BNYN Banyan Corporation (CE)

Basis of presentation

The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the annual audited financial statements and the notes thereto included in the Company’s Form 10-KSB Annual Report and other reports filed with the SEC.

The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results any other interim period or for the fiscal year taken as whole.

Organization, principles of consolidation, going concern, results of operations and management’s plans:

Organization and principles of consolidation:

Banyan Corporation (the “Company”), an Oregon corporation, was incorporated on June 13, 1978. The Company operates in two segments of the health care industry: diagnostic imaging and franchising Chiropractic USA chiropractic clinics. All clinics are operated by independent entrepreneurs under the terms of franchise arrangements (franchisees).

The condensed consolidated financial statements include the accounts of Banyan Corporation, its wholly- owned subsidiaries, Diagnostic USA, Inc., Banyan Financial Services, Inc., Franchise Support Network, Inc., Premier Medical Group, Inc., Atlas Medical Group, Century Neurological. Inc., Comprehensive Medical, Neurological Medical Associates of N.J, LLC, Neurological Consultants, LLC, Neurological Services, Inc., Optimal Medical Group, LLC, Premier Health Services, LLC, Premier Imaging, LLC, Premier Professional Services, LLC, Providers Medical Group, LLC, Prism Diagnostics, Inc., West Center Medical Group, Inc., Premier SD, LLC and Virtual Medical Systems, LLC, its majority-owned (99%) subsidiaries Premier Integra Services, LLC and Premier National, LLC and its majority-owned (90%) subsidiary, Chiropractic USA, Inc. and the accounts of Southern Diagnostics, Inc. in accordance with guidelines established under Emerging Issue Task Force 97-2 Application of FASB Statement No. 94 and APB Opinion 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements. The Company meets all six of the requirements for a controlling financial interest that results in the consolidation of Southern Diagnostics, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Banyan Financial Services, Inc., Franchise Support Network Inc. and Diagnostic USA, Inc. have not commenced operations. Losses attributable to the minority interest in Chiropractic USA, Inc. have been consolidated into the Company.

Organization, principles of consolidation, going concern, results of operations and management’s plans (continued):

Going concern, results of operations and management’s plans:

The Company has incurred operating losses for several years. These losses have caused the Company to operate with limited liquidity and have created an accumulated deficit and working capital deficiencies of $25,377,765 and $485,465, respectively, as of September 30, 2007. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address these concerns include the conversion of outstanding debt to equity, additional equity financing, sales of franchises and increasing collections of receivables from franchisees and developing the diagnostic imaging business.

The accompanying financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts of liabilities that might be necessary should the Company be unsuccessful in implementing these plans, or otherwise be unable to continue as a going concern.

Summary of significant accounting policies:

Revenue recognition:

Fees from franchised clinics include initial franchise fees and continuing franchise and marketing fees. Initial fees are recognized as revenue on the opening of a clinic when the Company has performed substantially all initial services required by the franchise arrangement. Continuing fees for franchise and marketing are recognized as revenue based on a percentage of cash collected.

Revenue from diagnostic imaging services is calculated on an overall percentage of what can be expected to be collected from all outstanding gross billings based on the last five years of billing history. Gross billings are discounted principally due to the fact that levels of coverage by the insurance companies for patients vary from policy to policy and from insurance company to insurance company. This estimate is reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.

Net loss per share:

Basic net loss per share is computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the year. Diluted net loss per share reflects the potential dilution that could occur if dilutive securities were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect of such inclusion would reduce a loss or increase earnings per share. For the nine months ended September 30, 2007 and 2006, the effect of the inclusion of dilutive shares would have resulted in a decrease in loss per share. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares.

Note receivable:

During the period, the Company entered into a new agreement on its note receivable. Under the agreement, the Company received $244,000 as a partial payment of the note. Furthermore, the borrower now has no obligation to make monthly payments, no interest will accrue and no royalty fees will be payable for the following 24 months. At the end of the 24 months the borrower has the option to pay the remaining balance discounted by $100,000. In the event the balance is not paid after 24 months, then the discount will not apply, interest will accrue and the obligation to make royalty payments will commence. The resulting discount is being amortized over the 24 month interest free period.

Convertible notes:

Stockholders’ equity: Preferred stock:

The Company has 1,000,000,000 shares of no par value preferred stock authorized. As of September 30, 2007, none were issued and outstanding.

Common stock:

On September 4, 2007, the Company’s articles of incorporation were amended to increase its authorized capital stock from 5,000,000,000 to 40,000,000,000 shares of common stock. In addition, the Company undergoes a one for one hundred reverse stock split. All shares and per share amounts presented herein have been adjusted retroactively to reflect the reverse stock split.

The Company has 40,000,000,000 shares of no par value common stock authorized. As of September 30, 2007, there were 62,851,475 shares issued and outstanding. The Company had 487,000 outstanding options, 1,409,213 outstanding warrants, 2,110,655 shares to be issued for conversion notice received before September 30, 2007 and a commitment to issue 16,500,000 shares to its chief executive officer and its president and chief financial officer (see Note 7).

Stock transactions:

During the period ended September 30, 2007, the Company issued 40,485,500 shares as a result of conversion of convertible notes (see Note 5).

During the period ended September 30, 2007, the Company issued 31,616,667 shares for services, valued at $909,000, which was equal to the market price on the date of issue.

During the period ended September 30, 2007, the Company redeemed 16,500,000 shares from its chief executive officer and its president and chief financial officer. The shares were valued at $495,000 and recorded as payable.

Stock Options:

During the period ended September 30, 2007, 35,450 options expired and 7,400 were cancelled.

Related party transactions:

The Company retains the law partnership of its chief executive officer and its president and chief financial officer, Britannia Law Firm, to serve as its general counsel and special Canadian counsel. The Company pays Britannia a monthly retainer of $15,000.

During the period ended September 30, 2007, the Company issued to its chief executive officer and its president and chief financial officer 16,500,000 shares (8,250,000 each) to bonuses of $39,152 that were included in accounts payable as at January 1, 2007 and $455,848 for signing personally several guaranty and pledge agreements since 2004 with respect to the convertible notes (see note 5). These shares were later cancelled and treated as treasury stock available for future issuance and been reissued after the period (see Note 10).

As of September 30, 2007, $476,410 included in accounts payable is due to the Company’s chief executive officer, president and chief financial officer and Britannia Law Firm as compensation expense and services rendered by Britannia Law Firm. Included in the accounts payable is the $495,000 that is to be repaid by the issuance of 16,500,000 shares.

Segment results:

The Company operates in two business segments: franchising chiropractic clinics and diagnostic testing. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company evaluates performance based on operating earnings of the respective business units.

During the nine months ended September 30, 2007 and 2006, the segment results are as follows:

Debt increase:

In March 2007, the Company entered into an addendum to reduce the amount owed on the acquisition of Premier. Under the terms of the addendum, the Company agreed to pay a lump sum of $250,000 in April 2007. The payment was not made because of a shortage of working capital. The Company has renegotiated the addendum and restored the agreement to its original state. Accordingly, $230,619 has been expensed during the nine-month period ending September 30, 2007.

Subsequent event:

In November 2007, the Company reissued 16,500,000 shares to its chief executive officer and president and chief financial officer of the Company as repayment (see Note 7).

After September 30, 2007, the Company issued 12,545,140 shares upon the conversion of $16,999 in 2004 note interest.

Comparative figures

Certain of the prior period’s comparative figures have been reclassified to conform to the current period’s presentation.