<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__
|_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
__
|__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to____________
Commission file number 333-19183
JYRA RESEARCH INC ( A Development Stage Enterprise )
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0167341
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HAMILTON HOUSE,111 MARLOWES, HEMEL HEMPSTEAD, HERTFORDSHIRE HP1 1BB UK
- ------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
(44) 1442 403600
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
As of March 31, 1999, there were outstanding 13,054,360 shares of the
Registrant's Common Stock (par value $0.001 per share).
<PAGE>
FORM 10-Q
INDEX
PAGE
Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998, March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
three months ended March 31, 1998, March 31, 1999,
and Cumulative since Incorporation May 2, 1996 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998, March 31, 1999
and Cumulative since Incorporation May 2, 1996 5
Consolidated Statement of Stockholders' Equity 6
from Incorporation through March 31, 1999
Notes to Condensed Consolidated Financial
Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 16
Item 3 Quantitative and Qualitative Disclosures
about market risk
-(Not applicable)
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Balance Sheet 31-Mar-99 (unaudited)
31-Mar-98 31-Mar-99 31-Dec-98
<S> <C> <C> <C>
Current Assets
Cash & Cash Equivalents 2,291,600 536,672 554,450
Prepaid Expenses 143,544 71,172 120,766
Accounts Receivable 58,099 148,621 228,787
Other Receivables 0 0 322,500
Total Current Assets 2,493,243 756,465 1,226,503
Property & Equipment
Computers, Equipment & Motor Vehicles 672,726 685,478 696,039
Less Accumulated Depreciation 157,923 316,988 281,039
---------- ---------- ----------
Net Property & Equipment 514,803 368,490 415,000
Other Assets
Available For Sale Securities 0 1,059,875 1,059,875
---------- ---------- ----------
TOTAL ASSETS 3,008,046 2,184,830 2,701,378
Current Liabilities
Accounts Payable 202,255 153,819 184,972
Accruals & Deferred Income 53,194 85,470 167,809
Deferred Taxation 0 312,782 312,782
Current Portion Of Long Term Lease Obligations 12,844 24,986 12,844
Total 268,293 577,057 678,407
Creditors: Amounts Falling
due after more than one year.
Long Term Lease Obligations 22,538 32,955 13,893
Stockholders Equity
Common stock -$.001 par value
Authorised - 20,000,000 shares
Issued 12,017,471 shares at 31 March 1999
and 12,890,250 shares at 31 March 1998
Ordinary Share Capital 6,614 6,778 6,738
Paid In Capital 6,339,068 7,558,867 7,270,155
---------- ---------- ----------
6,345,682 7,565,645 7,276,893
Deficit Accumulated
During The Development Stage (3,583,825) (6,649,957) (5,817,807)
Accumulated other Comprehensive income (44,642) 659,130 549,992
Total Stockholders Equity 2,717,215 1,574,818 2,009,078
Total Liabilities & Stockholders Equity 3,008,046 2,184,830 2,701,378
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations (unaudited)
Period 1-Jan-99 Through 31-March-99
Cumulative Period 2-May-96(Date Of Inception) Through 31-March-99
<S> <C> <C> <C>
Three Months Three Months Inception To
31-Mar-98 31-Mar-99 31-Mar-99
Revenue 31,025 115,382 1,043,486
Total Revenue 31,025 115,382 1,043,486
Cost Of Revenue 15,637 2,302 42,383
Total Cost Of Revenue 15,637 2,302 42,383
Gross Margin 15,388 113,080 1,001,103
Operating Expenses
Sales & Marketing 279,807 317,044 1,848,879
General & Administrative 134,917 153,296 2,018,722
Research & Development 448,159 308,146 3,388,322
Total Operating Expenses (862,883) (778,486) (7,255,923)
Other Income/(Expenses)
Taxes (800) (459) (12,102)
Currency Exchange Differences 44,920 (121,350) (75,893)
Provision for Doubtful Debt 0 0 (164,699)
Interest Income 38,254 (1,201) 222,996
Depreciation (48,307) (43,733) (358,922)
Loss on Disposal of Motor Vehicle 0 0 (6,516)
Total Other Income/(Expenses) 34,067 (166,743) (395,136)
Loss before Income Taxes (813,428) (832,149) (6,649,956)
Provision for Income Taxes 0 0 0
Net Loss (813,428) (832,149) (6,649,956)
Earnings Per Share Of Common Stock
Average Shares Of Common Stock Outstanding 12,890,250 13,017,471
Earnings/(Loss) Per Share Of Common Stock (0.06) (0.06)
- - Basic and Diluted
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Consolidated Statement Of Comprehensive Income
Three Months Three Months Inception To
31-Mar-98 31-Mar-99 31-Mar-99
Net Loss (813,428) (832,149) (6,649,956)
Foreign Currency Translation Adjustment (37,189) 109,138 78,248
Unrealised gains on securities 0 0 580,882
Comprehensive Loss (850,617) (723,011) (5,990,826)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement Of Cash Flows (unaudited)
Period 1-Jan-99 Through 31-March-99
Cumulative Period 2-May-96(Date Of Inception) Through 31-March-99
Three Months Three Months Cumulative
31-Mar-98 31-Mar-99
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income /(Loss) (813,428) (832,149) (6,649,956)
Adjustments To Reconcile Net Loss To Net Cash
Used For Operating Activities:
Increase in Depreciation 51,104 35,949 316,988
Decrease/(Increase) In Prepaid Expenses (116,677) 49,594 (71,172)
(Decrease)/Increase In Accrued Expenses (26,940) (82,339) 85,470
(Decrease)/Increase In Accounts Payable 74,337 52 211,761
Decrease/(Increase) In Accounts Receivable (6,037) 80,166 (148,621)
Decrease/(Increase) In Other Receivables 0 322,500 0
(837,641) (426,227) (6,255,530)
Cash Flows From Investment Activities
Purchase of Computers, Equipment & Vehicles (77,671) 10,561 (685,478)
Cash Flows From Financing Activities
Proceeds From The Issuance Of Common Stock 0 288,750 7,399,432
Effects Of Exchange Rate Changes On Cash (37,189) 109,138 78,248
Net (Decrease)/Increase In Cash &
Cash Equivalents (952,501) (17,778) 536,672
Cash & Cash Equivalents
At Beginning of Period 3,244,101 554,450 0
Cash & Cash Equivalents
At End of Period 2,291,600 536,672 536,672
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Stockholders Equity
Period From Inception Through Mar 31, 1999 (Unaudited)
Deficit
Accumulated Other
Common Stock Paid-In During Comprehensive
Shares Amount Capital Development Income
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Balance At Inception - - - - -
Net Loss from 2-May-96 to 31-Dec-96 - - - (347,692) -
Issuance of Common Stock to 31-Dec-96
Public And Private Offerings:
May, 1996 At $.001 Per Share 2,750,000 2,750 - - -
August, 1996 At $.40 Per Share 2,392,500 2,393 954,607 - -
December, 1996 At $3 Per Share 1,000,000 1,000 2,999,000 - -
Stock Issued As Commissions:
August, 1996 At $.40 Per Share 91,000 91 36,309 - -
November, 1996 At $3 Per Share 43,100 43 129,257 - -
Issuance Expenses Of Capital Stock - - (299,768) - -
Translation Adjustment For The Period - - - - (31,289)
Balance At 31-Dec-96 6,276,600 6,277 3,819,405 (347,692) (31,289)
September 8, 1997 Scrip Dividend
Share Issue 1 for 1 6,276,600
November 25 Issuance of Common
Stock at $8 Per Share 315,000 315 2,519,685 - -
Stock Issued As Commissions:
November. 1997 At $8 Per Share 22,050 22 176,378 - -
Issuance Expenses Of Capital Stock - - (176,400) - -
Net Loss For The Period To 31-Dec-97 - - - (2,422,705) -
Translation Adjustment
For The Period for Cash - - - - 23,837
Balance At 31-Dec-97 12,890,250 6,614 6,339,068 (2,770,397) (7,452)
May 1 Issuance of Common Stock - - - - -
at $10.38 Per Share. 16,000 16 166,195 - -
December 23 Issuance of Common Stock 103,000 103 772,397 - -
at $7.50 Per Share
Stock Issued as Commission
December. 1998 At $7.50 Per Share 5,110 5 38,320 - -
Issuance Expenses Of Capital Stock - - (45,825) - -
Net Loss For The Period To 31-December-98 - - - (3,047,410) -
Translation Adjustment
For The Period for Cash - - - - (23,438)
Unrealised gain
on available for sale securities - - - - 580,882
Balance At 31-December-98 13,014,360 6,738 7,270,155 (5,817,807) 549,992
March 23 Issuance of Common Stock
at $7.50 Per Share. 30,000 30 224,970 - -
Issuance Expenses Of Capital Stock - - (11,250) - -
- - - - -
March 31 Issuance of Common Stock 10,000 10 74,992 - -
at $7.50 Per Share. - - - - -
Net Loss For The Period To 31-March-99 - - - (832,149)
Translation Adjustment
For The Period for Cash - - - - 109,138
Balance at 31 March 1999 13,054,360 6,778 7,558,867 (6,649,956) 659,130
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Jyra Research Inc ("Jyra" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 1998 included in the Company's Form 10K. The results of operations
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. CASH AND CASH EQUIVALENTS
For purposes of the condensed consolidated balance sheets and statements of
cash flows, the Company considers money market funds and other similar
financial instruments with an original maturity date of three months or less
to be cash equivalents.
C. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares of
common stock outstanding during the period.
D. STOCK OPTION PLAN
The Company has adopted two separate stock option plans. The first is for key
employees and the second for key executives.
Stock option plan for Key Employees
The Plan for key employees was adopted July 20, 1996. The Plan provides for
the granting of incentive stock options as defined in Section 422 of the
Internal Revenue Code, as well as non incentive stock options. All options are
awarded at not less than the market price of the Company's common stock on the
date of grant. Such options expire on the fifth anniversary of the date on
which the option was granted. On March 30, 1997, the original Stock Option
Plan dated July 20, 1996 allowing for the grant of up to a total of 300,000
common shares was amended to allow for the grant of up to a total of 500,000
common shares. The stock option plan has been adjusted for the 100% stock
dividend and allows for the grant of up to a total of 1,000,000 common shares.
7
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont)
During the 1st quarter 1999, 30,000 shares were granted at an option price per
share of $8.00 to the following schedule:
PERCENT
EXERCISABLE
EXERCISE EVENT
One Year From Grant Date 25%
Two Years From Grant Date 25%
Three Years From Grant Date 25%
Four Years From Grant Date 25%
The number of shares for which options may be granted cannot exceed
1,000,000 shares of the Company's common stock. The Plan shall terminate on
the tenth anniversary of its original effective date, July 20, 1996, after
which no awards may be granted.
At March 31st, 1999 there were 934,000 shares under option plan for key
employees.
At March 31st, 1999 there were 66,000 shares available for future grants under
the option plan for key employees.
Stock option plan for key executives
The Plan for key executives was adopted Sept 1, 1998. All options are awarded
at not less than the market price of the Company's common stock on the date of
grant. Such options expire on the fifth anniversary of the date on which the
option was granted. The Plan allows for the grant of up to a total of 300,000
common shares.
At March 31st 1999, there were 255,000 shares under option plan for key
employees.
At March 31st, 1999 there were 45,000 shares available for future grants under
the option plan for key employees.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
section 27A of the Securities and Exchange Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which reflect the
Company's current judgement on those issues. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause the
actual results to differ materially. Important factors which could cause
actual results to differ materially are described in the following paragraphs
and are particularly noted under BUSINESS RISKS on page 16 and in the Company's
Annual Report on Form 10K for the year ended December 31, 1998 which is on file
with the Securities and Exchange Commission.
Certain Statements contained in this Quarterly Report on Form 10-Q, and the
Annual Report on Form 10-K referred to above, including, without limitation,
statements containing the words "believes", "anticipates", "estimates",
"expects", and words of similar import, constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Readers are referred to the BUSINESS RISKS on Page 16 and the "Financial Risk
Management, "Potential Volatility in Operating Results, "Investments and
Alliances, "Competition", "Research and Development", "Manufacturing", "Patents,
Intellectual Property and Licensing", "Future Growth Subject to Risks" and
"Other Risk Factors" sections contained within the Annual Report, which
identify important risk factors that could cause actual results to differ from
those contained in the forward looking
statements.
BUSINESS (INTRODUCTION)
Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996
under the laws of Delaware. The Company is in the business of designing,
developing, and marketing 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
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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
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].
BUSINESS
HISTORY OF THE DEVELOPMENT OF THE COMPANY'S 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
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
the May 1998 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. During 1998, 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
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
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, during the second quarter 1998, able to announce
this feature for June 1998 availability.
Jyra receives no revenues for the service sold by MCI to their customers, but
charged 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, 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.
The Company had a number of other 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 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
CISCO SYSTEMS
In October, 1998, the company embarked on a joint marketing agreement with
Cisco Systems, primarily 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.
Cisco Systems also, during the third quarter 1998, 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.
RESULTS OF OPERATIONS
Revenues for the first quarter ended March 31, 1999 increased 272% to $115,382
compared to $31,025 for the quarter ended March 31, 1998.
The company did not begin marketing its distributed solution until the second
quarter of 1998, and the increased revenue was due to increased acceptance of
the Company's product within European enterprises as a result of sales and
development activity within the second half of 1998.
Management believes there is currently a qualitative difference between the
European and USA markets for service monitoring solutions such that European
enterprises are more prepared to manage their IT as a service with measured
goals. 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 Application Performance Management forum
was formed by Bear Stearns to increase market awareness of service monitoring
solutions within the enterprise sector within the USA. The company has also
expanded its sales coverage within the USA by opening an office in Boston,
Massachusetts.
Management continues to believe that the major channel to market for its
service monitoring solutions is through telecommunications service providers,
as represented by continuing sales to Tele Danmark in the quarter. Management
believes that the Jyra solution being provided to Tele Danmark and their
customers has universal application among telecommunications service providers.
Further, management reaffirms its view that the joint marketing arrangement
with Cisco Systems provides the Company with the global reach and credibility
to succeed in becoming a standard component of the operational support system
among telecommunications companies over the course of the year as these
companies make the transition from traditional circuit-switched networking to
integrated IP services.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Accordingly, management has continued to focus the bulk of the company's
resources on the strategic goal of building a sound long-term relationship with
Cisco Systems at the expense of short-term revenue. Management believes that
this relationship offers the best opportunity to build a long-term revenue base
both in the enterprise and service provider market sectors. The relationship
was announced in October 1998. An initial education programme was carried out
in the period from January to March. The company is now participating in a
range of Cisco marketing programmes in addition to direct sales activity to
service providers. For example:
Throughout March and April, the company's sales representatives
Participated in a 20 city Network Management Roadshow hosted by
Cisco Systems within the USA, primarily targetted at US Enterprises.
In April, the company announced that its service monitoring solutions
will be incorporated into Cisco's European CENS (Cisco Enabled Network
Solutions) partner program, where it will be used as part of the latest
CENS consultancy offering, primarily targetted at European enterprises
through Cisco channel partners.
Each of these marketing programmes has the capability to generate many more
opportunities for future sales than the company can generate directly. In
particular, management also believes that the CENS programme has global
applicability.
Management retains its view that the initial presence of the Jyra solution
within the telecommunications industry, and both the increased quality and
quantity of opportunity generated through the Cisco relationship will enable
the company to execute its plans to scale sales and marketing operations to
address a global market, and plans to continue to focus the company's resources
accordingly.
Sales and Marketing expenses for the quarter ended March 31, 1999 increased
13.3% to $317,044 compared to $279,087 for the quarter ended March 31, 1998.
Additional sales staff have been recruited specifically to address the
opportunity with Cisco Systems and to increase the company's coverage within
the USA.
General and administrative expenses for the quarter ended March 31, 1999
increased 13.6% to $153,296 compared to $134,917 for the quarter March 31,
1998, largely as a function of increased business activity.
Research and development expenses decreased by 31% to $308,146 for the quarter
ended March 31, 1999 compared to $448,159 for the three months period ended
March 31, 1998. This decrease in spending was due to a further
levelling off of capital equipment purchasing, and the replacement throughout
1998 of sub-contractors by permanent staff. The Company continued to work
on the its existing development program while expanding its ability to respond
to the requirements of Cisco Systems and its major customers, and is actively
recruiting additional development staff.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Interest income was ($1,201) in the quarter ended March 31, 1999. Interest
has historically been paid quarterly in arrears from funds held on deposit
and fixed term of one month or less. During the quarter, no funds were
held on fixed term deposit. This interest payment relates to capital lease
expenditure.
Earnings(Loss) per share for the quarter ended March 31, 1999 was ($0.06). The
number of weighted average common shares outstanding was 13,017,471.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($426,227) for the three months ended
March 31, 1999. The primary expenditure of this cash was to fund the operating
expenses offset against initial revenue adjusted for depreciation, offset by
Prepaid Expenses, Accounts Payable and Accounts receivable.
Net cash used in investing activities was $10,561 for the three months ended
March 31, 1999. These funds were principally invested in additions to property
and equipment.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended March 31, 1999 the Company sold 40,000 common shares
at $7.50 per share to financial institutions and accredited investors for total
proceeds of $300,000
As of March 31st, 1998, the Company's principal sources of liquidity
included cash, cash equivalents, totalling $536,672. The Company
currently has no outstanding bank borrowings and has no established lines of
credit. The Company continues to meet its working capital requirements
through its product sales revenue and financing transactions involving the
private placement of equity securities. Management believes that it
will have sufficient working capital to fund current levels of operations
through 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 or operations in 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Share exchange with Path 1 Network Technologies Inc.
The Company has entered into an agreement dated March 16, 1998 (the
"Agreement") with Path 1 Network Technologies Inc. ("Path 1"). Path 1 was
incorporated on January 30, 1998 under the laws of Delaware. Path 1 is
developing technology to enable existing and new computer, telephone and video
broadcast (including cable TV) networks and systems to each transmit all three
types of information over one line at the same time with excellent quality of
service, and provide expanded capabilities. Path 1's technology will act
as a "traffic cop," prioritizing packet flow, eliminating traffic congestion
and packet collision of digital information. The Agreement allowed for Jyra to
make a strategic investment in Path 1 and for Path 1 to make a strategic
investment in Jyra by Path 1 exchanging its Preferred Stock for common stock
of Jyra. The agreement became effective on April 21, 1998. The Board of
Directors of Path 1 approved the creation of a class of Preferred Stock to be
issued upon the completion of the Path 1 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 can be
converted at Jyra's option, into 277,018 Shares. The Preferred Stock also
provided that Path 1 shall neither issue any debt securities for a period of
two (2) years from the completion of the Offering, nor issue any warrants in
connection with an equity financing, without Jyra's consent, which will not be
unreasonably withheld.
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BUSINESS RISKS
The Company's future operating results may be adversely affected by certain
factors and trends of its market which are beyond its control. The market for
Jyra's products is characterized by rapidly changing technology and evolving
industry standards. Jyra believes its future success will depend, in part, on
its ability to continue to develop, introduce and sell new products. The
Company is committed to continuing investments in research and development;
however, there is no assurance these efforts will result in the development of
products for the appropriate platforms or operating systems, or the timely
release or market acceptance of new products.
The Company's results may be adversely affected by the actions of existing or
future competitors including established and emerging computer, communications,
intelligent network wiring, network management and test instrument companies.
New and competitive entrants into the field of network fault and performance
management may come from such diverse entities as established network hardware
companies which have embedded systems in their network hardware and smaller
companies which market their software products as having "network management"
functionality. There can be no assurance Jyra will be able to compete
successfully in the future with existing or future competitors. New entrants,
new technology and new marketing techniques may cause customer confusion,
thereby lengthening the sales cycle process for the Company's products,
particularly the Company's system products. Increased competition may also
lead to downward pricing pressure on the Company's products.
It has been widely reported that many major end-user corporations may freeze IT
spending in the second half 1999 as a contingency measure against Y2000 issues.
The company has not directly experienced this problem to date as a reason to
postpone sales, but clearly the risk exists that Y2000 may have an adverse
impact on the company's operating results.
Service provider sales are characterized by long sales cycles and highly
variable quarter-on-quarter revenues. The company's operating results may vary
accordingly.
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PART II. OTHER INFORMATION
ITEM 6. Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JYRA RESEARCH INC
(Registrant)
By: /s/ Paul Robinson
____________________
Paul Robinson
President & CEO
May 17, 1999
By: /s/ Roderick Adams
_____________________
Roderick Adams
Chief Financial Officer,
Director (Principal Financial
and Accounting Officer)
May 17, 1999
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