UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

For the quarterly period ended September 30, 2015

 

¨ 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 324-A, Boca Raton, Florida  33431

(Address of principal executive offices)

561-988-8480

(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 þ 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 þ 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  þ

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 10,242,379 shares of common stock, $0.01 par value per share, as of November 1, 2015.

 

 

 

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		10
Cautionary Statement Concerning Forward-Looking Statements		10
Recent Events		11
General and Administrative Expenses		13
Financial Condition and Liquidity		14
Off-Balance Sheet Arrangements		15
How to Learn More About Banyan		15
Item 4.	Controls and Procedures	15
Part II — Other Information		16
Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
Signatures		17

 

 

Part I — Financial Information

 

Item 1. Financial Statements

 

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Balance Sheets

 

		September 30, 2015				December 31, 2014
		(Unaudited)
ASSETS
Current assets
Cash		$	458,392			$	402,401
Prepaid insurance			8,011				-
Total current assets			466,403				402,401
Total assets		$	466,403			$	402,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	32,445			$	33,895
Accrued payroll			5,661				20,869
Accrued professional fees			19,495				14,706
Accrued expenses			1,320				-
Advances - related parties			-				30,481
Accrued dividends			228,587				209,267
Total current liabilities			287,508				309,218
Total liabilities			287,508				309,218
Commitments and contingencies			-				-
Stockholders' equity
Series A Preferred stock, $.01 par value. 20,000 shares authorized and 10,375 issued			104				104
Common stock, $0.01 par value. 50,000,000 shares authorized. 10,242,379 and 1,563,424 issued as of September 30, 2015 and December 31, 2014, respectively			102,424				15,633
Accrued common stock payable			-				11,427,963
Additional paid-in capital			109,666,081				97,273,708
Accumulated deficit			(109,519,025	)			(108,553,536	)
Treasury stock, at cost, for 5,655 shares			(70,689	)			(70,689	)
Total stockholders' equity			178,895				93,183
Total liabilities and stockholders' equity		$	466,403			$	402,401

 

See Notes to Condensed Consolidated Financial Statements

 

 

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Nine months ended								Three months ended
		September 30,								September 30,
		2015				2014				2015				2014
General & administrative expenses		$	965,489			$	298,379			$	675,008			$	60,479
Loss from operations			(965,489	)			(298,379	)			(675,008	)			(60,479	)
Interest expense			-				(159,250	)			-				(7,667	)
Net loss		$	(965,489	)		$	(457,629	)		$	(675,008	)		$	(68,146	)
Dividends for the benefit of preferred stockholders:
Preferred stock dividends			(77,820	)			(374,634	)			(25,945	)			(124,875	)
Total dividends for the benefit of preferred stockholders			(77,820	)			(374,634	)			(25,945	)			(124,875	)
Net loss attributable to common stockholders		$	(1,043,309	)		$	(832,263	)		$	(700,953	)		$	(193,021	)
Weighted average number of common shares outstanding:
Basic and diluted			7,460,497				1,106,732				9,755,352				1,106,732
Net loss per common share from continuing operations, basic and diluted		$	(0.13	)		$	(0.41	)		$	(0.07	)		$	(0.06	)
Net loss per common share, basic and diluted		$	(0.13	)		$	(0.41	)		$	(0.07	)		$	(0.06	)
Net loss attributable to common shareholders per share		$	(0.14	)		$	(0.75	)		$	(0.07	)		$	(0.17	)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Nine months ended
		September 30,
		2015				2014
Cash flows from operating activities:
Net loss		$	(965,489	)		$	(457,629	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation expense			555,520				(2,619	)
Stock in lieu of cash interest			-				140,250
Changes in assets and liabilities, net of effects of discontinued operations:
(Increase) decrease in prepaid expenses and other current assets			(8,011	)			10,905
(Decrease) increase in accounts payable and accrued expenses			(41,029	)			132,550
Net cash used in operating activities			(459,009	)			(171,305	)
Cash flows from financing activities:
Proceeds from sale of common stock			515,000				-
Proceeds on demand loan - related party			-				150,000
Net cash from financing activities			515,000				150,000
Net increase (decrease) in cash			55,991				(21,305	)
Cash, beginning of period			402,401				27,124
Cash, end of period		$	458,392			$	5,819
Supplemental disclosure of cash flow information:
Non cash financing activities:
Preferred stock dividend in excess of payments		$	77,820			$	374,634
Issuance of common shares in lieu of cash dividends payable		$	58,500			$	573,565
Issuance of shares in settlement of loans and advances payable		$	11,427,963			$	-
Issuance of shares in lieu of cash interest		$	-			$	302,550

 

See Notes to Condensed Consolidated Financial Statements.

 

 

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity

Periods Ended September 30, 2015 and December 31, 2014

(Unaudited)

 

		Common Stock												Preferred Stock																Treasury Stock
										Common Stock				Shares								Additional Paid				Accumulated
		Shares Issued				Amount				Payable				Issued				Amount				in Capital				Deficit				Shares				Amount				Total
Stockholders’ equity December 31, 2013			1,036,945			$	10,369			$	162,300				49,950			$	2,548,017			$	94,252,890			$	(97,465,476	)			5,655			$	(70,689	)		$	(562,589	)
Issuance of common stock			526,479				5,264				(162,300	)			(39,575	)			(2,547,913	)			(3,211,793	)															(5,916,742	)
Common stock payable											11,427,963																												11,427,963
Stock compensation expense																							6,633,175																6,633,175
Net loss for the year ended December 31, 2014																											(11,088,060	)											(11,088,060	)
Preferred stock dividends																							(400,564	)															(400,564	)
Stockholders’ equity December 31, 2014			1,563,424			$	15,633			$	11,427,963				10,375				104			$	97,273,708			$	(108,553,536	)			5,655				(70,689	)		$	93,183
Issuance of common stock			7,782,955				77,831				(11,427,963	)											11,923,633																573,501
Stock compensation expense			896,000				8,960																546,560																555,520
Net loss for the nine months ended September 30, 2015																											(965,489	)											(965,489	)
Preferred stock dividends																							(77,820	)															(77,820	)
Stockholders’ equity September 30, 2015			10,242,379			$	102,424			$	0				10,375			$	104			$	109,666,081			$	(109,519,025	)			5,655			$	(70,689	)		$	178,895

 

See Notes to Condensed Consolidated Financial Statements.

 

 

Notes to Condensed Consolidated Financial Statements

 

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. and purchased The Wood Energy Group, Inc. (“Wood Energy”). Wood Energy was engaged in the business of railroad tie reclamation and disposal. As a result of the bankruptcy and liquidation of Wood Energy, Banyan is now a shell Company seeking to acquire an operating entity.

 

The Company is actively seeking acquisitions of leading companies within the industrial, energy, transportation, technology and health care industries throughout North America.

 

Note 2.  Basis of Presentation

 

The accompanying consolidated financial statements give effect to all adjustments necessary to present fairly the financial position and results of operations and cash flows of the Company. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Note 3.  Summary of Significant Accounting Policies

 

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 the useful lives of property and equipment, and the useful lives of intangible assets.

 

Cash Equivalents

 

The Company considers all bank deposits and highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at September 30, 2015 or December 31, 2014. From time to time our cash deposits exceed federally insured limits.

 

Fair Value of Financial Instruments

 

Recorded financial instruments as of September 30, 2015 consist of cash, accounts payable, prepaid insurance expense and short-term 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 (loss) per share is computed based on the weighted average shares outstanding during the period. Diluted earnings (loss) 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.

 

 

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.

 

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.

 

Note 4. Liquidity

 

At and for the period ended September 30, 2015, the Company had a net working capital of $178,895 and incurred negative cash flows from operating activities of $459,009. The Company’s future liquidity and capital requirements are dependent upon many factors, including our ability to identify and complete acquisitions and the success of any business we do acquire. We may need to raise additional funds in order to meet working capital requirements, additional capital expenditures or to take advantage of other opportunities. We cannot be certain that we will be able to obtain additional financing on favorable terms or at all. If we are unable to raise needed capital, our growth may be impeded. In addition, if we raise capital by selling additional shares of stock, the percentage ownership of current Banyan shareholders will be diluted.

 

Note 5. Preferred Stock and Common Stock

 

Preferred stock dividends for Series A Preferred stock are accrued for the semi-annual periods ending June 30 and December 31. For the nine months ended September 30, 2015 dividends in the amount of $77,820 were accrued. During 2012, due to the lack of cash flow, the Company offered to pay the accrued dividends in common stock in lieu of cash. In January and September of 2015, we issued 47,959 and 10,921 shares of common stock in lieu of $29,250 of cash dividends for dividends accrued through June 30, 2015 and December 31, 2014, respectively. Substantially all preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends.

 

Also on July 7, 2015, the Company issued 125,000 Shares for $0.18 a share to an accredited investor, pursuant to a private placement for $22,500. The Company intends to use the proceeds from the private placement for general working capital purposes.

 

On September 18, 2015, pursuant to subscription agreements, the Company issued an aggregate of 441,667 shares of Common Stock (“Shares”) for $0.18 a share, or $79,500 total, to accredited investors in a private placement (“Private Placement”). The Company intends to use the proceeds from the Private Placement for general working capital purposes.

 

As of September 30, 2015, directors owned 6,872,375 shares of Common stock or 67.1% of all outstanding common shares.

 

 

Note 6. Income Taxes 

 

For the nine months ended September 30, 2015 and 2014, the Company recorded an income tax provision of $0. The effective tax rate for the nine months ended September 30, 2015 and 2014 was 0%. The tax rate differs from the statutory federal rate of 34% primarily due to valuation allowances recorded on the Company’s net operating loss carry forward generated during the period. The Company recorded an operating loss for the quarter and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets, as we believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the future.

 

Note 7. Earnings (loss) per Share

 

The Company excluded from the diluted earnings per share calculation 103,750 and 533,097 shares issuable upon conversion of shares of convertible preferred stock that were outstanding at September 30, 2015 and 2014, respectively, as their inclusion would be anti-dilutive. In addition, the Company excluded 5,000 stock options as of September 30, 2015 as their inclusion would be anti-dilutive.

 

Note 8.  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, 2014			45,000				14.75								1 years				-
Options granted			-				-			$	0				-				-
Options exercised			-				-								-				-
Options expired			(17,500	)		$	(1.83	)							-				-
Balance, January 1, 2015			27,500			$	12.92								1 years			$	-
Options granted			-				-			$	0				-				-
Options exercised			-				-								-				-
Options expired			(22,500	)		$	(2.62	)							-				-
Balance, September 30, 2015			5,000			$	10.30								1 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.

 

Note 9. Related Party Transactions

 

The Company’s directors are currently not receiving cash compensation for their services.

 

On July 7, 2015, the Company issued an aggregate of 896,000 shares of common stock to Donald S. Denbo, Paul S. Dennis, Mark L. Friedman and Gary O. Marino as compensation for services as a director. The Company recorded compensation expense in the amount (included in general and administrative on the Condensed Consolidated Statement of Operations) of $555,520 for the value of their services as of September 30, 2015.

 

 

On June 1, 2015, the Company entered into a month-to-month office lease and administrative support agreement (the “Agreement”) with Boca Equity Partners LLC (“BEP”). The Agreement is effective as of January 1, 2015. The Agreement provides for the Company’s use of a portion of BEP’s offices and certain overhead items at the BEP offices such as space, utilities and other administrative services for $4,750 a month.

 

Also on June 1, 2015, the Company entered into a support agreement (the “Support Agreement”) with BEP. The Support Agreement is effective as of January 1, 2015 and provides for corporate support services. The Support Agreement is for a month-to-month term and will terminate upon the Company’s payment of a success fee, should the Company acquire more than 50% of the assets or capital stock of any company (an “Acquisition”) during the term of the Support Agreement or within the one year period following the termination of the Support Agreement. Within five days of the closing of any potential Acquisition, Banyan will pay to BEP 2% of the cash purchase price paid by the Company to the seller(s) for the Acquisition.

 

Gary O. Marino, the Company’s chairman of the board, is the chairman, president, and chief executive officer of BEP. Gary O. Marino and directors Don Denbo and Paul Dennis also hold membership interests in BEP.

 

The Company’s board of directors and officers directly or beneficially own 6,872,375 shares of common stock as of September 30, 2015 or 6,877,375, if their options are exercised.

 

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

 

Cautionary Statement Concerning Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains information about us, some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as “believes,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2014 Annual Report on Form 10-K. We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

 

·

successfully raising capital to fund our operations;

·

successfully finding an operating entity to acquire;

·

complying with SEC regulations and filing requirements applicable to us as a public company; and

·

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

 

You should not place undue reliance on our forward-looking statements, which reflect our analysis only as of the date of this report. The risks and uncertainties listed above and elsewhere in this report and other documents that we file with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K, must be carefully considered by any investor or potential investor in the Company.

 

 

Overview

 

Banyan is a shell company without significant operations or sources of revenues other than its investments. Our management team is aggressively investigating potential operating companies to acquire and additional sources of financing. Currently we are actively seeking acquisitions of leading companies within the industrial, energy, transportation, technology and health care industries throughout North America, but we cannot guarantee we will complete an acquisition in any of these industries. Accordingly, we may explore potential acquisitions in other industries as well.

 

Our History

 

The Company was originally organized under the laws of the Commonwealth of Massachusetts in 1985, for the purpose of investing in mortgage loans. The Company was reorganized as a Delaware corporation in 1987. From 1989 to 1992 the Company experienced severe losses as a result of a decline in real estate values and the resulting defaults on the mortgages it held. In 1998, the Company changed its name to B.H.I.T. Inc., and again changed its name to Banyan Rail Services Inc. in 2010.

 

On January 24, 2007, a group of private investors purchased 41.7% of our outstanding shares held by our largest shareholder at the time. Because members of our new management team have experience with the railroad industry, we began investigating acquisitions of companies in the rail industry. In the spring of 2009, we entered negotiations with the owners of Wood Energy to acquire the company. As a result of the acquisition of Wood Energy, we were no longer a shell company. On January 4, 2010, we changed our name to Banyan Rail Services Inc. to reflect our new business. As a result of the bankruptcy and liquidation of Wood Energy, Banyan is now a shell Company seeking to acquire an operating entity.

 

Recent Events

 

Common Stock

 

On July 7, 2015, the Company issued 125,000 Shares for $0.18 a share to an accredited investor, pursuant to a private placement for $22,500. The Company intends to use the proceeds from the private placement for general working capital purposes.

 

On July 7, 2015, the Company issued an aggregate of 896,000 shares of common stock to Donald S. Denbo, Paul S. Dennis, Mark L. Friedman and Gary O. Marino as compensation for services as directors. The Company recorded compensation expense in the amount (included in general and administrative on the Condensed Consolidated Statement of Operations) of $555,520 for the value of their services as of September 30, 2015. The compensation expense is based on the $0.62 a share market price of the Company’s stock at the time of issuance as required by applicable accounting guidance. However, the Company used a per share price of $0.18 in calculating the number of shares to issue to the board members due to: (i) the thinly traded nature of the Company’s stock; (ii) the shares being unregistered and subject to Rule 144 resale restrictions; and (iii) a fairness opinion supporting the $0.18 price used in connection with the Company’s contemporaneous capital raise.

 

On September 18, 2015, pursuant to subscription agreements, the Company issued an aggregate of 441,667 shares of Common Stock (“Shares”) for $0.18 a share, or $79,500 total, to accredited investors in a private placement (“Private Placement”). The Company intends to use the proceeds from the Private Placement for general working capital purposes.

 

Also on September 18, 2015, the Company issued 47,959 Shares to nine holders of Series A Preferred Stock for $0.61 a share. The Shares were issued in lieu of $29,250 in cash dividends accrued on the Preferred Shares for the June 30, 2015 dividend date. The per Share price is valued at the average closing price of the Company’s stock for the ten trading days prior to the dividend date.

 

Related Party Transactions

 

On June 1, 2015, the Company entered into a month-to-month office lease and administrative support agreement (the “Agreement”) with Boca Equity Partners LLC (“BEP”). The Agreement is effective as of January 1, 2015. The Agreement provides for the Company’s use of a portion of BEP’s offices and certain overhead items at the BEP offices such as space, utilities and other administrative services for $4,750 a month.

 

Also on June 1, 2015, the Company entered into a support agreement (the “Support Agreement”) with BEP. The Support Agreement is effective as of January 1, 2015 and provides for corporate support services. The Support Agreement is for a month-to-month term and will terminate upon the Company’s payment of a success fee, should the Company acquire more than 50% of the assets or capital stock of any company (the “Acquisition”) during the term of the Support Agreement or within the one year period following the termination of the Support Agreement. Within five days of the closing of any potential Acquisition, Banyan will pay to BEP 2% of the cash purchase price paid by the Company to the seller(s) for the Acquisition.

 

 

Gary O. Marino, the Company’s chairman of the board, is the chairman, president, and chief executive officer of BEP. Gary O. Marino and directors Don Denbo and Paul Dennis also hold membership interests in BEP.

 

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 nine months ended September 30, 2015, there were no significant changes to the critical accounting policies.

 

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 the useful lives of property and equipment, and the useful lives of intangible assets.

 

Cash Equivalents

 

The Company considers all bank deposits and highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at September 30, 2015 or December 31, 2014.

 

Fair Value of Financial Instruments

 

Recorded financial instruments at September 30, 2015 consist of cash, accounts payable and short-term 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 (loss) per share are computed based on weighted average shares outstanding during the period. Diluted earnings (loss) per share are 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.

 

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.

 

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.

 

Results from Operations

 

The following table summarizes our results for the three and nine months ended September 30, 2015 and 2014:

 

		Nine months ended																Three months ended
		September 30,								Variance								September 30,								Variance
		2015				2014				$				%				2015				2014				$				%
General & administrative expenses		$	965,489			$	298,379			$	(667,110	)			-223.6	%		$	675,008			$	60,479			$	(614,529	)			-1016.1	%
Loss from operations			(965,489	)			(298,379	)			667,110				223.6	%			(675,008	)			(60,479	)			614,529				-1016.1	%
Interest expense			-				(159,250	)			(159,250	)			100.0	%			-				(7,667	)			(7,667	)			100.0	%
Net loss		$	(965,489	)		$	(457,629	)		$	(507,860	)			111.0	%		$	(675,008	)		$	(68,146	)		$	(606,862	)			890.5	%

 

General and Administrative Expenses

 

General and administrative expenses include: compensation, professional fees and costs related to being a public company.

 

The overall increase in general and administrative costs of $667,110 for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 is primarily due to:

 

·

An increase in payroll expenses of approximately $584,000, primarily the result stock based compensation to directors,

·

An increase in professional fees of approximately $53,000, primarily the result of the Company obtaining a fairness opinion from an independent investment banking firm in connection with its equity transactions,

·

An increase in office expense of approximately $43,000 due to the Company entering into a monthly lease with Boca Equity Partners,

·

An increase in stock transfer agent fees of approximately $14,000 due to the increased number of stock issuances related to the ongoing private placement,

·

An increase in printing expense of approximately $4,000 due to the Company’s public filings activity related to a private placement,

·

Offset by a decrease in insurance costs of approximately $26,000, and

·

Offset by decrease in travel costs of approximately $4,000.

 

The overall increase in general and administrative costs of $614,529 for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 is primarily due to:

 

·

An increase in payroll expenses of approximately $587,000, primarily the result stock based compensation to directors,

·

An increase in office expense of approximately $14,000 due to the Company entering into a monthly lease with Boca Equity Partners,

·

An increase in professional fees of approximately $19,000,

·

An increase in legal expense of approximately $4,000, and offset by

·

A decrease in insurance costs of approximately $11,000.

 

 

Interest Expense

 

Interest expense for the three and nine months ended September 30, 2015 decreased by $7,667 and $159,250 compared to the three and nine months ended September 30, 2014, respectively. The decrease is the result of the Company converting its prior interest bearing obligations into equity in 2014.

 

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 recorded an operating loss for the quarter, and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we currently believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the near future.

 

Net Loss

 

Net loss attributable to common stockholders was $0.07 per share for the three months ended September 30, 2015 as compared to net loss of $0.06 per share at September 30, 2014. The change was primarily the result of (1) an increase in general and administrative costs of $614,529, which was primarily the result of an increase in stock based compensation of $555,520; (2) offset by a decrease in interest expense of $7,667 and dividends of $98,930; and (3) an increase in the number of shares outstanding.

 

Net loss attributable to common stockholders was $0.13 per share for the nine months ended September 30, 2015 as compared to net loss of $0.41 per share at September 30, 2014. The change was primarily the result of an increase in general and administrative costs of $667,110, which was primarily the result of an increase in stock based compensation of $555,520; and offset by a decrease in interest expense of $159,250 and dividends of $296,814 and an increase in the number of shares outstanding.

 

Financial Condition and Liquidity

 

Our cash balance at September 30, 2015 and 2014 was $458,392 and $5,819, respectively.

 

The following is a summary of our cash flow activity:

 

		Nine months Ended
		September 30,
		2015				2014
Net cash used in operating activities		$	(459,009	)		$	(171,305	)
Net cash from financing activities		$	515,000			$	150,000

 

Net cash used in operating activities

 

For the nine months ended September 30, 2015, cash used in operating activities was $459,009. The primary use of cash was to fund the normal operating activities of the Company.

 

 

Net cash provided by financing activities

 

For the nine months ended September 30, 2015, net cash provided by financing activities was $515,000, which was provided by the sale of common stock.

 

At September 30, 2015, the Company had net working capital of $178,895 as compared to net working capital of $93,183 at December 31, 2014. The increase in working capital is the result of sale of common stock in 2015. The Company recognizes that as a result of the lack of operations and cash flow that it will have to rely upon sales of stock or future capital contributions from investors to generate cash flow for the foreseeable future.

 

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 Chairman, Gary O. Marino, at 561-997-7775.

 

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 concluded that our disclosure controls and procedures were effective as of September 30, 2015. Further, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2015 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

 

Not applicable.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

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 11.

 

Item 6.

Exhibits

 

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

 

32.1

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

 

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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 6, 2015	/s/ Jon Ryan
	Jon Ryan,
	President, CEO and Chief Financial Officer
	(Principal Financial and Accounting Officer)