<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, 1999
OR
__
|__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to____________
Commission file number 333-19183
JYRA RESEARCH INC ( A Development Stage Enterprise )
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0167341
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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
------ ------
As of June 30, 1999, there were outstanding 13,116,560 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, 1998, June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
three months ended June 30 1998, June 30 1999
six months ended June 30 1998, June 30 1999
and Cumulative since Incorporation May 2, 1996 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998, June 30, 1999,
and Cumulative since Incorporation May 2, 1996 5 - 6
Consolidated Statement of Stockholders' Equity 7
from Incorporation through June 30, 1999
Notes to Condensed Consolidated Financial
Statements 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 15
Item 3 Quantitative and Qualitative Disclosures 17
about market risk
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Balance Sheet 30-June-99 (unaudited)
Jun 30, 1998 Jun 30, 1999 Dec 31, 1998
<S> <C> <C> <C>
Current Assets
Cash & Cash Equivalents 1,391,525 231,161 554,450
Prepaid Expenses 154,857 76,519 120,766
Accounts Receivable 209,943 135,487 228,787
Other Receivables 0 0 322,500
Total Current Assets 1,756,325 443,167 1,226,503
Property & Equipment
Computers, Equipment & Motor Vehicles 676,901 687,693 696,039
Less Accumulated Depreciation 202,603 357,232 281,039
---------- ---------- ----------
Net Property & Equipment 474,298 330,461 415,000
Other Assets
Available for Sale 166,211 1,059,875 1,059,875
---------- ---------- ----------
Total Assets 2,396,834 1,833,503 2,701,378
========== ========== ==========
Current Liabilities
Accounts Payable 170,895 157,280 184,972
Accruals & Deferred Income 51,903 78,453 167,809
Deferred Taxation on Investments 0 312,782 312,782
Current Portion of Long Term Lease 12,844 24,987 12,844
obligations ---------- ---------- ----------
Total Current Liabilities 235,642 573,502 678,407
Creditors: Amounts Falling due after more than one year.
Long Term Lease Obligations 19,212 26,087 13,893
Stockholders Equity
Common Stock $.001 par value
Authorised 20,000,000 shares
Issued Ordinary Share Capital 6,630 6,840 6,738
Paid in Capital 6,505,263 7,993,805 7,270,155
---------- ---------- ----------
6,511,893 8,000,645 7,276,893
Deficit Accumulated During the
Development Stage (4,333,039) (7,480,745) (5,817,807)
Accumulated other Comprehensive income (36,874) 714,014 549,992
---------- ---------- ----------
Total Stockholders Equity 2,141,980 1,233,914 2,009,078
---------- ---------- ----------
Total Liabilities & Stockholders Equity 2,396,834 1,833,503 2,701,378
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations(unaudited)
Period 1-Jan-99 Through 30-June-99
Cumulative Period 2-May-96(Date of Inception) Through 30-June-99
<S> <C> <C> <C> <C> <C>
Three Months Ended Jun 30 Six Months Ended Jun 30 Inception To
1998 1999 1998 1999 Jun 30, 1999
Revenue 232,442 93,073 263,467 208,455 1,136,559
Total Revenue 232,442 93,073 263,467 208,455 1,136,559
Cost of Revenue 6,291 71 21,928 2,373 42,454
Total Cost of Revenue 6,291 71 21,928 2,373 42,454
Gross Margin 226,151 93,002 241,538 206,082 1,094,105
Operating Expenses
Sales & Marketing Cost 310,806 317,797 590,613 634,841 2,166,676
General & Administration 264,483 182,546 399,400 335,842 2,201,268
Research & Development 362,364 313,921 810,523 622,067 3,702,243
Total Operating Costs (937,653) (814,264) (1,800,536) (1,592,750) (8,070,187)
Other Income/(Expenses)
Taxes other than Income (5,120) (1,020) (5,920) (1,479) (13,122)
Currency Exchange Diff (12,805) (74,543) 32,115 (195,893) (150,436)
Provision for Doubtful 0 0 0 0 (164,699)
Debt
Interest Income 25,698 9,246 63,952 8,045 232,242
Depreciation (45,484) (43,209) (93,791) (86,942) (402,131)
Loss on Disposal of
Motor Vehicles 0 0 0 0 (6,516)
Total Other Income/ (37,711) (109,526) (3,644) (276,269) (504,662)
(Expense)
Loss Before Income Tax (749,214) (830,788) (1,562,642) (1,662,937) (7,480,744)
Provision for Income Taxes 0 0 0 0 0
Net Loss (749,214) (830,788) (1,562,642) (1,662,937) (7,480,744)
Earnings Per Share of Common Stock
Average Shares of 12,902,734 13,090,964 12,896,526 13,054,424
Common Stock Outstanding
Loss per Share of (0.06) (0.06) (0.12) (0.13)
Common Stock
Consolidated Statement of Comprehensive Losses
Three Months Ended Jun 30 Six Months Ended Jun 30 Inception To
1998 1999 1998 1999 Jun 30, 1999
Net Loss (749,214) (830,788) (1,562,642) (1,662,937) (7,480,745)
Foreign Currency 7,767 54,884 (29,422) 164,022 133,132
Translation Adjustment
Unrealised gains on 0 0 0 0 580,882
Securities
Net Loss after (741,447) (775,904) (1,592,064) (1,498,915) (6,766,731)
Foreign Currency
Translation Adjustment
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows (unaudited)
Period 1-Jan-99 Through 30-June-99
Cumulative Period 2-May-96(Date of Inception) Through 30 June-99
Six Months Six Months Cumulative
Jun 30, 1998 Jun 30, 1999 Inception To
Jun 30, 1999
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss (1,562,642) (1,662,937) (7,480,744)
Adjustments To Reconcile Net Loss To Net Cash
Used for Operating Activities:
Depreciation 95,784 76,193 357,232
Decrease/(Increase) in Prepaid Expenses (127,990) 44,247 (76,519)
(Decrease)/Increase in Deferred Income (28,231) (89,356) 78,453
& Accruals
(Decrease)/Increase in Accounts Payable 39,652 (3,355) 208,354
Decrease/(Increase) in Accounts Receivable (157,881) 93,300 (135,487)
Decrease/(Increase) in Other Receivables 0 322,500 0
(1,741,308) (1,219,408) (7,048,711)
Cash Flows From Investment Activities
Purchase/Disposal of
Computers, Equipment & Vehicles (81,846) 8,347 (687,692)
Cash Flows From Financing Activities
Proceeds From The Issuance of Common Stock 0 723,750 7,834,432
Effects of Exchange Rate Changes On Cash (29,422) 164,022 133,132
Net (Decrease)/Increase in Cash & Cash (1,852,576) (323,289) 231,162
Equivalents
Cash & Cash Equivalents at Beginning
of Period 3,244,101 554,450 0
Cash & Cash Equivalents at End of Period 1,391,525 231,162 231,162
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Stockholders' Equity
Period From Inception Through June 30, 1999 (Unaudited)
Deficit
Accumulated Other
Common Stock Paid-in During Comprehensive
Shares Amount Capital Development Income
$ $ $ $
<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 Scrip Dividend
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 Per Share 22,050 22 176,378 - -
Issuance Expenses of Capital Stock - - (176,400) - -
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 12,890,250 6,614 6,339,068 (2,770,397) (7,452)
May 1 Issuance of Common Stock - - - - -
at $10.38 Per Share. 16,000 16 166,195 - -
December 23 Issuance of Common Stock 103,000 103 772,397 - -
at $7.50 Per Share
Stock Issued as Commission
December. 1998 at $7.50 Per Share 5,110 5 38,320 - -
Issuance Expenses of Capital Stock - - (45,825) - -
Net Loss for The Period To 31-December-98 - - - (3,047,410) -
Translation Adjustment
for The Period for Cash - - - - (23,438)
Unrealised gain
on available for sale securities - - - - 580,882
Balance at 31-December-98 13,014,360 6,738 7,270,155 (5,817,807) 549,992
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Other
Common Stock Paid-in During Comprehensive
Shares Amount Capital Development Income
$ $ $ $
<S> <C> <C> <C> <C> <C>
Brought forward Balance as 13,014,360 6,738 7,270,155 (5,817,807) 549,992
at 31- December -98
March 23 Issuance of Common Stock
at $7.50 Per Share. 30,000 30 224,970 - -
Issuance Expenses of Capital Stock - - (11,250) - -
March 31 Issuance of Common Stock 10,000 10 74,992 - -
at $7.50 Per Share
April 6 Issuance of - - - - -
Common Stock
at $7.50 Per Share 11,000 11 82,489 - -
April 12 Issuance of - - - - -
Common Stock
at $7.50 Per Share 7,000 7 52,493 - -
May 19 Issuance of 40,000 40 299,960 - -
Common Stock
at $7.50 Per Share - - - - -
June 6 Issuance of Common Stock
at $7.50 Per Share. 4,200 4 31,496 - -
Issuance Expenses of Capital Stock - - (31,500) - -
Net Loss for The Period - - - (1,662,937) -
to June 30, 1999
Translation Adjustment - - - - 164,022
for the Period for Cash
Balance at June 30, 1999 13,116,560 6,840 7,993,803 (7,480,744) 714,014
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
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, 1998 included in the Company's Form 10K. The results of operations
for the three months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. CASH AND CASH EQUIVALENTS
For purposes of the condensed consolidated balance sheets and statements of
cash flows, the Company considers money market funds and other similar
financial instruments with an original maturity date of three months or less
to be cash equivalents.
C. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares of
common stock outstanding during the period.
D. STOCK OPTION PLAN
The Company has adopted two separate stock option plans. The first is for key
employees and the second for key executives.
Stock option plan for Key Employees
The Plan for key employees was adopted July 20, 1996. The Plan provides for
the granting of incentive stock options as defined in Section 422 of the
Internal Revenue Code, as well as non incentive stock options. All options are
awarded at not less than the market price of the Company's common stock on the
date of grant. Such options expire on the fifth anniversary of the date on
which the option was granted. On March 30, 1997, the original Stock Option
Plan dated July 20, 1996 allowing for the grant of up to a total of 300,000
common shares was amended to allow for the grant of up to a total of 500,000
common shares. The stock option plan has been adjusted for the 100% stock
dividend and allows for the grant of up to a total of 1,000,000 common shares.
8
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont)
During the 2nd quarter 1999, 15,000 shares were granted at an option price per
share of $8.00 to the following schedule:
PERCENT
EXERCISABLE
EXERCISE EVENT
One Year From Grant Date 25%
Two Years From Grant Date 25%
Three Years From Grant Date 25%
Four Years From Grant Date 25%
The number of shares for which options may be granted cannot exceed
1,000,000 shares of the Company's common stock. The Plan shall terminate on
the tenth anniversary of its original effective date, July 20, 1996, after
which no awards may be granted.
At June 30, 1999 there were 939,000 shares under option plan for key
employees.
At June 30, 1999 there were 61,000 shares available for future grants under
the option plan for key employees.
Stock option plan for key executives
The Plan for key executives was adopted Sept 1, 1998. All options are awarded
at not less than the market price of the Company's common stock on the date of
grant. Such options expire on the fifth anniversary of the date on which the
option was granted. The Plan allows for the grant of up to a total of 300,000
common shares.
At June 30 1999, there were 255,000 shares under option plan for key
employees.
At June 30, 1999 there were 45,000 shares available for future grants under
the option plan for key employees.
9
<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 16 and in the Company's
Annual Report on Form 10K for the year ended December 31, 1998 which is on file
with the Securities and Exchange Commission.
Certain Statements contained in this Quarterly Report on Form 10-Q, and the
Annual Report on Form 10-K referred to above, including, without limitation,
statements containing the words "believes", "anticipates", "estimates",
"expects", and words of similar import, constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Readers are referred to the BUSINESS RISKS on Page 16 and the "Financial Risk
Management, "Potential Volatility in Operating Results, "Investments and
Alliances, "Competition", "Research and Development", "Manufacturing",
"Patents, Intellectual Property, and Licensing", "Future Growth Subject to
Risks" and "Other Risk Factors" sections contained within the Annual Report,
which identify important risk factors that could cause actual results to differ
from those contained in the forward looking statements.
BUSINESS (INTRODUCTION)
Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996
under the laws of Delaware. The Company is in the business of designing,
developing, and marketing performance management solutions to (i) provide
a business oriented view of network performance (ii) maximize network
productivity, and (iii) solve network problems caused by the constant increase
in network traffic, combined with the growing complexity of networks. These
problems result in lost revenues, 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.
The Company's executive offices are located at Hamilton House, 111 Marlowes,
Hemel Hempstead, United Kingdom and its telephone number at that location is
+44 1442 403600. The Company can also be reached by visiting its web-site at
http://www.jyra.com. For general inquiries, the reader may also email
[email protected].
Jyra has developed Service Management software for providing direct measurement
of the quality of end-to-end application performance. This allows customers to
effectively deliver robust e-commerce services, implement tangible service
level agreements (SLAs), and to measure the improvements which technology
investment has on user response time and hence business efficiency.
Networking is a multi-billion dollar global market where growth is spurred by
the belief that the Internet is changing the way all people work, live, play
and learn. Over the last year, there has been a key shift in the role of the
Internet and in how the Internet is perceived. What was once a fairly complex
tool used by an elite group of highly technical individuals is now a technology
driving economic change globally by creating new jobs and market opportunities.
Management believes that this trend and the response to this trend by the major
telecommunications operators is the largest factor which will drive future
sales of the Company's distributed application performance management products.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
BUSINESS
HISTORY OF THE DEVELOPMENT OF THE COMPANY'S SERVICE MANAGEMENT SOFTWARE
The Company's Service Management software is a distributed service management
system designed to provide detailed, accurate, views and reports of the service
being delivered to end-users. It is intended that this focus on the end-user
allows the software to be used to monitor both the stability of a network and
to provide measurement of performance based Service Level Agreements. Jyra's
Service Management software comprises Service Level Monitors and Mid-Level
Managers which can 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 Jyra's Service Management software was
released early in 1997, and Version 2.0 of the software was launched in
September 1997. After Version 2.0 of the software was launched the Company
continued to communicate with customers and potential customers to ascertain
how well the software was meeting their needs. Customer feedback showed the
software needed to operate in a distributed manner, whereby semi-autonomous
components could be spread across large networks to monitor network response
times from multiple locations, reporting back to a central console as required.
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 began redesigning Version 2.0 of the software to
meet the requirements of distributed and scalable operations. The first
significant distributed components of the software were planned to be available
for customer release during the second quarter of 1998. Field tests of these
distributed components were conducted with a select group of initial strategic
customers. Jyra's ability to monitor and prove actual application response
times across large networks, facilitates a basis on which telecommunications
companies can bill for improved service and also a means of justifying high
value added data transport services.
During the second half of 1998 the Company had a number of telecommunications
companies at the initial stages of the sales process and had progressed with
one in Switzerland and one in Denmark, to initial customer deployment. The
Company's strategy in focusing on telecommunication companies had provided Jyra
with a number of significant partners. Management believes it can scale its
revenues as these partners deploy Jyra's Service Management software across
their own customer base in the second half of 1999.
The accelerating growth of IP based secure e-commerce services is changing the
requirements of the telecommunications companies as their customers are now
demanding further capabilities to outsource their e-business and e-commerce
systems. This expansion in demand has increased the scale of the opportunity
which the telecommunications companies are now pursuing. A significant factor
in this demand is that performance monitoring has entered the mainstream
corporate conscience with the realisation that business performance is directly
related to network and on-line response times. Jyra's opportunity within the
service provider market consequently has new emphasis. A report by Zona
Research indicates that slow download times may be costing e-commerce merchants
more than $4 billion in lost sales opportunities each year. Management
attribute much of the increased awareness of Jyra's Service Management software
to service providers realising that monitoring e-commerce performance is
central to the range of services they will need to offer to compete in an
increasingly deregulated environment.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
The exploding importance of e-commerce and its critical dependence on network
performance is driving the need for Service Management software. At the Senior
non- technical corporate executives level it is now becoming recognised that
network performance does affect business performance and has raised the
opportunity and justification for Jyra's software. Management is now seeing
this interest translate into revenue during the current third quarter The
Company's forthcoming new release of its Service Management software, scheduled
during September 1999, will incorporate the secure monitoring protocols
necessary for monitoring on-line banking and on-line trading systems.
Management is confident that the mission critical nature of on-line performance
for premium trading services will cause strong demand for its Service
Management software.
CISCO SYSTEMS
In October 1998, the company embarked on a joint marketing agreement with
Cisco Systems which initially targeted European Service Providers.
Management believes this gives the Company the reach and credibility to
succeed in becoming the standard among telecommunications companies. Jyra and
Cisco sales teams are positioning Jyra's Service Management software to
telecommunications companies as a part of Cisco Service Management System,
(CSM).
The Company is extending the areas of joint activity with Cisco Systems. Among
the first of these was the Cisco Enabled Network Solutions (CENS) program. The
CENS program is a key component of Cisco's channel partner enablement strategy,
ensuring that end-users have access to the support required to deploy emerging
technologies, and to address complex network deployments. Through the use of
Jyra in the CENS professional services program, Cisco customers gain a valuable
service and resource view of their IT networks. Jyra's Service Management
software is used by Cisco Professional Services group and CENS participating
partners, to offer specific network performance solutions to major customers.
This program has allowed the Company to extend the range of Cisco teams who can
offer the company's Service Management software to customers. These now also
include the Cisco Network Supported Accounts Group and the Cisco Critical
Accounts Group.
The Cisco-Enabled Network Solutions (CENS) partnership was initiated during the
quarter ended June 30, 1999. Although the initial resulting business did not
start to materialize until the beginning of the current third quarter.
Management is confident that CENS will generate significant revenues for the
company and that CENS customers will extend beyond Europe by the end of the
third quarter. If this program continues to be successful Cisco has discussed
bringing the program to the US market; in so doing it would provide enormous
potential revenue for the company.
RESULTS OF OPERATIONS
As the company's management had anticipated, the availability of Jyra's Service
Management software as an e-commerce monitoring system resulted in a surge in
Industry and Customer interest for Jyra Service Management software in the
quarter ended June 30th 1999. Management was disappointed however that it was
not until the beginning of the current third quarter that this interest
translated to a significant increase in orders in excess of the total for the
second quarter ended June 30,1999. Revenues for the six months ended June
30,1999 was $208,455 compared to $263,467 for the six months ended June 30,
1998. Revenues for the second quarter ended June 30,1999 was $93,073 compared
to $232,442 for the quarter ended June 30, 1998.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
The exploding importance of e-commerce and its critical dependence on network
performance is driving the need for Service Management software. At the Senior
non- technical corporate executives level it is now becoming recognised that
network performance does affect business performance and has raised the
opportunity and justification for Jyra's software. Management is now seeing
this interest translate into revenue during the current third quarter. The
Company's forthcoming new release of its Service Management software, scheduled
during September 1999, will incorporate the secure monitoring protocols
necessary for monitoring on-line banking and on-line trading systems.
Management is confident that the mission critical nature of on-line performance
for premium trading services will cause strong demand for its Service
Management software.
During the quarter ended June 30, 1999 the company expanded its relationship
with Cisco Systems Inc, specifically focusing on network performance services
for major Cisco customers. Management believes that this relationship offers
the best opportunity to build a long-term revenue base both in the enterprise
and service provider market sectors.
Jyra and Cisco have agreed to extend use of the company's software in other
Cisco Groups including the critical accounts group and the network supported
accounts group. These groups typically deal with large customers with rapidly
changing networks.
In addition the company is now also beginning to see results from its joint
marketing efforts with Cisco in the European Service Provider sector,
specifically in the new Application Service Provider (ASP) space. The growth of
Application Service Providers in Europe has been dramatic. PSI-Net, one of the
largest and Europe's fastest growing ASPs, chose Jyra as the basis for its
"paid-for" customer service monitoring. This joint initiative is anticipated to
provide PSINet customers with new performance assured eCommerce services and
opens up the rapidly growing eCommerce market for Jyra's performance monitoring
solutions. PSI-Net raised $1.2 Billion to equip 12 major computer hosting
centers across the globe, the largest of these facilities is in London.
Sales and Marketing expenses for the quarter ended June 30, 1999 increased
2.2% to $317,797 compared to $310,806 for the quarter ended June 30, 1998.
Sales and Marketing expenses for the six months ended June 30, 1999 increased
7.5% to $634,841 compared to $590,613 for the six months ended June 30, 1998.
General and administrative expenses for the quarter ended June 30, 1999
decreased 31% to $182,546 compared to $264,483 for the quarter June 30. 1998.
General and administrative expenses for the six months ended June 30, 1999
decreased 16% to $335,842 compared to $399,400 for the six months ended
June 30, 1998.
Research and Development expenses decreased by 13.4% to $313,921 for the
quarter ended June 30, 1999 compared to $362,364 for the three months period
ended June 30, 1998. Research and Development expenses for the six months ended
June 30, 1999 decreased 23.3% to $622,067 compared to $810,523 for the six
months ended June 30, 1998. This decrease in spending was due to the
replacement throughout 1998 of sub-contractors by permanent staff. The Company
continued to work on its existing development program, and is actively
recruiting additional development staff.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Interest income was $9,246 in the quarter ended June 30, 1999. 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, 1999 was ($0.06). The
number of weighted average common shares outstanding was 13,116,560.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($1,219,408) for the six months ended
June 30, 1999. 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 $8,347 for the six months ended
June 30, 1999. These funds were principally invested in additions to property
and equipment.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended June 30, 1999 the Company sold 62,200 common shares
at $7.50 per share to financial institutions and accredited investors for total
proceeds of $466,500.
As of June 30, 1999, the Company's principal sources of liquidity included
cash, cash equivalents, totalling $231,161. Subsequent to June 30, 1999 the
Company sold 61,000 common shares at $7.50 per share to financial institutions
and accredited investors for total proceeds of $457,500. The Company currently
has no outstanding bank borrowings and has no established lines of credit. The
Company continues to meet its working capital requirements through its product
sales revenue and financing transactions involving the private placement of
equity securities. Management believes that it will have sufficient working
capital to fund current levels of operations through the next 12 month,
assuming the Company receives at least $3 million from product sales and
financing transactions involving the private placement of equity securities.
There can be no assurance the Company will be able to raise the necessary
funds. The Company establishes its expenditure level based upon its
expectations as future revenues and if revenue levels were below expectations
this could cause expenses to be disproportionately high. Therefore, a decrease
in near term demand or insufficient level of equity funding would adversely
affect the Company's results or operations in 1999/2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
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 initial Offering (April 1998 at $0.60
per common share) 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 does not bear interest. The
Preferred Stock can be converted at Jyra's option, into 277,018 Shares. The
Preferred Stock also provided 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.
During the quarter ended June 30, 1999 the Company had an option from a
shareholder of Path1 to acquire 225,640 common shares of Path1 at a price of
$4.00. Subsequent to the quarter ended June 30, 1999 the company assigned the
total option at nil value to a number of non-affiliated parties, prior to the
expiry of the option on July 31, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
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.
It has been widely reported that many major end-user corporations may freeze IT
spending in the second half 1999 as a contingency measure against Y2000 issues.
The company has not directly experienced this problem to date as a reason to
postpone sales, but clearly the risk exists that Y2000 may have an adverse
impact on the company's operating results.
Service provider sales are characterized by long sales cycles and highly
variable quarter-on-quarter revenues. The company's operating results may vary
accordingly.
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Item 3 Quantitative and Qualitative Disclosures about market risk
The Company is exposed to financial market risks, and foreign currency
exchange rates.
International Operations
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 and Europe.
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 favourable 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.
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PART II. OTHER INFORMATION
ITEM 6. Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JYRA RESEARCH INC
(Registrant)
By: /s/ Paul Robinson
____________________
Paul Robinson
President & CEO
August 16,1999
By: /s/ Roderick Adams
_____________________
Roderick Adams
Chief Financial Officer,
Director (Principal Financial
and Accounting Officer)
August 16,1999
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