Broad Street Realty, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Broad Street Realty, Inc.	Financial_Report.xls
EX-32 - EX-32 - Broad Street Realty, Inc.	v239821_ex32.htm
EX-31.2 - EX-31.2 - Broad Street Realty, Inc.	v239821_ex31-2.htm
EX-10.1 - EX-10.1 - Broad Street Realty, Inc.	v239821_ex10-1.htm
EX-10.2 - EX-10.2 - Broad Street Realty, Inc.	v239821_ex10-2.htm
EX-10.3 - EX-10.3 - Broad Street Realty, Inc.	v239821_ex10-3.htm
EX-31.1 - EX-31.1 - Broad Street Realty, Inc.	v239821_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 1-9043

Banyan Rail Services Inc.

(Exact name of registrant as specified in its charter)

Delaware		36-3361229
(State of incorporation)		(I.R.S. Employer Identification No.)

2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431

(Address of principal executive offices)

561-997-7775

(Registrant’s telephone number)

Indicate by a 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 R No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No ¨

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨	Smaller Reporting Company R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No R

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,045,856 shares of common stock, $0.01 par value per share, as of November 9, 2011.

Table of Contents

Part I — Financial Information		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Cautionary Statement Concerning Forward-Looking Statements		19
Overview		19
Wood Energy		19
Recent Events		20
Critical Accounting Policies and Estimates		21
Revenues		24
Gross profit		24
General and administrative expenses		25
Interest expense		25
Income tax expense		26
Net Loss		26
Financial Condition and Liquidity		26
Off-Balance Sheet Arrangements		28
How to Learn More about Banyan		28
Item 4. Controls and Procedures		29
Part II — Other Information		29
Item 1. Legal Proceedings		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3. Defaults Upon Senior Securities		29
Item 5. Other Information		29
Item 6. Exhibits		30
Signatures		31

Page 2 of 31

Part I — Financial Information

Item 1. Financial Statements

Page 3 of 31

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Balance Sheets

As of

	September 30,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	135,662		$	61,969
Accounts receivable - trade		450,125			688,134
Cost incurred related to deferred revenue		1,842,980			977,878
Prepaid expenses and other current assets		90,029			116,011
Total current assets		2,518,796			1,843,992

Property and equipment, net		2,875,241			2,886,275

Other assets
Deferred income taxes		569,582			569,582
Identifiable intangible assets, net		1,374,612			1,562,297
Goodwill		3,658,364			3,658,364
Other assets		151,861			171,542
Total other assets		5,754,419			5,961,785

Total assets	$	11,148,456		$	10,692,052

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	989,894		$	934,789
Deferred revenue		1,760,112			758,849
Revolving credit line		565,140			894,328
Current portion of long-term debt		744,066			680,707
Current portion of capital leases		103,447			90,179
Accrued dividends		154,588			105,563
Total current liabilities		4,317,247			3,464,415

Long-term debt, less current portion		2,104,356			2,349,623
Capital leases, less current portion		95,761			155,196
Total liabilities		6,517,364			5,969,234

Commitments and contingencies

Stockholders' equity
Series A Preferred stock, $.01 par value. 20,000 shares authorized and issued		200			200
Series B Preferred stock, $.01 par value. 10,000 shares authorized and issued		871,315			576,437
Series C Preferred stock, $.01 par value. 10,000 shares authorized. 5,850 shares issued		585,000			-
Common stock, $0.01 par value. 7,500,000 shares authorized. 3,045,856 issued		30,458			30,458
Additional paid-in capital		92,949,903			93,045,614
Accumulated deficit		(89,735,095	)		(88,859,202	)
Treasury stock, at cost, for 28,276 shares		(70,689	)		(70,689	)
Total stockholders' equity		4,631,092			4,722,818

Total liabilities and stockholders' equity	$	11,148,456		$	10,692,052

See Notes to Condensed Consolidated Financial Statements

Page 4 of 31

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

	Nine months ended						Three months ended
	September 30,						September 30,
	2011			2010			2011			2010

Revenues	$	3,964,306		$	4,000,223		$	1,055,990		$	1,377,984
Cost of sales		3,107,096			3,178,068			940,255			1,082,034
Gross profit		857,210			822,155			115,735			295,950
General & administrative expenses		1,494,448			1,292,862			421,067			400,936
Loss from operations		(637,238	)		(470,707	)		(305,332	)		(104,986	)
Interest expense		238,655			239,783			82,449			80,418
Gain on extinguishment of debt		-			(25,092	)		-			-
Loss before income taxes		(875,893	)		(685,398	)		(387,781	)		(185,404	)
Income tax benefit		-			(72,774	)		-			(77,074	)
Net loss	$	(875,893	)	$	(612,624	)	$	(387,781	)	$	(108,330	)

Dividends for the benefit of preferred stockholders:
Preferred stock dividends		(220,985	)		(127,441	)		(79,716	)		(38,967	)
Amortization of preferred stock beneficial conversion feature		(105,122	)		(1,959,855	)		(39,279	)		(87,355	)
Total dividends for the benefit of preferred stockholders		(326,107	)		(2,087,296	)		(118,995	)		(126,322	)
Net loss attributable to common stockholders	$	(1,202,000	)	$	(2,699,920	)	$	(506,776	)	$	(234,652	)

Weighted average number of common shares outstanding:
Basic and diluted		3,045,856			3,042,387			3,045,856			3,045,959

Net loss per common share, basic and diluted	$	(0.29	)	$	(0.20	)	$	(0.13	)	$	(0.04	)
Net loss attributable to common shareholders per share	$	(0.39	)	$	(0.89	)	$	(0.17	)	$	(0.08	)

See Notes to Condensed Consolidated Financial Statements.

Page 5 of 31

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(875,893	)	$	(612,625	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		493,954			332,119
Amortization of identifiable intangible assets		187,685			196,898
Stock compensation expense		26,769			63,066
Deferred income taxes		-			(80,384	)
Amortization of deferred loan costs		41,260			30,436
Gain on sales of equipment		(9,193	)		-
Amortization of beneficial conversion feature		-			15,269
Gain on extinguishment of debt		-			(25,092	)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable		238,009			(98,971	)
Decrease in inventory		-			(48,041	)
Increase in costs incurred related to deferred revenue		(865,102	)		(992,653	)
Decrease in due from sellers		-			341,863
Decrease (increase) in prepaid expenses and other current assets		25,982			(61,609	)
Increase in other assets		(21,579	)		(12,059	)
Increase in accounts payable and accrued expenses		55,105			231,042
Increase in income taxes payable		-			7,610
Increase in deferred revenue		1,001,263			682,540
Net cash provided by (used in) operating activities		298,260			(30,591	)

Cash flows used in investing activities:
Acquisition of property and equipment		(528,231	)		(310,892	)
Proceeds from the sale of equipment		78,000			-
Net cash used in investing activities		(450,231	)		(310,892	)
Cash flows from financing activities:
Proceeds from sale of preferred stock		978,384			600,160
Payment of preferred stock dividends		(171,961	)		(47,756	)
Proceeds from long-term debt		400,125			75,711
Proceeds from exercise of stock options		-			37,500
(Payment of) proceeds from line of credit		(329,188	)		725,000
Payment of capital leases		(69,663	)		(51,211	)
Payments of long-term debt		(582,033	)		(450,000	)
Net cash provided by financing activities		225,664			889,404

Net increase in cash and cash equivalents		73,693			547,921
Cash and cash equivalents, beginning of period		61,969			101,361
Cash and cash equivalents, end of period	$	135,662		$	649,282

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	185,018		$	128,601
Taxes	$	2,300		$	-

Non cash financing activities:
Issuance of preferred stock for exchange of convertible debentures	$	-		$	1,525,000
Preferred stock dividend in excess of payments	$	154,588		$	79,684
Property acquired under capital leases	$	23,496		$	327,257

See Notes to Condensed Consolidated Financial Statements.

Page 6 of 31

Banyan Rail Services Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Periods Ended December 31, 2010 and September 30, 2011

	Common Stock				Preferred Stock										Treasury Stock
	Shares								Additional Paid			Accumulated
	Issued		Amount		Shares Issued		Amount		in Capital			Deficit			Shares		Amount			Total

Stockholders’ equity Janaury 1, 2010		3,020,414	$	30,204		-		-	$	91,885,936		$	(87,881,351	)		28,276	$	(70,689	)	$	3,964,100
Issuance of preferred stock - Series A		-		-		20,000		200		1,201,806			-			-		-			1,202,006
Issuance of preferred stock - Series B		-		-		6,000		576,437		23,563			-			-		-			600,000
Stock compensation expense		-		-		-		-		91,097			-			-		-			91,097
Exercise of stock options		25,000		250		-		-		37,250			-			-		-			37,500
Net loss for the year ended December 31, 2010		-		-		-		-		-			(977,851	)		-		-			(977,851	)
Preferred stock dividends		-		-		-		-		(194,038	)		-			-		-			(194,038	)
Common Stock Adjustment		442		4		-		-		-			-			-		-			4
Stockholders’ equity December 31, 2010		3,045,856	$	30,458		26,000	$	576,637	$	93,045,614		$	(88,859,202	)		28,276	$	(70,689	)	$	4,722,818
Issuance of preferred stock - Series B						4,000		294,878		98,505											393,383
Issuance of preferred stock - Series C						5,850		585,000													585,000
Stock compensation expense										26,769											26,769
Net loss for the nine months ended September 30, 2011													(875,893	)							(875,893	)
Preferred stock dividends										(220,985	)										(1,096,878	)
Stockholders’ equity September 30, 2011		3,045,856	$	30,458		35,850	$	1,456,515	$	92,949,903		$	(89,735,095	)		28,276	$	(70,689	)	$	4,631,092

See Notes to Condensed Consolidated Financial Statements.

Page 7 of 31

Notes to Condensed Consolidated Financial Statements

Note 1. Nature of Operations

Banyan Rail Services Inc. (“Banyan,” “we,” “our” or the “Company”) was originally organized under the laws of the Commonwealth of Massachusetts in 1985, under the name VMS Hotel Investment Trust, for the purpose of investing in mortgage loans, principally to entities affiliated with VMS Realty Partners. The Company was subsequently reorganized as a Delaware corporation in 1987 and changed its name to B.H.I.T. Inc. In 2010, the Company changed its name from B.H.I.T. Inc. to Banyan Rail Services Inc.

Banyan owns 100% of the common stock of The Wood Energy Group, Inc. (“Wood Energy”). Wood Energy engages in the business of railroad tie reclamation and disposal, principally in the south and southwest.

Note 2. Basis of Presentation

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and Regulation S-X. In the opinion of management, these condensed consolidated financial statements give effect to all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows of the Company and Wood Energy, its wholly owned subsidiary, for the periods presented.

All significant intercompany transactions and accounts have been eliminated in consolidation.

Certain reclassifications have been made to the 2010 financial statements to conform to the classifications used in 2011.

Although we believe that the disclosures included in our condensed consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. Accordingly, the accompanying condensed consolidated financial statements should be read in conjunction with the Company’s latest annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission.

The results of operations for the three and nine month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full 2011 year.

Note 3. Summary of Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue for the pick-up and disposal of used railroad ties upon the completion of the scope of work required under its contracts, which is when the Company considers amounts to be earned (evidence of an arrangement has been obtained, services are delivered, fees are fixed and determinable and collectability is reasonably assured). Accordingly, monies received or progress invoices for services for which contracts have not been completed have been recorded as deferred revenue on the balance sheet. Direct costs, including but not limited to payroll, fuel, equipment rental, transportation expense and strapping costs for contracts which have not been completed are also deferred until the related revenue process is complete.

The Company receives revenue from the processing of railroad ties into scrap tie fuel and the sale of certain scrap ties to landscapers, railroad tie users (relay) and other railroad tie processors. These revenues are recorded when the ties or derivative materials are delivered to the customer.

Page 8 of 31

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment, and the useful lives of intangible assets.

Cash and Cash Equivalents

The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Trade accounts receivable are recorded net of an allowance for doubtful accounts. An allowance is estimated from historical performance and current market and economic conditions. Uncollectible accounts are charged to operations if write offs are deemed necessary. As of September 30, 2011 and December 31, 2010 no allowance has been provided as all accounts receivable are deemed collectible.

Under the completed contract method of revenue recognition the Company has recorded progress payments received for uncompleted contracts as deferred revenue in the amounts of $1,760,112 and $758,849 as of September 30, 2011 and December 31, 2010, respectively. These amounts represent unbilled future amounts due under existing contracts to be recognized as revenue upon the removal of all of each contract’s ties from the customer’s premises.

Property and Equipment

Property and equipment owned and under capital leases are carried at cost. Depreciation of property and equipment is provided using the straight line method for financial reporting purposes at rates based on the following estimated useful lives:

		Years
Machinery and equipment		3-7
Track on leased properties		4

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Valuation of Long-Lived Assets

The Company reviews long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its assets, management performs an analysis of the anticipated undiscounted future net cash flows of the individual assets over the remaining amortization period or an appraisal of market value is obtained.

Page 9 of 31

Fair Value of Financial Instruments

Recorded financial instruments consist of cash, accounts receivable, accounts payable, and short-term and long-term debt and lease obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.

Earnings Per Share

Basic earnings per share is computed based on the weighted average shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares consist of the dilutive effect of stock options and convertible preferred stock equivalents.

Goodwill and Intangibles

Goodwill is not amortized but rather is tested at least annually for impairment. The Company assesses impairment by comparing the fair value of the goodwill with its carrying value. The determination of fair value involves significant management judgment. Impairments are expensed when incurred. For goodwill, a two-step impairment model is used. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than the carrying amount, goodwill would be considered impaired. The second step measures the goodwill impairment as the excess of the recorded goodwill over the asset’s implied fair value. During the nine months ended September 30, 2011 and 2010, there were no impairments of goodwill.

Intangible assets that have finite useful lives continue to be amortized over their estimated useful lives.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Inventory

Inventory includes the costs of material, labor and direct overhead and is stated at the lower of cost or market. Inventory is accumulated to service the landscape tie and scrap tie fuel markets. Inventory at September 30, 2011 was approximately $30,000 and was included in prepaid and other current assets on the balance sheet.

Page 10 of 31

Retained Earnings Distributions

The Company’s preferred stockholders are entitled to receive payment before any of the common stockholders upon a liquidation of the Company. In addition, the Company is unable to pay dividends on its common stock until dividends are paid on its preferred stock.

Note 4. Capital Leases

The Company leases equipment used in its operations under capital leases that expire over two to five years. Payments under these capital leases were approximately $70,000 and $62,000 for the nine months ended September 30, 2011and 2010.

At September 30, 2011, the total future minimum rental commitments under all the above leases are as follows:

For the years ending December 31,

2011	$	29,990
2012		119,960
2013		59,972
2014		5,450
2015		5,450
Net minimum lease payments		220,822
Less amount representing interest		21,614
Present value of net minimum lease payments		199,208
Amount representing current portion		(103,447	)

Capital leases payable, less current portion	$	95,761

Note 5. Term Loan and Revolving Credit Line

At December 31, 2010, the Company had a $3.0 million senior secured term loan, a $1.0 million working capital credit line and a $1.0 million capital expenditure credit line. At December 31, 2010, the Company was not in compliance with certain financial covenants. On April 1, 2011, the lender granted a waiver with respect to non-compliance with the financial covenants at December 31, 2010. On April 7, 2011, the Company and its Wood Energy subsidiary amended its credit facility with the bank. In this respect, (i) the $1.0 million working capital credit line was extended to April 1, 2012, (ii) approximately $720,000 borrowed on the $1.0 million line of credit for capital expenditures was converted into a term loan and (iii) a new capital expenditure line of $500,000 was granted.

The $720,000 term loan matures on September 3, 2014, the same date as Wood Energy’s existing $1,800,000 term loan.

The new $500,000 capital expenditure line matures on April 1, 2012, at which time the amount outstanding will convert to a term loan which matures on September 3, 2014.

Page 11 of 31

The maximum loan advances on the working capital line are based on specific percentages of eligible working capital amounts, including accounts receivable and inventory. Draws on the capital expenditures line are based on 80% of the cost of such capital expenditures.

The credit facility amendments contain modified financial covenants pertaining to fixed charges, total debt and minimum earnings before interest, taxes, depreciation and amortization (EBITDA) and are tested quarterly. As of September 30, 2011, the Company is in compliance with the financial covenants included in the modification and extension of its term loan and credit lines.

Note 6. Convertible Debentures and Preferred Stock

In connection with the purchase of Wood Energy, the Company issued $1,525,000 of convertible debentures bearing interest at 10% per annum and payable in five years. The debentures were convertible into the Company’s common stock at $2.00 per share. In accordance with ASC 470-20 (Debt with Conversion and Other Options), the Company determined that the convertible debentures had beneficial conversion features because the embedded conversion feature was an “in-the-money” issuance. Therefore the embedded beneficial conversion feature was valued separately at issuance. The convertible debentures met the definition of “conventional convertible debt” because the number of shares which may be issued upon the conversion of the debt is fixed. Therefore, the beneficial conversion feature qualified for equity classification.

Subsequently in February 2010, the Company completed an exchange of the outstanding convertible debentures for shares of convertible preferred stock. The holders of 100% of the outstanding debentures agreed to the exchange, and 15,250 shares of Series A Convertible preferred stock were issued. Similar to the debentures, holders of the Series A Convertible preferred stock are entitled to an annual cash dividend of 10% payable semi-annually, and each share of preferred stock is convertible into 50 shares of common stock at the holder’s option. The holders of the preferred stock are not entitled to redeem their shares for cash. In accordance with ASC 470-20, the Company has determined that the preferred stock includes a beneficial conversion feature and a discount valued at $1,525,000 has been accounted for as a dividend in 2010.

During the remainder of 2010, the Company issued 4,750 additional shares of Series A Convertible preferred stock. The Company has determined that these issuances also include beneficial conversion features and discounts valued at $475,000 which has been accounted for as dividends for the year ended December 31, 2010. These proceeds were used for working capital purposes.

In October 2010, the Company filed a certificate of designation with the Delaware Secretary of State designating 10,000 shares of its preferred stock as Series B Preferred stock. The issuance price of the Series B Preferred stock is $100 per share and it is convertible into 44.4 shares of common stock by the holder at any time after the following conditions are met:

(i)	The Common Stock is listed for trading on Nasdaq or any national securities exchange;

(ii)	The bid price of the Common Stock is equal to or exceeds $5.00 a share for 30 consecutive days, and thereafter so long as the bid price continues to equal or exceed $5.00 per share;

(iii)

The trading volume of the Common Stock is equal to or exceeds 10,000 shares a day for 30 consecutive days, and thereafter so long as the daily trading volume continues to equal or exceed 10,000 shares; or

(iv)	October 15, 2013.

At that time the Company may also elect to convert or redeem the Series B Preferred stock. The conversion price is $2.25 per share of common stock, subject to adjustment for stock dividends, stock splits and reorganizations.

Page 12 of 31

The Company issued 6,000 shares of its Series B Preferred stock through December 31, 2010. In the nine months ended September 30, 2011, the Company issued 4,000 shares of Series B Preferred stock. All shares of the Series B Preferred Stock were issued to Patriot Rail Services Inc. Gary O. Marino, the Company’s Chairman and Chief Executive Officer, is also a significant stockholder of the owner of Patriot Rail Services Inc. The preferred shares were issued for $100 per share.

In July 2011, the Company filed a certificate of designation with the Delaware Secretary of State designating 10,000 shares of its preferred stock as Series C Preferred stock. The issuance price of the Series C Preferred stock is substantially the same as Series A and B Preferred stock with the exception of the conversion price and the date of conversion as June 30, 2014.

The conversion price will be the closing price of the Company’s common stock on the trading date preceding the issuance of that share of Series C Preferred stock, subject to adjustment for stock dividends, stock splits and reorganizations. If the common stock is not quoted on any market or exchange, the conversion price will be determined by the Board of Directors on the date of issuance.

The Series C Preferred stock ranks senior to the common stock and pari-passu with the Series A and Series B Preferred stock of the Company as to dividends and distribution of assets upon the liquidation, dissolution or winding up of the Company.

During the quarter ending September 30, 2011, the Company issued 5,850 shares of its Series C Preferred stock to Patriot Rail Services, Inc. The preferred shares were issued for $100 per share, or $585,000 in the aggregate at a conversion price ranging from $1.96 to $2.06 per share of common stock. The proceeds of the money received in 2011 were used to fund working capital requirements.

As of September 30, 2011, Patriot Rail Services Inc. owned 3,000, 10,000, 5,850 and 686,283 shares of Series A Preferred, Series B Preferred, Series C Preferred and common stock, respectively. If converted Patriot Rail Services Inc. would own 1,572,588 shares of common stock.

Note 7. Income Taxes

The provision for income taxes consists of the following components:

	Nine months ended September 30,
	2011		2010
Current (benefit) expense	$	-	$	7,610
Deferred Tax (benefit)		-		(80,384	)
	$	-	$	(72,774	)

The components of deferred income tax assets and liabilities are as follows:

Page 13 of 31

	September 30,			December 31,
	2011			2010

Long-term deferred tax assets:
Stock compensation benefit	$	215,539		$	206,170
Net operating loss carryforward		1,598,842			1,375,108
Total long-term deferred tax assets		1,814,381			1,581,278
Valuation allowance		(310,023	)		-
		1,504,358			1,560,938
Long-term deferred tax liabilities:
Intangible assets		(481,115	)		(546,804	)
Property and equipment		(453,661	)		(464,892	)
Total long-term deferred tax liabilities		(934,776	)		(1,011,696	)

Net deferred tax assets	$	569,582		$	569,582

Our Federal net operating loss (“NOL”) carryforward balance as of September 30, 2011 was $4,618,762, expiring between 2011 and 2030. Management has assessed the realization of the deferred tax assets and has determined that it is more likely than not that a significant portion will be realized. A schedule of the NOLs is as follows:

Tax Year	loss
1996	$	111,017
1997		66,707
1998		184,360
1999		187,920
2000		25,095
2001		104,154
2002		15,076
2003		96,977
2004		78,293
2005		70,824
2006		48,526
2007		180,521
2008		534,087
2009		1,444,831
2010		842,251
Current year taxable loss		628,123
	$	4,618,762

The Company's net deferred tax assets before valuation allowance as of September 30, 2011 was approximately $880,000, most of which relates to net operating losses that expire from 2011 to 2030. The Company recorded an operating loss for the quarter and has a recent history of operating losses. The Company has maintained the value of the deferred tax asset as we believe it more likely than not that the Company will realize operating profits and taxable income so as to utilize the net operating losses in the future. However, the Company has recorded a valuation allowance due to the potential that the 1996 and 1997 net operating losses will expire before being utilized.

The Company is subject to income taxes in the U.S. federal jurisdiction and a number of state jurisdictions. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for the years before 2007.

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Note 8. Earnings per Share

The Company excluded from the diluted earnings per share calculation 1,738,577 and 1,047,400 shares issuable upon conversion of shares of convertible preferred stock that were outstanding at September 30, 2011 and 2010, as their inclusion would be anti-dilutive. In addition, the Company excluded 61,000 stock options as of September 30, 2010 as their inclusion would be anti-dilutive.

Page 15 of 31

Note 9. Stock-Based Compensation

The Company has stock option agreements with its directors and officers for serving on the Company’s Board of Directors and as officers. The options activity is as follows:

				Weighted		Weighted		Weighted
				Average		Average		Average
	Number			Exercise Price		Fair Value at		Remaining		Intrinsic
	of Shares			per Share		Grant Date		Contractual Life		Value
Balance January 1, 2010		225,000		$	3.20						-
Options granted		140,500			2.91	$	121,125	2.8 Years			-
Options exercised		(25,000	)		1.50						-
Options expired		(87,500	)		3.50				-		-
Balance, January 1, 2011		253,000		$	3.08			3.1 years		$	-
Options granted		25,000			2.06	$	13,500	4.9 years			-
Options expired		(25,000	)		3.76				-		-
Balance, September 30, 2011		253,000		$	2.92			3.0 years		$	-

Prior to June 30, 2010 the Company had not adopted a formal stock option plan. The number of options issued and the grant dates were determined at the discretion of the Company’s Board. Certain options vest at the date of grant and others vest over a one year period. The options are exercisable for periods not exceeding three to five years from the date of grant. On July 1, 2010 at its annual meeting of stockholders, the 2010 Stock Option and Award Plan was approved.

The fair values of stock options are estimated using the Black-Scholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk free interest rate. The risk free interest rate is the five year treasury rate at the date of grant. The expected life is based on the contractual life of the options at the date of grant. With a change in management in 2008, it was determined that the Company would seek acquisitions in railroad related businesses. Accordingly, the 2010 and 2011 expected volatility rate was estimated using the average volatility rates of public companies in the railroad industry. The Company uses an estimated forfeiture rate of 0% due to limited experience with historical forfeitures.

The assumptions used in the option-pricing models were as follows:

	2011			2010
Risk free interest rate		1.51	%		1.39-2.37	%
Expected life (years)		5			5
Expected volatility		26	%		29	%
Dividend yield		0			0

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Note 10. Major Customers

Revenue for the three months and nine months ended September 30, 2011 and 2010, and accounts receivable from customers as of September 30, 2011 and 2010 representing over 10% of revenue or accounts receivable were as follows:

	Three months ending						Nine months ending
	September 30,						September 30,						September 30,
	2011			2010			2011			2010			2011			2010
	Revenue			Revenue			Revenue			Revenue			Accounts Receivable
Company A		15.0	%		26.9	%		18.5	%		20.8	%		0.0	%		13.5	%
Company B		15.5	%		0.0	%		8.9	%		0.0	%		25.3	%		0.0	%
Company C		43.2	%		60.6	%		47.5	%		66.3	%		32.4	%		71.3	%

Note 11. Business Interruption Insurance

In September 2011, the Company had a mechanical breakdown at its railroad tie fuel processing center, whereby its normal operations were interrupted. The Company is insured for such matters and has recorded $114,000 of estimated business interruption insurance recoveries for the month of September 2011. The Company has accounted for the recoveries of business interruption losses in accordance with Accounting Standard Codification 225, and has recorded the accrual in revenues on the Company’s statement of operations and in accounts receivables on the Company’s balance sheet, respectively.

Also in September 2011, the Company had a fire at its railroad tie processing center which destroyed certain pieces of equipment related to the processing of its railroad ties into fuel. The Company is fully insured for these pieces of equipment and does not expect to incur any losses related to this equipment.

Note 12. Related Party Transactions

In September 2009, the Company entered into two 5-year employment agreements and one month-to-month consulting agreement with individuals who are shareholders and/or officers of the Company. The aggregate expense under these agreements was $110,000 and $318,000 for the three and nine months ended September 30, 2011 and $104,000 and $312,000 for the three and nine months ended September 30, 2010, respectively.

The Company leases office space and receives office services from Patriot Rail Corp., a company related by certain common management and ownership. In July 2011 the lease cost increased from $5,000 per month to $6,000 per month to include additional support services. These costs are included in General and Administrative expenses in the statement of operations. The costs for the nine months ended September 30, 2011 and 2010 are each $47,000 and $45,000, respectively.

Our directors, chief executive officer and president are currently not receiving cash compensation for their services, and no amounts have been recorded in the Company’s financial statements for the cash value of their services.

The Company’s board of directors, officers, and officers of its subsidiary directly or beneficially own 26,850 shares of the Company’s preferred stock and 1,266,407 shares of common stock as of September 30, 2011 or 2,312,888 shares, if the preferred is converted.

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During the three months ended September 30, 2011, the Company sold approximately $98,000 of relay ties to a related party for use in its track maintenance. The Company believes the terms of the sale of these ties was at arms-length.

Note 13. Subsequent Events

In October 2011, the Company renegotiated the 5-year employment contract of one of the shareholders whereby the old agreement was terminated and the Company and the employee entered into a new at-will employee agreement.

During the quarter ended September 30, 2011, the Company entered into a future lease with a related party for a new facility in Gibsland, La. This facility will replace the Company’s current facility in Shreveport, La. The lease will take effect when the site is completed and the Company takes possession. The Company will have annual rental payments of $10,000 per year and an additional commitment of 1,200 railcars per year to the leased facility at a rate of $300 per car.

On October 31, 2011, the Company issued 1,000 shares of its series C Preferred shares to Patriot Rail Services. The preferred shares were issued for $100 per share, or $100,000 in the aggregate at a conversion price of $2.00 per share of common stock. The proceeds of the money received were used to fund working capital requirements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Concerning Forward-Looking Statements

We and our representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Section 21E of the Securities Exchange Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. These risks may relate to, without limitation:

executing our acquisition/expansion plan by identifying and acquiring additional operating companies;

obtaining appropriate funding to complete potential acquisitions;

generating adequate revenue to service our debt and meet our bank loan financial covenants;

the impact of current or future laws and government regulations affecting the disposal of rail ties and our operations;

changing external competitive, business, weather or economic conditions;

successfully operating Wood Energy;

changes in our relationships with employees or with our customers;

the market opportunity for our services, including expected demand for our services; and

any of our other plans, objectives, expectations and intentions contained in this report that are not historical facts.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described herein and in other documents we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on Form 8-K filed by us.

Overview

In September 2009, we acquired The Wood Energy Group, Inc., a Missouri corporation engaged in the business of railroad tie reclamation and disposal. Prior to acquiring Wood Energy, Banyan was a shell company without significant operations or sources of revenues other than its investments.

Wood Energy

Wood Energy, headquartered in St. Louis, Missouri, is one of the nation’s largest railroad tie reclamation and disposal companies. Founded in 2001, we provide railroad tie pickup, reclamation and disposal services to the Class 1 railroads (defined by the American Association of Railroads as a railway company with annual operating revenue over $401.4 million) and industrial customers. Wood Energy operates primarily in the south and southwest.

Wood Energy’s services include picking up scrap railroad ties for major Class I railroads and disposing of the ties by selling them to the landscape and relay tie markets or having the ties ground to create chipped wood for subsequent sale as fuel to the co-generation market. In 2010, we recovered over 1.7 million railroad ties, 78% of which were used by the co-generation market, 19% for the landscape market and 3% went to landfills.

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Recent Events

Series C Preferred Stock Authorization and Issuances

In July 2011, the Company filed a certificate of designation with the Delaware Secretary of State designating 10,000 shares of its preferred stock as Series C Preferred stock. The issuance price of the Series C Preferred stock is $100 per share and it is convertible into common stock by the holder at any time after the following conditions are met:

(i)	The Common Stock is listed for trading on Nasdaq or any national securities exchange;

(ii)	The bid price of the common stock is equal to or exceeds $5.00 a share for 30 consecutive days, and thereafter so long as the bid price continues to equal or exceed $5.00 per share;

(iii)

The trading volume of the common stock is equal to or exceeds 10,000 shares a day for 30 consecutive days, and thereafter so long as the daily trading volume continues to equal or exceed 10,000 shares; or

(iv)	June 30, 2014.

At that time the Company may also elect to convert or redeem the Series C Preferred stock. The conversion price will be the closing price of the Company’s common stock on the trading date preceding the issuance of that share of Series C Preferred stock, subject to adjustment for stock dividends, stock splits and reorganizations. If the common stock is not quoted on any market or exchange, the conversion price will be determined by the Board of Directors on the date of issuance.

In August and September, 2011, the Company issued 5,850 shares of its Series C Preferred stock to Patriot Rail Services, Inc. The preferred shares were issued for $100 per share, or $585,000 in the aggregate at a conversion prices between of $1.99 and $2.06 per share of common stock. The proceeds were used to fund working capital requirements.

Business Interruption Insurance

In September 2011, the Company had a mechanical breakdown at its railroad tie fuel processing center, whereby its normal operations were interrupted. The Company is insured for such matters and has recorded $114,000 of estimated business interruption insurance recoveries for the month of September 2011. The Company has accounted for the recoveries of business interruption losses in accordance with EITF 01-13, and has recorded the accrual in revenues on the income statement and in accounts receivables on the balance sheet, respectively.

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Critical Accounting Policies and Estimates

The following discussion and analysis of our results of operations and financial condition is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities, if any, at the date of the financial statements. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. If these estimates differ materially from actual results, the impact on our condensed consolidated financial statements may be material.

We review our financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. During the quarter ended September 30, 2011, there were no significant changes to the critical accounting policies.

Revenue Recognition

The Company utilizes the completed contract method of accounting for the majority of its revenue recognition. The Company recognizes revenue for the pick-up and disposal of used railroad ties upon the completion of the scope of work required under its contracts, which is when the Company considers amounts to be earned (evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectability is reasonably assured). Accordingly, monies received on invoices for services for which contracts have not been completed have been recorded as deferred revenue. Direct costs, including but not limited to payroll, fuel, equipment rental, transportation expense and strapping costs for contracts which have not been completed are also deferred until the related revenue recognition process is complete.

The Company also receives revenue from the processing of railroad ties into saleable ground fuel and the sale of certain railroad ties to landscapers, railroad tie users (relay) and other railroad tie processors. These revenues are recorded when the ties or derivative materials are delivered to the customer.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment, the useful lives of intangible assets and accounting for the business combination.

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Cash and Cash Equivalents

The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Trade accounts receivable are recorded net of an allowance for doubtful accounts. An allowance is estimated from historical performance and current market conditions and economic conditions. Uncollectible accounts are charged to operations if write offs are deemed necessary. As of September 30, 2011 and 2010 no allowance is provided as all accounts receivable are deemed collectible.

Under the completed contract method of revenue recognition the Company has recorded progress payments received for uncompleted contracts as deferred revenue in the amounts of $1,760,112 and $758,849 at September 30, 2011 and December 31, 2010, respectively. Amounts that had not been billed and were not billable to customers at the balance sheet dates are $675,761 and $758,849 as of September 30, 2011 and December 31, 2010, respectively. These amounts represent unbilled future amounts due under existing contracts to be recognized as revenue upon the removal of all of each contract's ties from the customer’s premises.

Property and Equipment

	Years
Machinery and equipment	3-7
Track on leased properties	4

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Valuation of Long-Lived Assets

Fair Value of Financial Instruments

Recorded financial instruments consist of cash, accounts receivable, accounts payable, short-term and long-term debt obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.

Earnings Per Share

Basic earnings per share is computed based on the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares consist of the dilutive effect of stock options and preferred stock common stock equivalents.

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Goodwill

Goodwill is not amortized but rather is tested at least annually for impairment. The Company assesses impairment by comparing the fair value of the goodwill with its carrying value. The determination of fair value involves significant management judgment. Impairments are expensed when incurred. For goodwill, a two-step impairment model is used. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than the carrying amount, goodwill would be considered impaired. The second step measures the goodwill impairment as the excess of recorded goodwill over the asset’s implied fair value. Intangible assets that have finite useful lives continue to be amortized over their estimated useful lives. During the nine months ended September 30, 2011 and 2010, there were no impairments of goodwill.

Income Taxes

Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

Retained Earnings Distributions

The Company’s preferred stockholders are entitled to receive payment before any of the common stockholders upon a liquidation of the Company and we cannot pay dividends on our common stock unless we first pay dividends required by our preferred stock.

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Results from Operations

The following table summarizes our results for the nine and three months ended September 30, 2011 and 2010:

	Nine months ended September 30,						Variance						Three months ended September 30,						Variance
	2011			2010			$			%			2011			2010			$			%

Revenues	$	3,964,306		$	4,000,223			(35,917	)		-0.9	%	$	1,055,990		$	1,377,984			(321,994	)		-23.4	%
Cost of sales		3,107,096			3,178,068			70,972			2.2	%		940,255			1,082,034			141,779			13.1	%
Gross profit		857,210			822,155			35,055			4.3	%		115,735			295,950			(180,215	)		-60.9	%
General & administrative expenses		1,494,448			1,292,862			(201,586	)		-15.6	%		421,067			400,936			(20,131	)		-5.0	%
Loss from operations		(637,238	)		(470,707	)		166,531			-35.4	%		(305,332	)		(104,986	)		200,346			-190.8	%
Interest expense		238,655			239,783			1,128			0.5	%		82,449			80,418			(2,031	)		-2.5	%
Gain on extinguishment of debt		-			(25,092	)		(25,092	)		100.0	%		-			-			-			0.0	%
Loss before income taxes		(875,893	)		(685,398	)		(190,495	)		27.8	%		(387,781	)		(185,404	)		(202,377	)		109.2	%
Income tax benefit		-			(72,774	)		(72,774	)		100.0	%		-			(77,074	)		(77,074	)		100.0	%
Net loss	$	(875,893	)	$	(612,624	)	$	(263,269	)		43.0	%	$	(387,781	)	$	(108,330	)	$	(279,451	)		258.0	%

Revenues

Revenues include the pickup and disposal of scrap railroad ties for major Class I railroads, the sale of ties into the landscape and relay tie markets and both ground and whole ties into the biomass fuel markets.

Revenues decreased for the three months ended September 30, 2011 as compared to the comparable 2010 period primarily due to decreased revenue of approximately $225,000 due to lower revenues from tie pickup and a decrease of $222,000 in fuel sales due to the mechanical and fire events at our fuel processing facility, the decrease in fuel sales at our fuel processing facility due to the mechanical breakdown and fire is partially offset by $114,000 of business interruption insurance.

Revenues decreased for the nine months ended September 30, 2011 as compared to the comparable 2010 period primarily due to decreased revenue of approximately $591,000 in our tie removal and disposal services offset by an increase of $590,000 generated by sale of whole ties into the landscape and relay markets. The decrease in tie removal and disposal services was due to a decrease in the number of projects closed in 2011 due to the transition from trucking and into rail transportation to decrease costs.

Gross profit

Gross profit was 11.0% and 21.6% for the three and nine months ended September 30, 2011, compared to a gross profit of 21.2% and 20.5% for the three and nine months ended September 30, 2010.

The primary reasons for the decreased gross profit for the three months ended September 30, 2011 compared to the comparable 2010 period is a 59.0% decrease in margin from fuel sales, due to a decrease of revenues of 29%. The decrease in margin and revenues was due to the unexpected equipment issues and fire at our grinding facility during the third quarter of 2011. This was partially offset by tie pick up and disposal services achieving a higher gross margin rate (10.9% compared to a negative5.6%) than those closed in the comparable three months of 2010, as a result of the savings from the aforementioned transition from trucking to rail transportation.

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The small increase in gross profit for the nine months ended September 30, 2011 compared to the comparable 2010 period is due primarily to an increase in revenues of 139% in whole tie sales (which have a higher margin than other product lines) and an increase in the gross margin of our tie pick up and disposal services. This increase was offset by a decrease in the gross margin of our ground fuel sales.

The Company expects the margins related to fuel sales to begin to recover in the fourth quarter of 2011 and first quarter 2012, as the equipment damaged by the mechanical breakdown and the equipment that was destroyed in the September 2011 fire comes back on line or is replaced. The Company is fully insured for this equipment. In addition, the Company is opening a new processing facility in Gibsland, Louisiana which the Company expects will streamline its process and improve profitability.

General and administrative expenses

General and administrative expenses include: compensation, professional fees and costs related to being a public company, amortization of identifiable intangible assets and other costs.

The table below summarizes the general and administrative expenses:

	Three months ended September 30										Nine months ended September 30
					Variance										Variance
	2011		2010		$			%			2011		2010		$			%
Compensation costs	$	210,007	$	216,621	$	6,614			3.1	%	$	718,180	$	548,863	$	(169,317	)		-30.8	%
Professional fees and other public company costs	$	36,830		35,506		(1,324	)		-3.7	%		170,512		271,698		101,186			37.2	%
Amortization of intangible assets	$	56,419		65,633		9,214			14.0	%		187,685		196,898		9,213			4.7	%
Insurance costs	$	42,305		65,635		23,330			35.5	%		229,896		143,399		(86,497	)		-60.3	%
Other costs	$	75,506		17,541		(57,965	)		-330.5	%		188,175		132,004		(56,171	)		-42.6	%
Consolidated general and administrative	$	421,067	$	400,936	$	(20,131	)		-5.0	%	$	1,494,448	$	1,292,862	$	(201,586	)		-15.6	%

For the three and nine months ended September 30, 2011, costs increased approximately $20,100 and $202,000 or 5.0% and 15.6% respectively compared to the three and nine months ended September 30, 2010.

The overall increase in general and administrative costs is primarily due to:

The cost of staffing the CFO position and two administrative positions that were not fully incurred in the nine months ended 2010.

A decrease in professional fees and other public company costs primarily due to non-recurring audit and accounting fees in conjunction with work performed to incorporate Wood Energy into our public filings during the three and nine months ended September 30, 2010.

An increase in insurance costs due to higher premiums and expanded coverage.

An increase in rental expense and travel costs related to the management of Wood Energy.

Interest expense

Net interest expense for the three and nine months ended September 30, 2011 of $82,449 and $238,654, is comparable to net interest expense for the three and nine months ended September 30, 2010 of $80,418 and $239,783, respectively.

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Income tax expense

A valuation allowance offsets net deferred tax assets for which future realization is considered to be less likely than not. A valuation allowance is evaluated by considering all positive and negative evidence about whether the deferred tax assets will be realized. At the time of evaluation, the allowance can be either increased or reduced. A reduction could result in the complete elimination of the allowance, if positive evidence indicates that the value of the deferred tax assets is no longer impaired and the allowance is no longer required.

The Company's net deferred tax asset before valuation allowance as of September 30, 2011 was approximately $880,000, most of which relates to net operating losses that expire between 2011 and 2030. The Company recorded an operating loss for the nine months ended September 30, 2011 and has a recent history of operating losses. The Company has maintained the value of the deferred tax asset as we believe it more likely than not that the Company will realize operating profits and taxable income so as to utilize the majority of the net operating losses. However, the Company has recorded a valuation allowance for the increase in the value of the net deferred tax asset due to the potential that the 1996 and 1997 net operating loss will expire before being utilized.

Net Loss

Net loss attributable to common stockholders was $(0.17) and $(0.39) per share for the three and nine months ended September 30, 2011, compared to $(0.08) and $(0.89) per share for the comparable 2010 period. The difference of $(0.50) for the nine months ended September 30, 2011 as compared to September 30, 2010 was primarily due to the beneficial conversion feature embedded in the preferred stock issued in the first quarter of 2010. The difference of $(0.09) per share for the three months ended September 30, 2011 as compared to September 30, 2010 was primarily due to the higher loss from operations as a result of lower fuel sales during the same period in 2011.

Financial Condition and Liquidity

Our cash and cash equivalents consist of cash. Our cash and cash equivalents balance at September 30, 2011 and 2010 was $135,662 and $649,281, respectively.

The following is a summary of our cash flow activity:

	Nine months ended September 30,
	2011			2010
Net cash provided by (used in) operating activities	$	298,260		$	(30,591	)
Net cash used in investing activities	$	(450,231	)	$	(310,892	)
Net cash from financing activities	$	225,664		$	889,404

Net cash provided by (used) in operating activities

For the nine months ended September 30, 2011, cash provided by operating activities was $298,260. The primary source for the increase in cash was a decrease in accounts receivable providing approximately $238,000 and funds received in advance of contract completions (deferred revenue) which exceeded cash expended for deferred costs for the period due to a change in retainage percentage with one of our customers from 50% to 25%.

For the nine months ended September 30, 2010, cash used in operating activities was approximately $30,000. The primary use of cash was as a result of cash expended for deferred costs being greater than the increase of funds received in advance of contract completions (deferred revenue) for the period.

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Net cash used in investing activities

As a result of beginning the pickup and removal of ties for a new customer during the nine months ended September 30, 2011, the Company purchased approximately $530,000 of equipment primarily for the processing of ties at its Louisiana grinding facility, as well as for the pickup and removal of ties for the new customer. This was offset by the sale of equipment taken out of service for approximately $78,000. For the nine months ended September 30, 2010 purchased equipment was primarily for the startup of the same fuel processing facility.

Net cash provided by financing activities

To finance the acquisition of Wood Energy, we entered into a five-year senior secured term loan with a bank in the amount of $3.0 million. Wood Energy is the borrower and Banyan guaranteed the loan. Payments of $50,000 of principal and interest are due monthly. As of September 30, 2011, there was $1.8 million outstanding under this term loan. Also, in connection with the acquisition of Wood Energy, we obtained two bank credit lines as amended in the amounts of $1.0 million for each working capital and capital expenditures. Maximum loan advances on the working capital line are based on specific percentages of eligible working capital amounts, including accounts receivable and inventory. Draws on the capital expenditures line are based on 80% of the cost of such capital expenditures.

On April 7, 2011, the Company and its subsidiary Wood Energy amended the credit facility with its bank in several respects. Wood Energy converted approximately $720,000 borrowed on its $1.0 million line of credit for capital expenditures into a term loan and a new capex line of $500,000 was granted. The $720,000 term loan will mature September 3, 2014 at the same time as Wood Energy’s existing $1.8 million term loan. The new $500,000 capex line will mature April 1, 2012 at which time the amount outstanding will also convert to a term loan maturing on September 3, 2014. Wood Energy also extended the maturity date of its $1.0 million working capital credit line to April 1, 2012. Loan covenants pertaining to fixed charges, total debt and minimum EBITDA were modified with respect to all of the bank loans. Other material terms of the loans remain the same.

As of September 30, 2011, the Company is in compliance with the financial covenants included in the modification and extension of our term loan and credit lines.

As of September 30, 2011, $99,875 and $434,860 were available under the new capital expenditure line and the working capital credit line, respectively.

At September 30, 2011, the Company had a net working capital deficiency of approximately $1.8 million. The Company recognizes that the timing of the realization of its receivables from customers, the completion of its contracts and its vendor and debt obligations payments may not allow the Company to generate positive cash flow in the near future.

Deferred revenue as of September 30, 2011, is $1,760,112 which we will invoice as each of the projects is completed. The deferred costs incurred related to the fulfillment of uncompleted jobs are $1,842,980. As of December 31, 2010 deferred revenue was $758,849 and the deferred costs related to the fulfillment of uncompleted jobs were $977,878. An increase in the simultaneous number of projects and the increased volume and length of time of the projects has increased our cash cycle time and thus our operating cash requirements with our largest customer, a Class 1 railroad. Due to the impact on the Company, we initiated and agreed to a change order to our service agreement, which reduced the retainage withheld on the progress payments received by the Company from 50% to 25% beginning with 2011 projects.

The Company anticipates the majority of the current deferred revenue will be recognized as revenue and the retainage will be collected during the fourth quarter of 2011 and the first quarter of 2012.

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From October 2010 to April 2011, the Company issued 10,000 shares of its series B preferred stock to Patriot Rail Services, Inc. The preferred shares were issued for $100 per share, or $1.0 million in the aggregate.

From August 2011 to October 2011, the Company issued 6,850 shares of its series C preferred stock to Patriot Rail Services, Inc. The preferred shares were issued for $100 per share, or $685,000 in the aggregate.

Based on our 2011 annual operating plan and the above noted bank credit facility modification and extension, the Company anticipates it will meet future financial covenants and therefore has retained the long-term classification of the debt in the accompanying Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

How to Learn More about Banyan

We file annual, quarterly and current reports and other information with the SEC. Our SEC filings are available to the public on the internet at the SEC’s web site at SEC.gov. To learn more about Banyan you can also contact our CEO, Gary O. Marino, at 561-443-7775.

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Item 4. Controls and Procedures

Under the direction of our chief executive officer and chief financial officer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on this evaluation, our chief executive officer and chief financial officer each concluded that our disclosure controls and procedures were effective as of September 30, 2011. Further, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).

Part II — Other Information

Item 1. Legal Proceedings

We are not aware of any pending legal proceedings involving Banyan or Wood Energy other than litigation arising in the ordinary course of business. We believe the outcome of the litigation will not have a material adverse effect on our financial condition, cash flows or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

From August through October 2011, the Company issued 6,850 shares of its Series C Preferred stock to Patriot Rail Services, Inc. for $100 per share, resulting in proceeds of $685,000. On June 30, 2014 (or sooner upon the occurrence of certain events), the Series C Preferred stock will be convertible into our common stock at a conversion prices between $1.99 and $2.06 per share of common stock. The proceeds of the money received from the sale of the Series C Preferred stock were used to fund working capital requirements. The issuances of the preferred shares were made in reliance on Section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and Rule 506 of Regulation D of the Securities Act.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 5. Other Information

For information regarding significant events of the second quarter, please turn to “Recent Events” on page 5.

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Item 6. Exhibits

10.1	Land lease dated August 29, 2011 between Louisiana North West Railroad Company, Inc. (a subsidiary of Patriot Rail Corporation) and Wood Energy

10.2	Service Agreement dated September 23, 2011 between Louisiana North West Railroad Company, Inc. (a subsidiary of Patriot Rail Corporation) and Wood Energy

10.3	Letter of employment dated October 11, 2011 between The Wood Energy Group, Inc. and Andy C. Lewis

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer Pursuant to § 302 of the Sarbanes-Oxley Act of 2002

31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer Pursuant to § 302 of the Sarbanes-Oxley Act of 2002

32	Rule 13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002

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Signatures

In accordance with the requirements of the Securities Exchange Act of 1934, Banyan Rail Services Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Banyan Rail Services Inc.

Date: November 14, 2011	/s/Jon Ryan
	Jon Ryan,
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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