10-Q 1 r10qjune01body.txt BODY OF JYRA'S 10-Q JUNE 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) __ |_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 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 ----------------------------------------------------- (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 July 27, 2001, the registrant had outstanding 14,677,586 shares of Common Stock, par value $0.001. Jyra Research Inc. FORM 10-Q INDEX PAGE NO. -------- Cover Page 1 Index 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 2001 and December 31, 2000 (unaudited) - 3 Consolidated Statements of Operations - 4 Three months ended June 30, 2000, June 30, 2001 Six months ended June 30, 2000, June 30, 2001 (unaudited) Condensed Consolidated Statements of Cash Flows - 5 Three months ended June 30, 2000, June 30, 2001 Six months ended June 30, 2000, June 30, 2001 (unaudited) Consolidated Statement of Stockholders' Equity Period January 1, 2001 to June 30, 2001 (unaudited) 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about market risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds. 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports 17 Signatures 18 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 2001 and December 31, 2000 (unaudited)

3 Consolidated Statements of Operations (Unaudited) Three and Six months ended June 30, 2000, June 30, 2001

4 Condensed Consolidated Statement Of Cash Flows (unaudited) Six months ended June 30, 2000, June 30, 2001

5 Consolidated Statement of Stockholders' Equity Period January 1, 2001 to June 30, 2001 (unaudited) Other Common Stock Paid-In Deficit Comprehensive Shares Amount Capital Accumulated Income $ $ $ $ $ Brought forward Balance as at 31- December -00 13,997,586 7,720 11,566,140 (11,716,387) 1,892,369 January Issuance of Common Stock at $0.75 Per Share 680,000 680 509,320 - - Issuance Expenses of Capital Stock - - (33,625) - - Net Loss For The Period To June 30, 2001 - - - (1,869,221) - Translation Adjustment For The Period - - - - 1,205,803 Unrealised gain on available for sale securities - - - - (516,361) ---------- ---------- ---------- ---------- ---------- Balance at June 30, 2001 14,677,586 8,400 12,041,835 (13,585,608) 2,581,811 ---------- ---------- ---------- ---------- ---------- The accompanying notes are an integral part of these condensed consolidated financial statements.

6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 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, 2000 included in the Company's Form 10-K. The results of operations for the three months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. 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. DEVELOPMENT STAGE ENTERPRISE The Company met the guidelines as a Development Stage Enterprise as defined by FAS 7 for the period from incorporation on May 2, 1996 until December 31, 2000. In the opinion of the Directors the Company is no longer considered to be in the development stage and as permitted by paragraph 13 of FAS 7, the cumulative amounts and other disclosures required by the standard are no longer required to be shown. C. 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. D. EARNINGS PER SHARE Earnings per share are computed using the weighted average number of shares of common stock outstanding during the period. E. STOCK OPTION PLAN The Company has adopted two separate stock option plans. The first is for key employees and the second for key executives. 7 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (Cont'd) 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. During the quarter ended June 30, 2001, 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 June 30, 2001 there were 679,000 shares under option plan for key employees. At June 30, 2001 there were 321,000 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 quarter ended June 30, 2001, no shares were granted to key employees. At June 30, 2001, there were 180,000 shares under option plan for key executives. At June 30, 2001 there were 120,000 shares available for future grants under the option plan for key executives. 8 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 starting on page 34 in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 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 18 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 on Form 10-K for the year ended December 31, 2000 which is on file with the Securities and Exchange Commission., which identify important risk factors that could cause actual results to differ from those contained in the forward looking statements. 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 info@jyra.com. BUSINESS OVERVIEW Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996, is now a market leader in Quality of Experience (QoE) monitoring and measurement software solutions. Jyra is defining the QoE monitoring and measurement market and helping to lead the way in the constant endeavour for sustainable and profitable business models in the New Economy. Jyra has developed Service Management Solution for providing direct measurement of the quality of experience of applications and network performance. This allows customers to effectively deliver reliable and fast 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. In an ever more competitive market, customers demand a quality of experience if they are to make use of a network and internet based services. We believe that the quality of services and the success of such services are linked. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) A user's view or experience is determined by how quickly from the time he presses the keypad the information appears on the screen regardless of whether the data or application is coming from a local or global network. Users do not care how complex an issue; it is to deliver the information they just want it quickly. The network from the user perspective is invisible, the information delivered through the application could just as easily come from a remote server as a local disk. We believe that the content of the application and the effectiveness of its delivery become the only important metrics. Jyra's solution provides users Quality of Experience information with the benefit of being able to pin point errors in a network that are affecting the users experience. A Jyra solution can provide a complete view of the service being offered by a global network. The Jyra Solution has the following primary characteristics: Application performance monitoring from the user's perspective Distributed scaleable architecture, which means that the tasks of monitoring, reporting, summarisation and control are distributed throughout the infrastructure to minimise the effects on that infrastructure Java based architecture which provides portability, flexibility and network awareness Web based reporting and control Business oriented reporting and configuration Software runs on a standard low cost Intel/ Microsoft NT platform and operates with little or no human assistance. The Jyra Solution is a new way of addressing the problems of delivering a high quality controllable application service over today's networks. Jyra's customers are typically organizations offering and relying on a service for their commercial success. Their business prospects and the quality of the service they offer are closely connected. In addition Jyra wireless solutions are being used to test performance of next generation interactive mobile services such as General Packet Radio Service (GPRS) - data over mobile telephones, as well as WAP based services. Performance of wireless applications is increasingly regarded as a differentiator for mobile telecommunication companies delivering innovative interactive services. Now, as a result of GPRS, mobile telecommunication companies can deliver high bandwidth services but must focus on delivering quality of service and improved content. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) BT Cellnet purchased significant quantities of the Jyra product in the first quarter of 2001. BT Cellnet are using Jyra's product to monitor performance of GPRS services across their wireless network. This win was strategic both in terms of Jyra's position within this account but also in terms of providing us with a world class reference with which we can address the wider fast emerging market for wireless performance solutions. During 2001 one of the sectors we shall be focussing on is the wireless market, we believe that the BT Cellnet relationship will add significant value to our proposition to other wireless operators. During the second quarter 2001 the Company built a sales team capable of capitalizing on the position we believe the Company holds in the market, and such strategic wins as BT Cellnet. The Company's recruitment process was aided by the economic down turn in the Technology sector and specifically by the fall in demand from the heavily funded dot.com companies for key sales staff. Knowing the favourable recruitment conditions for recruiting quality sales personnel at economic rates Management took considerable time, effort, and an acceptable level of expense to recruit sales executives with a track record of solid sales performance. The Company initially focussed on securing a Sales Director, and was successful in attracting Stewart Boddy. Mr. Boddy brings 12 years' experience in senior management positions with major technology companies including Infovista and NetScout Systems. Mr. Boddy has a strong background in building revenue from the ground up and has succeeded in doing so twice in the past, on both occasions with companies in Jyra's sector. With Mr Boddy on board the Company then recruited a team of senior sales executives to rapidly expand business and opportunity in each of the Company's chosen vertical sectors of; Mobile Operators; Telecommunications; Independent Solution Providers; Financial, Manufacturing; and Retail. The initial sales executive appointments were completed in June and members of the team were each selected for their commercial acumen and extensive experience in selling high value business solutions in their specific sectors. Jyra's attraction for these high caliber sales professionals is the business opportunity provided by the Company's products and it's customer base which includes world class customers in each of the target sectors including company's such as BT Cellnet, The CarPhone Warehouse, TeleDanmark, Cap Gemini, BAA, and Yipes. Jyra's selection by such companies provides significant industry credibility and a platform from which to build revenues. Subsequent to the end of the second quarter 2001 the foundations of high quality team are now in place to exploit the opportunity in each sector. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) Since the Company embarked upon the new wave of its sales recruitment process the Company has seen a significant increase in many of the sales metrics it tracks. In this short period the numbers of major customer visits, proposals issued, proof of concepts begun, requests from existing customer's for software solution upgrades, request for maintenance renewals are all increasing as most importantly is the average value of customer proposals. This along with the continuing development of sales strategies based upon our new sales teams previous experience leaves the Company optimistic of it's sales performance. The Company's renewed sales activity and the strong senior level contact base furnished by the new sales team lead the Management to expect a strong growth trend to emerge in the third quarter. RESULTS OF OPERATIONS Revenues for the second quarter ended June 30, 2001 increased by 146% to $273,839 compared to $111,031 for the quarter ended June 30, 2000. Revenues for the six months ended June 30, 2001 increased by 16% to $631,245 compared to $545,988 for the six months ended June 30, 2000. Management is seeing a clear trend emerge encompassing both larger deals and a stronger pipeline of sales opportunity. Revenue in the second quarter 2001 was $273,839 compared to $357,406 in the first quarter 2001, Management attribute the reduction to the sudden general World wide slow down in technology sales and to the Company's focus on building the sales team during the quarter. Sales and Marketing expenses for the quarter ended June 30, 2001 increased by 51% to $377,535 compared to $250,085 for the quarter ended June 30, 2000. Sales and Marketing expenses for the six months ended June 30, 2001 increased by 54% to $756,356 compared to $492,650 for the six months ended June 30, 2000. The increase in Sales and Marketing expenditure was due to the cost associated with recruiting and employing additional salesmen. We anticipate that this trend will continue during 2001 as the Company continues builds its sales team. General and administrative expenses for the quarter ended June 30, 2001 decreased by 12% to $140,772 compared to $160,594 for the quarter ended June 30, 2000. General and administrative expenses for the six months ended June 30, 2001 decreased by 9% to $261,819 compared to $289,047 for the six months ended June 30, 2000. Research and Development expenses for the quarter ended June 30, 2001 decreased by 5% to $270,272 compared to $285,844 for the quarter ended June 30, 2000. Research and Development expenses for the six months ended June 30, 2001 decreased by 9% to $504,480 compared to $551,935 for the six months ended June 30, 2000. The Company continued to work on its existing development program, and is actively recruiting additional development staff. We believe that our Research and Development expense will increase during 2001 especially as a result of additional key hires in our development team. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) Interest income was $9,465 in the quarter ended June 30, 2001. The interest was generated from funds held on deposit and fixed term of one month or less. Earnings(Loss) per share for the quarter ended June 30, 2001 was ($0.06). The number of weighted average common shares outstanding was 14,677,586. LIQUIDITY AND CAPITAL RESOURCES Net cash used by operating activities was $1,603,149 for the six months ended June 30, 2001. 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 received from investing activities was $31,139 for the six months ended June 30, 2001. These funds were principally received as a result of the disposal of certain property and equipment. In addition $314,651 was generated from the sale of available for sale securities. As of June 30, 2001, the Company's principal sources of liquidity included cash and available for sale securities totalling $1,753,248. 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's Business Plan for 2001 continues on from the one in place during 2000 and is heavily geared towards implementing an aggressive Sales & Marketing strategy to capitalise on its leading technology. The Company plans to fund its aggressive campaign through a mixture of sales revenue, strategic alliances and equity funding. We believe that we will have sufficient working capital to fund current levels of operations for the next 12 months, 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 2001/2. In addition, in the event that the Company receives a larger than anticipated number of purchase orders the Company may require resources greater than our available cash or than are otherwise available. In such event, the Company may be required to raise additional capital. The Company believes that, if needed, it will be able to obtain additional funds required for future needs. 13 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 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 a leading provider of enabling technology for Real Time Interactive Multi-media over computer networks. The Path 1 patent-pending TrueCircuit technology makes it easy to deliver live interactive video and other applications that require guaranteed quality of service. As networks acquire greater bandwidth and users demand more services, the need for these applications is growing. During January 2001 our Board agreed that we will look to maximise our financial return from the Corporation's interest in Path1, the only quoted shares that the Corporation currently owns. The Board authorised the gradual reduction of the shareholding, in an orderly fashion over time. The Board gave its irrevocable and unanimous consent and authorisation for the initiation and completion of various disposals over time in respect of the Corporation's total holding of 277,018 shares in Path 1 Technologies Inc. As at July 27, 2001 we held 216,000 Path 1 with a gross value of $1,090,800. 14 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 on page 12 in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 which is on file with the Securities and Exchange, 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. 15 PART II. OTHER INFORMATION Jyra Research Inc Item 1. Legal Proceedings As of June 30, 2001, there are no 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. As reported in the Company's 10-Q for the period ended March 31, 2001 the company was included in a settlement agreement for the lawsuits between Path 1, Ron Fellman, Doug Palmer, Roderick Adams and Jyra against Franklin Felber. Further details can be found in the Company's 10-Q for the period ended March 31, 2001 and Annual Report on Form 10-K for the year ended December 31, 2000 which are on file with the Securities and Exchange Commission. 16 PART II. OTHER INFORMATION (Cont'd) ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. There has been no change or modification in the constituent instruments defining the rights of holders of neither the corporation's sole class of registered security nor any modification of the rights evidenced by such class by issuance or modification of any other class of securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There has been no default of any nature upon any form neither of senior security nor in payment of interest or sinking or purchase fund instalment with respect to any indebtedness of the registrant, nor any other form of default upon any financial obligation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. FORM 8-K The Company did not file any reports on Form 8-K during the three months ended June 30,2001. 17 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/ Roderick Adams ____________________ Roderick Adams Chief Executive Officer Director (Principal Financial and Accounting Officer) August 13, 2001 By: /s/ Paul Robinson _____________________ Paul Robinson Director Vice President - Business Development August 13, 2001 18

JYRA RESEARCH INC 10-Q