10-Q 1 r10qmarch01body.txt JYRA'S 10-Q Q1 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) __ |_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR __ |__| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________to____________ Commission file number 333-19183 JYRA RESEARCH INC ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 98-0167341 ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) HAMILTON HOUSE,111 MARLOWES, HEMEL HEMPSTEAD, HERTFORDSHIRE HP1 1BB UK ------------------------------------------------------------------------------ (address of principal executive offices) (Zip Code) (44) 1442 403600 ----------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ As of 4 May 2001, the registrant had outstanding 14,677,586 shares of Common Stock, par value $0.001. Jyra Research Inc. FORM 10-Q INDEX PAGE NO. -------- Cover Page 1 Index 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets March 31, 2001 and December 31, 2000 - 3 Consolidated Statements of Operations Three months ended March 31, 2000, March 31, 2001 - 4 Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2000, March 31, 2001 - 5 Consolidated Statement of Stockholders' Equity Period 1 January 2000 to 31 March 2001 (unaudited) 6 Notes to Condensed Consolidated (unaudited) Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about market risk 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds. 22 Item 3. Defaults upon Senior Securities 22 Item 4. Submission of Matters to Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports 22 Signatures 23 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets March 31, 2001 and December 31, 2000 (unaudited)

3 Consolidated Statements of Operations (Unaudited) Three months ended March 31, 2000, March 31, 2001

4 Condensed Consolidated Statement Of Cash Flows (unaudited) Three months ended March 31, 2000, March 31, 2001

5 Consolidated Statement of Stockholders' Equity Period January 1, 2000 to March 31, 2001 (unaudited)

6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 A. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Jyra Research Inc ("Jyra" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended December 31, 2000 included in the Company's Form 10K. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. DEVELOPMENT STAGE ENTERPRISE The Company met the guidelines as a Development Stage Enterprise as defined by FAS 7 for the period from incorporation on May 2, 1996 until December 31, 2000. In the opinion of the Directors the Company is no longer considered to be in the development stage and as permitted by paragraph 13 of FAS 7, the cumulative amounts and other disclosures required by the standard are no longer required to be shown. C. CASH AND CASH EQUIVALENTS For purposes of the condensed consolidated balance sheets and statements of cash flows, the Company considers money market funds and other similar financial instruments with an original maturity date of three months or less to be cash equivalents. D. EARNINGS PER SHARE Earnings per share are computed using the weighted average number of shares of common stock outstanding during the period. E. STOCK OPTION PLAN The Company has adopted two separate stock option plans. The first is for key employees and the second for key executives. 7 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Cont'd) Stock option plan for Key Employees The Plan for key employees was adopted July 20, 1996. The Plan provides for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code, as well as non incentive stock options. All options are awarded at not less than the market price of the Company's common stock on the date of grant. Such options expire on the fifth anniversary of the date on which the option was granted. On March 30, 1997, the original Stock Option Plan dated July 20, 1996 allowing for the grant of up to a total of 300,000 common shares was amended to allow for the grant of up to a total of 500,000 common shares. The stock option plan has been adjusted for the 100% stock dividend and allows for the grant of up to a total of 1,000,000 common shares. During the quarter ended 31 March, 2001, no shares were granted to key employees. The number of shares for which options may be granted cannot exceed 1,000,000 shares of the Company's common stock. The Plan shall terminate on the tenth anniversary of its original effective date, July 20, 1996, after which no awards may be granted. At March 31, 2001 there were 679,000 shares under option plan for key employees. At March 31, 2001 there were 321,000 shares available for future grants under the option plan for key employees. Stock option plan for key executives The Plan for key executives was adopted Sept 1, 1998. All options are awarded at not less than the market price of the Company's common stock on the date of grant. Such options expire on the fifth anniversary of the date on which the option was granted. The Plan allows for the grant of up to a total of 300,000 common shares. During the quarter ended 31 March, 2001, no shares were granted to key employees. At March 31, 2001, there were 180,000 shares under option plan for key executives. At March 31, 2001 there were 120,000 shares available for future grants under the option plan for key executives. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of section 27A of the Securities and Exchange Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which reflect the Company's current judgement on those issues. Because such statements apply to future events, they are subject to risks and uncertainties that could cause the actual results to differ materially. Important factors which could cause actual results to differ materially are described in the following paragraphs and are particularly noted under BUSINESS RISKS starting on page 18 and in the Company's Annual Report on Form 10K for the year ended December 31, 2000 which is on file with the Securities and Exchange Commission. Certain Statements contained in this Quarterly Report on Form 10-Q, and the Annual Report on Form 10-K referred to above, including, without limitation, statements containing the words "believes", "anticipates", "estimates", "expects", and words of similar import, constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are referred to the BUSINESS RISKS on Page 18 and the "Financial Risk Management, "Potential Volatility in Operating Results, "Investments and Alliances, "Competition", "Research and Development", "Manufacturing", "Patents, Intellectual Property, and Licensing", "Future Growth Subject to Risks" and "Other Risk Factors" sections contained within the Annual Report, which identify important risk factors that could cause actual results to differ from those contained in the forward looking statements. BUSINESS (INTRODUCTION) Jyra Research Inc. ("Jyra" or the "Company") was incorporated on May 2, 1996 under the laws of Delaware. 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 with its requirement for a highly reliable service, - 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 and escalating costs across the corporate spectrum. We believe that current network management systems do not have the capability to directly detect and to effectively deal with these problems. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) The Company's executive offices are located at Hamilton House, 111 Marlowes, Hemel Hempstead, United Kingdom and its telephone number at that location is +44 1442 403600. The Company can also be reached by visiting its web-site at http://www.jyra.com. For general inquiries, the reader may also email info@jyra.com. Jyra has developed Service Management Solution for providing direct measurement of the quality of end-to-end application and network performance. This allows customers to effectively deliver reliable and fast e-commerce services, implement tangible service level agreements (SLAs), and to measure the improvements which technology investment has on user response time and hence business efficiency. Networking and e-commerce is a multi-billion dollar global market where growth is spurred by the belief that the Internet is changing the way all people work, live, play and learn. Over the last few years, there has been a key shift in the role of the Internet and in how the Internet is perceived. What was once a fairly complex tool used by an elite group of highly technical individuals is now an everyday technology driving economic change globally by creating new jobs and market opportunities. Management believes that this trend and the response to this trend by the major telecommunications operators is the largest factor which will drive future sales of the Company's distributed application performance management products. Background - History We believe that existing network management devices are expensive to deploy and maintain, while being limited to carrying out single function, or swamp the user with low value data. Existing networks, probe devices, or network analysers require other devices for these products to provide higher value results from the data. Accordingly, the cost of deploying these network probes and related devices can be quite expensive and consume considerable levels of very scarce human resource. 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 and are listed below: PRODUCT APPLICATION 1. Mid-Level Manager Service Level Monitoring 2. Diagnosis Pack Diagnostic 3. Analysis Pack Diagnostic 4. Probe Diagnostic 5. Service Level Monitor 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) 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 much stronger for service level monitoring products than 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 was not expending any material resources on the development of the Diagnosis Pack, Analysis Pack or Probe. Version 1.0 of the Mid-Level Manager was purchased, in small quantities, by, among others, MCI, Glaxo and British Telecom. 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 attract premium customers. SMA is an architecture in which multiple Service Level Managers and Mid-Level Managers act as a single distributed system reporting on network response time, or network performance, as experienced by users at different locations. 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. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) 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 Manager 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 then 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 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. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) 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 in preparation for the millennium. It was anticipated that the freeze would have adverse affect on product sales. Management believes the fact that many companies are restricted from implementing new IT related projects during the millennium period will be offset by the demand for organisations to deliver e-Commerce services. Companies restricted by the freeze in IT capital expenditure consider services offered by a third party to be unaffected by the freeze. 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. 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. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) 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. 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. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) 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 our 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 our sales force by adding weight to our message and by allowing us 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. We are seeking to partner with other companies who have complementary products such as providers of quality of service based billing solutions. In the latter part of Quarter 4 2000 the new sales approach, although in its infancy, began showing a number of encouraging signs, such as shorter sales cycles and repeat business . The new sales team and strategy made Quarter 1 2001 the strongest quarter in the company's history with average order value and the quality of customers both strengthening. To capitalise on these changes we exerted considerable efforts in forming a significant customer relationship in the wireless sector. This relationship was with with BT Cellnet. Establishing the relationship with BT Cellnet was one of the highest priority activities for everyone at Jyra during the first quarter of 2001. BT Cellnet purchased significant quantities of Jyra product in the first quarter of 2001. BT Cellnet will use Jyra's product to monitor performance of GPRS services across their wireless network. This win was strategic both in terms of Jyra's position within this account but also in terms of providing us with a world class reference with which we can address the wider fast emerging market for wireless performance solutions. During 2001 we shall be focussing on the wireless market, we believe that the BT Cellnet relationship will add significant value to our proposition to other wireless operators. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) Quarter 1 2001 also saw the extension of our existing relationships with Riversoft and Cisco systems. Cisco's continued endorsement of Jyra's product allowed us to market our product within the Cisco Professional Services community and although the company has received some early revenues from this sector it is to early to say to what extent these will grow. Riversoft and Jyra shared a booth at the Comnet 2001 in Washington, USA. This event generated opportunities with major American corporates which the company is following up. RESULTS OF OPERATIONS The Company's bookings and orders (including service related backlog) exceeded $800,000 for the quarter ended March 31, 2001. The US GAAP revenue recognised by the Company for the quarter ended March 31, 2001 was $357,406 compared to $434,957 for the quarter ended March 31, 2000. The balance of the order values (approx $450,000) has been accounted as deferred revenue in accordance with US GAAP. Sales and Marketing expenses for the quarter ended March 31, 2001 was $378,821 compared to $242,565 for the quarter ended March 31, 2000. This increase reflects the enhanced sales force and increased costs associated with the increase in customer orders. General and administrative expenses for the quarter ended March 31, 2001 was $121,047 compared to $128,453 for the quarter ended March 31, 2000. Research and Development expense for the quarter ended March 31, 2001 was $234,208 compared to $266,091 for the quarter ended March 31, 2000. The Company continued to work on its existing development program, and is actively recruiting additional development staff. Interest expense was $509 in the quarter ended March 31, 2001. Earnings(Loss) per share for the quarter ended March 31, 2001 was ($0.07). The number of weighted average common shares outstanding was 14,450,919. LIQUIDITY AND CAPITAL RESOURCES Net cash used by operating activities was $1,079,626 for the three months ended March 31, 2001. The primary expenditure of this cash was to fund the operating expenses offset against initial revenue adjusted for depreciation, offset by Prepaid Expenses, Accounts Payable and Accounts receivable. Net cash received from investing activities was $25,688 for the three months ended March 31, 2001. These funds were principally received as a result of the disposal of certain items of property and equipment. 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) As of March 31, 2001, the Company's principal sources of liquidity included cash and available for sale securities totalling $2,298,252. 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. As at March 31 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 31 2001 we held 241,000 Path 1 with a gross value of $1,852,687. The Company continues to meet its working capital requirements through its product sales revenue and financing transactions involving the private placement of equity securities. Management's Business Plan for 2001 continues on from the one in place during 2000 and is heavily geared towards implementing an aggressive Sales & Marketing strategy to capitalise on its leading technology. The Company plans to fund its aggressive campaign through a mixture of sales revenue, strategic alliances and equity funding. We believe that we will have sufficient working capital to fund current levels of operations 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 2001/2. In addition, in the event that the Company receives a larger than anticipated number of purchase orders the Company may require resources greater than our available cash or than are otherwise available. In such event, the Company may be required to raise additional capital. The Company believes that, if needed, it will be able to obtain additional funds required for future needs. 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. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) During January 2001 our Board agreed that we will look to maximise our financial return from the Corporation's interest in Path1, the only quoted shares that the Corporation currently owns. The Board authorised the gradual reduction of the shareholding, in an orderly fashion over time. The Board gave its irrevocable and unanimous consent and authorisation for the initiation and completion of various disposals over time in respect of the Corporation's total holding of 277,018 shares in Path 1 Technologies Inc. As at March 31 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". 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. BUSINESS RISKS The Company's future operating results may be adversely affected by certain factors and trends of its market which are beyond its control. The market for Jyra's products is characterized by rapidly changing technology and evolving industry standards. Jyra believes its future success will depend, in part, on its ability to continue to develop, introduce and sell new products. The Company is committed to continuing investments in research and development; however, there is no assurance these efforts will result in the development of products for the appropriate platforms or operating systems, or the timely release or market acceptance of new products. 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont) The Company's results may be adversely affected by the actions of existing or future competitors including established and emerging computer, communications, intelligent network wiring, network management and test instrument companies. New and competitive entrants into the field of network fault and performance management may come from such diverse entities as established network hardware companies which have embedded systems in their network hardware and smaller companies which market their software products as having "network management" functionality. There can be no assurance Jyra will be able to compete successfully in the future with existing or future competitors. New entrants, new technology and new marketing techniques may cause customer confusion, thereby lengthening the sales cycle process for the Company's products, particularly the Company's system products. Increased competition may also lead to downward pricing pressure on the Company's products. Service provider sales are characterized by long sales cycles and highly variable quarter-on-quarter revenues. The company's operating results may vary accordingly. 19 Item 3. Quantitative and Qualitative Disclosures about market risk The Company is exposed to financial market risks, and foreign currency exchange rates. International Operations The Company is subject to the normal risks of conducting business internationally, including longer payment cycles and greater difficulty in accounts receivable collection. The Company generally offers 30 day net terms in the United States and Europe. Competition. As described in the BUSINESS section on page 12 in the Company's Annual Report on Form 10K for the year ended December 31, 2000 which is on file with the Securities and Exchange, the Company competes with an array of established and emerging computer, communications, intelligent network wiring, network management and test equipment companies. Many of these companies have greater financial, technological and personnel resources than those of Jyra. The smaller competitors are often willing to offer lower pricing or other favourable terms for products competitive with those of the Company. This could result in pressure on the Company to reduce pricing on its products unless it is able to prevail on the sale by successfully differentiating the benefits and functionality of the Company's products compared to those of the competitor. Moreover, new competitors, new technology and new marketing techniques may cause customer confusion, thereby lengthening the sales cycle process for the Company's products. 20 PART II. OTHER INFORMATION Jyra Research Inc Item 1. Legal Proceedings As of March 31, 2001, there are no legal proceedings pending against the Company that will have a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company. Litigation Settled in the quarter ended March 31, 2001. 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. 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 to the our 10-K for FY 2000). 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 materialy effected by the legal expenditure incurred in this litigation. 21 PART II. OTHER INFORMATION (Cont'd) ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. There has been no change or modification in the constituent instruments defining the rights of holders of neither the corporation's sole class of registered security nor any modification of the rights evidenced by such class by issuance or modification of any other class of securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There has been no default of any nature upon any form neither of senior security nor in payment of interest or sinking or purchase fund instalment with respect to any indebtedness of the registrant, nor any other form of default upon any financial obligation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. FORM 8-K The Company did not file any reports on Form 8-K during the three months ended March 31,2001. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JYRA RESEARCH INC (Registrant) By: /s/ Roderick Adams ____________________ Roderick Adams Chief Executive Officer Director (Principal Financial and Accounting Officer) May 15, 2001 By: /s/ Paul Robinson _____________________ Paul Robinson Director Vice President - Business Development May 15, 2001 23

JYRA RESEARCH INC 10-Q