<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1998 Commission File Number 0-20364
BANYAN SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2798394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
120 FLANDERS ROAD 01581
WESTBORO, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(508) 898-1000
(Registrant's telephone number, including area code)
Indicate by check mark 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
----------- ----------------
Number of shares outstanding of each of the issuer's classes of common stock as
of April 30, 1998:
Class Number of Shares Outstanding
- -------------------------------------- -----------------------------
Common Stock, par value $.01 per share 20,074,024
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BANYAN SYSTEMS INCORPORATED
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
March 31, 1998 and December 31, 1997
Consolidated Statements of Operations 4
Three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows 5
Three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 12
Market Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
EXHIBIT INDEX 16
This Quarterly Report on Form 10-Q contains forward-looking statements,
including information with respect to the Company's plans and strategy for its
business. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "anticipates", "plans",
"expects" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause actual
events or the Company's actual results to differ materially from those indicated
by such forward-looking statements. These factors include, without limitation,
those set forth below under the caption "Factors Affecting Future Operating
Results" included under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part I, Item 2 of this Quarterly Report
on Form 10-Q.
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PART I - FINANCIAL INFORMATION
iTEM 1. FINANCIAL STATEMENTS
--------------------
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS March 31, 1998 December 31, 1997
----------------------- -----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,119 $ 6,674
Marketable securities 3,087 4,202
Accounts receivable, less allowances of $3,169 and $3,721 13,496 16,960
Inventories 1,222 1,023
Other current assets 3,390 3,113
-------- --------
Total current assets 40,314 31,972
Property and equipment:
Computers and peripherals 23,783 23,848
Equipment 9,644 9,587
Furniture and fixtures 2,730 2,725
Leasehold improvements 2,438 2,536
-------- --------
Total 38,595 38,696
Less accumulated depreciation and amortization 33,556 32,886
-------- --------
Property and equipment, net 5,039 5,810
Other assets, net of accumulated amortization of $1,731 and $3,770 4,899 5,146
-------- --------
Total assets $ 50,252 $ 42,928
======== ========
LIABILITIES
Current liabilities:
Accounts payable 2,679 2,039
Accrued compensation 3,182 5,222
Accrued expenses 5,826 6,165
Accrued costs for restructuring and other charges 690 939
Income taxes payable 157 270
Note payable 1,154 1,139
Deferred revenue 17,803 18,930
-------- --------
Total current liabilities 31,491 34,704
Software licenses payable, non-current 590 590
Minority interest in consolidated subsidiary 2,380 2,557
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.01 par value; authorized 1,000,000
shares; 263,158 and none issued and outstanding 3 -
Common stock, $.01 par value; authorized 25,000,000 shares; issued
and outstanding 19,677,674 and 19,346,677 shares 198 193
Additional paid-in capital 76,299 66,020
Accumulated deficit (32,323) (32,700)
Treasury stock at cost; 1,848,000 shares of common stock (28,564) (28,564)
Accumulated other comprehensive income 178 128
-------- --------
Total stockholders' equity 15,791 5,077
-------- --------
Total liabilities and stockholders' equity $ 50,252 $ 42,928
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Software $11,718 $16,378
Services 4,955 3,643
Internet advertising 1,080 10
------- -------
Total revenues 17,753 20,031
Cost of revenues:
Software 1,287 2,598
Services 3,133 2,617
Internet advertising 472 146
------- -------
Total cost of revenues 4,892 5,361
------- -------
Gross margin 12,861 14,670
Operating expenses:
Sales and marketing 8,196 12,982
Product development 2,847 4,728
General and administrative 1,481 3,348
------- -------
Total operating expenses 12,524 21,058
------- -------
Income/(loss) from operations 337 (6,388)
Other income/(expense):
Interest income 150 142
Interest expense (22) (24)
Other, net (21) (32)
------- -------
Total other income 107 86
------- -------
Income/(loss) before income taxes 444 (6,302)
Provision for income taxes 67 90
------- -------
Net income/(loss) $ 377 $(6,392)
======= =======
Income/(loss) per common share:
Basic $0.02 ($0.37)
======= =======
Diluted $0.02 ($0.37)
======= =======
Weighted average number of common shares:
Basic 17,672 17,251
======= =======
Diluted 19,880 17,251
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1998 1997
-------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 377 $(6,392)
Adjustments to reconcile net income/(loss)to net cash provided
by/(used in) operating activities:
Depreciation and amortization 1,348 2,213
Non cash charges - issuance of stock - 721
Changes in operating assets and liabilities:
Decrease in accounts receivable 3,477 1,348
(Increase)/decrease in inventories (210) 1,029
(Increase)/decrease in other current assets (277) 572
(Decrease) in other liabilities (162) (231)
(Decrease) in accounts payable and accrued compensation and expenses (1,719) (3,964)
(Decrease) in accrued costs for restructuring and other charges (249) (1,771)
(Decrease) in software licenses payable, net - (244)
(Decrease)/increase in income taxes payable (113) 6
(Increase) in other non current assets - (207)
(Decrease)/increase in deferred revenue (1,128) 863
------- -------
Net cash provided by/(used in) operating activities 1,344 (6,057)
Cash flows from investing activities:
Capital expenditures (332) (403)
Capitalization of software costs - (323)
Proceeds from marketable securities, net 1,123 1,360
------- -------
Net cash provided by investing activities 791 634
Cash flows from financing activities:
Net proceeds from issuance of convertible preferred stock 9,500 -
Proceeds from stock plan purchases and stock options 787 594
------- -------
Net cash provided by financing activities 10,287 594
Effect of exchange rate changes on cash and cash equivalents 23 (108)
------- -------
Net increase/(decrease) in cash and cash equivalents 12,445 (4,937)
Cash and cash equivalents at beginning of the period 6,674 10,613
------- -------
Cash and cash equivalents at end of the period $19,119 $ 5,676
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries as of March 31, 1998, and have
been prepared by the Company in accordance with generally accepted
accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows at the dates and for the periods indicated. While the Company
believes that the disclosures presented are adequate to make the
information not misleading, these consolidated financial statements should
be read in conjunction with the consolidated financial statements and
related notes included in the Company's 1997 Annual Report to Stockholders
and Annual Report on Form 10-K.
The results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of the results expected for the full fiscal
year.
B. INVENTORIES:
<TABLE>
<CAPTION>
Inventories consist of the following at:
(in thousands) March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Purchased parts $ 359 $ 356
Work in process 240 270
Finished goods 623 397
------ ------
$1,222 $1,023
====== ======
</TABLE>
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<PAGE>
C. REPORTABLE SEGMENTS:
Banyan Systems Incorporated has two reportable segments: Network software and
services, and Internet advertising. The Company's network software and services
segment designs, develops and markets standards-based networking directory and
messaging products that help people communicate across enterprise networks,
intranets and the Internet. In addition, the network software and services
segment delivers professional services including technical support, education
and consulting, including network performance, integration and Year 2000
compliance services. The Company's Internet advertising segment is organized as
a majority-owned subsidiary, Switchboard Incorporated, and generates advertising
revenue from major domestic corporations through its Internet people-to-people
and business directory services. The Company's reportable segments are managed
separately because they market and distribute distinct products and services.
SEGMENT INFORMATION FOR THE THREE-MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Network Internet
Software and Services Advertising Total Company
--------------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Network software $11,718 $ - $11,718
Network services 4,955 - 4,955
Internet advertising - 1,080 1,080
------- ------- -------
Total revenue 16,673 1,080 17,753
Cost of revenues 4,420 472 4,892
------- ------- -------
Gross margin 12,253 608 12,861
Operating expenses 10,216 2,308 12,524
------- ------- -------
Operating income/(loss) $ 2,037 $(1,700) $ 337
======= ======= =======
Total assets $48,713 $ 1,539 $50,252
======= ======= =======
</TABLE>
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<PAGE>
D. EARNINGS PER SHARE:
The Company computes basic and diluted earnings per share in accordance with
SFAS 128, "Earnings Per Share," which the Company adopted as of December 31,
1997. Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period plus additional weighted average
common equivalent shares outstanding during the period. Common equivalent shares
have been excluded from the computation of diluted loss per share, as their
effect would have been anti-dilutive for the period ended March 31, 1997. Common
equivalent shares result from the assumed exercise of outstanding stock options
and warrants, the proceeds of which are then assumed to have been used to
repurchase outstanding common stock using the treasury stock method, and the
conversion of preferred stock using the if converted method. The following table
reconciles the numerator and denominator of the basic and diluted earnings per
share computations shown on the Consolidated Statements of Operations:
<TABLE>
<CAPTION>
For the three months ended March 31, 1998 1997
- -------------------------------------- ------- ---------
<S> <C> <C>
Basic earnings per share
Numerator:
Net income/(loss) $ 377 $(6,392)
Denominator:
Common shares outstanding 17,672 17,251
------- -------
Basic EPS $0.02 $(0.37)
======= =======
Diluted earnings per share
Numerator:
Net income/(loss) $ 377 $(6,392)
Denominator:
Common shares outstanding 17,672 17,251
Common stock equivalents 2,208 --
------- -------
Total Shares 19,880 17,251
------- -------
Diluted EPS $ 0.02 $ (0.37)
======= =======
</TABLE>
Options and warrants to purchase 1,449,000 shares of Common Stock outstanding
during the quarter ended March 31, 1998 were excluded from the calculation of
diluted net income per share because the exercise price of those options and
warrants exceeded the average market price of Common Stock during the quarter.
Options to purchase 2,486,000 shares of Common Stock outstanding during the
quarter ended March 31, 1997 were excluded from the calculation of diluted net
loss per share as the effect of their inclusion would have been anti-dilutive.
Earnings per share have been restated for all periods presented to reflect the
adoption of SFAS No. 128.
E. COMPREHENSIVE INCOME
In the quarter ended March 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive Income". SFAS
130 establishes standards for the reporting and display of comprehensive income
and its components, SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale investments and foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity to be included in other comprehensive income.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net income/(loss) $377 $(6,392)
Other comprehensive income 50 1
---- -------
Comprehensive income/(loss) $427 $(6,391)
==== =======
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
GENERAL
Total revenues for the three-month periods ended March 31, 1998 and 1997 were
$17.8 million and $20.0 million, respectively. The decrease in 1998 was due to
lower software revenues offset in part by increases in services and internet
advertising revenues. The Company's software revenues decreased by 28% compared
to the corresponding period in 1997 to $11.7 million. The decline in software
revenues in 1998 was attributable primarily to lower levels of sales of the
Company's VINES and messaging products, as a result of competitive product
offerings, and a decline in sales of third-party products as a result of the
Company's focus on its core product set as part of its restructuring and other
activities in the quarter ended June 30, 1997. Services revenues increased by
36% compared to the corresponding period in 1997 to $5.0 million. The increase
in services revenues in 1998 was attributable primarily to additional revenues
generated from consulting services. Internet advertising revenues increased to
$1.1 million during the quarter ended March 31, 1998 as a result of increased
revenues generated by Switchboard Incorporated, the Company's ninety percent
owned Internet subsidiary "Switchboard"). International revenues for the
three-month periods ended March 31, 1998 and 1997 were $5.5 million and $6.2
million, respectively. The decrease in 1998 was primarily due to delayed
purchasing decisions in Southeast Asia due to continued economic uncertainty in
the region as a result of financial market instability. International revenues
accounted for 31% of total revenues for the three-month periods ending March 31,
1998 and 1997.
Gross margins for software were $10.4 million, or 89%, for the three-month
period ended March 31, 1998, compared with $13.8 million, or 84%, for the
corresponding period in 1997. The increase in gross margin percentage was
primarily due to lower overhead costs as a result of the reduction in force as
part of the Company's restructuring in the quarter ended June 30, 1997. The
decrease in gross margin dollars was due to lower sales volume.
Gross margins for services were $1.8 million, or 37%, for the three-
month period ended March 31, 1998, compared with $1.0 million, or 28%, for the
corresponding period in 1997. The increase in gross margin percentage was
primarily due to increased revenues on lower overhead costs as a result of the
reduction in force as part of the Company's restructuring in the quarter ended
June 30, 1997. The increase in gross margin dollars was due primarily to
increased revenues from consulting services.
Gross margins for Internet advertising were $0.6 million, or 56%, for the three-
month period ended March 31, 1998, compared with ($0.1) million, for the
corresponding period in 1997. The increase in gross margin dollars and
percentage was primarily due to an increase in revenues offset in part by an
increase in variable costs. Cost of Internet advertising revenues consists
primarily of data communications, labor, and depreciation expenses related to
the operation of the Switchboard Internet website, as well as fees for personal
and business names and listings.
Sales and marketing expenses decreased 37% to $8.2 million for the three-month
period ended March 31, 1998, compared to the corresponding period in 1997. This
decrease was primarily due to lower sales staffing and personnel costs as a
result of the reduction in work force as part of the Company's reorganization in
the quarter ended June 30, 1997, as well as redeployment of
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<PAGE>
staff into the Company's expanding consulting service activities. Additionally,
variable sales costs, including commissions, decreased due to lower revenues in
the quarter ended March 31, 1998 when compared to the corresponding period in
the prior year. Offsetting these decreases was increased promotional investment
in the Internet advertising segment required to continue to increase site
traffic. Sales and marketing expenses as a percentage of revenues were 46% and
65% for the three-month periods ended March 31, 1998 and 1997, respectively.
Product development expenses decreased 40% to $2.8 million for the three-month
period ended March 31, 1998, compared to the corresponding period in 1997. This
decrease was primarily due to lower headcount in the quarter ended March 31,
1998 when compared to the corresponding period in the prior year as a result of
the Company's reorganization in the quarter ended June 30, 1997. The Company
continues to focus its product development resources on enhancing its existing
product offerings, Internet-related product initiatives, and Switchboard
technology and services. Additionally, the Company continues to employ resources
to ensure its products offerings will be year 2000 compliant. The Company
released year 2000 compliant versions of VINES and StreetTalk for Windows NT on
April 3, 1998 and April 30, 1998, respectively. It is the Company's intention to
modify and test all of its remaining product offerings for year 2000 compliance
by the end of 1998. Product development expenses as a percentage of revenues
were 16% and 24% for the three-month periods ended March 31, 1998 and 1997,
respectively. Software costs of $324,000 were capitalized in the three-month
period ended March 31, 1997. The amount capitalized represented 6% of product
development expenditures for the three-month period ended March 31, 1997. There
were no amounts capitalized during the period ended March 31, 1998.
General and administrative expenses decreased 56% to $1.5 million for the three-
month period ended March 31, 1998, compared to the same period in 1997. This
decrease was primarily attributable to a one-time non-cash charge of $721,000
for common stock issued as an executive signing bonus in the quarter ended March
31, 1997, and lower administrative and personnel costs as a result of the
reduction in work force as part of the Company's reorganization in the quarter
ended June 30, 1997. General and administrative expenses as a percentage of
revenue were 8% and 17% for the three-month periods ended March 31, 1998 and
1997, respectively.
No tax provision, other than that required for foreign income or foreign
withholding taxes, was recorded for the three-month periods ended March 31, 1998
and 1997.
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<PAGE>
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Form 10-Q, including information
with respect to the Company's plans and strategy for its business, statements
relating to the sufficiency of cash and cash equivalent balances, anticipated
expenditures and the intended effects of the Company's restructuring, sales and
marketing, and product development efforts, consists of forward-looking
statements. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "expects," "anticipates," "plans,"
and similar expressions are intended to identify forward-looking statements.
Important factors that could cause actual results to differ materially from the
forward-looking statements include the factors listed under "Factors Affecting
Future Operating Results" in the Company's 10-K for the year ended December 31,
1997, which are incorporated herein by reference, as well as the following
factors:
In 1997 and the first quarter of 1998, a majority of the Company's network sales
were to existing customers for upgrade, expansion of their networks, or
consulting delivery. The Company's results will depend on its ability both to
continue to sell products for use in networks of existing customers and to
attract new customers for the Company's products and services. There can be no
assurance that the Company will be successful in its sales and marketing
efforts. In addition, in 1997 and the first quarter of 1998, the Company
experienced extended selling cycles due to competitive products introduced by
other vendors, an increase in multi-year customer agreements and to longer
evaluation of operating systems and hardware platforms by potential customers.
The Company expects that extended selling cycles will continue to affect the
Company's operating results for the foreseeable future.
The Company's results are partially dependent on its ability to enhance existing
products and introduce new products on a timely basis, and to achieve market
acceptance for such enhanced new products. The Company's results in 1997 and the
first quarter of 1998 were adversely affected by delays in the localization of
certain products, and there can be no assurance that the Company will not
experience similar delays in the future. The Company introduced Year 2000
compliant versions of its VINES and StreetTalk for Windows NT products on April
3, 1998 and April 30, 1998, respectively. On April 27, 1998, the Company
introduced the Banyan Intranet Messaging Suite, a product which when added to a
customer's StreetTalk for Windows NT network, can deploy a variety of standards-
based mail clients while maintaining a unified messaging back-end and enterprise
directory service. Failure of these products to achieve market acceptance could
have a material adverse effect on the Company's future results of operations.
The Company has invested significant resources to develop products and services
to bring the Company's directory and messaging capabilities to Internet users.
In 1996, the Company, through a majority-owned subsidiary, introduced
Switchboard, a directory service for Internet users. The Company has limited
experience in developing or selling products for the Internet, and the success
of the Company will depend in part on its ability to enter into strategic
alliances with other Internet providers. Any delay in developing additional or
enhanced products and services for the Internet or failure of its Internet
products and services to achieve increase market acceptance could have a
material adverse effect on the Company's future results of operations.
Because of the foregoing factors and the factors incorporated herein by
reference, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and it expects that its results
of operations may fluctuate from period-to-period in the future.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $(2.7) million at December 31, 1997 to $8.8
million at March 31, 1998. At March 31, 1998, cash and cash equivalents combined
with short-term marketable securities were $22.2 million, compared with $10.9
million at December 31, 1997. Cash and cash equivalents increased $12.4 million
resulting in a cash balance of $19.1 million at March 31, 1998. This increase
was due primarily to net proceeds of $9.5 million from an equity investment by
HarbourVest Partners LLC, a $3.5 million decrease in accounts receivable, net
proceeds from the sale of marketable securities of $1.1 million, proceeds from
stock plan purchases and stock options of $0.8 million, and various other
operating, financing and investing activities. This was offset by decreases in
accounts payable and accrued compensation and expenses of $1.7 million and a
decrease in deferred revenues of $1.1 million.
In April 1997, the Company announced a reorganization of its operations. As a
result of the reorganization, the Company recorded net pre-tax restructuring and
other charges of $8.0 million. The restructuring and other charges are expected
to reduce cash flow by approximately $3.1 million, of which $2.8 million had
been expended through March 31, 1998. In the quarter ended December 31, 1996,
the Company recorded a restructuring charge of $5.5 million. The restructuring
charge is expected to reduce cash flow by approximately $3.8 million, of which
$3.5 million had been expended through March 31, 1998. Management believes that
remaining accrued balances are adequate to cover future expenditures associated
with the 1997 and 1996 restructuring and other charges.
On September 4, 1997, the Company entered into a $15.0 million line of credit
agreement (the "Credit Agreement") with Foothill Capital Corporation
("Foothill"). In general, the Company's obligations under the Current Agreement
bear interest at the variable base rate per annum of Norwest Bank Minnesota,
National Association. The Credit Agreement has a three-year initial term and is
renewable thereafter for successive one year periods. Each year during the
initial term of the Credit Agreement, Foothill will be granted warrants to
purchase 75,000 shares of the Company's common stock at the then current fair
market value. There were no amounts outstanding under the line of credit
agreement during the period ended March 31, 1998.
The Company believes that existing cash and marketable securities, combined with
cash expected to be generated from operations and an available line of credit,
will be sufficient to fund the Company's operations through at least the next
twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
On March 5, 1998, the Company issued and sold to HarbourVest Partners V-Direct
Fund, L.P. ("HarbourVest") (i) 263,158 shares of Series A Convertible Preferred
Stock, $.01 per value per share (the "Series A Preferred"), for $9,900,000, (ii)
warrants to purchase 65,790 shares of Series B Convertible Preferred Stock, $.01
par value per share (the "Series B Preferred"), with an exercise price of $45.00
per share (the "Series B Warrants") for $50,000 and (iii) warrants to purchase
65,790 shares of Series C Convertible Preferred Stock, $.01 par value per share
(the "Series C Preferred, and collectively with the Series A Preferred and the
Series B Preferred, the "Preferred Stock"), with an exercise price of $50.00 per
share (the "Series C Warrants") for $50,000. Such sale of shares of Series A
Preferred, Series B Warrants and Series C Warrants is referred to herein as the
"HarbourVest Investment."
The HarbourVest Investment was effected pursuant Rule 506 under the Securities
Act of 1933, as amended (the "Securities Act") and was therefore exempt from
registration under the Securities Act. No underwriters were utilized in
connection with the HarbourVest Investment, and no underwriting discounts or
commissions were paid or incurred thereby.
Each share of Preferred Stock is initially convertible, at the option of the
holder, into ten shares of Common Stock, $.01 par value per share (the "Common
Stock" thereof), subject to adjustment for certain dilutive issuances.
So long as HarbourVest owns in excess of 50% of the outstanding shares of Series
A Preferred, the holders of Series A Preferred are entitled to elect one member
of the Company's Board of Directors. The consent of the holders of over 50% of
the outstanding shares of Preferred Stock, voting separately as one class, is
required for the Company to take certain actions which may limit the rights and
powers of or otherwise diminish the superiority of the Preferred Stock. Other
than such rights and except as provided by law, the holders of shares of
Preferred Stock vote together (on an as converted basis) with the holders of
shares of Common Stock. Holders of shares of Preferred Stock are entitled to a
liquidation preference over the Common Stock in proportion to the initial
investment in such shares of Preferred Stock. The Company may not pay dividends
or otherwise make a distribution on the Common Stock, unless simultaneously
therewith such payment or distribution is made to the Preferred Stock (on an as
converted basis).
In the event of a sale, merger or similar transaction involving Switchboard,
HarbourVest shall have the right to exchange a certain percentage of its shares
of the Company (initially 50%) for its pro rata portion of the proceeds received
by the Company in such transaction.
On May 12, 1998, at the Company's 1998 Annual Meeting of Stockholders, the
Company's stockholders approved an amendment to its Second Restated Articles of
Organization, as amended, increasing the number of shares of Common Stock
authorized for issuance by the Company to 35,000,000 shares.
On January 2, 1998, the Company issued and sold to William P. Ferry, President,
Chief Executive Officer and Chairman of the Board of the Company, 160,000 shares
of Common Stock for an aggregate purchase price of $1,600 (the "Employment
Issuance"). The Employment Issuance and sale was effected pursuant to the terms
of the Employment Agreement, as amended, between the Company and Mr. Ferry. As
the Employment Issuance did not involve any public offering, it was exempt from
registration under the Securities Act pursuant to Section 4(2) thereunder. No
underwriters were utilized in connection with the Employment Issuance, and no
underwriting discounts or commissions were paid or incurred thereby.
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The exhibits listed in the Exhibit Index filed as part of this
report are filed as part of or are included in this report.
(b) A Current Report on Form 8-K was filed by the Company on March
10, 1998. The Company reported under Item 5 (Other Events) the
issuance and sale to HarbourVest of 263,158 shares of Series A
Preferred, the Series B Warrants and the Series C Warrants.
A Current Report on Form 8-K was filed by the Company on January
29, 1998. The Company filed under Item 5 (Other Events) a press
release announcing the Company's financial results for the fiscal
quarter and the fiscal year ended December 31, 1997 (the "January
29, 1998 Press Release"). The January 29, 1998 Press Release
contained the unaudited Consolidated Statements of Operations of
the Company for the fiscal quarters ended December 31, 1996 and
December 31, 1997.
-14-
<PAGE>
BANYAN SYSTEMS INCORPORATED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANYAN SYSTEMS INCORPORATED
Date: May 14, 1998 By: /s/ Richard M. Spaulding
------------------------------------------
Richard M. Spaulding
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
-15-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER TITLE OF DOCUMENT
- -------------- -----------------
27 Financial Data Schedule.
-16-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 19,119 6,674
<SECURITIES> 3,087 4,202
<RECEIVABLES> 16,665 20,681
<ALLOWANCES> 3,169 3,721
<INVENTORY> 1,222 1,023
<CURRENT-ASSETS> 40,314 31,972
<PP&E> 38,595 38,696
<DEPRECIATION> 33,556 32,886
<TOTAL-ASSETS> 50,252 42,928
<CURRENT-LIABILITIES> 31,491 34,704
<BONDS> 0 0
0 0
3 0
<COMMON> 198 193
<OTHER-SE> 15,590 4,884
<TOTAL-LIABILITY-AND-EQUITY> 50,252 42,928
<SALES> 12,798 16,388
<TOTAL-REVENUES> 17,753 20,031
<CGS> 1,759 2,744
<TOTAL-COSTS> 17,416 26,419
<OTHER-EXPENSES> 21 32
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22 24
<INCOME-PRETAX> 444 (6,302)
<INCOME-TAX> 67 90
<INCOME-CONTINUING> 377 (6,392)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 377 (6,392)
<EPS-PRIMARY> 0.02 (0.37)
<EPS-DILUTED> 0.02 (0.37)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 6,674 10,613
<SECURITIES> 4,202 4,139
<RECEIVABLES> 20,681 26,922
<ALLOWANCES> 3,721 7,168
<INVENTORY> 1,023 2,863
<CURRENT-ASSETS> 31,972 43,753
<PP&E> 38,696 45,619
<DEPRECIATION> 32,886 32,054
<TOTAL-ASSETS> 42,928 69,532
<CURRENT-LIABILITIES> 34,704 45,266
<BONDS> 0 0
0 0
0 0
<COMMON> 193 190
<OTHER-SE> 4,884 20,132
<TOTAL-LIABILITY-AND-EQUITY> 42,928 69,532
<SALES> 16,388 25,463
<TOTAL-REVENUES> 20,031 29,932
<CGS> 2,744 2,698
<TOTAL-COSTS> 26,419 29,583
<OTHER-EXPENSES> 32 87
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24 21
<INCOME-PRETAX> (6,302) 576
<INCOME-TAX> 90 207
<INCOME-CONTINUING> (6,392) 369
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,392) 369
<EPS-PRIMARY> (0.37) 0.02
<EPS-DILUTED> (0.37) 0.02
</TABLE>
