ITEM 1. BUSINESS
Certain Statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words "believes", "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 Risk section starting on page 34., which identify important risk factors that could cause actual results to differ from those contained in the forward looking statements.
GENERAL
Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996 under the laws of Delaware. We are in the business of designing, developing, and marketing performance management solutions to:
- provide a business oriented users view of network and internet performance for delivering networked applications, especially e-commerce
- maximize network productivity, and
- solve network and internet problems caused by the constant increase in traffic, combined with the growing complexity of networks and internet.
We believe these network and Internet problems result in lost revenues, escalating costs and major systems failures across the corporate spectrum. We believe that current network management systems do not have the capability to effectively deal with these problems.
OUR INDUSTRY
Networking and e-commerce is a multi-billion dollar global market where growth is spurred by the belief that the Internet and mobile working are changing the way all people work, live, play and learn. There has been a key shift in the role of the Internet and in how the Internet is perceived. What was once a complex tool used by an elite group of technical individuals is now a technology driving economic change globally by creating new jobs and market opportunities. We believe Enterprises have shifted from treating investment in IT as a necessary evil to viewing IT and e-commerce as a strategic tool for increasing revenue and gaining market share. We believe that this trend towards IT and e-commerce forming a critical component of the business models used by new and traditional Enterprises is the largest factor which will drive future sales of our distributed application performance management products. We believe sales will be directly to the Enterprise and also to companies which provide infrastructure and services to Enterprises such as Internet Service Providers (ISPs) and telecommunications carriers (Telcos).
OUR PRODUCTS AND SERVICES
The business solution approach Enterprises now use to build their IT and e-commerce Systems and the multi-vendor implementation which are often used has placed severe restrictions on the value which traditional element management technologies can deliver. The business solution approach requires the underlying IT performance to be reported in terms of performance of the whole business solution and for this reporting to be a seamless end-to-end view. Traditional element management solutions have considerable difficulty transcending the administrative borders which exist in multi-vendor implementations and providing business level reporting. Jyra achieves this end-to-end business goal by directly measuring the performance of systems as an end user would experience them and then providing business oriented reporting of the measurements.
We have developed a Service Management Solution (SMS) that provides a direct measurement of the end-to-end performance of IT services. This allows customers to monitor the speed at which users can interact with IT systems and identify when and why the interaction has slowed down, thereby ensuring the consistent flow of business transactions. Jyra's SMS allows customers to monitor the speed with which systems can meet customer demand (such as the length of time it takes to make an on-line purchase, bank query,. ticket reservation, etc) and view the measurements in a business relevant context.
The response time of e-commerce services is now likened to keeping people hanging on the phone - the longer you keep them waiting, the less likely they are to spend money with you. This is especially the case on the web, where competition is only a mouse click away. Our technology allows customers to effectively manage e-commerce solutions, to implement tangible service level agreements (SLAs) and to measure their return on IT investment against the performance levels achieved. We provide a flexible and proactive approach to monitoring the speed with which business is transacted electronically.
Our packaged software solutions allow customers to quickly and easily set up monitoring of their mission critical on-line services. These customers are broadly categorised into the following two sectors:
Corporate/Enterprise - companies that have a mission critical dependence on their own, internal IT systems or infrastructure and increasingly choose to utilise the services and infrastructure of third parties to implement some or all of their IT systems.
Service Providers - telecommunications and hosting companies who provide connectivity and advanced services such as mobile wireless voice/data services, managed network services, network outsourcing, application and web hosting.
As a result, we sell our solutions in two ways as follows:
JYRA PERFORMANCE PRODUCTS - allow organisations to quickly and easily deploy global performance monitoring agents cost effectively within their own corporate networks.
JYRA IN-SITE - This is a service provider hosted on-line web monitoring service that provides companies with a detailed business orientated view of e-commerce performance and revenue opportunities.
The Jyra SMS is a distributed application performance management architecture capable of providing detailed, accurate overviews of global IT services being delivered to the end-user. It is this focus on the end-user that allows the SMS to be used as a tool to make continuous improvements in the performance of your systems and the ability to provide justification of Service Level Agreements to your important customers, be they internal or external. By persistently monitoring the services that are being provided the SMS can identify weak spots in the configuration, brought on by hardware failure, congestion, or other causes.
Key features of SMS include:
All web-based configuration and reporting - manage from anywhere
Remote summarisation and thresholding to reduce network traffic
JyraScope provides unique viewing capabilities allowing any of the types of monitoring to be cross correlated with any other type of monitoring, providing the powerful troubleshooting and reporting facilities required by today's complex networks.
Reliable alerting to upstream management stations
Automated update of remote agents based on configuration to reduce System management workload
Multiple timezone support. Global scheduling and synchronised reporting
Easy integration into HP and Cisco management solutions
Examples of the core Jyra functionality are:
Time taken for a WEB page to be completely down loaded and available for viewing. This includes links into back-end systems and hyper linked objects. Special features have been included for secure web sites.
Ability and response time of SQL databases to respond to a query
DNS lookup times
Application response times delivered to mobile devices
Response times of file servers
Application performance
Network latency with the ability to show individual router hops and the delay each hop induces
Alerting to Enterprise Management systems if a monitored service breaches a set SLA, as it occurs.
SNMP device and interface availability
PRODUCT LICENSING/PRICING
We issue both perpetual and time limited licenses for our solutions based on customer needs. Product licenses are priced both by the number of remote software agents and by the amount/type of work these agents are licensed to perform.
This flexible approach to licensing allows us to scale the pricing in line with the business benefit our customers derive from our solutions. This effective pricing model allows us to gain entry level orders starting at $15,000 and allows the license to scale up to $150,000 and beyond for particular customised and tailored hosted service provider solution.
JYRA SMS TECHNOLOGY BACKGROUND
Our product is developed in the JavaTM language providing an innovative, and higher platform-independence management solution for the users of today's increasingly powerful and flexible computer environments. The key to the success of the product is it's ability to run in a truly distributed hierarchical configuration. Any system that measures performance from multiple sources will create considerable network traffic if it needs to send the results back to a central server. The SMS keeps all data local to each agent and only sends a summarised result up to its parent agent, thereby minimising the impact on the network and removing the requirement to have a large central database server. An additional benefit of this distributed approach is the technology's ability to scale to a customer's network. Management of any distributed management tool is a an important consideration and SMS has been designed to provide ease of use in such environments. Once deployed, SMS can be configured from any location via a WEB browser. The system is given the configuration of the distributed monitoring required and it will automatically distributes relevant tasks to underlying agents.
The distributed directory within Jyra SMS enables rapid creation of business- oriented reports and minimises the cost of reconfiguring reporting in response to network and business change. Summarised results are produced as HTML reports and are again kept distributed at each agent location. The report will only transit the network when a conscious decision is made to view it. SLA monitoring is also handled at each agent with performance breaches being securely notified up through the architecture. The system will then deliver the SLA breach notification to an Enterprise Management System.
CUSTOMERS AND MARKETS
We believe that our market is best described as the application performance management market. The greatest opportunity exists for our product in those markets which use applications to carry revenue bearing, mission critical services. It is in these markets that board level recognition exists that the performance of applications has a direct impact upon revenue and productivity. As such, the need for monitoring the performance of such applications is seen as very important to the business.The market in which we operate has been described by Bear Stearns as the "Business Oriented Network Management" (BONM) market. A preliminary forecast by IDC (International Data Corporation) suggested that this BONM market would grow to $3B world-wide by the year 2002, whilst the growth rate of traditional network management tools was forecast to decrease.
The market for performance management tools and systems is subject to changing competitive forces and technological advances in products. Therefore, it is difficult for us to predict market requirements and to estimate the size of our market.
We believe that the market for end-user oriented service management solutions is growing rapidly and that the opportunity exists for new products to find acceptance in the marketplace. There are two key markets that our software addresses. These are;
CORPORATES/ENTERPRISE
We see the Corporate/Enterprise space to be divided into three types of customer;
"Bricks & Mortar" "Dot.COM" "Clicks & Mortar"
Whilst organisations in these three areas may have different market places they all have one common characteristic, the use of electronic business systems to achieve or assist in achieving competitive advantage.
"Bricks & Mortar"
Organisations are being challenged to solve new problems as their overall performance is becoming even more reliant upon the performance of their electronic business systems. Marketplaces are evolving at an astonishing rate and all organizations must be prepared to fight for market share in the fiercely competitive New Economy.
Efficiency and cost savings are the driving forces behind the adoption of e-marketplaces (the New Economy). These marketplaces offer the opportunity to increase efficiency and cut inventory costs as well as gain access to a wide range of products and services from multiple suppliers world wide. At the same time, marketplaces extend the customer reach of suppliers to potential customers with whom they would not otherwise have had contact.
Although in-house networks and external initiatives are important strategic assets, they also present major risks and constitute major expenses. However, organisations have now become dependant on these technologies in order to operate efficiently and effectively.
Jyra SMS monitors and reports on the performance of these systems and services letting our customers know what quality of service/performance their systems and networks are delivering to the business or to their customers. Jyra empowers our customers with the knowledge and ability to effectively manage these dependencies at a strategic business level.
"Dot.COM" and "Clicks & Mortar"
These organisations commonly referred to as E-tailers derive a significant portion of their revenue through the Internet. More people than ever before are buying over the Internet, one of the main reasons being that they expect a fast and efficient service.
E-tailers cannot afford to keep buyers waiting in line to connect to their site, especially as many will simply go elsewhere if kept waiting for longer than a few seconds. This problem gets worse when you consider that the majority of all potential customers attempt to connect at very specific times.
Jyra enables E-tailer companies to ensure their web services always deliver the speed and efficiency required to maintain existing and win new on-line customers. Jyra provides E-tailers with an e-commerce performance assessment solution that accesses, browses, and logs onto sites on the Internet in the same way as any live user or eCommerce customer. Graphical on-line representation of customers experience when purchasing from a site shows E-tailer what's really going on, when the real peaks are and provides an indication of how potential customers tried to buy but were prevented from doing so by poor performance. Getting performance right at the peak times, more than any other factor, can increase the number of visitors connecting to the site, the % of shoppers who actually buy and the revenue earned at peak times.
In a market that can only get more competitive, Jyra is a valuable weapon for those in the web business who want to outperform the competition and deliver the best on-line service to their customers.
SERVICE PROVIDERS
Service Providers own and operate shared networks and computer facilities. They sell the use of these network and computer facilities to their customers and provide a network connection between the customers and the remote computer facility. Management has been encouraged by the trend in growth of the number of Service Providers and the growth in the number of Enterprises looking to buy the services of service providers. The offerings form Service Providers have many advantages for Enterprises, reaching from the provision of cost effective global network connectivity to fast time to market e-commerce offerings. The 'ready to roll' facilities which Service Providers offer enables Enterprises to adapt to the fast moving market places which all organisations now find themselves having to deal with. Whilst there are many different types of Service Provider, such as Network Service Provider, Internet Service Provider, Application Service Provider etc. they all essentially providing elements of the electronic business systems which their customers operate. For these reasons we believe that all forms of Service Provider have need for Jyra SMS.
Yipes - An example of a Network Service Provider
The global growth of Network Service Providers has been dramatic. Yipes Communications Inc., a leading optical IP network provider in North America, chose SMS as part of its premier network service management portfolio. SMS agents will be placed at every point of presence (POP) on Yipes' next- generation network to monitor end-to-end network and application response time for its customers. Yipes' aim is to set new standards for customer service. Yipes' services are backed by aggressive Service Level Agreements, which assure business quality of service, low latency and guaranteed bandwidth availability. SMS agents will measure hop-by-hop latency throughout the Yipes state-of-the-art optical IP network and alert Yipes' Network Operations Center (NOC) should the response time exceed pre-agreed service levels.
Yipes is the defining provider of managed optical IP networks. Yipes leverages the elegance of native Ethernet technology to provide Just-In-Time BandwidthSM that is smoothly and quickly scalable from 1 Mbps to 1 Gbps (in 1 Mbps increments), enabling the next generation of Internet services. Yipes' highly affordable services, currently available in 20 markets coast-to-coast, include Yipes MAN (metro area networking), Yipes WAN (wide area networking), Yipes NET (high-speed Internet access), Yipes WALL (managed firewall service) and Yipes WEB (e-commerce infrastructure). Yipes is building the first Application-Aware NetworkSM, which will empower customers to manage bandwidth and quality of service on a real-time, application-specific basis. Yipes has received $291 million in funding from more than 30 investors including Norwest Venture Partners, New Enterprise Associates (NEA), The Sprout Group/CSFB, Charter Growth Capital, JP Morgan Partners, BancBoston Capital, Soros Private Equity Partners, Focus Capital and Intel Capital. Yipes has been honored for innovation and excellence by America's Network, Computerworld, Inter@ctive Week, The Net Economy, tele.com and Telephony magazines. The company is headquartered in San Francisco.
In addition to providing alerting of service level variations, Yipes use the monitoring and reporting which SMS performs to provide the data for their on line customer support and billing systems.
We believe that Yipes provides an excellent example showing how new generation Service Providers can leverage Jyra products to assist in gaining and retaining market leadership.
SALES OVERVIEW
We plan to rapidly increase the sales force to meet the current demand. We currently operate on two continents: in the USA, with a sales office on each coast, and in Europe, where we have sales operations based in the United Kingdom and The Netherlands. We continue to market our products within the United States and Europe.
We are actively seeking additional sales staff within our existing markets. Our sales are currently being made through multiple channels including systems integrators and resellers. These resellers provide system installation, technical support, and follow-up services to end-customers. Generally, our resellers have nonexclusive agreements within a territory. Resellers do not receive sales commissions, but are entitled to purchase at a discount (relative to suggested end-user prices) for the products, which they resell. The company continues to seek and to attract additional service partners, primarily in the telecommunications industry. These permit Jyra to participate in larger deals as part of an overall service management solution.
INTERNATIONAL OPERATIONS
We have operated internationally from the first launch of our service monitoring product. We generally offer 30 day net terms in the United States and Europe. We operate a single global pricing strategy, where product is priced in United States dollars. Additionally, we will accept international orders in United Kingdom pounds sterling, and may accept orders in euros. We are subject to additional risk as a result of international operations, and this is covered more fully in "Business Risks" on page 34.
STRATEGIC ALLIANCES
During 1998, we identified Cisco Systems as a good company with which to work. We assigned specific executives to work exclusively on achieving an arrangement with Cisco Systems, and by October 1998 were successful in reaching a joint marketing arrangement with Cisco Systems. Through time these arrangements have developed in response to market needs and as of today our products are included in the Partner Enabled Enterprise Network Performance Programme, which is a component of the Cisco Professional Services Partner (PSP) Program. To our satisfaction Cisco continued to position Jyra SMS as an integral part of their Partner Enabled Enterprise Network Performance Programme. Jyra SMS provides Cisco PSP's with the ability to monitor and measure network performance using various service metrics including latency and throughput. The value this brings to the Cisco PSP Programme is the ability to time synchronise network performance and service delivery assisting in locating the problem areas on the network affecting overall performance. In addition Cisco Professional Services has chosen JyraScope the flexible report viewer that enables correlation and executive reporting of data collected by the Cisco Professional Services Partners to provide customers with in-depth services for network planning, design, implementation, operation, and optimisation.
During 2000, we entered into a strategic partnership with RiverSoft. Jyra SMS expands RiverSoft's Interventionless infrastructure management solution with network and applications-layer performance monitoring, providing a business context against which service providers, telcos, and traditional enterprises can manage the network. The combined solution allows network management to be become a service differentiator and allows service providers to offer, and be seen to offer, premium services to premium customers. Together, Jyra and RiverSoft offer service providers a virtuous circle of network monitoring and network improvement through performance-aware network management. Changes and reconfigurations are immediately understood in terms of their impact on network latency and network performance. In addition to isolating faults to their root cause, the combined deployment also reports faults in terms of their impact on end-to-end throughput and on user response times.
MARKETING
Subsequent to the year end December 31st 2000 a Marketing campaign has been put in place for the end of the first quarter following commercial success in both the Service Provider and Enterprise markets. The campaign started during March 2001 and we chose to focus on five areas. The first is a telemarketing campaign targeting large enterprise customers, the deliverable of the campaign will be fully qualified appointments for Jyra direct sales people. The second is a direct marketing campaign focusing on verticals within the enterprise sector, driving both education and interest. The web site is a focus area for Jyra, the site will be developing in both content and structure over the next year. The final two focus areas are partner marketing, an example of which is the Partner program which is being developed to increase Jyra sales through the channel and the second is joint marketing activity with our Strategic Vendor Partners to improve positioning and branding awareness.
SUPPORT SERVICES
We support our products domestically on a direct basis and internationally through a combination of direct support and with the assistance of systems integrators. We currently offer a range of services, including product support, education and network consulting, although management expects that our systems integrators will be the primary providers of services associated with our product range. The Company's products are typically sold with a support agreement of up to one year included in the sales order. We also offer support services for our products beyond this initial period, for a fixed fee, through our support program. Customers whose products are covered under support agreements receive software updates, phone-in technical support, and various electronic support options.
COMPETITION
The market for Internet performance measurement and diagnostic services is new and rapidly evolving. The global nature of the Internet makes it easier for existing and new competitors to become visible to our customers and prospects. We expect competition in this market to intensify in the future. Our competitors vary in size and in the scope and breadth of the products and services that they offer. Our primary business is the supply of enterprise- scale solutions to corporates and to network operators. Our primary competitors are the Netcare division of Lucent (previously known as INS InSoft), and Hewlett-Packard. Other competitors include Computer Associates, BMC, Compuware, Concord, Keynote, and Micromuse. The company also may experience competition from niche suppliers such as Freshwater, NetScout, NetIQ, Inverse Network Technology. Mercury Interactive, and Segue Software.
Some of our competitors have, and our future competitors may have:
longer operating histories;
larger customer bases;
greater brand recognition in similar businesses; and
significantly greater financial, marketing, technical and other resources.
In addition, some of our competitors may be able to:
devote greater resources to marketing and promotional campaigns;
adopt more aggressive pricing policies; and
devote more resources to technology and systems development.
For our service provider hosted on-line web monitoring service business, we compete against a wide range of consultancy and service offerings, including WebCriteria, MIDS MatrixIQ Service, Keynote and free services such as the Web Site Garage unit of Netscape, NetMechanic and Internet Weather Report. While the services may not be as comprehensive or complete as ours, and they may have less flexibility in reporting than we do, customers could still choose to use these services.
We also suffer indirect competition from increased competition and investment in network capacity. Customers may choose to spend more on additional capacity rather than better management of the existing capacity.
We suffer indirect competition from suppliers that offer to control or shape the network traffic on all or part of the network. Customers may choose to believe that expenditure solely on control rather than independent measurement is an adequate solution.
Increased competition may result in price reductions, increased costs of providing our services and loss of market share, any of which could seriously harm our business. We may not be able to compete successfully against our current and future competitors.
RESEARCH AND DEVELOPMENT
We are engaged in research and development efforts to develop customer solutions for each of our main markets. We focus our product development activities on products that are responsive to customer requirements and that provide end-to-end performance management solutions. Our research and development investments are currently made internally and in addition, the Company makes minority equity investments in early stage technology development entities to develop complementary products. Our R&D focus is on two major activities: increasing our capabilities within wireless networks and and e-Commerce. There can be no assurance that we will be able to successfully develop new products to address new customer requirements and technological changes, or that such products will achieve market acceptance. All of our expenditures for research and development costs have been expensed as incurred.
MANUFACTURING
We do not currently manufacture any hardware products. Our software products are currently supplied on compact disc (CD) but are capable of being distributed electronically via the Internet. We have no immediate plans to package our products into a hardware platform, but the Company may choose to do so if market opportunity dictates. Our processes and procedures are not ISO 9001 certified, and there can be no guarantee that absence of ISO9001 certification will not affect future sales of our products.
EMPLOYEES
We had 26 employees as of March 26, 2001: 11 in Research & Development, 11 in Sales & Marketing, 2 in General Management and 2 in Finance and Administration. None of our employees are subject to a collective bargaining agreement, and we believe that our relations with our employees are positive. Our future success depends on our ability to attract, motivate and retain our key personnel. Competition for highly qualified professional services personnel with knowledge of our industry is intense. We cannot be certain that we can attract or retain a sufficient number of professional services personnel that our business requires.
PROPRIETARY RIGHTS AND LICENSES
At the present time, we do not own any patents relating to any of our products. We rely on copyright, trademark and trade secret laws to establish our proprietary rights in our products. The company seeks to protect its brand and services through trademarking. Because the Local area network "LAN" and Wide Area Network "WAN" industry is characterised by rapid technological change, we will be relying upon our innovative management, technical expertise, and marketing skills to develop, enhance and market our products.
HISTORY OF THE COMPANY'S DEVELOPMENT
Background
When we started in May 1996 our objectives were to design, develop, and market computer network management systems which addressed the short comings of the traditional network management systems available at the time.
We believed there were a number of problems with the management of networks at that time and which we still believe exist today. One major problem with existing network management systems is their inability to determine the reason why the link between two PCs is busy, or which type of traffic is causing the congestion (i.e., processing, spreadsheets, dealer feeds, games, etc.). We believe that another major problem with existing network management systems is their inability to efficiently and cost-effectively do anything other than provide data showing how the network is at the time of asking. This mode of operation only describe the current state of the system, which immediately after a failure is "down". We believe that this type of real-time view is not effective for long-term problem solving or diagnosis
We believe that existing network management systems are expensive, while being limited to carrying out low level device oriented functions. Existing network probe devices or network analyzers require other devices for these products to work most effectively. Accordingly, the cost of deploying these network probes and related devices can be prohibitively expensive.
PLANNED INITIAL PRODUCTS
Initially, during 1997 we planned to design a range of portable software tools and centralised systems that would combine advanced protocol decode and expert analysis capabilities. These tools were planned to facilitate identification, diagnosis and resolution of network problems. The Company's planned initial products had diagnostic and service level monitoring components, as listed below:
PRODUCT APPLICATION
1. Mid-Level Manager 2. Diagnosis Pack Diagnostic 3. Analysis Pack Diagnostic 4. Probe Diagnostic 5. Service Level Monitor
SERVICE LEVEL MONITORING
As we began detailed design work for each of the products listed above, we shared our plans with a number of our major potential customers, in order to obtain their input at an early stage. We learned from this input and from our own research that customer demand was as strong for service level monitoring products as it was for diagnostic products. In particular, we believed that the demand for products that monitored network performances in support of commercial service level agreements would be much greater than purely diagnostic devices. Accordingly, we emphasised development of the Mid-Level Manager and Service Level Monitor and launched an initial version of the Mid-Level Manager during the second quarter of 1997. The Mid-Level Manager was designed to provide consolidated data collection from existing SNMP devices making the data available to higher level reporting tools. At that time the Company ceased expending any material resources on the development of the Diagnosis Pack, Analysis Pack or Probe. Version 1.0 of the Mid-Level Manager was purchased, in small quantities, by, among others, MCI, Glaxo and British Telecom. Throughout 1997 we continued to work closely with major potential customers, particularly telecommunications companies, to learn more about their needs, with a view towards incorporating their requirements in the Company's products. This process resulted in the Company arriving at the concept of a Services Management Architecture (SMA).
SERVICE MANAGEMENT ARCHITECTURE
The Service Management Architecture (SMA) is a distributed network management architecture designed to provide detailed, accurate overviews of the network service being delivered to the actual end-user. It is intended that this focus on the end-user allows the SMA to be used as a tool to ensure both the integrity of a network and the ability to provide justification of Service Level Agreements to important customers. SMA is an architecture in which multiple Service Level Monitors 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. 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, we 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. We made the decision to redesign the Service Level Monitor and Mid Level Manager to be components of a potentially large distributed system.
Accordingly, we began redesigning Version 2.0 of the SMA to meet the requirements of distributed and scalable operations. The first significant distributed components of SMA were planned to be available for customer release at end of May 1998. Field tests of these distributed components were conducted with select group of initial strategic customers during April 1998. In preparation for this release our primary focus, during the quarter ended March 31, 1998, was to encourage telecommunications companies to begin pilot testing of our product with a view to developing new customer service offerings around our service level reporting tools.
Our 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. We had trials underway at British Telecom and in January 1998, our Mid-Level Manager and Service Level Monitor were chosen by MCI to serve as a component in MCI's new Advanced Trouble Analysis Center (ATAC) service. The Jyra element of the ATAC service was at an early stage of development when the MCI business was subject to reorganisation as a result of its merger with WorldCom.
In addition to being selected by MCI, our monitoring tools were installed and were being evaluated by several European companies including telecommunications and major banking customers. We refined our market view to reflect that while interest for our 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 in order to remain competitive and responsive to customer demands.
Our product development continued during the first quarter 1998, to focus on addressing inherent scaling requirements of the telecommunication sector. With specific guidance from MCI, we began designing into our service monitoring tools an automated means of collecting response time between multiple groups of any two Cisco routers in the Internet. We were then able to announce this feature in June 1998.
We had a number of telecommunications companies at the initial stages of the sales process and had progressed with one in Denmark, to initial customer deployment. Our strategy in focusing on telecommunication companies had provided us with a number of significant partners with whom we hoped that the Company could scale its revenues as they deploy product across their own customer base.
At the end of the third quarter ended September 30, 1999, we 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 during the second half of 1999 in preparation for the millennium. It was anticipated that the freeze would have adverse affect on product sales. We believed that as many companies are restricted from implementing new IT related projects during the millennium period this restriction will be offset by the demand for organisations to deliver e-Commerce services. Companies restricted by the millennium freeze in IT capital expenditure consider services offered by a third party to be unaffected by the freeze. We see this growth in e-commerce driving the need for Application Hosters to deliver service commitments based around the Company's products. We see this resulting in increasing service revenues.
During the fourth quarter 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. PSINet selected Jyra as the basis for its customer "paid-for" service monitoring. This joint initiative is available 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.
Jyra In-Site was 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.
MINORITY INVESTMENT - 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.
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 was non-assignable for 2 years, non-voting and did not bear interest. The Preferred Stock could 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 would not be unreasonably withheld. We converted our 10 preference shares into common shares and received a certificate for 277,018 common shares during December 1999.
During January 2001 the Board agreed that it will look to maximise its financial return from the Corporation's interest in Path1, the only quoted shares that the Corporation currently owns. The Board authorises the gradual reduction of the shareholding, in an orderly fashion over time. The Board gave its irrevocable and unanimous consent and autorisation for the initiation and completion of various disposals over time in respect of the Corporations total holding of 277,018 shares in Path 1 Technologies Inc. As at March 26 2001 the Company had disposed of a total of 36,018 shares at an average price of $9.19 Realising total gross proceeds of $331,060.
ITEM 2.
ITEM 2. PROPERTIES
Our executive offices are located at Hamilton House, 111 Marlowes, Hemel Hempstead, Hertfordshire HP1 1BB England, consist of approximately 2,700 square feet, and is where it conducts research and development, at an annual rental of 40,000 pounds sterling. The lease expires in August 2004.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On September 20, 1999, PATH 1 NETWORK TECHNOLOGY filed a complaint against several of its then present and former officers in the San Diego County (Calif.) Superior Court. The complaint was against (i) Michael Berns, who at various times had held the positions of Chairman of the Board of Path 1, Executive Chairman and Chief Executive Officer of Path 1, (ii) Franklin Felber, former Treasurer and a former director of Path 1, (iii) James Berns, a then current director and former Secretary of Path 1, (iv) Rona Berns, wife of Michael Berns and holder of record of 1,148,720 shares of common stock of Path 1, and (v) the law firm of Berns & Berns, former general counsel to Path 1 and Jyra. The Path 1 complaint was for breach of oral contract, professional negligence, breach of fiduciary duty, constructive trust, breach of the covenant of good faith and fair dealing, and unfair business practices, primarily in connection with the allocation of founder's stock of Path 1. Path 1 was seeking damages and/or the return of stock. Michael Berns, James Berns and Felber sued Path 1 in Delaware Chancery Court on November 9, 1999 to seek to enforce their asserted rights to indemnification and advancement.
On November 29, 1999 Franklin Felber filed a cross-complaint (case no. GIC 735665) in the San Diego County (Calif.) Superior Court. The cross-complaint was against Path 1, Ron Fellman, Doug Palmer, Roderick Adams and Jyra for fraud, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and misrepresentation in connection with the exercise in July 1999 by Jyra of its private option to purchase from Felber, for $4.00 per share, 255,640 shares of Path 1 common stock.
Subsequent to the end of financial year 2000 under a Settlement Agreement and Mutual Release dated January 4, 2001, all the lawsuits between Path 1, Ron Fellman, Doug Palmer, Roderick Adams and Jyra against Franklin Felber were settled. To settle the lawsuits, Path 1 paid Felber $300,000 and placed in an escrow additional cash and stock with the intent that Felber would on January 10, 2002, receive from it some or all of the cash and stock, based on the various rules (see exhibit 10.09 attached). Neither the Company (Jyra) nor Roderick Adams made any financial contribution to the settlement. The Company ensured from the outset that as little time as possible was spent on this matter and that the legal costs did not impact on its overall expenditure. The Company's General & Administrative (G&A) expenditure was not material effected by the legal expenditure incurred in this litigation and the Company's total G&A was actually 18.3% less for 2000 than that of 1999.
As of March 26, 2001, there are no other material legal proceedings pending against the Company that will have a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TRADING MARKET OF COMPANY'S SHARES The principal trading market for our shares is the National Association of Securities Dealers Over the Counter Bulletin Board ("OTC Bulletin Board"), on which our shares have traded since September 24, 1996. The price range of trading in the Shares, on a quarterly basis, since that time, is as follows:
(1) Prices have been adjusted to reflect the 2-for-1 stock Dividend, in the form of a stock dividend on September 8, 1997.
Note: OTC Bulletin Board Quotations - The OTC Bulletin Board quotations represent inter-dealer prices, without mark-ups, commissions, etc., and they may not necessarily be indicative of actual sales prices.
The last trade of the Shares on the OTC Bulletin Board on March 26, 2001 was $0.7812.
GERMAN TRADING
Jyra shares began trading on the Frankfurt Stock Exchange on Friday, March 12, 1999, prior to that our shares were quoted in Munich and Hamburg exchanges. The trading statistics for Germany are:
1) Prices in euros. As at March 26, 2001 one euro equalled 0.8948 United States Dollar, source - Reuters.
The last trade of the Shares on the Frankfurt Stock Exchange on March 26, 2001 was 0.90.
THE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY EFFECT THE VALUE OF AN INVESTMENT IN OUR SHARES
The market price of our common stock has fluctuated in the past and is likely to fluctuate in the future. In addition, the market prices of securities of other technology companies, particularly Internet-related companies, have been highly volatile. This volatility is often unrelated to the operating performance of these companies. Factors that may have a significant effect on the market price of our common stock include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations;
. competitive developments;
. failure in one or more future quarters of our operating results to meet the expectations of investors;
. changes in market valuations of e-business technology companies;
. additions or departures of key personnel, notably our management team and experienced engineers;
. conditions and trends in the Internet and e-business industries; and
. general economic conditions.
HOLDERS OF RECORD
As at March 26, 2000 the Company had 40 Holders of Record on its shareholder register.
DIVIDEND INFORMATION
The Company has never declared or paid cash or other dividends on its Shares and it is currently the intention of the Company not to declare or pay cash dividends on its Shares. The payment of cash dividends in the future will depend on the Company's earnings, financial condition, capital needs and other factors deemed relevant by the Board, including statutory restrictions on the availability of capital for the payment of dividends, the rights of holders of any series of preferred stock that may hereafter be issued and the limitations, if any, on the payment of dividends under any then-existing credit facility or other indebtedness. It is the current intention of the Board to retain earnings, if any, to finance the operations and expansion of the Company's business.
RECENT SALES OF UNREGISTERED SECURITIES
During 2000 the Company sold 625,100 common shares at $3.00 per share to financial institutions and accredited investors for total proceeds of $1,875,300. Subsequent to December 31 2000 the Company sold 680,000 common shares at $0.75 per share to financial institutions and accredited investors for total proceeds of $510,000.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF INCOME DATA
CONSOLIDATED BALANCE SHEET DATA
(1) Fiscal year 1997 and prior period reflect the 2-for-1 stock Dividend, in the form of a stock dividend, approved by the Company's Board of Directors which was effective September 1997.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999
2000-1999
BUSINESS NARRATIVE
During first Quarter 2000 the Electronic Telegraph, one of Europe's largest electronic publications, chose Jyra In-Sight to monitor their primary eCommerce web sites for user performance. The In-Site service provides the Telegraph with a precise view of the extent and the frequency of peaks in reader interest. Jyra also provides a graphical view of performance for each component of the web process including networks, persistent sessions and load balancing. The In-Site service also helps the Electronic Telegraph to perform at all times, delivering better service to readers and advertisers alike. This allows the Electronic Telegraph to expand their registered user base and market to expand while making optimal use of their IT systems.
During the first quarter 2000 we announced the release of Version 3 of our product which we renamed at that time to Service Management Solution (SMS). SMS monitors the performance of a complete e-Commerce shopping experience. This new version embraces the functionality and security principles now being implemented by the world's most successful e-Commerce companies. Our Version 3 is geared towards companies who actually transact business over the Internet, satisfying the growing demand to be able to monitor all aspects of on-line shopping, on-line trading and e-commerce processes. We have made significant progress since the release of Jyra's Version 3 product. We have been developing a new addition to the core product. JyraScope was released during the second quarter 2000. JyraScope provides a new and innovative view of performance, providing the rare ability to cross correlate application and network performance data to identify actual bottle necks causing poor application performance.
During the second quarter 2000, YIPES Communications Inc., a leading optical IP network provider, announced that it had selected Jyra to ensure network quality of service, since Jyra helps guarantee superior management of Yipes' leading-edge optical IP network. Yipes selected our Service Management Solution (SMS) as part of its premier network service management portfolio.
Yipes is one of the first national providers of fully scalable bandwidth-on- demand for business applications. With true bandwidth-on-demand, Yipes customers pay only for what they need. Yipes is the defining provider of a new class of managed optical IP networks. Yipes leverages the elegance of native Ethernet technology to provide service that is smoothly scalable (in 1 Mbps increments) from 1 Mbps to 1 Gbps, enabling the next generation of Internet services. Yipes' networks provide roughly twice the bandwidth at 80 percent of the price of traditional data communications services.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999 (Con't)
Jyra wireless solutions are being used to monitor 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.
New mobile services are creating revolutionary business opportunities by providing a new channel to market for existing services and the possibility for totally new services that can reach customers 24 hours a day wherever they are. It has been estimated that in excess $15 Billion will be spent on GSM transmission equipment this year as mobile telecommunication companies compete to offer the best performing services delivering high speed e-commerce related Internet applications to the mobile user.
Europe, for the moment, leads the world in wireless service delivery. European manufacturers dominate the handset market and European wireless operators are delivering among the worlds most sophisticated services to a greater density of customers than anywhere else. The USA has led the Internet phenomenon. A new era is approaching in which the two biggest growth trends the Internet and Wireless is converging. As a result of this convergence wireless operators, to remain competitive, must deliver networks that support higher and higher performance Internet services to mobile phones. We believe the company to be well positioned to take advantage of this emerging market with the implementation of a customised system already taking place on client site.
On 23rd June, 2000 we were pleased to announce the appointment of Roderick "Archie" Adams as our C.E.O. Mr Adams took up the role from Paul Robinson allowing Mr Robinson to focus on vital Business development activities. We believe Mr Adams forthright style is necessary to drive the ongoing changes in structure and focus required by the Business Plan. One of the immediate results was the engagement of Alttitude to provide process and direction at this critical time for Jyra. In addition, Murdo Macdonald a partner and Director of Alttitude is acting as the Company's Sales Director. We believe Mr Macdonald brings to bear considerable sales and sales management experience in the telecommunications and networking industry.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999 (Con't)
Shortly after the appointment of ALTTITUDE we were pleased to announce that Mr Joop van Kammen has joined Jyra as Chief Operating Officer (COO) and member of our Board. Mr van Kammen principally carries the overall responsibility of the sales strategy necessary to effectively drive Jyra's Performance Solution into a dominant position initially in the European Service Provider market. Mr van Kammen brings unprecedented knowledge and experience from the European Service provider market. Previously Mr van Kammen held the position as Vice President Technology/Business Strategy of World Online International B.V reporting directly to the CEO, until he tended his resignation in March 2000, prior to the World Online Initial Public Offering (IPO) when it raised in excess of $2.5 Billion. In concert with these appointments an aggressive recruitment campaign was initiated to furnish Jyra with high calibre sales executives required for our sales force. We believe that this rapid pace of change will continue through 2000.
During the third quarter 2000 our main emphasis continued to focus strongly on driving forward the Sales & Marketing strategy of the Business Plan for 2000. Building on the changes to strengthen our sales management which occurred in the second quarter 2000 pursuant to the first phase of the Sales & Marketing strategy a sales recruitment campaign was commenced. Our new sales management team used their collective sales experience to establish a recruitment process designed to build a high quality team of sales professionals. The team now in place consists of 11 highly motivated individuals with an average of over 15 years experience each. To ensure market penetration is maximised, the team is focused on our chosen markets, which include; Telco, Service Providers, Wireless Operators, Channel & Integration partners and large corporations.
In parallel with these satisfying changes to the Company's sales force the Business Development activity is positioned to provide strategic advantage to the sales process. The primary goal of the Business Development activity is to position our product as the performance monitoring element within wider Service Provider and Enterprise solutions. This positioning assists the Company's sales force by adding weight to our message and by allowing the Company to leverage the sales forces of complimentary suppliers.
The first partnership from this activity is with Riversoft, where the two companies partner to provide enhanced performance and fault monitoring which interrelate network availability and performance with the business service impact. The Company is seeking to partner with other companies who have complementary products such as providers of quality of service based billing solutions.
The new sales approach, although in its infancy, is showing a number of encouraging signs, such as shorter sales cycles and repeat business. During Quarter 4 2000 the partnership and reseller activities generated interesting new business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999 (Con't)
During the first quarter of 2001 the new sales team and strategy has provided the strongest quarter in the company's history. Average order value and the quality of customers have both strengthened, with the result that management are looking forward to continued exciting sales activity during the remainder of 2001
REVENUE
The 77% increase in Revenue in 2000 compared to 1999 was attributable to increase in both the number of new customers and the increase in repeat revenue from existing customers. We do not distinguish between revenues generated by new customers and revenues generated by existing customers. For the year ended December 31, 2000, Yipes and BAA each accounted for in excess of 10% of total revenues. The general increase in Revenue can also be attributable to the sales reorganisation undertaken in the second half of 2000 resulting from the June 2000 strategic sales review.
SALES AND MARKETING
Our sales and marketing expenses increased from fiscal 1999 to fiscal 2000 due to our investment in additional personnel in our sales and marketing organisation as a result of the company's decision to restructure and streamline the existing sales force.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999 (Con't)
GENERAL AND ADMINISTRATIVE
This decrease reflected the level of general business efficiency and consolidation within the Company.
RESEARCH AND DEVELOPMENT
The Company continued to work on its existing development program, and is actively recruiting additional development staff.
GROSS MARGIN
Cost of revenues consists of manufacturing costs, relating to the Packaging and printing of CDs. Gross margin as a percentage of revenues was 98% for fiscal year 2000 as compared to a Gross margin of 99% for the 12 months ended December 1999. During fiscal year 2000, the Company incurred costs associated with the sale of software and its packaging, these tend to be considerably lower that selling Hardware.
INTEREST INCOME, NET
Interest income, net was $32,213 in fiscal year 2000 compared to $12,896 in fiscal year 1999. The increase in interest income is primarily the result of higher balances of cash equivalents during fiscal year 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999 (Con't)
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share for fiscal year 2000 was ($0.21) per share compared to ($0.23) per share in the fiscal year ended December 1999. The number of weighted average common shares outstanding for fiscal year 2000 was 13,755,658 as compared to 13,169,323 in the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations in fiscal year 2000 was $2,902,254 compared to $2,996,323 in the fiscal year ended December 1999.
Net cash raised from investing activities was $51,587 in fiscal year 2000 compared to $29,658 in the fiscal year ended December 1999. These funds were principally received from the disposal of redundant equipment.
As of December 31, 2000, the Company's principal sources of liquidity included cash and available for sale securities totalling $2,159,441. 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 2000 the Company sold 625,100 common shares at $3.00 per share to financial institutions and accredited investors for total proceeds of $1,875,300. Subsequent to December 31, 2000 the Company sold 680,000 common shares at $0.75 per share to financial institutions and accredited investors for total proceeds of $510,000.
As at March 26 2001 we had disposed of 36,018 Path 1 at an average price of $9.19 realising gross proceeds of $331,060. As at March 26 2001 we held 241,000 Path 1 with a gross value of $2,063,562.
We believe that we will have sufficient working capital to fund current levels of operations through 2001, 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000-1999 (Con't)
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1999-1998
REVENUE
The commercial success of our new software released midway through 1999 was offset by a general freeze of purchasing in Jyra's key markets during the fourth quarter 1999.
SALES AND MARKETING
This increase reflects the general increase in sales activity during 1999.
GENERAL AND ADMINISTRATIVE
This decrease reflected the level of general business efficiency and consolidation within the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1999/98 (Con't)
RESEARCH AND DEVELOPMENT
The decrease in spending was due to the ongoing replacement of contract staff with full time employees. Undaunted by the competition for staff an active recruitment campaign continued.
GROSS MARGIN
Cost of revenues consists of manufacturing costs, relating to the Packaging and printing of CDs. Gross margin as a percentage of revenues was 99% for fiscal year 1999 as compared to a Gross margin of 94% for the 12 months ended December 1998. During fiscal year 1999, the Company incurred costs associated with the sale of software and its packaging, these tend to be considerably lower that selling Hardware.
INTEREST INCOME, NET
Interest income, net was $12,896 in fiscal year 1999 compared to $81,255 in fiscal year 1998. The decrease in interest income was primarily the result of lower balances of cash equivalents and lower interest rates during fiscal year 1999.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share for fiscal year 1999 was ($0.23) per share compared to ($0.24) per share in the fiscal year ended December 1998. The number of weighted average common shares outstanding for fiscal year 1999 was 13,169,323 as compared to 12,903,798 in the year ended December 31, 1998.
BUSINESS RISKS
The following is a summary of risks affecting the business and results of Jyra Research Inc. ("Jyra" or "the Company") and should be read in conjunction with the description of the Company's business contained in the other sections of the Company's Form 10-K for the year ended December 31, 2000 (the "2000 10- K").
OUR LIMITED OPERATING HISTORY AND THE RAPIDLY EVOLVING MARKET WE SERVE MAKES EVALUATING OUR BUSINESS PROSPECTS DIFFICULT
We were incorporated in May 1996 but because of our limited operating history and the uncertain nature of the rapidly changing market that we serve, we believe the prediction of future results of operations is difficult. As an investor in our common stock, you should consider the risks and difficulties that we face as an early stage company in a new and rapidly evolving market. Some of the specific risks we face include our ability to:
execute our sales and marketing strategy;
expand our domestic and international sales efforts;
introduce competitive products in a timely fashion;
continue to finance our operations
To date, we have only recently received a limited number of orders for our products. There can be no assurance that we will ever have enough sales or receive sufficient revenues to be profitable.
WE HAVE A HISTORY OF LOSSES, EXPECT OUR EXPENDITURES TO INCREASE AND OUR LOSSES TO CONTINUE, AND MAY NEVER ACHIEVE PROFITABILITY
We have incurred losses since we commenced operations in 1996 and may never achieve profitability. Furthermore, we currently expect that our operating expenditures will continue to increase significantly and we may not generate a sufficient level of revenues to offset these expenditures or be able to adjust spending in a timely manner to respond to any unanticipated decline in revenues.
If revenues grow slower than we anticipate or if operating expenditures exceed our expectations or cannot be adjusted accordingly, we may continue to experience losses on a quarterly and annual basis. Even if we achieve profitability, we cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future.
THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
Period-to-period comparisons of our operating results cannot be relied upon as an indicator of our future performance. Our operating results may be below the expectations of public market analysts or investors in some future quarter. If this occurs, the price of our common stock would be likely to decrease. Our operating results are likely to fluctuate significantly in the future on both a quarterly and an annual basis due to a number of factors, many of which are outside our control Factors that could cause our operating results to fluctuate include variations in:
fluctuations in the demand for our products and services;
our success in expanding our customer support and marketing and sales organisations;
the mix of channels through which those products are sold;
the average selling prices of our products;
the timing and size of orders and shipments of our products;
the length of our sales cycle;
delays in, or cancellations of, customer implementations;
customers' budget constraints;
the level of product and price competition in our markets;
market perception of our products compared to our competitors;
the timing and market acceptance of new product introductions and upgrades by us or our competitors;
the amount and timing of our operating expenses;
our ability to control costs;
the level of product development expenditures; and
general economic conditions.
In the past, we have experienced fluctuations in operating results. Research and development expenses have fluctuated due to increased capital expenditure on development equipment and consulting fees related to the launch of new products and increased personnel expenses.
LACK OF GROWTH OR DECLINE IN INTERNET USAGE OR THE LACK OF ACCEPTANCE OF COMMERCE CONDUCTED VIA THE INTERNET COULD BE DETRIMENTAL TO OUR FUTURE OPERATING RESULTS.
Our products enhance companies' ability to transact business and conduct operations utilising the Internet. Therefore, our future sales and any future profits are substantially dependent upon the widespread acceptance and use of the Internet as an effective medium of commerce by consumers and businesses. If use of the Internet does not continue to grow or grows more slowly than expected, if the infrastructure for the Internet does not effectively support growth that may occur, if government regulations change, or if the Internet does not become a viable commercial marketplace, our business could suffer. Rapid growth in the use of the Internet and other online services is a recent development and we are unsure whether that acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt and continue to use the Internet and other on-line services as a medium of commerce. To be successful, we must rely on consumers and businesses, who have historically used traditional means of commerce to purchase products, accepting and utilising new ways of conducting business and exchanging information over the Internet.
In addition, the Internet may not be accepted as a viable commercial marketplace for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and Web performance improvements. If the Internet continues to experience significant growth in the number of users, frequency of use or an increase in bandwidth requirements, the Internet's infrastructure may not be able to support the demands placed upon it. In addition, the Internet could lose its viability due to delays in the development or adoption of standards and protocols required to handle increased levels of Internet activity, or due to increased governmental regulation. If Congress, or other governing bodies both within and outside the United States, decides to alter materially the current approach to, and level of, regulation of the Internet, we may need to adapt our technology. Any required adaptation could cause us to spend significant amounts of time and money.
IF THE E-COMMERCE SOLUTIONS MARKET FAILS TO GROW, OUR BUSINESS MAY FAIL
The market for e-commerce performance management solutions is in an early stage of development and its success is not guaranteed. Therefore, we cannot accurately assess the size of the market, the products needed to address the market, the optimal distribution strategy, or the competitive environment that will develop. In order for us to be successful, our potential customers must recognise the value of more sophisticated e-commerce performance management solutions, decide to invest in the management of their e-commerce networks and the performance of important business software applications and, in particular, adopt our performance management solutions. The growth of the e- commerce performance management solutions market also depends upon a number of factors which affect e-commerce in general, including the availability of inexpensive bandwidth, especially in international markets, the growth of wide area networks, and reduction in artificial trade barriers. Any restriction of growth in e-commerce will damage our business.
WE FACE GROWING GLOBAL COMPETITION WHICH COULD MAKE IT DIFFICULT FOR US TO ACQUIRE AND RETAIN CUSTOMERS.
The market for Internet performance measurement and diagnostic services is new and rapidly evolving. The global nature of the Internet makes it easier for existing and new competitors to become visible to our customers and prospects. We expect competition in this market to intensify in the future. Our competitors vary in size and in the scope and breadth of the products and services that they offer. Our primary business is the supply of enterprise- scale solutions to corporates and to network operators. Our primary competitors are the Netcare division of Lucent (previously known as INS InSoft), and Hewlett-Packard. Other competitors include Computer Associates, BMC, Compuware, Concord, Keynote, and Micromuse. The company also may experience competition from niche suppliers such as Freshwater, NetScout, NetIQ, Inverse Network Technology, Mercury Interactive, and Segue Software.
Some of our competitors have, and our future competitors may have:
longer operating histories;
larger customer bases;
greater brand recognition in similar businesses; and
significantly greater financial, marketing, technical and other resources.
In addition, some of our competitors may be able to:
devote greater resources to marketing and promotional campaigns;
adopt more aggressive pricing policies; and
devote more resources to technology and systems development.
For our service provider hosted on-line web monitoring service business, we compete against a wide range of consultancy and service offerings, including WebCriteria, KeyNote, MIDS MatrixIQ Service and free services such as the Web Site Garage unit of Netscape, NetMechanic and Internet Weather Report. While the services may not be as comprehensive or complete as ours, and they may have less flexibility in reporting than we do, customers could still choose to use these services.
We also suffer indirect competition from increased competition and investment in network capacity. Customers may choose to spend more on additional capacity rather than better management of the existing capacity.
We suffer indirect competition from suppliers that offer to control or shape the network traffic on all or part of the network. Customers may choose to believe that expenditure solely on control rather than independent measurement is an adequate solution.
Increased competition may result in price reductions, increased costs of providing our services and loss of market share, any of which could seriously harm our business. We may not be able to compete successfully against our current and future competitors.
INDUSTRY CONSOLIDATION MAY HARM OUR BUSINESS
There has been a trend towards industry consolidation among our competitors, partners and customers for several years, which has continued during 1999. We expect this trend towards industry consolidation to continue as companies attempt to strengthen or hold their market positions in an evolving industry. We believe that industry consolidation may provide stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results as we compete with a single major product line within an overall systems management solution and could have a material adverse effect on our business, operating results, and financial condition.
JYRA SMS SOFTWARE IS CURRENTLY OUR ONLY OFFERING, AND GENERATES ALL OF OUR CURRENT REVENUES. OUR BUSINESS DEPENDS ON ITS COMMERCIAL SUCCESS
All of our current revenues and our future growth depends on the commercial success of our SMS software, which is the only solution that we currently offer. If our target customers do not widely adopt, purchase and successfully deploy the SMS software, our revenues will not grow significantly and our business may fail. The software industry is characterised by changing fashions. Failure to grow rapidly in the short term may affect our future prospects.
VARIABILITY IN SERVICE PROVIDER SALES
The company markets its products to telecommunications and internet service providers. This market is characterised by large, and often sporadic purchases. Sales activity in this industry depends upon the stage of completion of expanding network infrastructures, the availability of funding, and the extent that service providers are affected by regulatory and business conditions in the market of operations. A decline or delay in sales orders from this industry could have a material adverse effect on our business, operating results and financial condition.
THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY WHICH MAY NEGATIVELY IMPACT GROSS MARGINS AND REVENUES
We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices. The average selling prices of our products could decrease in the future in response to competitive pricing pressures, increased sales discounts, new product introductions by us or our competitors or other factors. Therefore, to maintain our gross margins, we must develop and introduce on a timely basis new products and product enhancements and continually reduce our product costs. Our failure to do so may cause our revenue and gross margins to decline.
OUR PARTIAL RELIANCE ON SALES OF OUR PRODUCTS BY OTHERS MAKES IT HARDER TO PREDICT OUR REVENUES AND RESULTS OF OPERATIONS
Our integrators and resellers sell and represent other companies' products that may be competitive with those of the Company. While we encourage these integrators and resellers to focus on our products through marketing and support programs, there is risk they may give higher priority to products of other suppliers, thus reducing their efforts to sell our products. In addition, these systems integrators and resellers may not have the resources to expand their operations to meet increased demand for our products. Moreover, there can be no assurance that our products will be well received in the markets in which it operates or that our sales activities will result in any revenues for the Company.
The timing of our revenues is difficult to predict because of our partial reliance on indirect sales channels and the variability of our sales cycle. The length of our sales cycle for sales through our indirect channel partners to our end users may vary substantially depending upon the size of the order and the distribution channel through which our products are sold.
If revenues forecasted in a particular quarter do not occur in that quarter, our operating results for that quarter could be adversely affected. Furthermore, because our expense levels are based on our expectations as to future revenue and to a large extent are fixed in the short term, a reduction or delay in sales of our products or the loss of any indirect channel partner could harm our business.
IF WE ARE UNABLE TO DEVELOP AND MAINTAIN STRONG PARTNERING RELATIONSHIPS WITH OUR INDIRECT CHANNEL PARTNERS, OR IF THEIR SALES EFFORTS ON OUR BEHALF ARE NOT SUCCESSFUL, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE
The achievement of large-scale sales to major corporations by new entrants to the market like Jyra typically requires the establishment of strong relationships with incumbent suppliers and consultants. Failure to establish these relationships may harm our business.
We currently use indirect and direct product resale channels in both the USA and Europe. The existence of direct and indirect sales channels may lead to conflict for the same customer, pressure by current and prospective customers for price reductions on our products and reductions in the Company's gross margin and operating profit. We cannot assure you that our indirect channel partners will market our products effectively or continue to devote the resources necessary to provide us with effective sales, marketing and technical support. In order to support and develop leads for our indirect distribution channels, we plan to expand our sales and support staff. We cannot assure you that this internal expansion will be successfully completed, that the cost of this expansion will not exceed the revenues generated or that our expanded sales and support staff will be able to compete successfully against the significantly more extensive and well-funded sales and marketing operations of many of our current or potential competitors.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS WHICH MAY HARM OUR BUSINESS.
Our operations are currently headquartered in the United Kingdom, from where we also engage in our European marketing efforts. United States sales and marketing are conducted from separate sales offices in San Jose, California. There are certain risks inherent in international operations including, but not limited to:
remote management;
unexpected changes in regulatory requirements;
export restrictions;
export controls relating to technology;
tariffs and other trade barriers;
difficulties in staffing and managing foreign operations;
longer payment cycles;
problems in collecting accounts receivable;
fluctuations in currency exchange rates;
seasonal reductions in business activity during the summer months in Europe and potential adverse tax consequences;
which could materially adversely affect our business, operating results, and financial condition.
Our international sales are currently all U.S. dollar-denominated. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. We invoice some of our international customers in local currency. Doing so exposes us to fluctuations in exchange rates between the U.S. dollar and the particular local currency.
IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING INEFFICIENCIES AND HAVE DIFFICULTY MEETING DEMAND FOR OUR PRODUCTS WHICH COULD HARM OUR BUSINESS
We anticipate that further expansion will be required to address potential growth in our customer base and market opportunities. This expansion could place a strain on our management, products and support operations, sales and marketing personnel and other resources, which could harm our business.
In the future, we may experience difficulties meeting the demand for our products and services. The installation and use of our products requires training. If we are unable to provide training and support for our products, the implementation process will be longer and customer satisfaction may be lower. In addition, our management team may not be able to achieve the rapid execution necessary to fully exploit the market for our products and services. We cannot assure you that our systems, procedures or controls will be adequate to support the anticipated growth in our operations.
We may not be able to install management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations.
COMPETITION FOR EXPERIENCED PERSONNEL IS INTENSE AND OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT OUR BUSINESS OPERATIONS
Our future success will depend, on the ability of our management to operate effectively, both individually and as a group. Given our early stage of development, we are dependent on our ability to attract, retain and motivate high calibre key personnel. We have recently expanded our sales force, and we are actively searching for systems engineers, research and development engineers and sales and marketing personnel, all of whom are in short supply. Additionally, we rely on qualified systems engineers and service and support personnel to provide pre- and post-sales technical support for our products. We compete for engineers for our development organisation principally in the London, England area and in the future in the United States against companies in the networking industry with far greater resources. There may be only a limited number of persons with the requisite skills to serve in these key positions and it may become increasingly difficult to hire such persons. The company has experienced staffing difficulties in the past. Our business will suffer if we encounter delays in hiring additional personnel.
WE DEPEND ON KEY EMPLOYEES.
At this stage in its growth, the Company is dependent on the services of key managers. We do not have key man life insurance on the lives of anyone. Even though the Company has hired experienced sales and technical personnel, in the event that any of these persons becomes unavailable for any reason, our business would be materially and adversely affected.
WE ARE AN INEXPERIENCED MANAGEMENT TEAM.
The company's officers and management have had limited experience in management positions. Although members of management have worked for many years in various large corporations in various positions, no member of the management team has previously served in a senior managerial role or as an officer of a public corporation. This inexperience could have a material adverse effect upon the company's business, operating results, financial condition and share price.
IF WE FAIL TO DEVELOP NEW PRODUCTS AND SERVICES IN THE FACE OF OUR INDUSTRY'S RAPIDLY EVOLVING TECHNOLOGY, OUR FUTURE RESULTS MAY BE ADVERSELY AFFECTED.
Due to the recent emergence of the Internet and the Web as a forum for conducting business, the market for Web application server systems in which we participate is subject to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. Our growth and future operating results will depend in part upon our ability to enhance existing applications and develop and introduce new applications or components that: meet or exceed technological advances in the marketplace;
meet changing customer requirements;
achieve market acceptance;
integrate successfully with third party software; and
respond to competitive products.
Our product development and testing efforts have required, and are expected to continue to require, substantial investment. We may not possess sufficient resources to continue to make the necessary investments in technology. In addition, we may not successfully identify new software opportunities and develop and bring new software to market in a timely and efficient manner. If we are unable, for technological or other reasons, to develop and introduce new and enhanced software in a timely manner, we may lose existing customers and fail to attract new customers, resulting in a decline in revenues.
WE ARE EXPOSED TO DELAYS IN DEVELOPMENT OF SOFTWARE AND RELATED PRODUCTS COMMON IN COMPUTER INDUSTRY WHICH MAY HARM OUR BUSINESS
Delays in the development of software and related products are common in the computer industry. Any delays in development could cause additional expense and result in lost sales of our products, having a materially adverse effect on the Company. If there are delays in bringing our planned products to market, we could be forced to seek additional financing in order to continue operations. There can be no assurance that we will be able to raise any additional funds, or, even if funds are available, on terms that are acceptable to the Company. There can be no assurance that we will be able to sell any future products or ever receive any future revenues.
We have in the past experienced delays in product development which to date have materially adversely affected us. These delays may occur in the future and could result in a loss of customers and market share and may harm our business.
INTRODUCTION OF NEW PRODUCTS OR SERVICES MAY CAUSE CUSTOMERS TO DEFER PURCHASES OF OUR EXISTING PRODUCTS WHICH COULD HARM OUR OPERATING RESULTS
When we announce new products or product enhancements that have the potential to replace or shorten the life cycle of our existing products, customers may defer purchasing our existing products. These actions could harm our operating results by unexpectedly decreasing sales or selling prices, and exposing us to greater risk of product obsolescence.
OUR SOFTWARE MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE BEEN SOLD, WHICH COULD NEGATIVELY AFFECT OUR REVENUES, INCREASE OUR COSTS AND DELAY THE MARKET ACCEPTANCE OF OUR PRODUCTS
Our products are complex and may contain undetected defects, errors or failures in software. In addition, because our products plug into our end users' existing networks they can directly affect the functionality of the network. We have in the past encountered errors in our products. To date, these errors have resulted in delayed or lost sales. Additional errors may occur in our products in the future. The occurrence of defects, errors or failures could result in the failure of our customer's network or mission- critical applications, delays in installation, product returns and other losses to us or to our customers or end users. In addition, we would have limited experience responding to new problems that could arise with any new products that we introduce. These occurrences could also result in the loss of or delay in market acceptance of our products, which could harm our business.
PRODUCT LIABILITY MAY HARM OUR BUSINESS.
Our products are complex, distributed software systems which under certain conditions have the capability to damage rather than assist the network on which it is installed. This leads to the possibility of a loss, although our software takes explicit steps to avoid this type of fault. Although our license terms explicitly deny responsibility for losses of this type, the risk still exists. A claim against the company would incur legal costs, generate adverse publicity, incur management time and would thus harm our business. A successful claim may cause our business to fail.
We may also be subject to liability claims for damages related to product errors. While we carry insurance policies covering this type of liability, these policies may not provide sufficient protection should a claim be asserted. A material product liability claim may harm our business.
IMPACT OF GENERAL ECONOMIC CONDITIONS ON OPERATIONS
Our products may be considered by customers to be discretionary capital purchases. An adverse change in general economic conditions could cause certain of our potential customers to reduce their capital spending, which may adversely affect our operating results.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS AND THE COSTS TO CORRECT THESE PROBLEMS MAY BE MATERIAL
In 1998 and 1999, we established plans to become Year 2000 ready. In late 1999, we completed our remediation and testing of systems. As a result of the planning and implementation efforts, we experienced no significant disruptions in mission critical information technology and non-information technology systems and believed those systems successfully responded to the Year 2000 date change. We incurred minimal expenses during 1999 in connection with remediating our systems. We are not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems, or the products and services of third parties. We monitored our mission critical computer applications and those of our suppliers and vendors throughout the year 2000 and no latent Year 2000 matters arose.
IF OUR PRODUCTS DO NOT COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS, OUR BUSINESS COULD BE HARMED
The market for network management solutions is characterised by the need to support industry standards as these different standards emerge, evolve and achieve acceptance. In the United States, our products may need to comply with various future regulations and standards defined by the Federal Communications Commission and others. Internationally, products that we develop may be required to comply with standards established by telecommunications authorities in various countries as well as with recommendations of the International Telecommunication Union. To remain competitive we must continue to introduce new products and product enhancements that meet these emerging U.S. and International standards. However, in the future we may not be able to effectively address the compatibility and interoperability issues that arise as a result of technological changes and evolving industry standards. Failure to comply with existing or evolving industry standards or to obtain timely domestic or foreign regulatory approvals or certificates could harm our business.
OUR FUTURE OPERATING RESULTS MAY BE AFFECTED BY REGULATION OF THE INTERNET
There are currently a limited number of laws or regulations that apply directly to access or commerce on the Internet. We could be materially adversely affected by proposed regulation on voice over the Internet, encryption technology and access charges for Internet service providers, as well as the continuing deregulation of the telecommunication industry. The adoption of such measures could decrease demand for our products, and at the same time increase our cost of selling our products. Changes in laws or regulations governing the Internet and Internet commerce could have a material adverse effect on our business, operating results and financial condition.
RELIANCE ON COMPUTER PLATFORMS MANUFACTURED BY OTHERS
The company's products are designed around specific computer platforms which are only available from certain manufacturers. Any significant shortage of computer platforms or components could lead to cancellations or delays of purchases of our products which would materially adversely affect our operating results. Our software depends on commonly available computer operating systems for its successful operation. These are subject to widely published reliability or security issues. This publicity may adversely affect sales of our products and result in product liability claims.
FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY WOULD RESULT IN SIGNIFICANT HARM TO OUR BUSINESS
Our success depends significantly upon our proprietary technology and our failure or inability to protect our proprietary technology would result in significant harm to our business. We rely on a combination of copyright and trademark laws, and on trade secrets and confidentiality provisions and other contractual provisions to protect our proprietary rights. These measures afford only limited protection. Our means of protecting our proprietary rights in the U.S. or abroad may not be adequate and competitors may independently develop similar technologies. Our future success will depend in part on our ability to protect our proprietary rights and the technologies used in our principal products.
Despite our efforts to protect our proprietary rights and technology, unauthorised parties may attempt to copy aspects of our products or to obtain and use trade secrets or other information that we regard as proprietary. Legal proceedings to enforce our intellectual property rights could be burdensome and expensive and could involve a high degree of uncertainty. These legal proceedings may also divert management's attention from growing our business. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the U.S. If we do not enforce and protect our intellectual property, our business will suffer substantial harm.
CLAIMS BY OTHERS THAT WE INFRINGE ON THEIR PATENTS OR INTELLECTUAL PROPERTY RIGHTS COULD BE COSTLY TO DEFEND AND COULD HARM OUR BUSINESS
We may be subject to claims by others that our products infringe on their intellectual property rights. These claims, whether valid or not, could require us to spend significant sums in litigation, pay damages, delay product shipments, reengineer our products or acquire licenses to such third-party intellectual property. In this regard , we have not performed any comprehensive analysis of patents of others. We may not be able to secure any required licenses on commercially reasonable terms, or at all. We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the performance management solutions market grows and the functionality of products overlaps. Any of these claims or resulting events could harm our business.
OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE ARE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
We may need to raise additional funds if our estimates of revenues, working capital or capital expenditure requirements change or prove inaccurate or in order for us to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities
SUBSTANTIAL ADDITIONAL FUNDS MAY BE REQUIRED; SUBSTANTIAL SHAREHOLDER DILUTION
Although we believe that the Company can continue to raise sufficient funds to continue develop and bring our products to the market, there can be no assurance that our current plans and projections are correct. In the event the Company's plans or the basis for our assumptions change or prove to be inaccurate, or the anticipated cash flow proves insufficient to fund the Company's operations (due to delays, unanticipated expenses, lack of sales revenues, problems, operating difficulties, or otherwise) we would be forced to seek additional financing. There can be no assurance that additional financing would be available on commercially acceptable terms, or at all. To obtain any necessary financing, we could sell additional Shares or other financial instruments convertible or exchangeable into Shares, resulting in substantial dilution to all shareholders
WE WILL BE ABLE TO CONTROL AND INFLUENCE ALL MATTERS REQUIRING STOCKHOLDER APPROVAL INCLUDING DELAYING OR PREVENTING A CHANGE IN OUR CORPORATE CONTROL
At this time, our executive officers together control approximately 35.0% of the outstanding common stock. As a result, we will be able to control most matters requiring shareholder approval, such as the election of directors, or a merger or consolidation of the Company. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of Jyra, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of Jyra and might affect the market price of our common stock.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW.
Pursuant to the Company's Certificate of Incorporation, as authorised under Delaware law, officers and directors of the Company are not liable for monetary damages for breach of fiduciary duty, except in connection with breach of duty or loyalty, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, for dividend payments or stock repurchases illegal under Delaware law, or for any transaction in which a director has derived an improper personal benefit. In addition, the Company's Certificate of Incorporation provides that the Company shall indemnify its officers and directors to the fullest extent permitted by law for expenses incurred in the settlement of any actions against such persons in connection with their having served as officers or directors of the Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and elsewhere in this prospectus constitute forward- looking statements. In some cases, you can identify forward-looking statements by terms such as "may", "might", "could", "will", "should", "expect", "plan", "intend", "forecast", "anticipate", "believe", "estimate", "predict" , "potential" "continue" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this prospectus involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These factors include, among others, those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets December 31,2000
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations Cumulative Period May 2, 1996(Date Of Inception) Through December 31, 2000
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement Of Comprehensive Losses
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement Of Cash Flows Cumulative Period May 2, 1996(Date Of Inception) Through Dec 31, 2000
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement of Stockholders Equity Period From Inception Through December 31, 2000
Consolidated Statement of Stockholders Equity Period From Inception Through December 31, 2000
Consolidated Statement of Stockholders Equity (Con't) Period From Inception Through 31-Dec-00
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS Jyra Research Inc ("Jyra" or the "Company") was incorporated on May 2, 1996 under the laws of Delaware. The Company designs, develops, manufactures, and markets its "Service management solution" (SMS) to (i) measure application response time, and (ii) identify network problems caused by the constant increase in network traffic combined with the growing complexity of networks and network ownership scenarios. The problems result in escalating costs and major systems failures across the corporate spectrum. Management believes that current devise based network management systems do not have the capability to effectively deal with these problems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary after elimination of inter company accounts and transactions.
Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition Revenue is generally recognised when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Revenue from product sales of software is recognised at time of delivery and acceptance and after consideration of all the terms and conditions of the customer contract. Sales of services are recognised at time of performance , and rental revenue is recognised proportionately over the contract term. Revenues and estimated profits on long-term contracts are generally recognised under the percentage-of-completion method of accounting using either a units-of-delivery or a cost-to-cost methodology; profit estimates are revised periodically based on changes in facts; any losses on contracts are recognised immediately.
Cash and cash equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Substantially all cash accounts are interest bearing.
Property and equipment Property and equipment are stated at cost less accumulated depreciation. Major expenditures for property and those which substantially increase useful lives are capitalised. Maintenance and repairs are expensed as incurred. Property and equipment are depreciated using the straight-line method based on the expected useful life.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising The Company follows the policy of charging the costs of advertising to expense as incurred.
Per unit royalties and support and update fees The Company follows the policy of charging the costs of per unit royalties and support and update fees to expense as incurred.
Available for sale securities Securities for which the company does not have the intention to hold for the long term are classified as available for sale and are carried at fair value based on quoted market prices at the balance sheet date. Unrealised gains or losses are reported as part of other comprehensive income.
Earnings per share Earnings per share are computed using the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Diluted earnings per share are the same as primary earnings per share.
Income taxes Income taxes have been provided using the liability method in accordance with FASB statement No 109, Accounting for income taxes.
Segment and Geographic Information. The Company operates in one business segment, which is of designing, developing, and marketing computer network management systems to (i) maximise network productivity, (ii) minimise network downtime, and (iii) solve network problems caused by the constant increase in network traffic, combined with the growing complexity of networks.
Comprehensive Income (Loss). Accumulated other comprehensive income is primarily comprised of accumulated translation adjustments.
Foreign currency translation The Company has determined that the US dollar is the "functional currency" of its operations. All foreign currency assets and liability amounts are remeasured into US dollars at end - of - period exchange rates. Foreign currency income and expenses are translated at average exchange rates in effect during the year. Unrealised currency adjustments in the consolidated balance sheet are accumulated in stockholders equity. Exchange gains and losses arising from retranslated of foreign currency - denominated monetary assets and liabilities were included in income in the period in which they occur.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Software development costs In accordance with Statement of Financial Accounting Standards No 86, Accounting for the Costs of Computer Software to be sold, leased or otherwise marketed, and SOP 97-2, initial costs are charged to operations as research prior to the development of a detailed program design or a working model. When technological feasibility is established and before the product is released for sale, the Company will capitalise the direct costs and allocated overhead associated with the development of software products. Costs incurred subsequent to the product release, and research and development performed under contract will be charged to operations.
3. RECENT PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenues in financial statements and requires adoption no later than the fourth quarter of fiscal 2001. The Company has evaluated the impact of SAB 101 and its related interpretations and concluded that there is no impact on the results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires the recognition of the fair value of all derivative instruments on the balance sheet. Subsequent to the issuance of SFAS 133, the FASB received many requests to clarify certain issues causing difficulties in implementation. In June 2000, the FASB issued SFAS 138, which responds to those requests by amending certain provisions of SFAS 133. The introduction of these statements has no impact on the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SUMMARY INFORMATION FOR THE COMPANY'S OPERATIONS BY GEOGRAPHIC LOCATION
5. COMMITMENTS AND CONTINGENCIES
Leases Property plant and equipment includes the following amounts for leases that have been capitalised at December 31, 2000. 2000 1999 $ $
Vehicles 86,316 88,310 Less allowance for amortisation 57,602 39,881 ------ ------ 28,714 48,249 ------ ------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amortisation of leased assets is included in depreciation expenses. Future minimum payments under capital leases with initial terms of one year or more consisted of the following at December 31, 2000:
$
2001 13,845 2002 4,186 ------ Minimum lease payments 18,031 Interest (2,172) Fees (161) ------ Present value of net minimum lease payments 15,698
The Company leases its United Kingdom facilities from a third party. The lease is for five years at a rental rate of 40,000 British Pounds per annum (equivalent to $64,726). The current lease expires in August 2004.
6. INCOME TAX No provision for income taxes is required in the periods 2000, 1999 and 1998 due to losses incurred by the company.
The Company's deferred tax assets, deferred tax liabilities and deferred tax valuation allowances at December 31, are as follows:-
The deferred tax asset arises due to the net operating loss carry forwards. Management has based the valuation allowances on the fact that it is in the development stage and because of the risky nature of the industry. The valuation allowance has increased by $668,000, $802,000 and $1,350,000 for the years ended December 31, 2000, 1999, and 1998 respectively.
The deferred tax liability arises due to the unrealised gain on available for sale securities. This liability may be able to be offset, at least in part, by US non operating loss carry forwards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The company has US federal and state non operating losses of approximately $2,300,000 respectively which expire in years beginning 2005 through 2019. Utilisation of the US and state net operating loss carry forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating loss carry forwards before full utilisation.
For tax purposes, the UK based subsidiary company has approximately $8,500,000 (1999 $6,900,000) of net operating loss carry forwards that are available for offset against profits of the same trade indefinitely.
7. AVAILABLE FOR SALE SECURITY AND SHARE EXCHANGE
The Company has entered into an agreement dated 16 March 1998 (the "Agreement") with Path 1 Network Technologies Inc ("Path 1"). Path 1 was incorporated on 30 January 1998 under the laws of Delaware. Path 1 is developing technology to enable existing and new computer, telephone and video broadcast (including cable TV) networks and systems to each transmit all three types of information over one line at the same time with excellent quality of service, and provide expanded capabilities. Path 1's technology will act as a "traffic cop", prioritising packet flow, eliminating traffic congestion and packet collision of digital information. The Agreement allowed for Jyra to make a strategic investment in Path 1 and for Path 1 to make a strategic investment in Jyra by Path 1 exchanging its Preferred Stock for common stock of Jyra. The agreement became effective on 21 April 1998. The Board of Directors of Path 1 approved the creation of a class of Preferred Stock to be issued upon the completion of the Path 1 Public Offering in order fulfil its obligations under the agreement for the purpose of Path 1 making a strategic investment in Jyra, and for Jyra making a strategic investment in Path 1. The Preferred Stock issued to Jyra was non-assignable for 2 years, non-voting and did not bear interest. After nine months, it could be convertible, at Jyra's option, into 277,018 shares. The Preferred Stock was also redeemable by Path 1, at its option, at any time after nine months by Path 1 shall neither issue any debt securities for a period of two (2) years from the completion of the Offering nor issue any warrants in connection with an equity financing, without Jyra's consent, which will not be unreasonably withheld.
The Company acquired the 277,018 shares in Path 1 for $166,211 and is holding these as available for sale securities. At the year end the market price of the shares was $6.93. The accounting treatment is therefore as follows:
$
Purchase consideration 166,211 Add unrealised holding gain 1,755,601 -------- Aggregate fair value 1,921,812
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The holding gain has been recognised as follows: $
Unrealised holding gain 1,755,601 Deferred tax liability at 35% 614,460 ------- Net Unrealised holding gain 1,141,141 -------
8. COMPENSATION AND BENEFIT PROGRAMS
EMPLOYEE STOCK PURCHASE PLAN.
The Company has adopted the Stock Option Plan (the "Plan") to attract and retain officers, non-employee directors, employees, and consultants of the Company or any of its subsidiaries or affiliates. The Plan authorises the purchase of up to 1,000,000 shares of Common Stock through the grant of stock options and awards of restricted stock. The Company has granted options under the Plan to purchase 679,000 shares of the Company's Common Stock at varying exercise prices. The Plan will be administered by either the Board of Directors or a committee of two or more non-employee directors ("Administrator"). In general, the Administrator will determine which eligible officers, directors, employees and consultants of the Company may participate in the Plan and the type, extent and terms of the stock option grants and awards of restricted. The Plan was adopted on 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.
Of the 679,000 shares granted, 50,000 are exercisable according to the following schedule:
Percent exercisable Exercise event
50% On or after the first customer shipment, or two years from grant date, whichever comes first 12.5% One year from grant date 12.5% Two years from grant date 25% Three years from grant date
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Of the 679,000 shares granted, 494,000 are exercisable according to the following schedule:
Percent exercisable Exercise event
25% One year from grant date 25% Two years from grant date 25% Three years from grant date 25% Four years from grant date
Of the 679,000 shares granted, 125,000 are exercisable according to the following schedule:
Percent exercisable Exercise event
50% One year from grant date 25% Two years from grant date 25% Three years from grant date
Of the 679,000 shares granted, 10,000 are exercisable according to the following schedule:
Percent exercisable Exercise event
25% Four months from grant date 25% Two years from grant date 25% Three years from grant date 25% Four years from grant date
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Transactions involving the Plan are summarised as follows:
(1) Fiscal year 1997 and prior periods have been adjusted for the 2-for-1 stock Dividend, in the form of a stock dividend, approved by the Company's Board of Directors, which was effective Sept 1997.
Of the 679,000 OUTSTANDING AT DECEMBER 31, 2000 524,250 ARE EXERCISABLE AT DECEMBER 31, 2000 At December 31, 2000 there were 321,000 shares available for future grants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option Executive Plan for key executives
The Company has adopted the Executive Stock Option Plan (the "Executive Plan") to attract and retain Key executive of, or independent Advisors to the Company or any of its subsidiaries or affiliates. The Executive Plan authorises the purchase of up to 300,000 shares of Common Stock through the grant of stock options and awards of restricted stock. The Company has granted options under the Plan to purchase 180,000 shares of the Company's Common Stock at varying exercise prices. The Executive Plan will be administered by either the Board of Directors or a committee of two or more non-employee directors ("Administrator"). In general, the Administrator will determine which eligible officers, directors, employees and consultants of the Company may participate in the Executive Plan and the type, extent and terms of the stock option grants and awards of restricted. The Executive Plan was adopted September 1, 1998. The Executive Plan provides for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code, as well as non-incentive stock options. All options are awarded at not less than the market price of the Company's common stock on the date of grant. Such options expire on the fifth anniversary of the date on which the option was granted.
Of the 180,000 shares granted, all are fully exercisable from the date of grant. At Dec 31, 2000 there were 180,000 shares under option plan for key employees and there were 120,000 shares available for future grants.
Transactions involving the Executive Plan are summarised as follows:
OUTSTANDING AT DECEMBER 31, 2000, 180,000 OF WHICH 180,000 ARE EXERCISABLE AT DECEMBER 31, 2000
For purposes of the pro forma disclosure, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2000, 1999,and 1998, respectively: risk-free interest rates of 6.00%, 5.75% and 5.5%; volatility factors of the expected market price of the Company's Common Stock of 87% and a weighted-average expected life of the options of 4 years. There was no dividend yield included in the calculation as the Company does not pay dividends. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $2.89, $3.26 and $3.63.
REPORT OF INDEPENDENT AUDITORS to the shareholders and Board of Directors Jyra Research Inc.
We have audited the accompanying consolidated balance sheets of Jyra Research Inc. (a development stage enterprise) as of December 31, 2000 and 1999 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000 and for the period May 2, 1996 (inception) through December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jyra Research Inc. at December 31, 2000 and 1999 and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2000 and for the period May 2, 1996 (inception) through December 31, 1999 in conformity with United States generally accepted accounting principles.
Ernst & Young Luton, England April 2, 2001
ITEM 9.
ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosures
NONE
ITEM 10.
ITEM 10. Directors and executive officers of the registrant
EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The executive officers and Directors of Jyra Research Inc and their ages as of March 26, 2001 are as follows:
NAME AGE POSITION
Roderick Adams 37 President, CEO, Chairman of the Board
Joop van Kammen 40 Chief Operating Officer
Paul Robinson 38 Director, VP-Business Development
Peter Lynch 45 Director, VP-Technology
Robin Elsom 40 Director, VP Product Development
Nigel Williams 37
Directors were elected on November 5, 1999 and are expected to hold these positions until the next Annual General Meeting of Shareholders during 2001. There are no arrangements or understandings among any of the directors regarding their election as director.
Roderick "Archie" Adams was appointed on 23rd June 2000 to be the Company's President, CEO, and Chairman of the Board of Directors. Prior to that he served as the Company's Vice President - Corporate Development. He has served as a director of the Company since its inception in May 1996. From March 1998 to December 2000, Mr. Adams also served as a Director of Path 1 Network Technologies Inc., a start-up company, which is engaged in the business relating to computer, telephone and video networks. Since 1991 Mr. Adams has acted as a consultant to a number of companies seeking financing. Mr. Adams provides services and advice on corporate matters including fund raising, listings and quotes, investor and media relations.
Joop van Kammen was elected on 23rd June 2000 as Chief Operating Officer. He has unprecedented knowledge and experience of the European Service Provider market. Mr van Kammen has spent approximately 14 years with data/telecommunications companies in Sales/Marketing and Business Strategies, where he served in various management roles. Amongst companies where he was also able to leverage his operations planning and management skills were WorldOnline International B.V, as Vice President Technology/Business Strategy, Cignal Global Communications as Director of Sales Northern and Central Europe, and Global One Netherlands, as Director of Sales. At WorldOnline he was responsible for sales in three key areas: small and medium sized businesses, corporate, and consumer markets. Mr. van Kammen earned an Executive Master of Business Administration and Master of Business Informatics (MBA MBI) from Erasmus University, Netherlands and Georgia State University, Atlanta USA. Mr van Kammen intends to spend three days a week full time on the affairs of the Company, and be available for consultation at all other times.
Paul Robinson served as Chairman of the Board of Directors, President, and Chief Executive Officer of the Company from 3rd June 1996 until 23rd June 2000, on which date he resigned his position as Chairman, President and Chief Executive Officer to concentrate his activities on business development. From March 1998 to December 2000, Mr. Robinson also served as a Director of Path 1 Network Technologies Inc., a start-up company, which is engaged in the business relating to computer, telephone and video networks. From August 1995 to 1st October 1996, Mr. Robinson was an Account Manager for Cisco Systems, handling customers in the United Kingdom financial sector. From 1992 to August 1995 Mr. Robinson was employed by Biss Ltd. as a new business sales executive. From 1989 to 1992 Mr. Robinson was a sales executive for Prime Computers in the United Kingdom. In 1990, Mr. Robinson was transferred to Thailand where he was sales manager for Southeast Asia.
Peter Lynch has served as a director of the Company since its inception in May 1996. Mr Lynch has over twenty years of data telecommications industry experience, primarily in network software development. Between 1990 and 1996, Mr. Lynch held various management positions with Wang BISS Ltd. in the areas of system engineering, product marketing, and regional operations. Prior to 1990, Mr. Lynch completed several networking product developments for Prime Computer R&D. Mr. Lynch earned a Degree in Engineering from Imperial College, London and is a Chartered Engineer.
Robin Elsom has served as a director of the Company since July 1998, before that he served as a director of Jyra Research Ltd., the Company's wholly-owned English subsidiary, since April 6, 1997. Prior to that time, Mr. Elsom was employed by Wang Laboratories where he reported to the President of Wang. Mr. Elsom was responsible for developing Service Management technologies, to be utilised by I-Net, the outsourcing division of Wang. Mr. Elsom was part of the technology evaluation team which undertook the $250 million acquisition of I-Net in 1996. Previously, Mr. Elsom was a founder and, from 1991, a Technical Director of BISS Ltd. In 1993, he was one of the directors who secured funding for, and successfully completed a management buy-out of, BISS Ltd. Mr Elsom intends to spend all of his time on the Company's affairs.
Nigel Williams has served as a director of the Company since July 1998 and is currently Senior VP of Business Development of Digiquant. From July 1998 until June 2000, Nigel served as VP Business Development prior to that he was the UK Sales Director for the Company from September 1997. From March 1992 through September 1997 he held various positions at Cisco Systems rising to the position of Regional Sales Director for the UK Banking Region. Prior to his employment with Cisco Systems, Mr Williams was employed by Ungermann Bass Corp., where he spent four years selling data networking systems to companies in London England.
Item 11.
Item 11. EXECUTIVE COMPENSATION.
(1) * All monetary amounts in this table are in English pounds sterling.
OPTION GRANTS TO EXECUTIVE OFFICERS
Stock option grants made to any of the Named Executive Officers in the fiscal year ended December 31, 2000.
NONE
Stock appreciation rights granted to the Named Executive Officers during such year.
NONE
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the year-end number and value of unexercised options with respect to each of the Named Executive Officers. No options were exercised by the Named Executive Officer in fiscal year 2000
(1) Each of the options listed in the table is immediately exercisable.
(2) Based on the fair market value of the Company's Common Stock at fiscal year end December 31, 2000 and such value is equal to the closing price ($0.75 per share), as reported by the OTC Bulletin Board, less the exercise price payable for such shares.
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the beneficial ownership as of the date hereof and as adjusted to reflect the sale of Common Stock offered hereby, by (i) each person known by us to own beneficially five percent or more of the Common Stock, (ii) each of the Company's directors, (iii) each of the Named Officers and (iv) all directors and executive officers as a group. Except as otherwise indicated, (x) we believe that each of the beneficial owners of the Common Stock listed in the table, based on information furnished by such owner, has sole investment and voting power with respect to such shares, and (y) the address of the beneficial owner is the address of the principal executive offices of the Company. The information set forth in the table and accompanying footnotes has been furnished by the named beneficial owners.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT (1) (2)
* Less than one percent of the outstanding shares of Common Stock.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (Con't)
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 26, 2001 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing percentage ownership of each other person. To the Company's knowledge, the entities named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
(2) Percentage ownership is based on 14,435,658 shares of Common Stock outstanding on March 26, 2001.
(3) Includes 45,000 shares of Common Stock issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 26, 2001.
(4) Includes 300,000 shares of Common Stock issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 26, 2001.
(5) Includes 125,000 shares of Common Stock issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 26, 2001.
Item 13.
Item 13. Certain Relationships and Related Transactions.
NONE
PART IV
Item 14, Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements
See list of financial statements set forth in "Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
(b) Reports on Form 8-K
NONE
(c) Exhibits
3. (i) Articles of Incorporation. Filed as exhibit 3.01 (i) to Jyra Research Inc. Registration Statement on Form S-1. SEC File No. 333-19183.
4. (ii) By-Laws. Filed as exhibit 3.01 (ii) to Jyra Research Inc. Registration Statement on Form S-1. SEC File No. 333-19183.
5. Instruments defining the Rights of Security Holders, Including Indentures. Reference is made to 3 (ii) above.
10. Material Contracts.
10.01 Amended and Restated Stock Option Plan. Filed as exhibit 10.01 to Jyra Research Inc. Registration Statement on Form S-1. SEC File No. 333-19183.
10.02 Technology License and Distribution Agreement dated July 19, 1996 with Sun Microsystems, Inc. Filed as exhibit 10.02 to Jyra Research Inc. Registration Statement on form S-1. SEC File No. 333-19183. (Confidential information has been omitted and filed separately with the SEC).
10.03 Form of Indemnification Agreement of Directors. Filed as exhibit 10.03 to Jyra Research Inc. Registration Statement on Form S-1. SEC File No. 333-19183.
10.04 Agreement dated March 26, 1998 between Jyra Research Inc. and Socrates Inc. Filed as exhibit 10.04 to Jyra Research Inc. Annual Report on Form 10K - filed March 31, 1999. SEC File No. 333-19183
10.05 Heads of Agreement dated July 24, 1998 between Jyra Research Inc. and Siemens Nixdorf Informationssysteme AG. Filed as exhibit 10.05 to Jyra Research Inc. Annual Report on Form 10K - filed March 31, 1999. SEC File No. 333-19183
10.06 Executive Stock Option Plan dated September 1, 1998. Filed as exhibit 10.06 to Jyra Research Inc. Annual Report on Form 10K - filed March 31, 1999.. SEC File No. 333-19183
10.07 Path 1 Option Agreement Between Franklin S. Felber and Jyra Research Inc. dated January 25, 1999. Filed as exhibit 10.07 to Jyra Research Inc. Annual Report on Form 10K - filed March 29, 2000. SEC File No. 333-19183
10.08 Path 1 Lock-Up Agreement dated January 25, 1999. Filed as exhibit 10.08 to Jyra Research Inc. Annual Report on Form 10K - filed March 29, 2000. SEC File No. 333-19183
10.09 Settlement Agreement and Mutual Release among Path 1 Network Technologies Inc., Douglas A. Palmer, Ronald D. Fellman, JYRA Research Inc., Roderick C.H. Adams, Leslie A. Fellman, Linda Palmer, Franklin Felber and Merril Felber dated January 4, 2001.
21.01 Subsidiaries of the Registrant.
The only subsidiary of the Registrant is Jyra Research Ltd., a corporation organised under the laws of the United Kingdom.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 or 15 (d) OF THE SECURITIES ACT OF 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised. IN THE TOWN OF HEMEL HEMPSTEAD, ENGLAND, ON April 2, 2001. Jyra Research Inc.
/s/ Roderick Adams ____________________ Roderick Adams, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ Roderick Adams _____________________ Roderick Adams President & CEO (Principal Financial and Accounting Officer)
/s/ Paul Robinson ____________________ Paul Robinson Director
/s/ Peter Lynch _____________________ Peter Lynch Director
/s/ Robin Elsom _____________________ Robin Elsom Director