<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 September 30, 1999
OR
__
|__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to____________
Commission file number 333-19183
JYRA RESEARCH INC ( A Development Stage Enterprise )
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 98-0167341
- - ------------------------------------------------------------------------------
(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 September 30, 1999 there were outstanding 13,370,526 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 -
Sept 30, 1998, Sept 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three months ended Sept 30, 1998, Sept 30, 1999,
Nine months ended Sept 30, 1998, Sept 30, 1999,
and Cumulative since Incorporation May 2, 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended Sept 30, 1998, Sept 30, 1999
and Cumulative since Incorporation May 2, 1996 5
Consolidated Statement of Stockholders' Equity 6 - 7
from Incorporation through Sept 30, 1999
Notes to unaudited Condensed Consolidated 8 - 9
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 17
Item 3 Quantitative and Qualitative Disclosures 18
about market risk
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET SEPT 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Sept 30 1998 Sept 30, 1999 December 31, 98
<S> <C> <C> <C>
Current Assets
Cash & Cash Equivalents 754,394 1,341,899 554,450
Prepaid Expenses 162,646 83,621 120,766
Accounts Receivable 212,905 376,831 228,787
Other Receivables 0 0 322,500
_________ _________ _________
Total Current Assets 1,129,945 1,802,351 1,226,503
Property & Equipment
Computers, Equipment & Motor Vehicles 704,510 708,501 696,039
Less Accumulated Depreciation 255,262 412,179 281,039
_________ _________ _________
Net Property & Equipment 449,248 296,322 415,000
Other Assets
Available For Sale 166,211 1,059,875 1,059,875
_________ _________ _________
TOTAL ASSETS 1,745,404 3,158,548 2,701,378
========== ========== ==========
Current Liabilities
Accounts Payable 217,299 174,648 184,972
Accruals & Deferred Income 45,752 132,041 167,809
Deferred Taxation on Investments 0 312,782 312,782
Current Portion Of Long Term Lease Obligations 12,844 24,987 12,844
_________ _________ _________
Total Current Liabilities 275,895 644,458 678,407
Creditors
Long Term Lease Obligations 16,548 21,378 13,893
Stockholders Equity
Common Stock $.001 par value
Authorised 20,000,000 shares
Issued Ordinary Share Capital 6,630 7,094 6,738
Paid In Capital 6,505,263 9,789,666 7,270,155
_________ _________ _________
6,511,893 9,796,760 7,276,893
Deficit Accumulated During
The Development Stage (4,982,706) (7,870,909) (5,817,807)
Accumulated other Comprehensive income (76,226) 566,861 549,992
_________ _________ _________
Total Stockholders Equity 1,452,961 2,492,712 2,009,078
_________ _________ _________
Total Liabilities & Stockholders Equity 1,745,404 3,158,548 2,701,378
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Period 1-Jan-99 Through 30-Sept-99
Cumulative Period 2-May-96(Date Of Inception) Through 30-Sept-99
<S> <C> <C> <C> <C> <C>
Three Months Ended Sept 30 Nine Months Ended Sept 30 Inception To
1998 1999 1998 1999 Sept 30, 1999
Revenue 190,780 286,669 454,247 495,124 1,423,228
Total Revenue 190,780 286,669 454,247 495,124 1,423,228
Cost Of Revenue 7,736 0 29,664 2,373 42,454
Total Cost Of Revenue 7,736 0 29,664 2,373 42,454
_________ _________ _________ _________ _________
Gross Margin 183,043 286,669 424,583 492,751 1,380,774
Operating Expenses
Sales & Marketing Costs 199,531 310,511 790,144 945,352 2,477,187
General & Administration 242,221 170,605 641,621 506,447 2,371,873
Research & Development 407,909 301,449 1,218,432 923,516 4,003,692
_________ _________ _________ _________ _________
Total Operating Costs (849,661) (782,564) (2,650,197) (2,375,315) (8,852,752)
Other Income/(Expenses)
Taxes other than Income Taxes 5,120 (2,783) (800) (4,262) (15,905)
Currency Exchange Differences 49,197 159,605 81,312 (36,288) 9,168
Provision for Doubtful Debts 0 0 0 0 (164,699)
Interest Income/(Expense) 10,879 (7,361) 74,831 684 224,881
Depreciation (48,247) (43,728) (142,038) (130,670) (445,859)
Loss on Disposal of Motor Vehicles 0 0 0 0 (6,516)
Total Other Income/(Expense) 16,949 105,733 13,305 (170,536) (398,930)
_________ _________ _________ _________ _________
Loss Before Income Taxes (649,669) (390,163) (2,212,309) (2,053,100) (7,870,909)
Provision for Income Taxes 0 0 0 0 0
Net Loss (649,669) (390,163) (2,212,309) (2,053,100) (7,870,909)
Earnings Per Share Of Common Stock
Average Shares Of 12,906,250 13,192,219 12,889,803 13,100,858
Common Stock Outstanding
Loss Per Share Of (0.05) (0.03) (0.17) (0.16)
Common Stock
Condensed Consolidated Statement Of Comprehensive Losses
Three Months Ended Sept 30 Nine Months Ended Sept 30 Inception To
1998 1999 1998 1999 Sept 30, 1999
Net Loss (649,669) (390,163) (2,212,309) (2,053,100) (7,870,909)
Foreign Currency (39,351) (38,016) (68,773) 16,868 (14,022)
Unrealised Gains on Securities 0 0 0 0 580,882
_________ _________ _________ _________ _________
Net Loss after Foreign (689,020) (428,179) (2,281,082) (2,036,232) (7,304,049)
CurrencyTranslation Adjustment.
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Period 1-Jan-99 Through 30-Sept-99
Cumulative Period 2-May-96(Date Of Inception) Through 30 Sept-99
<TABLE>
<CAPTION>
Nine Months Nine Months Cumulative
Sept 30, 1998 Set 30, 1999
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss (2,212,309) (2,053,100) (7,870,909)
Adjustments To Reconcile Net Loss To Net Cash
Used For Operating Activities:
Depreciation 148,443 131,140 412,179
Decrease/(Increase) In Prepaid Expenses (135,779) 37,145 (83,621)
(Decrease)/Increase In Deferred Income & Accruals (34,382) (35,768) 132,041
Increase In Accounts Payable 83,391 9,304 221,013
(Increase) In Accounts Receivable (160,843) (148,044) (376,831)
Decrease In Other Receivable 0 322,500 0
_________ _________ _________
(2,311,479) (1,736,823) (7,566,126)
Cash Flows From Investment Activities
Purchase/Disposal of Computers, Equipment & Vehicles (109,455) (12,462) (708,501)
Cash Flows From Financing Activities
Proceeds From The Issuance Of Common Stock 0 2,519,866 9,630,548
Effects Of Exchange Rate Changes On Cash (68,773) 16,868 (14,022)
Net (Decrease)/Increase In Cash & Cash Equivalents (2,489,707) 787,449 1,341,899
Cash & Cash Equivalents At Beginning of Period 3,244,101 554,450 0
_________ _________ _________
Cash & Cash Equivalents At End of Period 754,394 1,341,899 1,341,899
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
Consolidated Statement of Stockholders' Equity
Period from Inception Through 30-Sept-99 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated Other
Common Stock Paid-in During Comprehensive
Shares Amount Capital Development Income
$ $ $ $
<S> <C> <C> <C> <C> <C>
Balance at Inception - - - - -
Net Loss from 2-May-96 to 31-Dec-96 - - - (347,692) -
Issuance of Common Stock to 31-Dec-96
Public And Private Offerings:
May, 1996 at $.001 Per Share 2,750,000 2,750 - - -
August, 1996 at $.40 Per Share 2,392,500 2,393 954,607 - -
December, 1996 at $3 Per Share 1,000,000 1,000 2,999,000 - -
Stock Issued as Commissions:
August, 1996 at $.40 Per Share 91,000 91 36,309 - -
November, 1996 at $3 Per Share 43,100 43 129,257 - -
Issuance Expenses of Capital Stock - - (299,768) - -
Translation Adjustment for The Period - - - - (31,289)
Balance at 31-Dec-96 6,276,600 6,277 3,819,405 (347,692) (31,289)
September 8, 1997 Scrip Dividend
Share Issue 1 for 1 6,276,600
November 25 Issuance of Common
Stock at $8 Per Share 315,000 315 2,519,685 - -
Stock Issued as Commissions:
November. 1997 at $8 Per Share 22,050 22 176,378 - -
Issuance Expenses of Capital Stock - - (176,400) - -
Net Loss for The Period To 31-Dec-97 - - - (2,422,705) -
Translation Adjustment
for The Period for Cash - - - - 23,837
Balance at 31-Dec-97 12,890,250 6,614 6,339,068 (2,770,397) (7,452)
May 1 Issuance of Common Stock - - - - -
at $10.38 Per Share. 16,000 16 166,195 - -
December 23 Issuance of Common Stock 103,000 103 772,397 - -
at $7.50 Per Share
Stock Issued as Commission
December. 1998 at $7.50 Per Share 5,110 5 38,320 - -
Issuance Expenses of Capital Stock - - (45,825) - -
Net Loss for The Period To 31-December-98 - - - (3,047,410) -
Translation Adjustment
for The Period for Cash - - - - (23,438)
Unrealised gain
on available for sale securities - - - - 580,882
Balance at 31-December-98 13,014,360 6,738 7,270,155 (5,817,807) 549,992
</TABLE>
6
<PAGE>
Consolidated Statement of Stockholders' Equity (con't)
Period from Inception Through 30-Sept-99 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated Other
Common Stock Paid-in During Comprehensive
Shares Amount Capital Development Income
$ $ $ $
<S> <C> <C> <C> <C> <C>
Brought forward Balance as 13,014,360 6,738 7,270,155 (5,817,807) 549,992
at 31- December -98
March 23 Issuance of Common Stock
at $7.50 Per Share. 30,000 30 224,970 - -
Issuance Expenses of Capital Stock - - (11,250) - -
March 31 Issuance of Common Stock 10,000 10 74,992 - -
at $7.50 Per Share
April 6 Issuance of - - - - -
Common Stock
at $7.50 Per Share 11,000 11 82,489 - -
April 12 Issuance of - - - - -
Common Stock
at $7.50 Per Share 7,000 7 52,493 - -
May 19 Issuance of 40,000 40 299,960 - -
Common Stock
at $7.50 Per Share - - - - -
June 6 Issuance of Common Stock
at $7.50 Per Share . 4,200 4 31,496 - -
Issuance Expenses of Capital Stock - - (31,500) - -
July Issuance of Common Stock
at $7.50 Per Share. 70,000 70 524,930 - -
Issuance Expenses of Capital Stock - - (23,125) - -
Aug Issuance of Common Stock
at $7.50 Per Share. 14,000 14 104,986 - -
Sept Issuance of Common Stock
at $7.50 Per Share. 169,966 170 1,277,321 - -
Issuance Expenses of Capital Stock - - (88,250) - -
Net Loss For The Period
To 30-Sept-99 - - - (2,053,100) -
Translation Adjustment
For The Period for Cash - - - - 16,868
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Balance at Sept 30, 1999 13,370,526 7,094 9,789,666 (7,870,909) 566,861
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Jyra Research Inc ("Jyra" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 1998 included in the Company's Form 10K. The results of operations
for the three months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the fiscal year ending December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. CASH AND CASH EQUIVALENTS
For purposes of the condensed consolidated balance sheets and statements of
cash flows, the Company considers money market funds and other similar
financial instruments with an original maturity date of three months or less
to be cash equivalents.
C. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares of
common stock outstanding during the period.
D. STOCK OPTION PLAN
The Company has adopted two separate stock option plans. The first is for key
employees and the second for key executives.
Stock option plan for Key Employees
The Plan for key employees was adopted July 20, 1996. The Plan provides for
the granting of incentive stock options as defined in Section 422 of the
Internal Revenue Code, as well as non incentive stock options. All options are
awarded at not less than the market price of the Company's common stock on the
date of grant. Such options expire on the fifth anniversary of the date on
which the option was granted. On March 30, 1997, the original Stock Option
Plan dated July 20, 1996 allowing for the grant of up to a total of 300,000
common shares was amended to allow for the grant of up to a total of 500,000
common shares. The stock option plan has been adjusted for the 100% stock
dividend and allows for the grant of up to a total of 1,000,000 common shares.
8
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont)
During the 3rd quarter 1999, no shares were granted to Key Employees.
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 September 30, 1999 there were 939,000 shares under option plan for key
employees.
At September 30, 1999 there were 61,000 shares available for future grants
under the option plan for key employees.
Stock option plan for key executives
The Plan for key executives was adopted Sept 1, 1998. All options are awarded
at not less than the market price of the Company's common stock on the date of
grant. Such options expire on the fifth anniversary of the date on which the
option was granted. The Plan allows for the grant of up to a total of 300,000
common shares.
During the 3rd quarter 1999, no shares were granted to Key executives.
At September 30, 1999, there were 255,000 shares under option plan for key
employees.
At September 30, 1999 there were 45,000 shares available for future grants under
the option plan for key employees.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
section 27A of the Securities and Exchange Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which reflect the
Company's current judgement on those issues. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause the
actual results to differ materially. Important factors which could cause
actual results to differ materially are described in the following paragraphs
and are particularly noted under BUSINESS RISKS on page 17 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 17 and the "Financial Risk
Management, "Potential Volatility in Operating Results, "Investments and
Alliances, "Competition", "Research and Development", "Manufacturing",
"Patents, Intellectual Property, and Licensing", "Future Growth Subject to
Risks" and "Other Risk Factors" sections contained within the Annual Report,
which identify important risk factors that could cause actual results to differ
from those contained in the forward looking statements.
BUSINESS (INTRODUCTION)
Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996
under the laws of Delaware. The Company is in the business of designing,
developing, and marketing performance management solutions to (i) provide
a business oriented view of network performance (ii) maximize network
productivity, and (iii) solve network problems caused by the constant increase
in network traffic, combined with the growing complexity of networks. These
problems result in lost revenues, escalating costs and major systems failures
across the corporate spectrum. Management believes that current network
management systems do not have the capability to effectively deal with these
problems.
The Company's executive offices are located at Hamilton House, 111 Marlowes,
Hemel Hempstead, United Kingdom and its telephone number at that location is
+44 1442 403600. The Company can also be reached by visiting its web-site at
http://www.jyra.com. For general inquiries, the reader may also email
[email protected].
Jyra has developed Service Management software for providing direct measurement
of the quality of end-to-end application performance. This allows customers to
effectively deliver robust e-commerce services, implement tangible service
level agreements (SLAs), and to measure the improvements which technology
investment has on user response time and hence business efficiency.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Networking is a multi-billion dollar global market where growth is spurred by
the belief that the Internet is changing the way all people work, live, play
and learn. Over the last year, there has been a key shift in the role of the
Internet and in how the Internet is perceived. What was once a fairly complex
tool used by an elite group of highly technical individuals is now a technology
driving economic change globally by creating new jobs and market opportunities.
Management believes that this trend and the response to this trend by the major
telecommunications operators is the largest factor which will drive future
sales of the Company's distributed application performance management products.
HISTORY OF THE DEVELOPMENT OF THE COMPANY'S SERVICE MANAGEMENT SOFTWARE
The Company's Service Management software is a distributed service management
system designed to provide detailed, accurate views and reports of the service
being delivered to end-users. It is intended that this focus on the end-user
allows the software to be used to monitor both the stability of a network and
to provide measurement of performance based Service Level Agreements from the
perspective of an end-user of the service. Jyra's Service Management software
comprises Service Level Monitors and Mid-Level Managers which can act as a
single distributed system reporting on network response time, or network
performance, as experienced by users at different locations. The initial
version of Jyra's Service Management software was released early in 1997, and
Version 2.0 of the software was launched in September 1997. After Version 2.0
of the software was launched the Company continued to communicate with
customers and potential customers to ascertain how well the software was
meeting their needs. Customer feedback showed the software needed to operate
in a distributed manner, whereby semi-autonomous components could be spread
across large networks to monitor network response times from multiple
locations, reporting back to a central console as required. Management made the
decision to redesign the service level and mid level manager to be components
of a potentially large distributed system. Accordingly, the Company began
redesigning Version 2.0 of the software to meet the requirements of distributed
and scalable operations. The first significant distributed components of the
software were available for release to a select group of initial strategic
customer release during the second quarter of 1998. Field tests of these
distributed components were conducted. 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.
In the past the Company has had the strategy of focusing sales on
telecommunications companies. It was believed that these companies were most
likely to benefit from the ability to provide new revenue generating services,
based around the Company's software. Although this strategy has been
beneficial (with several telecommunications companies moving into customer
deployment), management believes that one particular part of this industry is
most likely to benefit from the Companies products - the Application Hosting
Market.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
It is in the Application Hosting market that companies take ownership of a
customer's IT services and deliver them on their behalf. The fact that
customers rely on these services in order to run their business requires
hosting companies to ensure and prove they are providing a service that meets
the business requirement. This is especially the case when hosting companies
take responsibility of the delivery of a customer's revenue generating
services, such as e-commerce. It is in this market that the Company can add the
most value, since the application hoster's capabilities are represented by the
response times delivered by their hosted services. With services such as
e-commerce, it is a widely understood that response times directly affect the
revenue generated by the service and the need to monitor and manage response
times becomes critical.
The accelerating growth of IP based secure e-commerce services is changing the
requirements of the telecommunications companies as their customers are now
demanding further capabilities to outsource their e-business and e-commerce
systems. This expansion in demand has increased the scale of the opportunity
which the telecommunications companies are now pursuing. A significant factor
in this demand is that performance monitoring has entered the mainstream
corporate conscience with the realisation that business performance is directly
related to network and on-line response times. Jyra's opportunity within the
service provider market consequently has new emphasis. A report by Zona
Research indicates that slow download times may be costing e-commerce merchants
more than $4 billion in lost sales opportunities each year. Management
attributes much of the increased awareness of Jyra's Service Management software
to service providers realising that monitoring e-commerce performance is
central to the range of services they will need to offer to compete in an
increasingly deregulated environment.
The exploding importance of e-commerce, and its critical dependence on network
performance, is driving the need for Service Management software. At the senior
non-technical executive level it is now becoming recognised that network
performance does affect business performance and has raised the opportunity for
Jyra's software. Management saw this interest translate into orders resulting in
revenue during the third quarter. The Company had planned to issue a new
release of its Service Management software during the third quarter 1999.
However, the Company uncovered several instances of unlicensed use of the
Company's software during the quarter and the release was delayed to allow the
incorporation of new licensing control procedures. The release is now
scheduled for the end of November 1999 and will incorporate the secure
monitoring protocols necessary for monitoring on-line banking and on-line
trading systems. Management is confident that the mission critical nature of
on-line performance for premium trading services will cause strong demand for
its Service Management software.
12
<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 arrangement with
Cisco Systems, which initially targeted European Service Providers
(Telecommunication companies). Management believes this gives the Company the
reach and credibility to succeed in becoming a standard among European Service
Providers. Jyra and Cisco sales teams are positioning Jyra's Service Management
software to telecommunications companies as a part of Cisco Service Management
System, (CSM).
The Company continues to extend the areas of joint activity with Cisco Systems.
Among the first of these was the Cisco Enabled Network Solutions (CENS)
program. The CENS program is a key component of Cisco's channel partner
enablement strategy, ensuring that end-users have access to the support
required to deploy emerging technologies, and to address complex network
deployments. Through the use of Jyra in the CENS professional services
program, Cisco customers gain a valuable service and resource view of their IT
networks. Jyra's Service Management software is used by Cisco Professional
Services group and CENS participating partners, to offer specific network
performance solutions to major customers providing exposure of the Jyra product
to the Cisco customer base. This program has allowed the Company
to extend the range of Cisco teams who can offer the company's Service
Management software to customers. These now also include the Cisco Network
Supported Accounts Group and the Cisco Critical Accounts Group.
The Cisco-Enabled Network Solutions CENS) partnership started to result in
business during the third quarter. Management is confident that this trend
will continue as Cisco are staring to deploy new technologies that are more
dependent on the monitoring capabilities that the Company develops. An example
of this is Cisco's heavy commitment to the Voice over IP market, where phone
calls can be made over their Internet equipment. A pre-requisite for this to
work is that a monitoring solution is in place to ensure that sufficient
network bandwidth is available to support Voice over the Internet (IP network).
RESULTS OF OPERATIONS
Revenues for the third quarter ended September 30,1999 was $286,669 compared to
$93,073 for the previous quarter ended June 30, 1999. This represents a 308%
increase quarter-on-quarter and is largely due to wins in the key market of
e-commerce. The Company achieved initial sales into the target sectors
including on-line banking, securities trading, pharmaceuticals and mobile phone
providers. Revenues for the nine months ended September 30, 1999 was $495,124
compared to $454,247 for the nine months ended September 30, 1998. Revenues for
the third quarter ended September 30,1999 was $286,669 compared to $190,780 for
the quarter ended September 30, 1998.
During the latter part of the third quarter ended September 30,1999, the
Company started focussing, initially with PSInet, on delivering e-commerce
monitoring services as a result of the growth in demand for monitoring
e-commerce performance. This decision was reinforced in the light of the freeze
in IT capital expenditure put in place by many companies in preparation for the
millennium. It was anticipated that the freeze would have adverse affect on
product sales. Management believes the fact that many companies are restricted
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
from implementing new IT related projects during the millennium period will
be offset by the demand for organisations to deliver e-Commerce services.
Companies restricted by the freeze in IT capital expenditure consider services
offered by a third party to be unaffected by the freeze. The Company sees this
growth in e-commerce driving the need for Application Hosters to deliver service
commitments based around the Company's products. The Management sees this
resulting in increasing service revenues.
The growth of Application Service Providers in Europe has been dramatic.
PSINet, one of the largest and Europe's fastest growing ASPs, chose Jyra as the
basis for its "paid-for" customer service monitoring. This joint initiative is
anticipated to provide PSINet customers with new performance assured e-commerce
services and opens up the rapidly growing e-commerce market for Jyra's
performance monitoring solutions. PSI-Net raised $1.2 Billion to equip 12 major
computer hosting centers across the globe, the largest of these facilities is
in London.
Subsequent to quarter ended September 30, 1999 PSINet Inc launched Jyra
In-Site, a performance monitoring solution from the Company. Jyra In-Site
enables PSINet's customers to proactively manage the response times
experienced by the exploding number of visitors to their web-site, thereby
maximising their sales opportunity. Jyra charges PSInet a monthly fee per
customer per Web page monitored.
Jyra In-Site is a first to market service from PSINet which allows their hosted
customers to receive performance reports detailing the response times
experienced by their online visitors. This level of information allows PSINet's
customers to scale their ability to serve customers in-line with their market
opportunity. The need to manage the speed with which users can access web
services is becoming critical. This is especially the case in the burgeoning
e-Commerce market, whereby the speed of conducting a transaction is likened to
waiting in a queue or holding on a phone.
Sales and Marketing expenses for the quarter ended September 30, 1999 increased
55.6% to $310,511 compared to $199,531 for the quarter ended September 30,
1998. Sales and Marketing expenses for the nine months ended September 30, 1999
increased 19.6% to $945,352 compared to $790,144 for the nine months ended
September 30, 1998.
General and administrative expenses for the quarter ended September 30, 1999
decreased 30% to $170,605 compared to $242,221 for the quarter September 30.
1998. General and administrative expenses for the nine months ended September
30, 1999 decreased 21.5% to $506,447 compared to $641,621 for the nine months
ended September 30, 1998.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Research and Development expenses decreased by 35% to $301,449 for the
quarter ended September 30, 1999 compared to $407,909 for the three months
period ended September 30, 1998. Research and Development expenses for the nine
months ended September 30, 1999 decreased 24.2% to $923,516 compared to
$1,218,432 for the nine months ended September 30, 1998. This decrease in
spending was due to the replacement throughout 1998 of sub-contractors by
permanent staff. The Company continued to work on its existing development
program, and is actively recruiting additional development staff.
Interest expense was $7,361 in the quarter ended September 30, 1999. The
interest was incurred on lease purchase of Vehicles and Equipment.
Earnings(Loss) per share for the quarter ended September 30, 1999 was ($0.03).
The number of weighted average common shares outstanding was 13,192,219.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($1,736,823) for the nine months
ended September 30, 1999. The primary expenditure of this cash was to fund the
operating expenses offset against initial revenue adjusted for depreciation,
offset by Prepaid Expenses, Accounts Payable and Accounts receivable.
Net cash used in investing activities was $12,462 for the nine months ended
September 30, 1999. These funds were principally invested in additions to
property and equipment.
As of September 30, 1999, the Company's principal sources of liquidity included
cash, cash equivalents, totalling $1,341,899. 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. During the quarter ended September 30, 1999 the
Company sold 253,966 common shares at $7.50 per share to financial institutions
and accredited investors for total proceeds of $1,904,745.Management believes
that it will have sufficient working capital to fund current levels of
operations through the next 12 months, assuming the Company receives at least
$2 million from product sales and financing transactions involving the private
placement of equity securities. There can be no assurance the Company will be
able to raise the necessary funds. The Company establishes its expenditure
level based upon its expectations as future revenues and if revenue levels were
below expectations this could cause expenses to be disproportionately high.
Therefore, a decrease in near term demand or insufficient level of equity
funding would adversely affect the Company's results or operations in
1999/2000.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
Share exchange with Path 1 Network Technologies Inc.
The Company has entered into an agreement dated March 16, 1998 (the
"Agreement") with Path 1 Network Technologies Inc. ("Path 1"). Path 1 was
incorporated on January 30, 1998 under the laws of Delaware. Path 1 is
developing technology to enable existing and new computer, telephone and video
broadcast (including cable TV) networks and systems to each transmit all three
types of information over one line at the same time with excellent quality of
service, and provide expanded capabilities. Path 1's technology will act
as a "traffic cop," prioritizing packet flow, eliminating traffic congestion
and packet collision of digital information. The Agreement allowed for Jyra to
make a strategic investment in Path 1 and for Path 1 to make a strategic
investment in Jyra by Path 1 exchanging its Preferred Stock for common stock
of Jyra. The agreement became effective on April 21, 1998. The Board of
Directors of Path 1 approved the creation of a class of Preferred Stock to be
issued upon the completion of the Path 1 initial Offering (April 1998 at $0.60
per common share) in order to fulfil its obligations under the agreement for
the purpose of Path 1 making a strategic investment in Jyra, and for Jyra
making a strategic investment in Path 1. The Preferred Stock issued to Jyra is
non-assignable for 2 years, non-voting and does not bear interest. The
Preferred Stock can be converted at Jyra's option, into 277,018 Shares. The
Preferred Stock also provided that Path 1 shall neither issue any debt
securities for a period of two (2) years from the completion of the Offering,
nor issue any warrants in connection with an equity financing, without Jyra's
consent, which will not be unreasonably withheld.
During the quarter ended June 30, 1999 the Company had an option from a
shareholder of Path1 to acquire 225,640 common shares of Path1 at a price of
$4.00. During the quarter ended September 30, 1999 the company assigned the
total option at nil value to a number of non-affiliated parties, prior to the
expiry of the option on July 31, 1999.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont)
BUSINESS RISKS
The Company's future operating results may be adversely affected by certain
factors and trends of its market which are beyond its control. The market for
Jyra's products is characterized by rapidly changing technology and evolving
industry standards. Jyra believes its future success will depend, in part, on
its ability to continue to develop, introduce and sell new products. The
Company is committed to continuing investments in research and development;
however, there is no assurance these efforts will result in the development of
products for the appropriate platforms or operating systems, or the timely
release or market acceptance of new products.
The Company's results may be adversely affected by the actions of existing or
future competitors including established and emerging computer, communications,
intelligent network wiring, network management and test instrument companies.
New and competitive entrants into the field of network fault and performance
management may come from such diverse entities as established network hardware
companies which have embedded systems in their network hardware and smaller
companies which market their software products as having "network management"
functionality. There can be no assurance Jyra will be able to compete
successfully in the future with existing or future competitors. New entrants,
new technology and new marketing techniques may cause customer confusion,
thereby lengthening the sales cycle process for the Company's products,
particularly the Company's system products. Increased competition may also
lead to downward pricing pressure on the Company's products.
It has been widely reported that many major end-user corporations may freeze IT
spending in the second half 1999 as a contingency measure against Y2000 issues.
The company has not directly experienced this problem to date as a reason to
postpone sales, but clearly the risk exists that Y2000 may have an adverse
impact on the company's operating results.
Service provider sales are characterized by long sales cycles and highly
variable quarter-on-quarter revenues. The company's operating results may vary
accordingly.
17
<PAGE>
Item 3 Quantitative and Qualitative Disclosures about market risk
The Company is exposed to financial market risks, and foreign currency
exchange rates.
International Operations
The Company is subject to the normal risks of conducting business
internationally, including longer payment cycles and greater difficulty in
accounts receivable collection. The Company generally offers 30 day net
terms in the United States and Europe.
COMPETITION.
As described in the Business section of this document, the Company competes
with an array of established and emerging computer, communications,
intelligent network wiring, network management and test equipment companies.
Many of these companies have greater financial, technological and personnel
resources than those of Jyra. The smaller competitors are often willing to
offer lower pricing or other favourable terms for products competitive with
those of the Company. This could result in pressure on the Company to reduce
pricing on its products unless it is able to prevail on the sale by
successfully differentiating the benefits and functionality of the Company's
products compared to those of the competitor. Moreover, new competitors, new
technology and new marketing techniques may cause customer confusion, thereby
lengthening the sales cycle process for the Company's products.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JYRA RESEARCH INC
(Registrant)
By: /s/ Paul Robinson
____________________
Paul Robinson
President & CEO
November 15,1999
By: /s/ Roderick Adams
_____________________
Roderick Adams
Chief Financial Officer,
Director (Principal Financial
and Accounting Officer)
November 15,1999
20
