U. S. Securities and Exchange Commission
Washington, D. C. 20549
Second Amendment to
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 0-26065
BANYAN CORPORATION
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(Exact name of Registrant as specified in its charter)
Oregon 84-1346327
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
4740 Forge Rd., Bldg. 112, Colorado Springs, Colorado 80907
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(Address of Principal Executive offices)
(719) 531-5535
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 No X
------- -------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at August 18, 1999
----- ----------------------------
Common Stock, no par value 10,031,101
<PAGE>
Transitional Small Business Disclosure Form (check one):
Yes No X
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BANYAN CORPORATION
TABLE OF CONTENTS
FORM 10-QSB
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements, Unaudited
Unaudited Consolidated Balance Sheets
at June 30, 1999
Unaudited Consolidated Statement of Operations
for the three months ended
June 30, 1999 and 1998
Unaudited Consolidated Statement of Cash Flow for the
three months ended June 30, 1999 and 1998
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or
Plan of Operation
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibits
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
BANYAN CORPORATION
CONSOLIDATED BALANCE SHEET
UNAUDITED
for the six months ended June 30, 1999
as of as of
June 30, 1999 March 31, 1999
------------- --------------
ASSETS
Current assets
<S> <C> <C>
Cash and marketable securities $16,838 $14,409
Accounts receivable 68,371 60,821
Inventory 44,127 43,775
Prepaid expenses 7,261 4,914
-------------------------------------------------------
136,597 123,919
Fixed Assets
Furniture and fixtures 11,921 11,921
Equipment and tooling 7,594 5,648
-------------------------------------------------------
19,515 17,569
Less: Accumulated depreciation 16,485 16,295
-------------------------------------------------------
3,030 1,274
Other assets
Trademarks and licenses,
net of accumulated 29,365 32,296
amortization of $55,690 and $52,759,
respectively
Investment in Anything
Internet Corporation 36,948 13,539
Other 4,700 4,700
-------------------------------------------------------
-------------------------------------------------------
71,013 50,535
-------------------------------------------------------
$210,640 $175,728
=======================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $86,311 $82,621
Accrued salaries and related expenses 38,076 88,992
Accrued interest 227,847 225,031
-------------------------------------------------------
352,234 396,644
Notes payable 105,234 105,234
-------------------------------------------------------
457,468 501,878
Stockholders' deficit
Preferred stock, Class A: no par value;
500,000 shares authorized;
187,190 issued and
outstanding;
callable at $2.75 per share
and convertible 334,906 334,906
Common stock, Class A: no par value;
50,000,000 shares authorized;
9,691,804 and 9,301,107
issued and outstanding, respectively 3,202,597 2,972,795
Common stock subscribed
(334,299 and 349,112 167,233 190,000
shares, respectively)
Stock subscription receivable (167,233) (190,000)
Accumulated deficit (3,784,331) (3,633,851)
-------------------------------------------------------
-------------------------------------------------------
(246,828) (326,150)
-------------------------------------------------------
$210,640 $175,728
=======================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANYAN CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
UNAUDITED
for the six months ended June 30, 1999
Common Stock Preferred Stock Stock Common Stock
Class A Class A Subscription Subscribed Accumulated Stockholders
Shares Amount Shares Amount Receivable Shares Amount Deficit Defecit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 9,292,699 $2,922,795 187,190 $334,906 ($40,000) 143,000 $40,000 ($3,541,262) ($283,561)
Sales of common stock 446,433 279,802
Common stock subscribed -127,233 191,299 127,233 279,802
(334,299 shares)
Common stock shares cancelled -47,328
Net gain (loss) for the year
ended June 30, 1999 -243,069 (243,069)
Balances at June 30, 1999 9,691,804 $3,202,597 187,190 $334,906 ($167,233) 334,299 $167,233 ($3,784,331) ($246,828)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANYAN CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
for the three for the six
months ended months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales, net $33,304 $41,869 $64,341 $100,355
Cost of sales 11,487 26,763 24,930 78,172
---------------------------------------------------------------------------
Gross margin 21,817 15,106 39,411 22,183
Selling, general and administrative expenses 121,612 74,647 195,498 170,831
---------------------------------------------------------------------------
Loss from operations (99,795) (59,541) (156,087) (148,648)
Other income (expense)
Interest expense (2,808) (4,783) (5,605) (16,509)
(Loss) on sale of assets (236)
Equity loss of Anything Internet Corporation (47,877) (81,377)
---------- ---------
Income (loss) before provision
for income taxes (150,480) (64,324) (243,069) (165,393)
Provision for income taxes - - - -
-----------------------------------------------------------------------
Net income (loss) ($150,480) ($64,324) ($243,069) ($165,393)
========================================================================
Net income (loss) per share
(Basic and fully diluted) ($0.02) ($0.01) ($0.03) ($0.03)
========================================================================
Weighted average number of
common shares outstanding 9,496,455 7,735,129 9,428,537 6,590,128
========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANYAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
for the three months ended for the six months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ($150,480) ($64,324) ($243,069) ($165,393)
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization 6,835 3,231 9,956 6,462
Loss in Anything Internet Corporation 47,877 81,377
Accounts receivable (7,550) 22,147 (20,876) 21,763
Inventory and prepaid expenses (2,700) (9,025) (3,519) (4,894)
Accounts payable and accrued expenses (44,409) (20,953) (39,265) (3,633)
-----------------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities (150,427) (68,924) (215,396) (145,695)
Cash flows from investing activities:
Sales of marketable securities 16,329 16,329
Increase in investment in Anything Internet (75,000) 10,000 (75,000)
Corporation
Purchase of fixed assets (1,946) (2,824)
--------------------------------------------------------------------------------------
(76,946) 26,329 (77,824) 16,329
Cash flows from financing activities:
Proceeds from issuance of common stock 229,802 16,000 279,802 291,678
Payments of notes payable 3,032 (160,051)
--------------------------------------------------------------------------------------
229,802 19,032 279,802 131,627
Net increase (decrease) in cash 2,429 (23,563) (13,418) 2,261
Cash at the beginning of the period 14,409 29,385 30,256 3,561
--------------------------------------------------------------------------------------
Cash at the end of the period $16,838 $5,822 $16,838 $5,822
======================================================================================
</TABLE>
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. All adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for such interim periods
are note necessarily indicative of operations for a full year.
NOTE 2. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Banyan Corporation ("Banyan", the "Company"), was incorporated in the State
of Oregon on June 13, 1978. The Company manufactures and distributes hard
carrying cases for portable notebook computers and data storage devices. The
Company's principal markets consist of wholesale and retail sellers of computers
and related devices throughout the United States.
Unaudited financial statements
The financial statements for the period ending June 30, 1999 and the
accompanying footnotes have not been audited. Adjustments have been made that,
in the opinion of managemnt , are necessary in order to make these financial
statements not misleading.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Banyan Corporation and its wholly owned subsidiary, DoubleCase Corporation. All
intercompany accounts and transactions have been eliminated in consolidation.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Income tax
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- Continued
NOTE 2. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of shares of common outstanding. Warrants,
stock options, and common stock issuable upon conversion of the Company's
preferred stock are not included in the computation if the effect of such
inclusion would be anti-dilutive and would increase the earnings or decrease
loss per share.
Inventory
Inventory consists of raw materials and consigned finished goods.
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and equipment
Property and equipment are recorded at cost and depreciated under
accelerated methods over an estimated life of five to seven years.
Other assets
Product licenses and trademarks are recorded at cost and amortized based on
the straight line method over five to ten years.
Accounts receivable
The Company reviews accounts receivable periodically for collectibility and
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. As of June 30, 1999 the balance in allowance for doubtful
accounts was $1,424.
Products and services, geographic areas, and major customers
All Company sales were derived from a similar product line and were to
external customers. The Company sells to domestic, Canadian and European
customers, and one customer accounted for over 10% of its sales. The Company's
long term assets are all held domestically.
Revenue recognition
The Company recognizes revenue when a product is shipped to a customer.
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
AICPA Statement of Position 98-5
Effective January 1, 1999 the Company has adopted the AICPA Statement of
Position ("SOP") 98-5, which requires nongovernmental entities to expense
startup costs as incurred. The adoption by the Company of SOP 98-5 is not
expected to have a material impact on the Company's financial statements.
Financial instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents. Accounts receivable, accounts payable, and long term debt,
as reported in the accompanying balance sheet, approximates fair market value.
NOTE 3. EQUITY INVESTMENT
On August 22, 1998 Banyan Corporation purchased 1,000,000 common shares of
Anything Internet Corporation, a marketer of wholesale and retail products over
the Internet, in exchange for 200,000 common shares of Banyan. The purchase
represented 35.7% of the outstanding common stock of Anything Internet
Corporation, and was recorded by Banyan at cost of $106,629. After distributing
$20,000 of its Anything Internet Corporation common stock as a property
dividend, Banyan's net equity in the investment was $49,485, resulting in a
differential between cost and equity of $37,144. This difference is amortized
over a five year period on a straight line basis, with accumulated amortization
netted against the Company's investment balance. At December 31, 1998, Anything
Internet Corporation had 200,000 common stock purchase warrants outstanding
which, if exercised by the holders, would reduce Banyan's common stock ownership
in Anything Internet Corporation to approximately 24%. As of December 31, 1998,
Banyan owned 26% of the outstanding common stock of Anything Internet
Corporation, and accounts for its investment under the equity method.
NOTE 4. LEASE COMMITMENT
Effective May 1, 1998, DoubleCase Corporation entered into a lease
agreement for office and warehouse space; the lease agreement is for a period of
twelve months and can be renewed for an additional twelve months at the then
current monthly rental rate plus 3%. Lease expense incurred for the year ended
December 31, 1998 and the six months ended June 30, 1999 was $33,017 and $6,696
respectively.
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INCOME TAXES
Deferred income taxes arise from the temporary differences between
financial statement and income tax recognition of net operating losses. These
loss carryovers are limited under the Internal Revenue Code should a significant
change in ownership occur.
At December 31, 1998 the Company had approximately $3,000,000 of unused
federal net operating loss carryforwards, which begin to expire in the year
2005. A deferred tax asset has been offset by a 100% valuation allowance. The
Company accounts for income taxes pursuant to SFAS 109. The components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Deferred tax liability $ - $ -
Deferred tax asset arising from:
Net operating loss carryforwards 1,330,573 1,235,776
--------- ---------
1,330,573 1,235,776
Valuation allowance (1,330,573) (1,235,776)
Net Deferred Taxes $ - $ -
</TABLE>
Income taxes at Federal and state statutory rates are reconciled
to the Company's actual income tax as follows:
<TABLE>
<CAPTION>
Six months Year ended
ended June 30, December 31,
1999 1998
--------------- ------------
<S> <C> <C>
Tax at Federal (34%) (82,643) (168,269)
Statutory Rate
State income tax (5%) (12,153) ( 24,746)
94,796 193,015
Increase in valuation ------- ---------
allowance $ - $ -
</TABLE>
The net change in the six months, 1999 in the total valuation
allowance was $94,796.
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. NOTES PAYABLE
At June 30, 1999 the Company had the following notes payable outstanding:
Related party notes payable,
unsecured, interest from 6% to 12% per annum,
maturing April 1, 2000 $ 38,647
Related party note payable,
secured by all inventory, furniture, equipment,
and accounts receivable, interest
at 10% per annum, maturing April 1, 2000 66,587
------------
Total notes payable 105,234
Less current portion ( -)
------------
Long term notes payable $ 105,234
The schedule of maturities by fiscal year for all notes outstanding is as
follows
Years ending December 31,
1999 $ -
2000 105,234
----------
Total $105,234
The fair value of the Company's long term notes payable is
estimated based on the current rates offered to the Company for
debt of the same remaining maturity. At June 30, 1999, the fair
value of the notes payable approximated the amount recorded in
the financial statements.
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. STOCKHOLDERS' EQUITY
Common stock
The Company as of June 30, 1999 and December 31, 1998 had 50,000,000 shares
of authorized Class A common stock, no par value, with 9,691,804 and 9,292,699
shares issued and outstanding respectively.
Preferred stock
The Company as of June 30, 1999 and December 31, 1998 had 500,000 shares of
authorized Class A preferred stock, no par value, with 187,190 shares issued and
outstanding at each date. The Company has the right at any time, to call any or
all preferred Class A shares at a price of $2.75 per share. Each Class A
preferred share is convertible by the record owner into one share of the
Company's Class A common stock at any time prior to redemption upon notice to
the Company.
Stock options
At June 30, 1998, the Company had stock options outstanding from stock
option awards and from an incentive stock option plan, which are described
below.
Non-employee stock options
The Company accounts for non-employee stock options under SFAS 123, whereby
options costs are recorded based at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable.
In July, 1998, the Company granted stock options, exercisable immediately, to a
consulting company as compensation for services, to purchase common shares of
Banyan Corporation as follows:
Amount Price/share Expiration date
------ ----------- ---------------
37,500 shares $ 0.40 August 1, 2001
100,000 shares $ 0.80 August 1, 2001
100,000 shares $ 1.20 August 1, 2001
The stock options granted were issued pursuant to a
consulting agreement with no stated fee amount. The Company incurred and has
accrued no material compensation expense under these options.
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Employee stock options
The Company applies APB Opinion 25 and related interpretations in accounting for
employee stock options. Accordingly, no compensation cost has been recognized
for its employee stock options, nor was any compensation cost charged against
income under its employee stock options in 1997 or 1998. Had compensation cost
for the Company's employee stock option awards and incentive stock option plan
been determined based on the fair value at the grant dates for awards under the
stock option grants and incentive stock option plan consistent with the method
of FASB Statement 123, the Company's net income and earnings per share would
have been reduced to pro forma amounts indicated below:
6 Months Ending
June 30,
1998 1999
--------- -------
Net income (loss) As reported $( 494,410) $(243,069)
Pro forma $( 497,023) $(243,069)
Basic and fully diluted As reported $(0.06) $(0.03)
Earnings per share
Pro forma $(0.06) $(0.03)
In August, 1998, the Company granted stock options, exercisable immediately, to
certain officers of Anything Internet Corporation and, to purchase common
shares of Banyan Corporation as follows:
Amount Price/share Expiration date
------ ----------- ---------------
100,000 shares $ 0.50 August 31, 1999
100,000 shares $ 1.00 August 31, 1999
100,000 shares $ 2.00 August 31, 2000
These options were issued as part of the purchase price paid by Banyan
Corporation to acquire a 35.7% interest in Anything Internet Corporation.
Incentive stock option plan
As part of an overall executive compensation program, the Company has
adopted a tax qualified incentive stock option plan. The plan which is set to
expire September 18, 2005 unless extended by the directors, allows eligible
employees to receive options to acquire Class A common stock of the Company at a
price equivalent to 95% of the fair market value of the stock on the date the
option is granted. Each option granted will become exercisable over a ten year
period unless the optionee owns 10% or more of the stock of the Company, in
which case the option is exercisable over a five year period. The ability to
exercise the options vests at a rate of 20% per year. As of October 10, 1996,
105,345 shares of Class A common stock of the Company have been reserved for
sale through the plan. Options to acquire 11,154 shares were outstanding (with
6,692 being exercisable) on June 30, 1999, at an exercise price of $0.05 per
share.
A summary of the status of the Company's stock options as of June 30, 1999,
and changes during the year ending on that date is presented below:
June 30, 1999
--------------
Weighted Ave
Shares Exercise Price
------- --------------
Options
Outstanding at
beginning of period 11,154 $ 0.05
Granted 537,500 1.05
Exercised - -
Forfeited - -
---------- -------------
Outstanding at
end of period 548,654 $ 1.05
Options exercisable at period end 544,192
Weighted average fair value of options
granted during the
period $ 0.0038
<PAGE>
BANYAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. STOCKHOLDERS'EQUITY (Continued)
The following table summarizes information about stock options
outstanding at June 30, 1999.
Options Outstanding Options Exercisable
--------------------------------------- --------------------------
Number Weighted Ave. Number
Range of Outstanding Remaining Weighted Ave. Exercisable Weighted Ave
Exercise at 6/30/99 Contractual Exercise Price at 6/30/99 Exercise
Price life Price
- -------- ----------- ------------ -------------- ----------- -------------
$0.05 - 548,654 19.54 months $1.05 544,192 $ 1.04
$2.00
Stock rights offering
On November 15, 1996, the Board of Directors approved a rights offering to
stockholders of record on December 6, 1996. Each right allowed a shareholder to
acquire two shares of common stock for $0.125 per share. The terms of the
offering provided that the number of shares issuable upon exercise as well as
the exercise price would not be adjusted for any post offering stock splits or
any other change in the overall capitalization of the Company. The rights were
offered for $0.01 per right. Of the 2,449,609 rights that were issued, 2,005,401
were exercised and exchanged for 4,010,802 new shares of Class A common stock,
including 1,378,000 shares in 1997 and 2,632,802 shares in 1998.
NOTE 8. CONTINGENCIES
The Company's Chairman, President and Chief Executive Officer, Cameron
Yost, was recently convicted in the U.S. District Court for the Southern
District of New York for violations of United States Code Title 15, Section 78;
Title 17, Sections 240.10b-5; and Title 18, Sections 2, 371, 1343 and 1346 in
connection with the common stock of Banyan Corporation. Sentencing is expected
to take place in the current fiscal quarter. The conviction, and any sentencing,
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Six Months Ending June 30, 1999 Compared to Six Months Ending June 30, 1998
Net sales for the six months ending June 30 of $64,341 were down 35.9% from the
same period in 1998. This reduction reflects the impact of reduced advertising
expenditures in 1998 and during this period in 1999. Without a strong
advertising presence in the market, the Company's sales decline rapidly because
most sales are generated from new customers.
Gross margins improved to 61.4% reflecting the continuing results of efforts to
minimize manufacturing expenses. Selling, general and administrative expenses
increased 14.4% for the period reflecting increased accounting and legal
expenses of $17,817 incurred to comply with certain governmental regulations,
and other expenses of $6,850. Interest expense for the six month period of
$5,605 is about one third of the amount incurred during the same period in 1998.
This reduction is the result of shareholders converting notes payable into
common stock through a private placement offering in 1998.
Additionally, the first half of 1999 includes the Company's share of the loss of
Anything Internet Corporation. During the same period in 1998 the Company had
not acquired its minority interest and therefore no profit or loss was incurred.
Because of the impact of the equity losses of Anything Internet Corporation, the
Company's investment in this company has been written down to the total
investment, including loans, in Anything Internet, less the Company's share of
Anything Internet's losses. Additionally, the Company's investment includes the
unamortized portion of the differential between the cost and equity acquired in
the purchase of Anything Internet Corporation stock.
Three-Months Ending June 30, 1999 Compared to Three-Months Ending June 30, 1998
Sales for the second quarter of 1999 of $33,304 were down 20.4% from the same
period in 1998. The reduction in sales was caused by the continuing effects of
reduced advertising expenditures and the resulting impact on new orders
received. The net loss for the second quarter was $150,480, an increase of
$86,156 over the loss for the same period in 1998.
Gross margin for the three month period was 65.5% , a significant improvement of
the same period in 1998 as the Company's efforts to reduce costs continue to be
realized. These improvements are not expected to continue as the Company has
realized the full benefits of its efforts.
Sales, general and administrative costs for the three month period in 1999 were
$121,612, an increase of $46,965 over the same period last year. This increase
<PAGE>
in expenses reflects the increase in accounting and legal expenses of $13,215
needed in order to comply with certain governmental regulations, increased
advertising and marketing expenses of $19,781 and other expenses of $13,969.
Liquidity and Capital Resources
Despite the increased losses in the second quarter, 1999, Company was able to
improve its overall liquidity through sales of common stock and receipts of
monies due on common stock subscription agreements. During the second quarter
working capital was increased by $60,089. At the end of June 1999, the Company's
cash and marketable securities were $16,838. During the first half of 1999
accounts receivable have increased 44.0% to $68,371 reflecting the change in
customer base from individual buyers to wholesale distributors. Distributors
generally require at least 90 days for payments while individuals purchase with
credit cards. During this period the Company also loaned $75,000 to Anything
Internet Corporation and accrued salaries and related costs were reduced by
$47,477 to $38,076 as the Company paid some of the salary deferred in the
mid-1990's to one of its employees.
During the three months ending June 30, 1999 the Company received $229,802 from
the sales of common stock and common stock subscriptions. For the six month
period ending June 30, 1999, these proceeds amounted to $279,802.
The Company anticipates making significant investments in the future to
support its overall growth and substantially expand its product offerings,
including hiring a seasoned general sales manager that will create an
anticipated increase in payroll expenses of about $75,000 annually. However, as
indicated in the Company's most recent financial statements available herein,
while operating activities provide some cash flow, the Company is currently cash
flow negative. There can be no assurances that the Company's ongoing operations
will begin to generate a positive cash flow or that unforeseen events may not
require more working capital than the Company currently has at its disposal. At
the current time, the Company intends to fund its capital requirements from a
periodic sale of Anything Internet stock, or by using this stock as collateral
for a working capital loan, until it is able to meet its needs from the cash
flow generated by sales of products. As the Company is able to complete the
funding of new cases and fund an ongoing marketing program, sales are expected
to improve. The new cases will also have lower manufacturing costs, thus gross
profit is expected to increase at a faster rate. With the exception of new
product development and the ongoing marketing program, all other expenses will
be carefully controlled. If the Company's plans are successful, cash flow should
improve and replace the need to sell shares of Anything Internet to meet
operational requirements. If the Company's plans are not successful, or cash
flow worsens, and if the Company is unable to raise enough funds to meet its
fiscal requirements through the sale of shares of Anything Internet then it will
need to offset any losses or negative cashflows by selling irs own preferred or
common stock or debentures. The Company's inability to consummate such sales
would have a material adverse effect on the business and operations of the
Company.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company utilizes third-party equipment and software that it
believes is Year 2000 compliant, which include Year 2000 compliant BIOS
technology, operating systems and mission critical software. The Company has
conducted an audit of its third-party suppliers and distributors, namely Ingram
Micro, as to the Year 2000 compliance of their systems and is satisfied their
critical systems are Year 2000 compliant. The Company does not believe it will
incur significant costs in order to comply with Year 2000 requirements.
However, failure of the Company's internal computer systems or of such
third-party equipment or software, or of systems maintained by the Company's
suppliers, to operate properly with regard to the Year 2000 and thereafter could
require the Company to incur unanticipated expenses to remedy any problems. The
Company anticipates in a worst case scenario it would replace its entire
computer network at an estimated cost of less than $15,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has the following pending or threatened litigation:
Paine Webber, Inc. v. Banyan Corp, Case no. CV 99 - 1476 HA in the United States
District Court for the District of Oregon. This is a case brought against the
Company for cancelling shares of stock which Paine Webber subsequently sold. The
Company is and plans to continue to contest this case vigorously. To date the
Company has filed an answer, and has filed a motion for dismissal or
alternatively to lower the amount of the claim allowed. The shares were
cancelled pursuant to what the Company believes to be a valid court order, and
therefore the Company believes that it has a substantial chance of winning this
case upon its merits. The Company believes that the maximum financial exposure
it has is $412,280.
Item 2. Changes in Securities and Use of Proceeds
In the second quarter the Company received $104,803 as payment for common
stock subscribed, but unpaid for, at the end of the quarter ending March 31,
1999. The price of the shares was adjusted for the reduced market value of the
stock in accordance with the purchase and sale agreements. In addition, the
<PAGE>
Company sold 187,942 shares of its Class A common stock for $125,000 to a
non-affiliate. The Company also has issued 187,942 shares of its Class A common
stock under a subscription agreement for $125,000 to a non-affiliate. The
selling price amount will be adjusted for changes in the market value of the
stock in 60 days from the date of the agreement. All shares issued during the
quarter ending June 30, 1999,
were offered without registration under the Securities Act of 1933, as amended,
and were offered in reliance upon the exemptions from registration provided by
Rule 504 of Regulation D thereunder as a transaction not involving a public
offering and an accredited investor.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
--------
27.1 Financial Data Schedule
(B) Reports on Form 8-K
----------------------
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Banyan Corporation
(Registrant)
Dated: March 31, 2000 By: /s/ Cameron Yost
---------------------------
Cameron B. Yost
President and CEO
<PAGE>
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the six month period ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> Banyan Corporation
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