JYRA RESEARCH INC (JYRA) Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of section 27A of the Securities and Exchange Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which reflect the Company's current judgement on those issues. Because such statements apply to future events, they are subject to risks and uncertainties that could cause the actual results to differ materially. Important factors which could cause actual results to differ materially are described in the
following paragraphs and are particularly noted under BUSINESS RISKS on page 13 and in the Company's Annual Report on Form 10K for the year ended December 31, 1997 which is on file with the Securities and Exchange Commission.
Business.
The Company was incorporated on May 2, 1996 under the laws of Delaware. The Company is in the business of designing,
developing, and marketing computer network management systems to (i) maximize network productivity, (ii) minimize network
downtime, and (iii) solve network problems caused by the constant increase in network traffic, combined with the growing
complexity of networks. These problems result in escalating costs and major systems failures across the corporate spectrum.
Management believes that current network management systems do not have the capability to effectively deal with these
problems.
Initially, during 1997 the Company planned to design a range of portable software tools and centralized 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 Manager Service Level Monitoring
As the Company began detailed design work for each of the products listed above, the Company shared its plans with a
number of its major potential customers, in order to obtain their input at an early stage. The Company learned from this input
and from its own research that customer demand was much stronger for service level monitoring products than it was for
diagnostic products. In particular, Management of the Company 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, Management emphasized development of the Mid-Level Manager and Service Level Manager and launched an
initial version of the Mid-Level Manager during the second quarter of 1997. The Mid-Level Manager was designed to
provide an interface between the raw statistics gathered at a probe and the presentation layer software used to display this
data. The Mid-Level Manager supports (i) RMON data capture interface, allowing data capture from existing RMON probes,
and (ii) SNMP data capture interface allowing data capture from existing SNMP devices. At the present time the Company is
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.
The Service Level Manager initially focused on measuring and reporting on response time as experienced by network users.
Throughout 1997 Management of the Company 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 Service Management Architecture
("SMA"). SMA is an architecture in which multiple Service Level Managers and Mid-Level Managers act as a single
distributed system reporting on network response time, or network performance, as experienced by users at different locations.
The initial version of the SMA was released in the third quarter of 1997, and Version 2.0 of the SMA was launched in
September 1997.
After Version 2.0 of the SMA was launched the Company continued to communicate with customers and potential customers
to ascertain how well the product was meeting their needs. Based upon feedback and the constantly evolving market place and
needs of customers and potential customers, Management of the Company determined that the greatest potential for revenue
growth was in monitoring large networks.
This meant that the SMA needed to operate in a distributed manner whereby semi-autonomous components of the software
could be spread across a large network to monitor network response times from multiple locations, reporting back to a central
console as required, and so scaling to manage up to carrier class networks. Management made the decision to redesign the
service level and mid level manager to be components of a potentially large distributed system. Accordingly, the Company has
been redesigning Version 2.0 of the SMA to meet the requirements of distributed and scalable operations. The first significant
distributed components of SMA are planned to be available for customer release at end of May 1998.
RESULTS OF OPERATIONS
Revenues for the first quarter ended Mar 31, 1998 were $31,025. Since the Company did not generate any revenue during the
quarter ended Mar 31, 1997, there are no figures with which to make a comparison. During the quarter ended March 31,1998
the Company's revenue continued to derive from the sale of initial software to a number of international companies who either
own or operate large networks where measuring the quality of service delivered to the desktop is mission critical in order to
remain competitive. As a result the Company's product continued to be adjusted, during the quarter ended March 31, 1998, in
order to meet its larger customers requirements. The first significant distributed components of SMA are 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 Jyra's primary focus, during the quarter ended Mar 31, 1998, was to
encourage telecommunications companies to begin pilot testing of Jyra's product with a view to developing new customer
service offerings around Jyra's service level reporting tools. Jyra's ability to monitor and prove actual application response times
across large networks, facilitates a basis on which telecommunications companies can bill for improved service and also a
means of justifying high value added data transport services. Jyra continues to work closely with MCI in an effort to develop
product to incorporate within MCI's Advanced Trouble Analysis Center (ATAC) service and as a result MCI confirmed its
intention to include Jyra's initial response monitoring agents as a key component within its forth coming ATAC service. In
addition to being selected by MCI in the quarter ended Mar 31, 1998, Jyra's reporting tools have now been installed and are
being evaluated by among others two of continental Europe's telecommunications companies and also in several major
European banking customers of a significant systems integrator in Europe. Jyra's management believes that while interest for its
service monitoring tools comes from many sectors, including Hotel and leisure, banking, pharmaceutical, transport amoungst
others., by far the most important sectors are the international telecommunications companies, service providers and system
integrators, which each believe that they must be able to deliver a measured quality of service to their customer base in order to
remain competitive. Product development continued during the quarter ended Mar 31, 1998, to focus on addressing inherent
scaling requirements of the telecommunication sector. With specific guidance from MCI, the Company began designing into its
service monitoring tools an automated means of collecting response time between multiple groups of any two Cisco routers in
the Internet. The Company was, subsequent to end of quarter, able to announce this feature for June availability.
Research and development expenses increased 97% to $448,159 for the quarter ended March 31, 1998 compared to
$227,624 for the three months period ended March 31, 1997. The substantial increase in spending was due to increased
staffing, as a result of resolving the technical components of its architecture and the Company's ability to move to broaden the
range of applications available as a part of its Service Management Architecture. The Company allocated resources in the first
quarter to add new graphical interfaces to the product. This work, when complete, will offer users a graphic means of
describing the network monitoring tasks and of easily understanding causes of service level violations. The new graphic user
interface (GUI)has been developed to a demonstration stage and work to integrate it with the existing product will commence
shortly. In addition, the Company also recruited and allocated resource to provide telecommunications companies with a new
means of obtaining network transit times between any two Cisco routers. This application will be available as a product feature
in June 1998 and management believes it will significantly differentiate Jyra from other service monitoring products in that it
provides telecommunications companies with a means of monitoring their existing infrastructures without introducing new
equipment to customer premises.
General and administrative expenses for the quarter ended March 31, 1998 decreased 23% to $134,917 compared to
$174,700 for the quarter ended March 31, 1997. This decrease in general and administrative expenses was primarily due to
the separation of Sales and Marketing in the financial statements as a result of establishing a Sales & Marketing division.
Sales and Marketing expenses for the quarter ended March 31,1998, were $279,807. As no separate figure was shown for
quarter ended March 31,1997 there is no comparative figure. The Company's investment in a sales force to focus on the
international telecommunication sector has allowed the Company to refine its service management architecture and to deliver
against specific customer requirements as a result of the feedback from the sales force. The Company's newly announced
transit monitor for Cisco networks is the first example of this interaction. Management believes that its focus on this market
could provide the significant revenues that result from global deployment of product into the telecommunications sector.
Interest income was $38,254 in the first quarter of fiscal year 1998. The interest was generated from funds held on deposit and
fixed term of one month or less.
Earnings(Loss) per share for the quarter ended Mar 31, 1998 was ($0.06). The number of weighted average common shares
outstanding was 12,890,250.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($837,641) for the three months ended Mar 31, 1998. The primary expenditure of
this cash was to fund the operating expenses offset against initial revenue adjusted for depreciation, offset by Prepaid Expenses,
Accounts Payable and Accounts receivable.
Net cash used in investing activities was $77,671 for the three months ended Mar 31, 1998. These funds were principally
invested in additions to property and equipment.
The Company did not raise any funds through the issue of equity therefore net cash provided by financing activities was nil.
As of Mar 31, 1998, the Company's principal sources of liquidity included Cash and cash equivalents, totaling $2,291,600.
The Company currently has no outstanding bank borrowings and has no established lines of credit. The Company believes cash
expected to be generated from operations, together with existing cash and investment balances, should be sufficient to satisfy
operating cash and capital expenditure requirements through the next twelve months.
BUSINESS RISKS
The Company's future operating results may be adversely affected by certain factors and trends of its market which are beyond
its control. The market for Jyra's products is characterized by rapidly changing technology and evolving industry standards. Jyra
believes its future success will depend, in part, on its ability to continue to develop, introduce and sell new products. The
Company is committed to continuing investments in research and development; however, there is no assurance these efforts will
result in the development of products for the appropriate platforms or operating systems, or the timely release or market
acceptance of new products.
The Company's results may be adversely affected by the actions of existing or future competitors including established and
emerging computer, communications, intelligent network wiring, network management and test instrument companies. New and
competitive entrants into the field of network fault and performance management may come from such diverse entities as
established network hardware companies which have embedded systems in their network hardware and smaller companies
which market their software products as having "network management" functionality. There can be no assurance Jyra will be
able to compete successfully in the future with existing or future competitors. New entrants, new technology and new marketing
techniques may cause customer confusion, thereby lengthening the sales cycle process for the Company's products, particularly
the Company's system products. Increased competition may also lead to downward pricing pressure on the Company's
products.
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