
3. Analysis Pack Diagnostic
4. Probe Diagnostic
5. Service Level Manager Service Level Monitoring
As the Company began detailed design work for each of the products listed
above, the Company shared its plans with a number of its major potential
customers, in order to obtain their input at an early stage. The Company
learned from this input and from its own research that customer demand was
much stronger for service level monitoring products than it was for diagnostic
products. In particular, Management of the Company believed that the demand
for products that monitored network performances in support of commercial
service level agreements would be much greater than purely diagnostic devices.
Accordingly, Management emphasized development of the Mid-Level Manager and
Service Level Manager and launched an initial version of the Mid-Level Manager
during the second quarter of 1997. The Mid-Level Manager was designed to
9
<PAGE>
provide an interface between the raw statistics gathered at a probe and the
presentation layer software used to display this data. The Mid-Level Manager
supports (i) RMON data capture interface, allowing data capture from existing
RMON probes, and (ii) SNMP data capture interface allowing data capture from
existing SNMP devices. At the present time the Company is not expending any
material resources on the development of the Diagnosis Pack, Analysis Pack or
Probe.
Version 1.0 of the Mid-Level Manager was purchased, in small quantities, by,
among others, MCI, Glaxo and British Telecom.
The Service Level Manager initially focused on measuring and reporting on
response time as experienced by network users.
Throughout 1997 Management of the Company continued to work closely with major
potential customers, particularly telecommunications companies, to learn more
about their needs, with a view towards incorporating their requirements in the
Company's products. This process resulted in the Company arriving at the
concept of a Service Management Architecture ("SMA"). SMA is an architecture
in which multiple Service Level Managers and Mid-Level Managers act as a
single distributed system reporting on network response time, or network
performance, as experienced by users at different locations. The initial
version of the SMA was released in the third quarter of 1997, and Version 2.0
of the SMA was launched in September 1997.
After Version 2.0 of the SMA was launched the Company continued to communicate
with customers and potential customers to ascertain how well the product was
meeting their needs. Based upon feedback and the constantly evolving market
place and needs of customers and potential customers, Management of the
Company determined that the greatest potential for revenue growth was in
monitoring large networks.
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 been redesigning Version 2.0 of the SMA to meet
the requirements of distributed and scalable operations. The first significant
distributed components of SMA were made available for customer release at end
of May 1998.
RESULTS OF OPERATIONS
Revenues for the second quarter ended June 30, 1998 were $232,442 compared to
$226,276 for the three months period ended June 30, 1997. In the Company's
December year end 1997 audited accounts, included in the Company's 10K, the
Company allowed and acknowledged that subsequent to the three months period
ended June 30, 1997 approximately $160,000 in revenue from a distributor in the
United Kingdom recorded during such 3 month period had to become a doubtful
debt and full provision was made at the December year end 1997.
During the second quarter ended June 30, 1998 the Company's revenue derived
from the sale of its software that was made available for customer release at
end of May 1998, initially to its target market of telecommunications companies
and high end resellers. Jyra's objective is to service its market initially
through these two primary channels. The Company's strategy for
telecommunications companies continues to be, to encourage them to deploy
10
<PAGE>
Jyra's service monitoring agents at their customers' sites, and to offer
their customers value added services based on monitoring customers' mission
critical applications. Value added resellers, such as Siemens, offer Jyra's
products to corporate users who in turn use it to monitor their own
applications.
The Company implemented its strategy during the first quarter primarily by
encouraging telecommunications companies to begin piloting and testing Jyra's
product, with a view to developing new customer service offerings around Jyra's
service level reporting tools. This strategy has been successful in engaging a
significant number of European telephone companies to begin testing and
piloting Jyra's product. The testing and piloting phase is the first step in a
process in which Jyra engages telephone companies with a view to having them
deploy Jyra's product, initially in a limited way to customers on a trial basis
and subsequently it is hoped more widely to all of their corporate customers.
The Company now has a number of telecommunications companies at the initial
stages of the process and has progressed with one in Switzerland and one in
Denmark, to the initial customer deployment. The Company's strategy in focusing
on telecommunication companies has provided Jyra with a number of significant
partners with whom it is hoped the Company can scale its revenues as they
deploy product across their own customer base. In order to partner with these
kinds of companies Jyra took the decision at the beginning of the year to
develop and engineer its Version 2 product to meet the telephone company
requirements of distributed monitoring and scalability. The Company's
Management now feels confident that it has a product set that can be delivered
through a scaleable business model involving telecommunications companies, and
high end value added resellers such as Siemens Nixdorf Informationssysteme AG,
Switzerland. The Company's ability to attract significant telecommunications
partners and established companies such as Siemens is encouraging and
management believes provides a strong basis for future sales growth.
Research and development expenses increased 19% to $362,364 for the quarter
ended June 30, 1998 compared to $303,267 for the three months period ended
June 30, 1997. This increase in spending was due to increased staffing cost.
The Company continued to expand its technical components of its Architecture,
while moving to broaden the range of applications available. In addition to
continued work on the Company's existing development program, the Company is
expanding its ability to respond to the requirements of networking equipment
manufacturers, and also continues to update the core of the product for
enhanced scalability.
General and administrative expenses for the quarter ended June 30, 1998
increased 82% to $264,483 compared to $145,002 for the quarter ended June 30,
1997. This increase in general and administrative expenses was primarily due
to the Company's implementation of a Management and Administrative structure to
allow the Company to deal with the anticipated future growth of customer
requirements.
Sales and Marketing expenses for the quarter ended June 30, 1998 increased 97%
to $310,806 compared to $158,010 for the quarter ended June 30, 1997. The
Company's investment in a sales force has allowed the Company both to focus on
the strategic telecommunications sector in preparation for the release of its
version 2 product, and to develop a sales process that takes advantage of the
telephone Company's own sales force and customer base to provide the Company
with the potential to build revenues.
11
<PAGE>
Interest income was $25,698 in the second quarter of fiscal year 1998. The
interest was generated from funds held on deposit and fixed term of one month
or less.
Earnings(Loss) per share for the quarter ended June 30, 1998 was ($0.06). The
number of weighted average common shares outstanding was 12,902,734.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($1,741,308) for the six months ended
June 30, 1998. The primary expenditure of this cash was to fund the operating
expenses offset against initial revenue adjusted for depreciation, offset by
Prepaid Expenses, Accounts Payable and Accounts receivable.
Net cash used in investing activities was $81,846 for the six months ended
June 30, 1998. These funds were principally invested in additions to property
and equipment.
The Company did not raise any funds through the issue of equity therefore
net cash provided by financing activities was nil.
As of June 30, 1998, the Company's principal sources of liquidity included
Cash and cash equivalents, totalling $1,391,525. The Company currently has no
outstanding bank borrowings and has no established lines of credit. The
Company believes cash expected to be generated from operations, together with
existing cash and investment balances, should be sufficient to satisfy
operating cash and capital expenditure requirements through the next twelve
months.
Share exchange with Path 1 Network Technologies Inc.
The Company has entered into an agreement dated March 16, 1998 (the
"Agreement") with Path 1 Network Technologies Inc. ("Path 1"). Path 1 was
incorporated on January 30, 1998 under the laws of Delaware. Path 1 is
developing technology to enable existing and new computer, telephone and video
broadcast (including cable TV) networks and systems to each transmit all three
types of information over one line at the same time with excellent quality of
service, and provide expanded capabilities. Path 1's technology will act
as a "traffic cop," prioritizing packet flow, eliminating traffic congestion
and packet collision of digital information. The Agreement allowed for Jyra to
make a strategic investment in Path 1 and for Path 1 to make a strategic
investment in Jyra by Path 1 exchanging its Preferred Stock for common stock of
Jyra. The agreement became effective on April 21, 1998. The Board of Directors
of Path 1 approved the creation of a class of Preferred Stock to be issued upon
the completion of the Path 1 Public Offering in order to fulfil its obligations
under the agreement for the purpose of Path 1 making a strategic investment in
Jyra, and for Jyra making a strategic investment in Path 1. The Preferred Stock
issued to Jyra is non-assignable for 2 years, non-voting and will not bear
interest. After nine months, it will be convertible, at Jyra's option, into
277,018 Shares. The Preferred Stock will be redeemable by Path 1, at its
option, at any time after nine months by Path 1 issuing to Jyra 277,018 Shares.
The Preferred Stock will provide that Path 1 shall neither issue any debt
securities for a period of two (2) years from the completion of the Offering,
nor issue any warrants in connection with an equity financing, without Jyra's
consent, which will not be unreasonably withheld.
12
<PAGE>
BUSINESS RISKS
The Company's future operating results may be adversely affected by certain
factors and trends of its market which are beyond its control. The market for
Jyra's products is characterized by rapidly changing technology and evolving
industry standards. Jyra believes its future success will depend, in part, on
its ability to continue to develop, introduce and sell new products. The
Company is committed to continuing investments in research and development;
however, there is no assurance these efforts will result in the development of
products for the appropriate platforms or operating systems, or the timely
release or market acceptance of new products.
The Company's results may be adversely affected by the actions of existing or
future competitors including established and emerging computer, communications,
intelligent network wiring, network management and test instrument companies.
New and competitive entrants into the field of network fault and performance
management may come from such diverse entities as established network hardware
companies which have embedded systems in their network hardware and smaller
companies which market their software products as having "network management"
functionality. There can be no assurance Jyra will be able to compete
successfully in the future with existing or future competitors. New entrants,
new technology and new marketing techniques may cause customer confusion,
thereby lengthening the sales cycle process for the Company's products,
particularly the Company's system products. Increased competition may also
lead to downward pricing pressure on the Company's products.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JYRA RESEARCH INC
(Registrant)
By: /s/ Paul Robinson
____________________
Paul Robinson
President & CEO
August 17, 1998
By: /s/ Roderick Adams
_____________________
Roderick Adams
Chief Financial Officer,
Director (Principal Financial
and Accounting Officer)
August 17, 1998
15
