JYRA RESEARCH INC, 10-K, 1999-03-31

JYRA RESEARCH INC
10-K, 1999-03-31
COMPUTER COMMUNICATIONS EQUIPMENT

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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, 1998

__
|__| 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 26 March 1999, was $82,000,000 based on
the closing sales price of the Company's Common Stock as reported on The OTC
Bulletin Board National Market. As of 26 March 1999, the registrant had
outstanding 13,014,360 shares of Common Stock, par value $0.001, of which the
Company believes 8,614,360 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.

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JYRA RESEARCH INC.

1998 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 7a Quantitative and Qualitative disclosure about market risk
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

(1) Reference is made to "Glossary of Terms" at pages 18-20, for description
of terms used in this Annual Report.

ITEM 1. BUSINESS

Certain Statements contained in this Annual Report on Form 10-K, 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 "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 herein, which identify important risk
factors that could cause actual results to differ from those contained in the
forward looking statements.

GENERAL

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 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.

Jyra has developed a Service Management Architecture for providing a
verifiable measurement of the quality of end-to-end application performance
experienced by users connected through corporate networks or via the Internet.
This allows customers to effectively deliver robust e-commerce solutions,
implement tangible service level agreements (SLAs) and to measure their return
on network investment against performance achieved. Networking is a multi-
billion dollar global market whose growth is spurred by the belief that the

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Internet is changing the way people all 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.

The Company markets its products through its direct sales force to public
network operators and other IT service providers, and to corporate customers
through IT system integrators and consultancies ("resellers"). 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].

STRATEGY

Jyra's strategy is to provide end-to-end distributed application performance
management products to help its customers improve productivity and gain
competitive advantage through realizing greater value from their investments
in networking products and services.
The Company's current product line is a single range of distributed
application and network performance monitoring products called the "Service
Management Architecture".

SERVICE MANAGEMENT ARCHITECTURE

The SMA is a distributed network management architecture capable of providing
detailed, accurate overviews of the network service being delivered to the
actual end-user. It is this focus on the end-user that allows the SMA to be
used as a tool to ensure both the integrity of the network and the ability to
provide justification of Service Level Agreements to customers - be they
internal or external. By persistently monitoring the services that are being
provided the SMA can identify weak spots in the network configuration, brought
on by hardware failure, congestion, or other causes.

Key features of SMA include:
* All web-based configuration and reporting - manage from anywhere
* Remote summarization and thresholding to reduce network traffic
* Reliable alerting to upstream management stations
* Automated update of remote agents based on configuration to reduce
network management workload
* Easy integration into HP and Cisco management solutions.
This section gives a summary of each of the products available from Jyra. All
the products are developed in the Java language providing innovative,
platform-independent network management solutions for the users of today's
increasingly powerful and flexible computer networking environments.

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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. The SMA is comprised of: the
Mid-Level Manager; and the Service Level Monitor. The SMA mounts on the
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; and Standard World Wide Web browser-based
configuration and reporting.

Mid Level Manager (MLM)

The MLM is the key unit of the Jyra Service Management Architecture (SMA). It
allows individual agents to be configured en-masse to collect response time
data against application services by distributing the tasks across its
management architecture. In this way response time data can be collected from
the various SLMs (see below) and summarized into reports that highlight either
geographical or service-specific issues. The distributed nature of the
management system allows all networks, regardless of size, to be managed
effectively and efficiently without impacting user response time to the
available services.

Service Level Monitor (SLM)

An SLM gathers remote application response time data for a network using
scheduled Java agents, and carries out local summarization against the
business reporting categories defined by the manager. It tests the response
time data against configured thresholds and forwards any threshold events
reliably through the MLM to upstream management stations. The SLM can also be
responsible for local reporting, further reducing the workload and network
traffic. Furthermore it has the ability to report the collected data to a Mid
Level Manager (MLM) which collates and summarizes the acquired data from
multiple SLMs into higher-level report structures for accurate pinpointing of
network shortcomings and critical performance areas in large-scale networks.
The SLM also includes support for distributed SNMP data collection.

Jyra HP OpenviewTM* Plug-In

The Jyra HPOV plugin allows the systems manager to have an application
performance management view of the network alongside the traditional SNMP
polled view in a familiar format, maintaining the value of their investment in
HP Openview.

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Intranet Service Monitor (ISM)

The Company sold the Jyra Intranet Service Monitor (ISM) in 1998 as a
standalone monitoring solution for Internet Service Providers. It is no longer
offered for sale. Existing customers are in the process of being upgraded to
the distributed MLM/SLM solution. The Company may re-introduce a standalone
entry-level monitoring solution during 1999.

CUSTOMERS AND MARKETS

Management believes that the Company's market is best described as the end-to-
end application performance management market, and believes that this market
for additional management solutions will grow rapidly for three reasons:
1) the growth in importance to enterprise customers of Internet e-commerce,
2) the competitive market for telecommunications services that has resulted
from deregulation, and 3) the standardization driven by the growth of the
Internet.
This market has recently been described by Bear Stearns as the "Business
Oriented Network Management" market and a preliminary forecast by IDC
(International Data Corporation) suggested that this market would grow at 70%
per year to $3.1B worldwide by the year 2001 whilst the growth rate of
traditional network management tools was forecast to decrease. Jyra is a
founder member of the Application Performance Management Forum which was
established in January 1999 to increase potential customer recognition of this
market sector.
The market for LAN and WAN fault and performance management tools and
systems is subject to changing competitive forces and new functionality in
products; therefore, 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, information providers and
pharmaceuticals. The market for network monitoring equipment is a result of
the general globalization of business. Management believes that the market for
end-user oriented network management equipment is growing and that the
opportunity exists for new products to find acceptance in the marketplace.
Management has limited forecasting resources, and cannot guarantee that this
market growth will actually occur, or that the Company's products will be
successful within this market if it develops.

Market Sectors

The Company divides its global market into two sectors: enterprise and service
providers.

Enterprise

Enterprise customers include corporations, government agencies, utilities and
educational institutions. Enterprise customers tend to be those that place a
high value either on information services, specifically, or on indicators of
delivered quality, generally, such as banks and pharmaceutical companies.

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Enterprise customers generally are large organizations 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. Enterprises would typically deploy the Company's
product for one of two reasons: to monitor the performance of some business-
critical application, typically web-based; or to evaluate the performance of
an external service provider. The Company's strategy is to target Enterprises
through telecommunications companies as a delivery channel. The Company's
sales force promotes its products within an Enterprise but steers the customer
towards either a systems integrator or 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

Service Providers

These customers provide data communication services, including
telecommunication carriers, Internet Service Providers, cable companies,
wireless communication providers, and IT outsourcers. Service Providers
typically deploy the Company's products to demonstrate the provision of
premium service to their large corporate customers, although as large IT
consumers in their own right, may also deploy the Company's products to
monitor internal applications. In 1997 the Company 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 in 1997. Trials continue in 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, MCI has reorganized after the Worldcom
merger, and although the Company's management believes it is accepted that this
service may begin generating revenue for the Company there can be no guarantee
that any significant revenue will be received. However, Tele Danmark has
purchased and is using the Company's products to monitor a specific large
customer network; management therefore believes that other network operators
will replicate this model.

Major Customers
In 1998, the Company's largest customers were Tele Danmark, Siemens,
SmithKlineBeecham and Vodaphone. Tele Danmark accounted for almost 20% of the
Company's revenue in 1998. Management believes that, at this stage in the
Company's development of its business to service providers, revenues from
service providers will be characterized by larger, sporadic purchases.

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Sales Overview
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 1.0. In addition,
during May 1997, the Company opened a sales office in San Jose, California.
The Company hired two people for its United States operations. The Company has
continued to market its products within the United States and Europe.
The Company's Sales & Marketing organization consisted of eight persons as
of 31st December, 1998. This has increased by two in Quarter 1 1999 and
management plans to continue to increase the direct sales force. The Company
currently operates on two continents: in the USA, with a sales office on each
coast, and in Europe, where the sales operation is based in the United
Kingdom. The US East Coast sales office was established in January 1999 The
Company had an agreement with Socrates Inc, who were the exclusive marketer of
Jyra's software products and applications into East Coast markets but this
reseller agreement with Socrates has now ended.

The Company may take preliminary steps to expand its operations to Asia during
1999, however there can be no guarantee that it will be successful. In
addition, the Company is actively seeking additional sales staff in its
existing markets. Additionally, the Company's sales are currently being made
through multiple channels including resellers. These resellers provide system
installation, technical support, and follow-up services to end-customers.
Generally, the Company's international distributors have nonexclusive,
countrywide agreements. Resellers 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's resellers sell and represent
other companies' products that 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.
The Company operates a single global pricing strategy, where product is
priced in United States dollars. Additionally, the Company will accept
international orders in United Kingdom pounds sterling, and may accept
orders in Euros from 1999.
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 in the markets in which it operates or that its sales
activities will result in significant revenues for the Company.

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.

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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. In 1998,
the Company attended four US tradeshows including Interop. In common with
many larger vendors, the Company has begun to question the value of
tradeshows as a means of generating business rather than market awareness,
and plans to attend fewer tradeshows in 1999. It has, however, booked space
at Telecom'99 in Geneva as this only takes place once in four years and is
primarily oriented towards service providers. The Company plans to focus its
marketing resources on more tactical events with its partners. In
particular, the Company has joined the Cisco Management Showcase, a US-wide
roadshow taking place in March and April, 1999.

INVESTMENTS AND ALLIANCES

The end-to-end strategy pursued by Jyra requires a wide variety of
technologies, products and capabilities. Additionally, the pace of change in
the industry is very rapid. The combination of complexity and rapid change
make it difficult for one company, no matter how large, to develop all
technological solutions alone. Investments and alliances are
tools used by the Company to fill gaps in its offerings and enable it to
deliver complete solutions to its customers and prospects in target markets.
Satisfying customers' networking needs requires a constant monitoring of
market and technology trends, plus an ability to act quickly. Jyra has a
four-part approach to satisfying the need for new or enhanced networking
products and solutions. In order of preference, this approach is to: develop
new technologies and products internally; to make minority investments in
other development stage companies and to form alliances with major vendors.

Minority Investments

The Company's strategy is to make minority investments in development stage
companies whose technology it believes may be complementary to its existing
products. The Company also typically takes a board position in these
companies to supervise its investment.

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

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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 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 was non-assignable for 2 years,
non-voting and did not bear interest. After the nine months, it was 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.

Strategic Alliances
In the Quarter ended September 30 1998, Management identified Cisco Systems as
an ideal company with which to work. Cisco has a strong and growing presence in
the telecommunications space, and the most effective sales force in the
industry. Management assigned specific executives to work exclusively on
achieving an arrangement with Cisco Systems, and by October 1998 were
successful in reaching a joint marketing arrangement with Cisco Systems.
On 29th October 1998, Jyra and Cisco announced a joint marketing campaign to
target European service providers. The effect of this is that both Jyra and
Cisco sales teams will position Jyra's product to telecommunications companies
as a part of Cisco Service Management System, (CSM). The Cisco Service
Management (CSM) system delivers a modular suite of service management
solutions integrated within a scalable, reliable, and high-performance
infrastructure. CSM enables service providers to effectively plan, provision,
operate and bill for a wide range of value added services, while increasing
revenue and reducing cost. Management believes that the joint marketing
arrangement with Cisco provides the Company with the reach and credibility to
succeed in becoming a standard tool among telecommunications companies over the
course of next year. The Company views its relationship with Cisco as an
important element of its sales strategy to service providers. The Company is
actively seeking relationships with other parties to enhance this sales
strategy. However, there can be no guarantee that any significant relationships
will materialise.

Jyra is also a member of the Cisco Network Management Partner Program. The
Cisco Network Management Partner Program is designed for network management
application developers to encourage the development and deployment of network
management solutions that support Cisco-based networks and to publicize these
solutions to Cisco Systems customers and Cisco sales channels. To be eligible
for this program, developers must either be currently developing or marketing a
commercially available network management solution that uses data coming to,
through, or from a Cisco device. Only applications that are shipping will be
included in the comarketing components of the program. Alpha- and beta-level
applications are eligible for the developer support components of the program.

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Jyra SMA also has a certified Cisco Management Connection. Cisco Management
Connection, a feature of Resource Manager Essentials, delivers a toolkit and
an ongoing program for the integration of network management applications
using Internet-based standards and technologies. The toolkit allows users to
link Web-based management applications to Essentials, and enables application
developers to make their Web-based applications easily linkable through a
certified registration mechanism. The toolkit has been used by Cisco and over
20 network management vendors, including Computer Associates, Hewlett-Packard,
Sun Microsystems and Tivoli Systems to create certified Cisco Management
Connections for their applications. The Company has trained Cisco staff in the
selling of Jyra products, and will participate in a Cisco co-marketing program
for management applications in 1999

The Company's sales efforts during this period were focused primarily on
strategic goals, specifically on establishing the relationship with Cisco
Systems, and establishing Jyra SMA as a mainstream service offered by a
major telecommunications company or Service provider. Jyra's sales team was
successful in achieving both of these strategic aims. However, the process
consumed more time and resources than anticipated at the outset and did
impact revenues for 1998.

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.

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COMPETITION

Jyra competes in the application, network and systems management markets,
providing solutions for verifying the performance of applications across
Intranets, Extranets, and the Internet. Rapid growth, converging
technologies, and a conversion to new solutions that offer superior
advantages characterize these markets.
Jyra's competitors include Computer Associates, Hewlett Packard, BMC and IBM
as well as smaller niche companies, and large network management consultancies
such as INS.
Several of the Company's current and potential competitors have greater
financial, marketing and technical resources than the Company. The principal
competitive factors in the markets in which the Company presently competes
and may compete in the future are: price; performance; the ability to
provide end-to-end solutions and support; conformance to standards; the
ability to provide added value features such as security, reliability, and
investment protection; and market presence.
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. 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. Jyra expects
that the overall number of competitors providing niche product solutions
will increase due to the market's attractive growth. On the other hand, the
Company expects the number of vendors supplying end-to-end
telecommunications solutions will decrease, due to the rapid pace of
acquisitions in the industry. 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

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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.

RESEARCH AND DEVELOPMENT

The Company is engaged in research and development efforts to develop
customer solutions for each of its two market sectors: Enterprises and
Service Providers. The Company focuses its product development activities on
products that are responsive to customer requirements and that provide end-
to-end performance management solutions. The Company's research and
development investments are currently made internally and in addition, the
Company makes minority equity investments in early stage technology
development entities to develop complementary products. In 1998, the Company
focussed its R&D efforts on two major activities: increasing its
capabilities within Cisco based networks; and increasing scalability and
robustness to meet the needs of network service providers. There can be no
assurance that Jyra will be able to successfully develop new products to
address new customer requirements and technological changes, or that such
products will achieve market acceptance. All of the Company's expenditures
for research and development costs have been expensed as incurred.

MANUFACTURING

The Company does not currently manufacture any hardware products. Its
software products are currently supplied on compact disc (CD) but are capable
of being distributed electronically via the Internet. The Company has no
immediate plans to package its products into a hardware platform, but the
Company may choose to do so if market opportunity dictates. The Company's
processes and procedures are not ISO 9001 certified, and there can be no
guarantee that absence of ISO9001 certification will not affect future sales
of the Company's products.

PATENTS, INTELLECTUAL PROPERTY AND LICENSING

At the present time, the Company does not own any patents relating to any of
its products.
Jyra's success is dependent in part upon its proprietary technology. The
Company generally relies upon copyrights, trademarks and trade secret laws
to establish and maintain its proprietary rights in its technology and
products. There can be no assurance that any of these rights will not be
challenged, invalidated or circumvented, or that any rights will provide
competitive advantages to Jyra. In addition, the laws of some foreign
countries may not permit the protection of Jyra's proprietary rights to the
same extent as do the laws of the United States or the European Union.

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Although Jyra believes the protection afforded by its copyrights and
trademarks has value, the rapidly changing technology in the network
management industry makes Jyra's future success dependent primarily on the
innovative skills, technological expertise and management abilities of its
employees rather than on patent, copyright and trademark protection.
Jyra's products are designed to include software or other intellectual
property licensed from third parties, specifically a Java Runtime
Environment freely licensed by Sun Microsystems.
While it may be necessary in the future to seek or renew licenses relating
to various aspects of its products, Jyra believes that based upon past
experience and standard industry practice, such licenses generally could be
obtained on commercially reasonable terms.
Because of the existence of a large number of patents in the networking
field and the rapid rate of issuance of new patents, it is not economically
practical to determine in advance whether a product or any of its components
infringe patent rights of others. In future, Jyra may receive notice from or
be sued by third parties regarding patent claims. If infringement is
alleged, Jyra believes that, based upon industry practice, any necessary
license or rights under such patents may be obtained on terms that would not
have a material adverse effect on Jyra's business, operating results and
financial condition. Nevertheless, there can be no assurance that the
necessary licenses would be available on acceptable terms, if at all, or
that Jyra would prevail in any such challenge. The inability to obtain
certain licenses or other rights or to obtain such licenses or rights on
favourable terms, or the need to engage in litigation could have a material
adverse effect on Jyra's business, operating results and financial
condition.

EMPLOYEES

The Company had 20 employees as of 31st December, 1998: 8 in Research &
Development, 8 in Sales & Marketing, 3 in General Management and 1 in
Finance and Administration.
None of the employees are represented by a labor union, and the Company
considers its relations with its employees to be positive. The Company has
experienced no work stoppages.
Competition for personnel in the Company's industry is intense. The Company
believes that its future success depends in part on its continued ability to
hire, assimilate, and retain qualified personnel. In 1998, the Company
experienced difficulty in recruiting technical staff within the United
Kingdom and sales staff within the United States. Although recruitment of
technical staff in Quarter 1 1999 has been easier, there is no assurance staff
recruitment will not continue as a major issue. Failure to recruit
appropriately qualified staff may have a material impact on the Company's
sales, research and development and consequently its financial performance.

13
<PAGE>
HISTORY OF THE COMPANY'S DEVELOPMENT

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

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.
Reference is made to "Glossary of Terms" at pages 18-20, for description of
terms used in this Annual Report.

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:

14
<PAGE>
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. 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").

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.
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

15
<PAGE>
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 began
redesigning Version 2.0 of the SMA to meet the requirements of distributed
and scalable operations. The first significant distributed components of SMA
were planned to be available for customer release at end of May 1998.
Field tests of these distributed components were conducted with select
group of initial strategic customers during April 1998. In preparation for
this release Jyra's primary focus, during the quarter ended March 31, 1998,
was to encourage telecommunications companies to begin pilot testing of
Jyra's product with a view to developing new customer service offerings
around Jyra's service level reporting tools. 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. Jyra continued to work closely with MCI in an effort to
develop product to incorporate within MCI's Advanced Trouble Analysis
Center (ATAC) service and as a result MCI confirmed its intention to
include Jyra's initial response monitoring agents as a key component within
its then forth coming ATAC service. In addition to being selected by MCI in
the quarter ended March 31, 1998, Jyra's monitoring tools were installed and
were being evaluated by among others two of continental Europe's
telecommunications companies and also in several major European banking
customers of a significant systems integrator in Europe. Jyra's management
refined its market view to reflect that while interest for its service
monitoring tools comes from many sectors, including hotel and leisure,
banking, pharmaceutical, transport amongst others; by far the most important
sectors are the international telecommunications companies, service providers
and system integrators, which each believe that they must be able to deliver
a measured quality of service to their customer base in order to remain
competitive. Product development continued during the quarter ended March 31,
1998, to focus on addressing inherent scaling requirements of the
telecommunication sector. With specific guidance from MCI, the Company began
designing into its service monitoring tools an automated means of collecting
response time between multiple groups of any two Cisco routers in the
Internet. The Company was, subsequent to end of quarter, able to announce
this feature for June availability.
The Company had 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

16
<PAGE>
of the service. The Jyra element of the ATAC service is still at an early
stage, the MCI business has been subject to reorganization as a result of
its merger with WorldCom, and although it is expected that this service may
begin generating revenue for the Company there can be no guarantee that any
significant revenue will be received. The Company retains an active working
relationship both with British Telecom and with MCI, but there can be no
guarantee that these relationships will result in future sales.

Service Management Architecture

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 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. In the second half of the year, the Company improved product
performance and reliability, and added features specifically to meet the
needs of the telecommunications industry. 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.

17
<PAGE>
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.

18
<PAGE>
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.

19
<PAGE>
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.

20
<PAGE>
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. The Company opened
a sales representative office in Boston Massachusetts in January, 1999, also
rented on a month-to-month basis. These rental agreements have a 60 day notice
period.

ITEM 3. LEGAL PROCEEDINGS

As of 30 March 1999, 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.

21
<PAGE>
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

Jan 2 - 26 March 1999 Trades Volume
Low |High
1st Quarter 6.44. | 12.38 2,807,200
</TABLE>
(1) Prices have been adjusted to reflect the 2-for-1 stock Dividend, in
the form of a stock dividend on September 8, 1997.

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 26 March 1999
was $9.50.

22
<PAGE>
GERMAN TRADING
Jyra shares began trading on the Frankfurt Stock Exchange on Friday,
12th March, 1999 Jyra shares will continued to be listed on the Berlin (OTC),
and quoted in Munich and Hamburg exchanges. The trading statistics for Germany
are:

<TABLE>
<CAPTION>
1998 Trades(1) Volume
Low |High
<S> <C> <C>
2nd Quarter 6.65 | 13.45 1,209,528
3rd Quarter 4.88 | 10.10 684,143
4th Quarter 4.63 | 9.59 494,723

Jan 2 - 26 March 1999 Trades Volume
Low |High
1st Quarter 6.00 | 10.40 1,676,890
</TABLE>
(1) Prices in Euros. As at 31 March 1999 one Euro equalled 1.074 United States
Dollar, source - Reuters.

HOLDERS OF RECORD
As at 26 March 1999 the Company had 34 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.

RECENT SALES OF UNREGISTERED SECURITIES

During December 1998 the Company sold 103,000 common shares at $7.50 per share
to financial institutions and accredited investors for total proceeds of
$772,500. The Company received $450,000 prior to December 31, 1998 and $322,500
subsequent to December 31, 1998.

23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

CONSOLIDATED STATEMENTS OF INCOME DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
Eight months
ended December
1998 1997 1996
---------- ---------- ----------
<CAPTION>

Revenues............... . . 536,021 392,083 0
Net income............ ... (3,047,410) (2,422,705) (347,692)
Earnings per share..(2).... ... (0.24) $(0.19) (0.04)
Weighted average common and common 12,903,798 12,587,367 8,876,364
equivalent shares outstanding..
</TABLE>

CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
Eight months
ended December
1998 1997 1996
---------- ---------- ----------

<CAPTION>
<S> <C> <C> <C>
Working capital.................... $ 1,226,503 3,323,030 3,449,489
Total assets....................... 2,701,378 3,811,266 3,547,695
Long-term obligations..................... 13,893 26,335 0
Total stockholders' equity............ 2,009,078 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.

24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

1998 - 1997

Revenues for the year ended December 31, 1998 were $536,021, an increase of
36.7% over 1997. The most significant customers during the year were Tele
Danmark, Siemens, Vodaphone and SmithKlineBeecham.
The Company's revenue continued to derive 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. As a result the Company's
product has continued to be adjusted throughout 1998 in order to meet these
larger customers requirements. The first significant distributed components of
SMA were planned to be available for customer release at the end of May 1998
and became generally available in August 1998. Field tests of these
distributed components were conducted with select group of initial strategic
customers during April 1998. In preparation for this release Jyra's primary
focus during the quarter ended March 31, 1998, was to encourage
telecommunications companies to begin pilot testing of Jyra's product with a
view to developing new customer service offerings around Jyra's service level
reporting tools. Management believes that 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
provides a means of justifying high value added data transport services. 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. Product development continued during the quarter ended
March 31, 1998, to focus on addressing inherent scaling requirements of the
telecommunication sector. With specific guidance from MCI, the Company began
designing into its service monitoring tools an automated means of collecting
response time between multiple groups of any two Cisco routers in the
Internet. The Company was, subsequent to end of quarter, able to announce this
feature for June availability. Jyra continued to work closely with MCI in an
effort to develop product to incorporate within MCI's Advanced Trouble
Analysis Center (ATAC) service and as a result MCI confirmed its intention to
include Jyra's initial response monitoring agents as a key component within
its then forth coming ATAC service. Although MCI and Jyra retain a working
relationship, management believes that rollout of the ATAC service has been
affected by the MCI/Worldcom merger. 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 addition to being selected
by MCI in the quarter ended March 31, 1998, Jyra's reporting tools were
installed and evaluated by both Tele Danmark and another continental
European Telecommunications Company. By 31st December, 1998, Tele Danmark
had resold and installed a Jyra-based solution to monitor a multinational
network for one of its large corporate customers.

25
<PAGE>
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.
In order to exploit the Company's product's capabilities in the Service
Provider space, the Company allocated significant resource in the 3rd
quarter to build a sales alliance with Cisco Systems and to establish our
product as the basis of an applications monitoring service that could be
provided by major telecommunications companies to all of their major
customers.
Management identified Cisco Systems as an ideal company with which to work.
Cisco has a strong and growing presence in the telecommunications industry,
and the most effective sales force in the industry. Management assigned
specific executives to work exclusively on achieving an arrangement with Cisco
Systems, and by October 1998 were successful in reaching a joint marketing
arrangement with Cisco Systems. The effect of this is that both Jyra and
Cisco sales teams will position Jyra's product to telecommunications
companies as a part of Cisco Service Management System, (CSM). The Cisco
Service Management (CSM) system delivers a modular suite of service management
solutions integrated within a scalable, reliable, and high-performance
infrastructure. CSM enables service providers to effectively plan, provision,
operate and bill for a wide range of value added services, while increasing
revenue and reducing cost.

Cisco Systems also, during the third quarter, chose Jyra's SMA as offering
value to their next generation web based management system Cisco Works 2000.
Jyra provides a connection to Cisco Works 2000 customers with allows them to
monitor performance of e-commerce and web sites.
Management believes that the joint marketing arrangement with Cisco provides
the Company with the reach and credibility to succeed in becoming a standard
tool among telecommunications companies over the course of next year.
During the third quarter ended Sept 30, 1998 the Company also began to see
some initial results of its efforts to target high-end resellers. The
Company was able in this period to announce a significant arrangement with
Siemens whereby Siemens would resell Jyra's product to major users in
Switzerland. Management believes that Siemens has the technical and sales
capability to be an effective channel to the corporate sector for the
Company's product. Siemens have already installed Jyra product on a trial
basis with four major Swiss financial institutions.

26
<PAGE>
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.

Management continues to believes that the Jyra solution being provided to
Tele Danmark and their customers has universal application among
telecommunications companies and Service Providers.
Management feels that acceptance by the telecommunications industry and
endorsement by Cisco Systems are highly significant and now feel confident
in scaling sales and marketing operations to address a global market.

Research and development

Research and development expenses increased 18% to $1,526,142 for the year
ended December 31, 1998 compared to $1,293,667 for the year ended December
31, 1998. The substantial increase in spending was due to a temporary
increase in staffing, as a result of resolving the technical components of
its architecture and the Company's ability to move to broaden the range of
applications available as a part of its Service Management Architecture.
This spending program began towards the end of 1997 and continued throughout
1998. In particular, the Company allocated resources in the first quarter to
add new graphical interfaces to the product. This work, when complete, will
offer users a graphic means of describing the network monitoring tasks and of
easily understanding causes of service level violations. Some results from the
new graphic user interface (GUI) have been developed to a pre-delivery stage
and will be released at the end of Quarter 1 1999. In addition, the Company
also allocated resource to provide telecommunications companies with a new
means of obtaining network transit times between any two Cisco routers. This
application became available as a product feature in Quarter 3 1998. In
Quarter 3 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 expanded its ability to respond to the requirements of networking
equipment manufacturers, continued to update the core of the product for
enhanced scalability. Spending levelled towards the end of the year but
management plans to increase R&D spending in 1999 as it continues to work on
the its existing development program whilst expanding its ability to respond to
the requirements of Cisco and its major customers and also continues to update
the core of the product for enhanced scalability. Although management
experienced difficulty in technical recruitment throughout 1998, management
believes that the UK market for technical staff has now softened as the
competition for staff generated by Y2K and Euro activities decreases. Two
additional staff have been recruited since December 31st, 1998, and an active
recruitment campaign continues.

27
<PAGE>
General and administrative

General and Administrative expenses increased by 15.8% to $896,809 for the
year ended 31st December 1998 from $774,051 for the year ended 31st
December, 1997. This increase reflected the increased level of business
activity within the Company as well as salary inflation. This increase in
general and administrative expenses was also due to the Company's
implementation of a Management and Administrative structure to allow the
Company to deal with the anticipated future growth of customer
requirements. In addition during the third quarter expenses were incurred
specifically because of the protracted contractual and technical
negotiations with Tele Danmark and Cisco

Sales and Marketing

Sales and Marketing expenses for the year ended December 31, 1998, increased
122% to $1,055,499 compared to $476,336 for .the year ended December 31, 1997.
The Company invested in additional sales and marketing staff from late 1997,
and the Company's investment in a sales force has allowed the Company both to
focus on the strategic telecommunications sector and to develop a sales
process that takes advantage of the telephone Company's own sales force and
customer base to provide the Company with the potential to build revenues.
In addition the Company incurred expenses associated with increased sales &
marketing and training activities to in Europe and the US. In addition,
significant costs were incurred in creating and supporting the Cisco
relationship. The Company plans to continue to expand its direct sales force
in both Europe and the USA as it refines its distribution model, and expects
sales and marketing costs to continue to increase as the Company continues
to develop.

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
94% for fiscal year 1998 as compared to a Gross margin of 97% for the 12
months ended December 1997. During fiscal year 1998, the Company incurred
costs associated with the sale of software and its packaging, these tend to be
considerably lower that selling Hardware.

INTEREST INCOME, NET

Interest income, net was $81,255 in fiscal year December 1998 compared to
$112,576 30 in fiscal year December 1997. The decrease in interest income is
primarily the result of lower balances of cash equivalents and lower interest
rates during fiscal year 1998.

28
<PAGE>
EARNINGS (LOSS) PER SHARE

Earnings (loss) per share for fiscal year 1998 was ($0.24) per share
compared to ($0.19) per share in the fiscal year ended December 1997. The
number of weighted average common shares outstanding for fiscal year 1997 was
12,903,798 as compared to 12,587,367 in the year ended 31st December, 1997

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1998, the Company's principal sources of liquidity
included cash, cash equivalents, totalling $554,450. 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. Subsequent to December 31, 1998 the
Company received approximately US$500,000 as the initial proceeds of the
current private placement to fund Jyra's sales and marketing relationship with
Cisco and provide additional working capital. Management believes that it
will have sufficient working capital to fund current levels of operations
through 1999, 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 of operations in 1999.

Net cash used in operations in fiscal year 1998 was $3,047,410 compared to
$2,422,705 in the fiscal year ended December 1997

Net cash used in investing activities was $100,984 in fiscal year 1998
compared to $490,312 in the fiscal year ended December 1997. These funds were
principally invested in additions to property and equipment.

Share exchange with Path 1 Network Technologies Inc.

29
<PAGE>
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 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 was non-assignable for 2 years,
non-voting and did not bear interest. After the nine months, it was 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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

None

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 1997/96

1997/96

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 6 - 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.

30
<PAGE>
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.

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.

31
<PAGE>
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)

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.

32
<PAGE>
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, 1998 (the "1998 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 rateably 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.

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 1998, 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.

33
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.

The Company's operations are currently headquartered in the United Kingdom,
from where it also engages in its European marketing effort. United States
sales and marketing are conducted from a separate sales office in San Jose
California and Boston, Massachusetts. 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 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.

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 continually attract and
retain technically qualified and highly skilled sales, consulting, technical,
marketing and senior management executives. 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.

34
<PAGE>
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
defence 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.

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.

35
<PAGE>
FINANCIAL CONDITION OF COMPANY; DIFFICULTY IN FUNDING OPERATIONS.

Although Management believes it will receive significant revenues from sales of
its products during 1999, there can be no assurance that the Company will
be able to sell any products or ever receive any future revenues. Management
believes that it will have sufficient working capital to fund current levels of
operations through 1999, 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 near term demand or insufficient level of equity funding
would adversely affect the Company's results of operations in 1999.

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 as 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.

36
<PAGE>
REGULATION OF THE INTERNET

There are currently few laws or regulations that apply directly to access or
commerce on the Internet. The Company could be materially adversely affected
by proposed regulation on voice over the Internet, encryption technology and
access charges for Internet service providers, as well as the continuing
deregulation of the telecommunication industry. The adoption of such
measures could decrease demand for the Company's products, and at the same
time increase the Company's cost of selling its products. Changes in laws or
regulations governing the Internet and Internet commerce could have a
material adverse effect on the Company's business, operating results and
financial condition.

JAVA LITIGATION BETWEEN SUN MICROSYSTEMS AND MICROSOFT

The Company's software products are written using the Java language and
runtime environment. This is the subject of active litigation between Sun
Microsystems and Javasoft. Although the Company shares this risk with many
software companies, and thus management would expect general computer
industry pressure to result in the avoidance of major problems, the
resolution of this lawsuit may have an adverse effect on the Company's
ability to market or to develop its products, and thus may have an adverse
effect on operating results.

YEAR2000

Jyra is a new company, without a large installed base of customer products
or internal business systems and data. Management thus believes that the
bulk of traditional Y2K risks do not exist within the Company. Management
expects little if any cost of remediation. Where the Company's business
systems and processes depend on electronic equipment, this equipment is from
major manufacturers - primarily Microsoft, Dell, Cisco, Siemens and
SageSoft. The software and hardware in use by the Company from these and
other manufacturers has already been reported to be Y2K compliant.
Management therefore has some justification for its belief that its
remediation costs will be low, but cannot guarantee that this risk does not
exist. To date, remediation costs have been zero. The Company's business is
based on the sale of software products which were written to be Y2K compliant
from the outset. The Company has no products older than 1996. Management
therefore expects little if any cost to be incurred other than the normal cost
of supporting its customers, but cannot guarantee that the risk of incurring
these costs does not exist. In particular the successful operation of the
Company's products depends upon the successful operation of Microsoft Windows
NT and the PC platform on which Windows NT runs. Considerable resources could
be required to determine a solution to a problem which may be caused
elsewhere. Jyra has inspected Y2K statements made by Microsoft and some PC
vendors. To provide some level of assurance, the Company has completed limited
testing of its products in Quarter 1 1999 Management believes that the costs of
external business disruption due to general millennium problems far

37
<PAGE>
outweigh any internal costs which are likely to occur, and so Jyra suffers
little specific risk compared to the market as a whole. The market is already
widely aware of this general risk to business. However, the Company operates
within a global market for IT products and services which is currently making
extensive contingency plans to deal with Y2000 issues. If IT spending is
adversely affected by the need to deal with planning for and the aftermath of
Y2000 problems, or there are possible negative perceptions of IT on the
business, or there are negative perceptions of IT within the investment
community, it could have a material adverse effect on the Company's business,
operating results and financial condition.

The Company has confirmed its willingness to some of its key customers
to remedy any Y2000 defects in its products in the event that these
occur, and thus there remains the possibility of unbounded remediation
cost with the possibility of negative impact on product development
and operating results.

Management has not developed a comprehensive contingency plan to deal with Y2K
issues. No separate budget has been established for Y2K issues. Y2K
expenditure to date has been insignificant, but management can give no
guarantees that future Y2K expenditure either on its internal systems or on
its products may not impact operating results, business or the Company's
financial condition.

STRATEGIC ALLIANCES

The Company has a strategic alliance with Cisco and a is a member of alliance
programs with companies including Hewlett-Packard and Microsoft as well as its
membership of the Application Performance Management Forum.
The computer and telecommunications industries is characterized by rapidly
shifting alliances for business advantage. There can be no guarantee that
the Company's existing relationships will be successful in generating sales,
nor that they will even continue, nor that the Company will successfully
form new alliances.
These arrangements are generally limited to specific projects, the goal of
which is generally to facilitate product compatibility and adoption of
industry standards. If successful, these relationships will be mutually
beneficial and result in industry growth. However, these alliances carry an
element of risk because, in most cases, the Company must compete in some
business areas with a company or partner companies of those with which it
has strategic alliances, and at the same time, co-operate with such companies
in other business areas. Also, if these companies fail to perform, or if
these relationships fail to materialize as expected, Jyra could suffer
delays in product development or other operational difficulties.
Industry Consolidation
There has been a trend toward industry consolidation among the Company's
competitors, partners and customers for several years, which has continued
during fiscal 1998. The Company expects this trend toward industry
consolidation to continue as companies attempt to strengthen or hold their

38
<PAGE>
market positions in an evolving industry. The Company believes that industry
consolidation may provide stronger competitors that are better able to
compete as sole-source vendors for customers. This could lead to more
variability in operating results as the Company competes with a single major
product line within an overall systems management solution and could have a
material adverse effect on the Company's business, operating results, and
financial condition.

VARIABILITY IN SERVICE PROVIDER SALES

Although sales to the service provider market have continued to grow, this
market is characterized by large, and often sporadic purchases. Sales
activity in this industry depends upon the stage of completion of expanding
network infrastructures, the availability of funding, and the extent that
service providers are affected by regulatory and business conditions in the
country of operations. A decline or delay in sales orders from this industry
could have a material adverse effect on the Company's business, operating
results and financial condition.

RISKS ASSOCIATED WITH INTERNET INFRASTRUCTURE AND MARKET

The Company's management believes that there will be performance problems
with Internet communications in the future which could receive a high degree
of publicity and visibility. As the Company is a supplier of monitoring
solutions for the Internet infrastructure, customers' perceptions of the
Internet and the marketplace's perception of Jyra as a supplier of Internet
products, may be materially adversely affected, regardless of whether or not
these problems are due to the capabilities of Jyra's products. Such an event
could also result in a material adverse effect on the market price of Jyra's
Common Stock and could materially adversely affect the Company's business
operating results and financial condition.

VOLATILITY OF STOCK PRICE

The Company's Common Stock has experienced substantial price volatility,
particularly as a result of variations between the Company's actual or
anticipated financial results and the published expectations of analysts and
as a result of announcements by the Company and its competitors. In
addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of many technology
companies in particular and that have often been unrelated to the operating
performance of these companies. These factors, as well as general economic
and political conditions, may adversely affect the market price of the
Company's Common Stock in the future.

39
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to financial market risks, and foreign currency
exchange rates.

COMPETITION.

40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NUMBER
-----------------
<S> <C>
Consolidated Balance Sheets............................................42
Consolidated Statements of Operations..................................43
Consolidated statement OF Comprehensive Income.........................44
Consolidated Statements of Cash Flows..................................45
Consolidated Statements of Stockholders' Equity........................46
Notes to Consolidated Financial Statements.............................48
Report of Independent Auditors ...............................58
Report of Independent Public Accountants...............................59
</TABLE>

41
<PAGE>
Consolidated Balance Sheet 31-Dec-98
<TABLE><CAPTION>
$ $
31-Dec-98 31-Dec-97
<S> <C> <C>
Current Assets:
Cash & Cash Equivalents 554,450 3,244,101
Prepaid Expenses 120,766 26,867
Accounts Receivable (net of provision for 228,787 52,062
doubtful debt of $nil, (1997-$165,425)
Other receivables 322,500 0
TOTAL CURRENT ASSETS 1,226,503 3,323,030

Property & Equipment:
Computers, Equipment & Motor Vehicles 696,039 595,055
Less Accumulated Dep'n 281,039 106,819
-------- --------
Net Property & Equipment 415,000 488,236

Other Assets
Available for sale securities 1,059,875 0
-------- --------
TOTAL ASSETS 2,701,378 3,811,266

Current Liabilities
Accounts Payable 184,972 125,463
Accruals and deferred income 167,809 80,134
Deferred Taxation 312,782 0
Current Portion of long term lease obligations 12,844 11,501
Total 678,407 217,098

Creditors: Amount falling due 13,893 26,335
after more than one year

Stockholders Equity
Common stock -$.001 par value
Authorised - 20,000,000 shares
Issued 13,014,360 shares at 31 December 1998
and 12,890,250shares at 31 December 1997
Ordinary Share 6,738 6,614
Capital
Paid In Capital 7,270,155 6,339,068
7,276,893 6,345,682

Deficit Accumulated During
The Development Stage (5,817,807) (2,770,397)
Accumulated other Comprehensive income 549,992 (7,452)
Total Stockholders Equity 2,009,078 3,567,833
Total Liabilities & Stockholders Equity 2,701,378 3,811,266
</TABLE>
The accompanying notes are an integral part of these financial statements

42
<PAGE>
Consolidated Statement of Operations
Period 1-Jan-98 Through 31-Dec-98
Cumulative Period 2-May-96(Date Of Inception) Through 31-Dec-.98
<TABLE>
<CAPTION>
Twelve Months Eight months $
31-Dec-98 31-Dec-97 31-Dec-96 Cumulative
<S> <C> <C> <C> <C>

Revenue 536,021 392,083 0 928,104
------- ------- ------ -------
Total Revenue 536,021 392,083 0 928,104

Cost Of Revenue 29,774 10,307 0 40,081
------- ------- ------ -------
Total Cost Of Revenue 29,774 10,307 0 40,081
------- ------- ------ -------
Gross Margin 506,247 381,776 0 888,023

Operating Expenses
Sales & Marketing 1,055,499 476,336 0 1,531,835
General and Administrative 896,809 774,051 194,566 1,865,426
Research and Development 1,526,142 1,293,667 260,367 3,080,176
--------- --------- -------- ----------

Total operating expenses 3,478,450 2,544,054 454,933 6,477,437

Other Income/Expense
Taxes 4,335 (15,978) 0 (11,643)
Currency Exchange Differences 44,257 (82,212) 83,412 45,475
Provision for doubtful debt 0 (164,699) 0 (164,699)
Interest Income 81,255 112,576 30,366 224,197
Depreciation (198,538) (110,114) (6,537) (315,189)
Loss on disposal of motor vehicle (6,516) 0 0 (6,516)
Total Other Income/Expense (75,207) (260,427) 107,241 (228,393

Loss Before Income Taxes (3,047,410)(2,422,705) (347,692) (5,817,807)

Provision for Income Taxes - - -

Net Loss (3,047,410)(2,422,705) (347,692) (5,817,807)

Earnings Per Share Of Common
Stock

Average Shares of Common Stock
Outstanding 12,903,798 12,587,367 8,876,364
Earnings/(Loss) Per Share Of
Common Stock - Basic and Diluted (0.24) (0.19) (0.04)
</TABLE>
The accompanying notes are an integral part of these financial statements

43
<PAGE>
Consolidated statement OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>

Twelve Months Eight months $
31-Dec-98 31-Dec-97 31-Dec-96 Cumulative
<S> <C> <C> <C> <C>

Net loss (3,047,410)(2,422,705) (347,692) (5,817,807)

Other comprehensive income net of tax

Foreign currency translation (23,438) 23,837 (31,289) (30,890)
adjustment

Unrealised gains on securities 580,882 0 0 580,882
--------- --------- -------- ----------
COMPREHENSIVE LOSS (2,489,966)(2,398,868) (378,981) (5,267,815)
--------- --------- -------- ----------
</TABLE>

44
<PAGE>
Consolidated Statement Of Cash Flows
Period 1-Jan-98 Through 31-Dec- 98
Cumulative Period 2-May-96(Date Of Inception) Through 31-Dec-98

$ $
Twelve Months Eight months Cumulative
31-Dec-98 31-Dec-97 31-Dec-96
<S> <C> <C> <C> <C>

Cash Flows From Operating Activities
Net Income (Loss) (3,047,410) (2,422,705) (347,692) (5,817,807)

Adjustments To Reconcile Net Loss To
Net Cash Used For Operating Activities:

Increase In Depreciation 174,220 100,282 6,537 281,039
Decrease/(Increase) In Prepaid (93,899) 23,767 (50,634) (120,766)
Expenses
Increase in Accrued Expenses 87,675 80,134 0 167,809
Increase in Accounts Payable 48,410 62,305 100,994 211,709
Increase In Accounts receivable (176,725) (52,062) 0 (228,787)
Increase In other receivables (322,500) (322,500)
(3,330,229) (2,208,279) (290,795) (5,829,303)

Cash Flows From Investment Activities

Purchase of Computers Equipment (100,984) (490,312) (104,743) (696,039)
& Vehicles

Cash Flows From Financing Activities

Proceeds From The Issuance Of 765,000 2,520,000 3,825,682 7,110,682
Common Stock

Effects Of Exchange Rate
Changes On Cash (23,438) 23,837 (31,289) (30,890)

Net (Decrease)/Increase In Cash (2,689,651) (154,754) 3,398,855 554,450
& Cash Equivalents

Cash & Cash Equivalents At 3,244,101 3,398,855 0 0
Beginning of Period
Cash & Cash Equivalents At End 554,450 3,244,101 3,398,855 554,450
of Period

</TABLE>
The accompanying notes are an integral part of these financial statements

45
<PAGE>
Consolidated Statement of Stockholders Equity
Period From Inception Through 31-Dec-98
<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 12,890,250 6,614 6,339,068 (2,770,397) (7,452)
</TABLE>
The accompanying notes are an integral part of these financial statements
46

<PAGE>
Consolidated Statement of Stockholders Equity
Period From Inception Through 31-Dec-98
<TABLE>
<CAPTION>
Deficit
Accumulated Foreign
Common Stock Paid-In During Currency
Shares Amount Capital Development Translation
$ $ $ $ $
<S> <C> <C> <C> <C> <C>

Brought forward
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
at $7.50 Per Share 103,000 103 772,397 - -
Stock Issued As
Commissions:
November 1997
At $7.50 Per Share 5,110 5 38,320 - -
Issuance Expenses (45,825)
of Capital stock
Net Loss For The
Period To 31-Dec-98 - - - (3,047,410) -
Translation Adjustment
For The Period for Cash - - - - (23,438)
Unrealised gain on 580,882
available for sale
security
Balance At
31-Dec-98 13,014,360 6,738 7,270,155 (5,817,807) 549,992

</TABLE>
The accompanying notes are an integral part of these financial statements

47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATIONS
Jyra Research Inc ("Jyra" or the "Company") was incorporated on 2 May 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. The problems result in escalating costs and
major systems failures across the corporate spectrum. Management believes
that current devise 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 inter company 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 less accumulated depreciation.
Major expenditures for property and those which substantially increase useful
lives are capitalised. 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.

48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 authorised 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 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.

Segment and Geographic Information.
The Company operates in one business segment, which is 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.

Comprehensive Income (Loss).
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for the Company's 1998
fiscal year. Prior year financial statements have been reclassified to conform
to the requirements of Statement 130. Adoption of this pronouncement did not
have a material impact on the Company's financial statements. Accumulated
other comprehensive income is primarily comprised of accumulated translation
adjustments.

Derivative Instruments and Hedging Activities.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that
derivatives be recognized in the balance sheet at fair value and specifies the
accounting for changes in fair value. This statement is effective for all
fiscal quarters of fiscal years beginning June 15, 1999, and will be adopted by
the Company for its fiscal year 2000. The Company is currently assessing the
impact of adoption of this pronouncement on its financial statements.

49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. CONCENTRATIONS OF CREDIT RISK

Foreign currency translation
Through 31 December 1998, the Company had determined that the US dollar was
the "functional currency" of its operations. All foreign currency assets and
liability amounts were remeasured into US dollars at end - of - period
exchange rates. Foreign currency income and expenses were translated at
average exchange rates in effect during the year. Unrealised currency
adjustments in the consolidated balance sheet are accumulated in stockholders
equity. Exchange gains and losses arising from retranslated 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, and SOP 97-2, 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 capitalise 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.
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
utilising 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

50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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".

4. SUMMARY INFORMATION FOR THE COMPANY'S OPERATIONS BY GEOGRAPHIC LOCATION

<TABLE>
<CAPTION>
Twelve Twelve Eight
Months Months Months
<S> <C> <C> <C>

Revenue 31-Dec-98 31-Dec-97 31-Dec-96
To Customers from US operations 162,786 55,775 0
To Customers from UK operations 373,235 336,308 0
Total Revenue 536,021 392,083 0

Operating Loss
US operations (558,522) (790,339) (8,087)
UK Operations (2,413,681) (1,371,939) (446,846)
Total operating loss (2,972,203) (2,162,278) (454,933)

Identifiable Assets
US operations 2,056,537 3,303,564 3,395,299
UK operations 644,841 507,702 152,346
Total Identifiable Assets 2,701,378 3,811,266 3,547,645
</TABLE>

5. COMMITMENTS AND CONTINGENCIES

Leases
Property plant and equipment includes the following amounts for leases that
have been capitalised at 31 December 1998.
1998 1997
$ $

Vehicles 91,165 47,708
Less allowance for amortisation 17,804 5,744
------ ------
73,361 41,964
------ ------

51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 31 December 1998:

British Pounds

1999 30,607
2000 30,557
2001 15,507
------
Minimum lease payments 76,671
Interest (10,497)
Fees (216)
------
Present value of net minimum lease payments 65,958

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.

6. INCOME TAX
The Company's deferred tax assets, deferred tax liabilities and deferred tax
valuation allowances at 31 December are as follows:
1998 1997
$ $

Deferred tax asset 0 0
US Federal 0 0
US State 0 0
Outside US 1,400,000 600,000
--------- -------
Total deferred tax asset 1,400,000 600,000
Less: valuation allowance (1,400,000) (600,000)
--------- -------
Net deferred tax asset 0 0

Deferred tax liability 312,782 0

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.
The deferred tax liability arises due to the unrealised gain on available for
sale securities.
For tax purposes, the subsidiary company has approximately $4,600,000 (1997:
$1,900,000) of net operating loss carry forwards, which expire in the year
2011 through 2013.

52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. AVAILABLE FOR SALE SECURITY AND SHARE EXCHANGE

The Company has entered into an agreement dated 16 March 1998 (the
"Agreement") with Path 1 Network Technologies Inc ("Path 1"). Path 1 was
incorporated on 30 January 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", prioritising 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 21 April 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 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 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.

The Company acquired the shares in Path 1 for $166,211 and is holding these as
available for sale securities. At the year end the market price of the shares
was $3 13/16. The accounting treatment is therefore as follows:

Purchase consideration 166,211
Less unrealised holding gain 893,664
--------
Aggregate fair value 1,059,875

The holding gain has been recognised as follows:
$

Unrealised holding gain 580,882
Deferred tax liability at 35% 312,782
-------
893,664
-------

53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMPENSATION AND BENEFIT PROGRAMS

EMPLOYEE STOCK PURCHASE PLAN.

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 authorises 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 954,000 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 Plan was adopted 20 July 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.

Of the 954,000 shares granted, 50,000 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

Of the 954,000 shares granted, 689,000 are exercisable according to the
following schedule:
Percent exercisable Exercise event

25% One year from grant date
25% Two years from grant date
25% Three years from grant date
25% Four years from grant date

54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Of the 954,000 shares granted, 125,000 are exercisable according to the
following schedule:
Percent exercisable Exercise event

50% One year from grant date
25% Two years from grant date
25% Three years from grant date

Of the 954,000 shares granted, 10,000 are exercisable according to the
following schedule:
Percent exercisable Exercise event

25% Four months from grant date
25% Two years from grant date
25% Three years from grant date
25% Four years from grant date

Of the 954,000 shares granted, 80,000 are exercisable according to the
following schedule:
Percent exercisable Exercise event

33 1/3% One year from grant date
33 1/3% Two years from grant date
33 1/3% Three years from grant date

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, 20 July 1996, after which no
awards may be granted.

55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Balance At Jan 1, 97 350,000 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
Balance at 31 Dec 97 904,000

Balance At Jan 1, 98 904,000 0.20 - 9.25 $6.36
Granted 200,000 5.50 - 9.50 $7.78
Exercise - -
Forfeited 150,000 0.20 - 9.25 $5.44

OUTSTANDING AT DECEMBER 31, 1997, 954,000
OF WHICH 303,500 ARE
EXERCISABLE AT
DECEMBER 31, 1997

(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.

Stock option Executive Plan for key executives

The Company has adopted the Executive Stock Option Plan (the "Executive Plan")
to attract and retain Key executive of, or independent Advisors to the Company
or any of its subsidiaries or affiliates. The Executive Plan authorises the
purchase of up to 300,000 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 255,000 shares of the Company's Common Stock at varying
exercise prices. The Executive Plan will be administered by either the Board

56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 Executive Plan and the type, extent and terms of the stock
option grants and awards of restricted. The Executive Plan was adopted 1
September 1998. The Executive 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.

Of the 255,000 shares granted, all are fully exercisable from the date of
grant

At Dec 31, 1998 there were 255,000 shares under option plan for key employees
and there were 45,000 shares available for future grants.

Transactions involving the Executive Plan are summarized as follows:

AVERAGE
OPTION PRICE
OPTION PRICE PER
OPTION SHARE SHARES RANGE PER SHARE SHARE
<S> <C> <C> <C>
Outstanding (1) At Beginning
Of Period 0
Granted 255,000 $5.50 $5.50
Exercise - - -
Forfeited - - -
</TABLE>

OUTSTANDING AT DECEMBER 31, 1998, 255,000 OF WHICH 255,000 ARE EXERCISABLE AT
DECEMBER 31, 1998

For purposes of the pro forma disclosure, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants in 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.5%, 6.3% and 6.1%; volatility
factors of the expected market price of the Company's Common Stock of 64% and
a weighted-average expected life of the options of 4 years. There was no
dividend yield included in the calculation as the Company does not pay
dividends. The weighted-average fair value of options granted during 1998,
1997 and 1996 was $3.63, $3.84 and $1.04.

57
<PAGE>
REPORT OF INDEPENDENT AUDITORS
to the Shareholders and Board of Directors Jyra Research Inc

We have audited the accompanying consolidated balance sheets of Jyra Research
Inc (a development stage enterprise) as of 31 December 1998 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years then ended and for the period 2 May 1996
(inception) through 31 December 1998. 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 for the period 2 May 1996 (inception) through 31 December 1996 were
audited by other auditors whose report dated 10 March 1997 expressed an
unqualified opinion on those statements. The financial statements for the
period 2 May 1996 (inception) through 31 December 1998 include a net loss of
$5,817,807. Our opinion on the consolidated statement of operations,
shareholders' equity and cash flows for the period from 2 May 1996 (inception)
through 31 December 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 audits 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
31 December 1998 and 1997 and the consolidated results of its operations and
its consolidated cash flows for each of the years then ended and for the
period 2 May 1996 (inception) through 31 December 1998, in conformity with
United States generally accepted accounting principles.

Ernst & Young
Luton, England
DATE March 31, 1999

58
<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.

59
<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 26 March 1999
are as follows:

NAME AGE POSITION

Paul Robinson 36 President, CEO, Chairman
of the Board

Peter Lynch 43 Director, VP - Technology

Roderick Adams 35 Director, VP-Corp. Development

Robin Elsom 39 Director -VP Product Development

Nigel Williams 33 Director -VP-Business
Development

Philip Smith 41 Director

Andy Mulholland 49 Director - Jyra Research Ltd.

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.

60
<PAGE>
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.

Robin Elsom has served as a director of the Company since July 1998,
before that he 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. Mr Elsom intends to spend all of his time on the
Company's affairs.

Nigel Williams has served as a director of the Company since July 1998 as VP
of Business Development. Prior to that he was the UK Sales Director for the
Company from September 1997 to July 1998. From March 1992 through September
1997 he held various positions at Cisco Systems rising to the position of
Regional Sales Director for the UK Banking Region. Prior to his employment with
Cisco Systems, Mr Williams was employed by Ungermann Bass Corp., where he spent
four years selling data networking systems to companies in London England.

Philip Smith has served as a director of the Company since December 23, 1997.
In 1996, after six years with Philips Systems, he moved to IBM at Warwick,
leading a team which was responsible for building IBM's internal and customer
value added networks. At IBM he specialized in network performance and
modelling, including a time in development, later moving into the design and
architecture of international TCP/IP and multi-protocol networks. In 1994 Mr
Smith moved to Cisco Systems as a Network Consultant specialized in network
design and delivery of large and complex networks. In 1997 Mr Smith resigned to
join the Company. In December 1997 he joined the Board of Directors of the
Company, and returned to work full-time for Cisco Systems where he also holds
the position of UK Marketing Director

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

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<PAGE>
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.

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<PAGE>

Item 11. EXECUTIVE COMPENSATION.

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------
AWARDS
------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION OPTIONS(#) COMPENSATION
- - ----------------------------- ------ --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul Robinson.................1998 46,500 0 0 30,000 0
President and Chief 1997 46,500 0 0 - 0
Executive Officer
Peter Lynch (5)...............1998 46,500 0 0 30,000 0
Director, VP-Technical 1997 46,500 0 0 0 0
Roderick Adams................1998 43,000 0 0 30,000 0
Director, VP-Corp, 1997 43,000 0 0 - 0
Development
Robin Elsom...................1998 46,500 0 0 30,000 0
Director -VP Product 1997 46,500 0 0 330,000 0
Development
Nigel Williams................1998 55,000 20,000 0 155,000 0
Director VP Business 1997 13,750 5,000 0 125,000 0
Development

</TABLE>

(1) * All monetary amounts in this table are in English pounds sterling.

63
<PAGE>
OPTION GRANTS

The following table contains information concerning the stock option grants
made to each of the Named Executive Officers in the fiscal year ended December
31, 1998. No stock appreciation rights were granted to these individuals during
such year.

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANT REALIZABLE VALUE
-------------------------------- AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED APPRECIATION
UNDERLYING TO
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(4)
GRANTED IN PRICE EXPIRATION -------------------
NAME (#)(1) 1998(2) ($/SH)(3) DATE 5% ($) 10% ($)
- - ------------------------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Paul Robinson.........................30,000 6.6% $5.50 09/01/03 $45,586 $100,734
Peter Lynch...........................30,000 6.6% $5.50 09/01/03 $45,586 $100,734
Roderick Adams........................30,000 6.6% $5.50 09/01/03 $45,586 $100,734
Robin Elsom...........................30,000 6.6% $5.50 09/01/03 $45,586 $100,734
Nigel Williams........................30,000 6.6% $5.50 09/01/03 $45,586 $100,734
</TABLE>
(1) On September 1, 1998, the Company granted Messrs. Robinson, Lynch, Adams,
Elsom option shares at an exercise price of $8.75 per share, which is the
closing price, as reported by the OTC Bulletin Board on the option grant
date.

(2) Based on an aggregate of 455,000 option shares granted in fiscal 1998.

(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the option grant date,
which is equal to the closing price, as reported by the OTC Bulletin Board
on the option grant date.

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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
7-year option term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.

(5) Each of the options is immediately exercisable.

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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table sets forth information concerning the year-end number
and value of unexercised options with respect to each of the Named Executive
Officers. No options were exercised by the Named Executive Officers in fiscal
year 1998

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END(#)(1) AT FY-END($)(2)
------------------- -----------------------
NAME VESTED UNVESTED VESTED UNVESTED
- - ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Paul Robinson......................................30,000 0 93,750 -
Peter Lynch........................................30,000 0 93,750 -
Roderick Adams.....................................30,000 0 93,750 -
Robin Elsom.......................................105,000 225,000 140,625 140,625
Nigel Williams....................................123,750 31,250 158,718 21,655
</TABLE>

(1) Each of the options listed in the table is immediately exercisable.

(2) Based on the fair market value of the Company's Common Stock at fiscal year
end ($8.625 per share), and such value is equal to the closing price, as
reported by the OTC Bulletin Board, less the exercise price
payable for such shares.

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<PAGE>

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

SECURITY OWNERSHIP OF MANAGEMENT (1) (2)
<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 1,500,000 (3) 11.4%
Hamilton House Direct
111 Marlowes
Hemel Hempstead
Herts HP1 1BB
United Kingdom

Common Peter Lynch 1,500,000 (4) 11.4%
Hamilton House Direct
111 Marlowes
Hemel Hempstead
Herts HP1 1BB
United Kingdom

Common Roderick Adams 1,490,000 (5) 11.3%
Hamilton House Direct
111 Marlowes
Hemel Hempstead
Herts HP1 1BB
United Kingdom

Common Robin Elsom 180,000 (6) 1.4%
Hamilton House Direct
111 Marlowes
Hemel Hempstead
Herts HP1 1BB
United Kingdom

Common Nigel Williams 123,750 (7) *
Hamilton House Direct
111 Marlowes
Hemel Hempstead
Herts HP1 1BB
United Kingdom

All executive officers and directors as a group
(6 persons) 4,975,000 38.2%

</TABLE>

67
<PAGE>
Notes

* Less than one percent of the outstanding shares of Common Stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of March 26, 1999 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing percentage ownership of each other person. To the
Company's knowledge, the entities named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.

(2) Percentage ownership is based on 13,014,360 shares of Common Stock
outstanding on March 26, 1999.

(3) Includes 30,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of March 26,1999.

(4) Includes 30,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of March 26,1999.

(5) Includes 30,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of March 26,1999.

(6) Includes 180,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of March 26,1999.

(7) Includes 123,750 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of March 26,1998.

68
<PAGE>
Item 13. Certain Relationships and Related Transactions.

During the first quarter of 1999, the Company loaned to Path 1 Network
Technologies Inc. ("Path 1") $150,000. The loan, which did not bear
interest, was repaid during the first quarter of 1999. Mr. Paul Robinson,
Chairman of the Board and Chief Executive Officer of the Company, and Mr.
Roderick Adams, Director and Vice-President of Corporate Development of the
Company, are directors of Path 1. The Company owns Preferred Stock in Path 1
which is convertible into 277,018 shares of Path 1, which represents
approximately 5% of Path 1's outstanding shares.

69
<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

NONE

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.

10.04 Agreement dated March 26, 1998 between Jyra Research Inc.
and Socrates Inc. Filed as exhibit 10.04 to Jyra Research Inc. Annual Report
on Form 10K. SEC File No. 333-19183

10.05 Heads of Agreement dated July 24, 1998 between Jyra
Research Inc. and Siemens Nixdorf Informationssysteme AG.

10.06 Executive Stock Option Plan dated September 1, 1998.

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<PAGE>
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.

71
<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 31 March 1999.
Jyra Research Inc.

____________________
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.

____________________
Paul Robinson
President & CEO

_____________________
Roderick Adams
Chief Financial Officer,
Director
(Principal Financial

and Accounting Officer)

_____________________
Peter Lynch
Director

_____________________
Robin Elsom
Director

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<PAGE>

July 24, 1998

==============================================================================
Heads of Agreement
==============================================================================

The purpose of this document is to outline a working heads of
agreement between Jyra Research Inc [Jyra] and Siemens Nixdorf
Informationssysteme AG , Switzerland [SNI] - Business Unit Network Systems.

SNI will resell and support the Jyra service Management Architecture
products. This will entail full support to SNI customers in Switzerland

SNI will receive 40% discount on all software product including
software upgrades. No discount will apply to Consultancy and training.
Discounts will be made from the published European list price.

SNI will be able to demonstrate the Jyra product and will purchase
demonstration software at 55% discount, limited to one system per SNI office.

Jyra will provide initial training to sales and technical personnel ,
up to five days, free of charge Thereafter courses will be charged at normal
rates.

Jyra will provide support to SNI by fax, telephone and e-mail during
the standard working days between 09.00 and 18.00. GMT

After an initial period of 3 months Siemens will provide a short
business plan detailing the expected business opportunity for the following
year.

This agreement will be reviewed in 6 months time, thereafter it will
automatically be renewed on a yearly basis. Three months notice is required by
either party to terminate the agreement.

Signed on behalf of Jyra Research Inc

By: /s/ Paul Robinson
______________________
Mr Paul Robinson
Chief Executive

Signed on behalf of SNI

By: /s/ Urs Iten

Mr Urs Iten

73
<PAGE>

JYRA RESEARCH INC.
EXECUTIVE STOCK OPTION PLAN

dated Sept 1, 1998

1 . Purpose. The purpose of this Plan is to provide financial incentives to
Key Executives of, or Independent Advisors to Jyra Research Inc. whose
entrepreneurial and management talents and commitments are essential for the
continued growth and expansion of that corporation's business.

2 . Definitions. For purposes of this Plan:

(a) Board means the board of directors of the Corporation.

(b) Code means the Internal Revenue Code of 1986, as amended.

(c) Committee means a group of persons appointed by, and serving at the
pleasure of, the Board, whose purpose is to administer the Plan and perform the
functions set forth herein for the Committee.

(d) Common Stock means the Common Stock, par value $0.001 per share, of the
Corporation, and any other stock or securities resulting from the adjustment
thereof or substitution therefor as described in paragraph 9 below.

(e) Corporation means Jyra Research Inc.

(f) Disability means the condition which results when an individual has
become permanently and totally disabled within the meaning of 105(d)(4) of
the Code.

(g) Independent Advisors means individuals or companies designated by the
Committee as being eligible to receive options under the Plan. Such Independent
Advisors involvement with the Corporation shall be deemed by the committee to
be of positive nature and for the long term benefit of the Corporation.

(h) Key Executive means an officer or a director of the Corporation or any
Subsidiary thereof, and such other Key Executives of the Corporation or any
Subsidiary thereof designated by the Committee as being eligible to receive
options under the Plan.

(i) Optionee means a Key Executive and Independent Advisor to whom an option
has been granted under this Plan.

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<PAGE>
(j) Plan means the Jyra Research Inc. Stock Option Plan as set forth in this
instrument and as it may be amended from time to time.

(k) Stock Option Agreement (or the "Agreement") means the written agreement
between a Key Executive and Independent Advisor and the Corporation evidencing
the grant of an option under the Plan and setting forth the terms and
conditions of that option.

(l) Subsidiary means a subsidiary corporation of the Corporation within the
meaning of 425(f) of the Code.

(m) Successor Corporation means a corporation, or a subsidiary of such
corporation, which issues or assumes a stock option in a transaction to which
425(a) of the Code applies.

3 . Administration. The Plan shall be administered by the Committee, which
shall keep minutes of its meetings. The Committee shall have all of the powers
necessary to enable it to carry out its duties under the Plan properly,
including the power and duty to construe and interpret the Plan and to
determine all questions arising under it. The Committee's interpretations and
determinations shall be conclusive and binding upon all persons. It may also
establish, from time to time, such regulations, provisions, procedures and
conditions regarding the options and granting of options which in its opinion
may be advisable in administering the Plan. A majority of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which there is a quorum, or acts approved in writing by a majority
of its members, shall be acts of the Committee.

4 . Eligibility. Only Key Executives or Independent Advisors shall be
eligible to be granted options to purchase Common Stock under the Plan. The
Committee shall, from time to time, (i) determine those Key Executives or
Independent Advisors to whom stock options shall be granted; (ii) determine the
number of shares and conditions of each such option; and (iii) grant such
options.

5 . Shares Available for Option. The Board shall cause to be made available
for the purposes of the Plan a total of 300,000 shares of Common Stock (or the
number and kind of shares of stock or other securities which, in accordance
with paragraph 9 below, are substituted for those 300,000 shares or to which
those shares are adjusted). In the event that an option granted under the Plan
to any Key Executives or Independent Advisor expires or is terminated
unexercised as to any shares covered by the option, those shares shall
thereafter be available for the granting of future options under the Plan.

75
<PAGE>
6 . Grant of Options. Subject to the provisions of the Plan, the Committee
shall have full and final authority to select those Key Executives or
Independent Advisors to whom options are to be awarded and to determine the
number of shares to be covered by each option and the other terms thereof. The
terms of each option need not be the same, but may vary for options granted
under the Plan at the same time or from time to time. The Committee may also
grant more than one option to a given Key Executives or Independent Advisor
during the term of the Plan, either in addition to, or in substitution for, one
or more options previously granted that Key Executives or Independent Advisor.

7 . Option Price. The Committee shall establish the option price at the time
an option is granted

8 . Exercise of Options.

(a) Each option granted under the Plan shall be exercisable at such time, in
such amount and upon such conditions as may be determined by the Committee at
the time of the granting of the option and set forth in the Stock Option
Agreement. In the case of an option not immediately exercisable in full, the
Committee may, from time to time and in its sole discretion, accelerate the
time at which all or any part thereof may be exercised.

(b) The Committee shall determine the term of each option at the time it is
granted. Not less than 100 shares may be purchased at any one time upon the
exercise of an option, unless the number of shares so purchased constitutes the
total number then exercisable under the option.

(c) Options granted under the Plan shall not be transferable by the Optionee
except by will, or if the Optionee dies interstate, by the laws of descent and
distribution of the state of the Optionee's domicile at the time of his death.
During an Optionee's lifetime, options granted under the Plan are exercisable
only by the Optionee.

(d) Subject to the terms and conditions and within the limitations of the
Plan, and, if applicable, 422A of the Code, the Committee may modify, extend,
replace or renew outstanding options granted under the Plan, or accept the
surrender of outstanding options (to the extent they have not yet been
exercised) and grant new options in substitution for them. Notwithstanding the
foregoing, however, other than modifications made pursuant to paragraph 12
below, no modification of an option shall alter or impair any rights or
obligations under any option granted under the Plan without the affected
Optionee's consent.

(e) In the event that the employment of an Optionee shall be terminated
(other than by reason of his death or Disability), such option may, except as
otherwise provided in the Stock Option Agreement or subparagraph 8(c) hereof,
be exercised (to the extent exercisable at the time of the termination of

76
<PAGE>
employment of the Key Executives or Independent Advisor) at any time within
three months (or such longer period as determined pursuant to paragraph 11
below) after such termination of employment, but in no event after the
expiration of the term of the option. Thereafter, such option shall be deemed
terminated. In the event that the employment of an Optionee shall be
terminated by reason of his death or Disability, such option may, except as
otherwise provided in the Stock Option Agreement or subparagraph 8(c) hereof be
exercised (to the extent exercisable on the date of the Key Executives or
Independent Advisor's death or Disability) at any time within one year (or such
longer period as determined pursuant to paragraph 12 below) after the date of
such death or Disability, but in no event after the expiration of the term of
the option. Thereafter, such option shall be deemed terminated. In the event
of an Optionee's death, such Optionee's options shall be exercisable, to the
extent provided in the Plan or under the Stock Option Agreement, by the legatee
or legatees under such Optionee's will, or by such Optionee's personal
representatives or distributees.

(f) Each option shall be confirmed by a Stock Option Agreement which shall be
executed by the Corporation and by the Optionee.

(g) The option price for each share of Common Stock purchased pursuant to the
exercise of an option shall be paid in full at the time the option is exercised
and shall be paid in cash. Each share to be issued upon such exercise shall be
issued and delivered to the person entitled to receive it at the principal
office of the Corporation.

(h) To the extent that an option is not exercised within the period of time
prescribed by the Plan and the Stock Option Agreement confirming the option,
or, as provided for in the Plan or the Stock Option Agreement, the option is
terminated, the option shall lapse and all rights of the Optionee with respect
to it shall terminate.

(i) Nothing in the Plan or in the Stock Option
Agreement shall confer on any employee any right to continue in the employ of
the Corporation or any Subsidiary or Successor Corporation; affect the right of
the Corporation or any Subsidiary or Successor Corporation to terminate such
employee's employment at any time; or be deemed a waiver or modification of any
provision contained in any agreement between the employee and the Corporation
or any Subsidiary or successor corporation. The Stock Option Agreement may
contain such provisions as the Committee shall approve with reference to the
effect of approved leaves of absence.

9 . Changes in Common Stock.

(a) In the event that the outstanding shares of the Common Stock are changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Corporation or of another corporation or entity, whether
through reorganization, recapitalization, stock dividend, stock split-up,
combination of shares, merger, consolidation, or otherwise, the Committee shall

77
<PAGE>
make appropriate adjustments to the maximum number and class of shares of stock
as to which options may be granted under the Plan and the number and class of
shares of stock with respect to which options have been granted under the Plan
and the option price for such shares. The Committee's adjustment shall be
effective and binding for all purposes of the Plan and each Stock Option
Agreement entered into under the Plan. No adjustment provided for in this
paragraph 9 shall require the Corporation or such other corporation or entity
to issue a fractional share, and the total adjustment with respect to each
Stock Option Agreement shall be limited accordingly.

(b) Upon the effective date of any merger, consolidation, reorganization,
liquidation or sale of all or substantially all of the assets of the
Corporation (a "Terminating Event"), the Plan and any unexercised options
granted under the Plan shall terminate unless provision shall be made in
writing in connection with such Terminating Event for the continuance of the
Plan and for the assumption of such unexercised options by a successor employer
or parent or subsidiary thereof or for the substitution for such unexercised
options of new options covering shares of such successor with appropriate
adjustments as to number and kind of shares and prices of shares subject to
such new options. In such event, the Plan and the unexercised options
theretofore granted or the new options substituted therefore shall continue in
the manner and under the terms provided in the Plan.

10 . Amendment or Termination of Plan. The Board shall have the right to
amend, suspend or terminate the Plan at any time; provided that, except as and
to the extent authorized and permitted by paragraph 9 above or paragraph 12
below, no amendment shall be made which shall (i) increase the total number of
shares which may be issued and sold pursuant to the exercise of options granted
under the Plan, (ii) increase the total number of shares which may be covered
by any option or options to one individual, (iii) extend the period for
granting or exercising any option, or (iv) change the class of employees
eligible to receive options, unless such amendment is made by or with the
approval of the shareholders of the Corporation. With the exception of any
amendment made pursuant to paragraph 12 below, the rights of an Optionee under
any option granted prior to an amendment, suspension or termination of the Plan
shall not be adversely affected thereby except with the consent of the
Optionee.

11 . Indemnification of Stock Option Committee. The members of the Committee
shall be indemnified by the Corporation for any acts or omissions as a member
of the Committee to the full extent permitted under applicable law, including
the Delaware General Corporation Law, as amended from time to time.

12 . Compliance with Law and Other Conditions. All options and Stock Option
Agreements shall be governed by the laws of the State of Delaware to the extent
not superseded by the laws of the United States. No shares shall be issued
pursuant to the exercise of any option granted under the Plan prior to
compliance by the Corporation or any successor thereto, to the satisfaction of

78
<PAGE>
their counsel, with any applicable laws. The Stock Option Agreements and
amendments thereto shall set forth any requirements for, or restriction of,
exercise that the Committee deems appropriate to comply with any securities or
other laws or regulations or exemption therefrom, including but not limited to,
restrictions as to the times permitted for exercise. In the event that the
Committee does restrict such times, it may extend the three month and one year
periods stated in subparagraph 8(e) above, should the end of such periods fail
to occur during a time in which the exercise is permitted, provided that in no
event may such period be extended beyond the term provided for in subparagraph
8(e) above.

13 . Effective Date and Duration of Plan. The effective date of the Plan
shall be the date of its adoption by the Board. No options may be granted
under the Plan after the date ten years from the date the Plan is adopted by
the Board.

JYRA RESEARCH INC.

By: /s/ Paul Robinson
-----------------------
Paul Robinson, Director

By: /s/ Peter Lynch
-----------------------
Peter Lynch, Director

By: /s/ Roderick Adams
-----------------------
Roderick Adams, Director

By: /s/ Robin Elsom
-----------------------
Robin Elsom, Director

By: /s/ Nigel Williams
-----------------------
Nigel Williams, Director