XOTC:BARA Banyan Rail Services Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012

 

¨   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 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 ¨ No þ

 

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 ¨ No þ

 

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 May 10, 2012.

 

 

 
 

 

Table of Contents

Part I — Financial Information   2
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Cautionary Statement Concerning Forward-Looking Statements  
Overview 17
Wood Energy 17
Recent Events 18
Critical Accounting Policies and Estimates 18
Results from operations 22
Revenues 22
Gross profit 22
General and administrative expenses 22
Interest expense 23
Income tax expense 24
Net Loss 24
Financial Condition and Liquidity 24
Off-Balance Sheet Arrangements 26
How to Learn More about Banyan 26
Item 4. Controls and Procedures 27
Part II — Other Information  
Item 1. Legal Proceedings 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 5. Other Information 27
Item 6. Exhibits 28
Signatures 29
       

Page 2 of 29
 

 

Part I — Financial Information

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets

As of

 

   March 31,   December 31, 
   2012   2011 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $8,250   $314,233 
Accounts receivable - trade   822,735    448,279 
Cost incurred related to deferred revenue   2,919,731    2,189,610 
Prepaid expenses and other current assets   274,451    98,664 
Total current assets   4,025,167    3,050,786 
           
Property and equipment, net   3,302,376    2,649,764 
           
Other assets          
Deferred income taxes   569,582    569,582 
Identifiable intangible assets, net   1,298,631    1,336,622 
Goodwill   3,658,364    3,658,364 
Other assets   115,736    135,026 
Total other assets   5,642,313    5,699,594 
           
Total assets  $12,969,856   $11,400,144 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $1,228,666   $882,747 
Deferred revenue   2,637,906    2,050,163 
Revolving credit line   792,140    699,140 
Current portion of long-term debt   819,044    744,066 
Current portion of capital leases   160,668    131,690 
Accrued dividends   291,290    216,223 
Total current liabilities   5,929,714    4,724,029 
           
Long-term debt, less current portion   2,061,233    1,743,339 
Capital Leases, less current portion   240,251    144,967 
Total liabilities   8,231,198    6,612,335 
           
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   793,184    832,036 
Series C Preferred stock, $.01 par value. 10,000 shares authorized and 10,000 and 7,850 shares issued, respectively   1,000,000    785,000 
Common stock, $0.01 par value. 7,500,000 shares authorized. 3,045,856 issued   30,458    30,458 
Additional paid-in capital   92,844,225    92,899,056 
Accumulated deficit   (89,858,720)   (89,688,252)
Treasury stock, at cost, for 28,276 shares   (70,689)   (70,689)
Total stockholders' equity   4,738,658    4,787,809 
           
Total liabilities and stockholders' equity  $12,969,856   $11,400,144 

 

See Notes to Condensed Consolidated Financial Statements

 

Page 3 of 29
 

 

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

  

   Three months ended March 31, 
   2012   2011 
         
Revenues  $679,187   $1,309,888 
Cost of sales   309,219    983,713 
Gross profit   369,968    326,175 
General & administrative expenses   458,379    506,061 
Loss from operations   (88,411)   (179,886)
Interest expense   82,057    74,945 
Gain on extinguishment of debt   -    - 
Loss before income taxes   (170,468)   (254,831)
Income tax provision   -    - 
Net loss  $(170,468)  $(254,831)
           
Dividends for the benefit of preferred stockholders:          
Preferred stock dividends   (95,067)   (67,000)
Amortization of preferred stock beneficial conversion feature   (38,852)   (26,992)
Total dividends for the benefit of preferred stockholders   (133,919)   (93,992)
Net loss attributable to common stockholders  $(304,387)  $(348,823)
           
Weighted average number of common shares outstanding:          
Basic and diluted   3,045,856    3,045,856 
           
Net loss per common share, basic and diluted  $(0.06)  $(0.08)
Net loss attributable to common shareholders per share  $(0.10)  $(0.11)

 

See Notes to Condensed Consolidated Financial Statements.

 

Page 4 of 29
 

 

Banyan Rail Services Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

  

   Three months ended March 31, 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(170,468)  $(254,831)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   142,248    142,695 
Amortization of identifiable intangible assets   37,991    65,633 
Stock compensation expense   1,384    17,111 
Amortization of deferred loan costs   19,390    10,215 
Gain on sales of equipment   1,827    (9,193)
Changes in assets and liabilities:          
Increase (decrease) in accounts receivable   (374,456)   46,875 
Increase in costs incurred related to deferred revenue   (730,121)   (311,769)
Increase in prepaid expenses and other current assets   (175,787)   (1,114)
Increase in other assets   (100)   - 
Increase in accounts payable and accrued expenses   345,919    134,182 
Increase in deferred revenue   587,743    399,985 
Net cash (used in) provided by operating activities   (314,430)   239,789 
           
Cash flows used in investing activities:          
Acquisition of property and equipment   (635,949)   (200,314)
Proceeds from the sale of equipment   -    78,000 
Net cash used in investing activities   (635,949)   (122,314)
           
Cash flows from financing activities:          
Proceeds from sale of preferred stock   215,000    193,385 
Payment of preferred stock dividends   (20,000)   (105,566)
Proceeds from long-term debt   578,887    - 
Proceeds from line of credit   93,000    - 
Payments of line of credit   -    (22,038)
Payment of capital leases   (36,476)   (22,521)
Payments of long-term debt   (186,015)   (210,000)
Net cash from (used in) financing activities   644,396    (166,740)
           
Net decrease in cash and cash equivalents   (305,983)   (49,265)
Cash and cash equivalents, beginning of period   314,233    61,969 
Cash and cash equivalents, end of period  $8,250   $12,704 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $82,896   $65,524 
           
Non cash financing activities:          
Preferred stock dividend in excess of payments  $291,290   $67,000 
Property acquired under capital leases  $160,738   $23,496 

 

See Notes to Condensed Consolidated Financial Statements.

 

Page 5 of 29
 

 

Banyan Rail Services Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Periods Ended December 31, 2011 and March 31, 2012

  

   Common Stock   Preferred Stock           Treasury Stock    
   Shares
Issued
   Amount   Shares Issued   Amount   Additional Paid
 in Capital
   Accumulated
Deficit
   Shares  Amount   Total 
                                    
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    255,599    137,784                 393,383 
Issuance of preferred stock - Series C             7,850    785,000                      785,000 
Stock compensation expense                       28,153                 28,153 
Net loss for the year ended December 31, 2011                            (829,050)           (829,050)
Preferred stock dividends                       (312,495)                (1,141,545)
Stockholders’ equity December 31, 2011   3,045,856   $30,458    37,850   $1,617,236   $92,899,056   $(89,688,252)  28,276  $(70,689)  $4,787,809 
                                            
Amortization of beneficial conversion feature preferred stock - Series B                       38,852                   
Issuance of preferred stock - Series C             2,150    176,148                      215,000 
Stock compensation expense                       1,384                 1,384 
Net loss for the three months ended March 31, 2012                            (170,468)           (170,468)
Preferred stock dividends                       (95,067)                (265,535)
Stockholders’ equity March 31, 2012   3,045,856   $30,458    40,000   $1,793,384   $92,844,225   $(89,858,720)  28,276  $(70,689)  $4,738,658 

 

See Notes to Condensed Consolidated Financial Statements.

 

Page 6 of 29
 

 

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.

 

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, 2011 filed with the SEC.

 

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full 2012 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 7 of 29
 

 

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 March 31, 2012 and December 31, 2011 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 $2,637,906 and $2,050,163 as of March 31, 2012 and December 31, 2011, 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 8 of 29
 

 

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 three months ended March 31, 2012 and 2011, 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 March 31, 2012 and 2011 was approximately $171,000 and $34,000, respectively and was included in prepaid and other current assets on the balance sheets.

 

Page 9 of 29
 

 

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.   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 $82,000 and $30,000 for the three months ended March 31, 2012 and 2011.

 

At March 31, 2012, the total future minimum rental commitments under all the above leases are as follows:

 

For the years ending December 31,    
     
2012  $151,391 
2013   145,629 
2014   91,035 
2015   70,822 
2016   23,420 
Net minimum lease payments   482,297 
Less amount representing interest   81,378 
Present value of net minimum lease payments   400,919 
Amount representing current portion   (160,668)
      
Capital leases payable, less current portion  $240,251 

 

The Company also has an operating lease for unimproved land where its processing facility was located, for a two year period ended January 2012, for which the Company extended the term on a month to month basis. Payments under this operating lease were $9,000 for the three months ended March 31, 2012 and 2011, respectively.

 

On August 29, 2011, the Company entered into a lease with a related party for a new facility in Gibsland, La. This facility replaced the Company’s previous facility in Shreveport, La. The lease took effect in January 2012 upon the completion of development of the site. 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. For the three months ended March 31, 2012, the Company made payments of approximately $2,400.

 

Page 10 of 29
 

 

Note 5. Term Loan and Revolving Credit Line

 

In March, April and May 2012, Wood Energy’s bank debt was amended in several respects. Ultimately, Wood Energy’s existing debt was refinanced into one $3.0 million term note that matures on June 1, 2017. The new term note has principal payments of $50,000 per month plus interest. The note shall bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of March 31, 2012). Secured by certain of the Company's assets.

 

In addition, the Company completed a new $1.0 million line of credit working capital and a $500,000 line of credit for capital expenditures. The working capital line will mature on June 1, 2017 and the capital expenditure line will mature on June 1, 2013 at which time the amounts outstanding will convert to a term loan maturing on June 1, 2017. Both loans shall bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of March 31, 2012), and are secured by certain of the company’s assets.

 

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 new 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 March 31, 2012, 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 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. On April 5, 2012, the Company filed an amendment to the certificate of designation authorizing an additional 10,000 shares of 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.

 

Page 11 of 29
 

 

During 2011, the Company issued 7,850 shares of its Series C Preferred stock to Patriot Rail Services, Inc. The preferred shares were issued for $100 per share, or $785,000 in the aggregate at a conversion price ranging from $1.10 to $2.06 per share of common stock. The proceeds received in 2011 were used to fund working capital requirements.

 

During the quarter ending March 31, 2012, the Company issued 2,150 shares of its Series C Preferred stock to a significant shareholder. The Preferred shares were issued for $100 per share, or $215,000 in the aggregate at a conversion price of $2.50 per share of common stock.

 

As of March 31, 2012, Patriot Rail Services Inc. owned 3,000, 10,000, 7,850 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 1,763,497 shares of common stock.

 

Note 7. Income Taxes 

 

The provision for income taxes consists of the following components:

 

  Three months ended March 31,  
   2012   2011 
Current (benefit) expense  -   - 
Deferred Tax (benefit)   -    - 
   $-   $- 

 

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

 

   March 31,   December 31, 
   2012   2011 
         
Long-term deferred tax assets:          
Stock compensation benefit  $216,508   $216,024 
Net operating loss carryforward   1,614,530    1,584,490 
Total long-term deferred tax assets   1,831,038    1,800,514 
Valuation allowance   (308,015)   (255,689)
    1,523,024    1,544,825 
Long-term deferred tax liabilities:          
Intangible assets   (447,735)   (467,818)
Property and equipment   (505,707)   (507,425)
Total long-term deferred tax liabilities   (953,442)   (975,243)
           
Net deferred tax assets  $569,582   $569,582 

 

Our Federal net operating loss (“NOL”) carryforward balance as of March 31, 2012 was $4,618,762, expiring between 2012 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:

 

Page 12 of 29
 

 

Tax Year  Net operating
loss
 
     
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 
2011   694,896 
Current year taxable loss   105,677 
   $4,680,195 

 

The Company's net deferred tax assets before valuation allowance as of March 31, 2012 was approximately $880,000, most of which relates to net operating losses that expire from 2012 to 2032. 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 1997 and 1998 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.

 

Note 8. Earnings per Share

 

The Company excluded from the diluted earnings per share calculation 1,964,030 and 1,355,556 shares issuable upon conversion of shares of convertible preferred stock that were outstanding at March 31, 2012 and 2011, as their inclusion would be anti-dilutive. In addition, the Company excluded 61,000 stock options as of March 31, 2012 as their inclusion would be anti-dilutive.

 

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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 
Average
   Weighted 
Average
   Weighted 
Average
     
   Number   Exercise Price   Fair Value at   Remaining   Intrinsic 
   of Shares   per Share   Grant Date   Contractual Life   Value 
Balance January 1, 2011   253,000    3.08         2.5 Years    - 
Options granted   25,000    2.06   $13,500    4.3 Years    - 
Options exercised   -    0.00              - 
Options expired   (50,000)   3.18         -    - 
Balance, January 1, 2012   228,000   $2.92         2.8 years   $- 
Options granted   -    -   $0         - 
Options exercised   -    -              - 
Options expired   -    -         -    - 
Balance, March 31, 2012   228,000   $2.92         2.8 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 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 
Risk free interest rate   1.51%
Expected life (years)   5 
Expected volatility   26%
Dividend yield   0 

 

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Note 10. Major Customers

 

Revenue for the three months ended March 31, 2012 and 2011, and accounts receivable from customers as of March 31, 2012 and 2011 representing over 10% of revenue were as follows:

 

   Three months ended March 31,   March 31, 
   2012   2011   2012   2011 
   Revenue   Revenue   Accounts Receivable 
Company A   11.0%   0.9%   13.8%   9.1%
Company B   15.3%   9.8%   2.7%   10.8%
Company C   26.6%   46.8%   20.2%   40.1%

 

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 $190,000 of estimated business interruption insurance recoveries for the three months ending March 31, 2012. 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

 

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 are included in the General and Administrative section of the statement of operations, and were: $18,000 and $15,000 for the three months ended March 31, 2012 and 2011, respectively.

 

The Company’s 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 27,000 shares of the Company’s preferred stock and 1,384,409 shares of common stock as of March 31, 2012 or 2,923,440 shares, if the preferred is converted.

 

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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. The aggregate expense under these agreements for the periods ending March 31, 2012 and 2011 were approximately $14,000 and $97,500, respectively. 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. On January 25, 2012, the Company accepted the resignation of one of the individuals under these agreements.

 

During the year ended December 31, 2011, the Company entered into a lease with a related party for a new facility in Gibsland, La., which commenced in January 2012. This facility replaced the Company’s facility in Shreveport, La. The Company will have annual rental payments of $10,000 per year and an additional commitment of 1,200 railcars annually to the leased facility at a rate of approximately $300 per car. As of March 31, 2012, the Company has paid approximately $130,000 for rent and the commitment.

 

Note 13. Subsequent Events

 

In April 2012, the Company filed a certificate of designation with the Delaware Secretary of State designating an additional 10,000 shares of its preferred stock as Series C Preferred stock.

 

In April 2012, the Company issued 4,000 shares of its series C Preferred shares to Patriot Rail Services. The preferred shares were issued for $100 per share, or $400,000 in the aggregate at a conversion price between $2.50 and $2.40 per share of common stock. The proceeds of the money received were used to fund working capital requirements.

 

On May 11, 2012, the Company completed a refinancing of its existing debt into one $3.0 million term note that matures on June 1, 2017. The new term note has principle payments of $50,000 per month plus interest. The note shall bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of March 31, 2012). The note is secured by certain of the Company's assets.

 

On May 11, 2012, the Company was completed the financing of a new $1.0 million line of credit working capital and a $500,000 line of credit for capital expenditures. The working capital line will mature on June 1, 2017 and the capital expenditure line will mature on June 1, 2013 at which time the amounts outstanding will convert to a term loan maturing on June 1, 2017. Both loans shall bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of March 31, 2012), and are secured by certain of the Company’s assets.

 

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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

 

In September 2009, we completed the acquisition of all of the issued and outstanding stock of 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.

 

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Wood Energy, headquartered in Boca Raton, Florida, 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 $378.8 million as of 2010) and industrial customers.   We operate primarily in the southern region of the United States of America. Our services include removing scrap railroad ties (ties), 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 markets.  In 2011, we removed approximately 1.6 million railroad ties and disposed of approximately 840,000 railroad ties, 64% of which were used by the co-generation market and 36% for the landscape and relay markets. The remaining approximately 760,000 ties are scheduled for disposal in 2012.

 

Recent Events

 

Series C Preferred Stock Authorization and Issuances

 

In April 2012, the Company filed a certificate of designation with the Delaware Secretary of State designating an additional 10,000 shares of its preferred stock as Series C Preferred stock.

 

In March 2012, the Company issued 2,150 shares of its Series C Preferred stock to a significant shareholder and board member. The preferred shares were issued for $100 per share, or $215,000 in the aggregate at a conversion price of $2.50 per share of common stock. The proceeds were used to fund working capital requirements.

 

In April 2012, the Company issued 4,000 shares of its series C Preferred shares to Patriot Rail Services. The preferred shares were issued for $100 per share, or $400,000 in the aggregate at a conversion price between $2.50 and $2.40 per share of common stock. The proceeds of the money received 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 $190,000 of estimated business interruption insurance recoveries for the three months ending March 31, 2012. 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.

 

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.

 

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.

 

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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 March 31, 2012, 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 March 31, 2012 and 2011 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 $2,637,906 and $2,050,163 at March 31, 2012 and December 31, 2011, respectively. Amounts that had not been billed and were not billable to customers at the balance sheet dates are $826,040 and $723,546 as of March 31, 2012 and December 31, 2011, 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.

 

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 three months ended March 31, 2012 and 2011, there were no impairments of goodwill.

 

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.

 

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Results from Operations

 

The following table summarizes our results for the three months ended March 31, 2012 and 2011:

 

   Three months ended March 31,   Variance 
   2012   2011   $   % 
                 
Revenues  $679,187   $1,309,888    (630,701)   -48.1%
Cost of sales   309,219    983,713    674,494    68.6%
Gross profit   369,968    326,175    43,793    13.4%
General & administrative expenses   458,379    506,061    47,682    9.4%
Loss from operations   (88,411)   (179,886)   (91,475)   50.9%
Interest expense   82,057    74,945    (7,112)   -9.5%
Loss before income taxes   (170,468)   (254,831)   84,363    -33.1%
Income tax provision   -    -    -    0.0%
Net loss  $(170,468)  $(254,831)  $84,363    -33.1%

 

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 March 31, 2012 as compared to the comparable 2011 period primarily due to decreased revenue from tie pickup of approximately $450,000 due to the decreased number of projects closing during the period as compared to the same period in 2011, a decrease in tie sales of approximately $157,000 due to transition of the sales duties to a dedicated vice president of sales during 2012, and a decrease of $212,000 in fuel sales due to the mechanical and fire events at our fuel processing facility. The decrease is partially offset by $190,000 of business interruption insurance.

 

Gross profit

 

Gross profit was 37% for the three months ended March 31, 2012, compared to a gross profit of 25% for the three ended March 31, 2011.

 

The primary reasons for the improvement in gross profit for the three months ended March 31, 2012 compared to the comparable 2011 period is an increase of 80% in margin from fuel sales due to the revenue from the business interruption claim as a result of the 2011 mechanical breakdown and fire at the Company’s processing facility. The increase in fuel sales margin was offset by a decrease in margin of approximately 50% on tie pickup due to the completion of several 2010 projects that earned no margin. The company believes the margins on tie pickup will increase in the second and third quarter as projects close reflecting the savings from the transition from trucking to rail transportation.

 

The Company expects the margins related to fuel sales to normalize in the second and third quarters of 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.

 

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:

 

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   Three months ended March 31, 
           Variance 
   2012   2011   $   % 
Compensation costs  $159,075   $223,765   $(64,690)   -28.9%
Professional fees and other public company costs   77,356    84,224    (6,868)   -8.2%
Amortization of intangible assets   37,991    65,633    (27,642)   -42.1%
Insurance costs   93,494    74,676    18,818    25.2%
Other costs   90,463    57,763    32,700    56.6%
Consolidated general and administrative  $458,379   $506,061   $(47,682)   -9.4%

 

For the three months ended March 31, 2012, costs decreased approximately $48,000 or 9.4% compared to the three months ended March 31, 2011.

 

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

 

·The cost of staffing decreased due to the restructuring of the employment agreement of one employee at a lower cost to the company and the resignation of the former President of Wood Energy.
·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 months ended March 31, 2011.
·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.

·The decrease in amortization costs is due to the non-compete agreements with former owners being fully amortized in 2011.

 

Interest expense

 

Net interest expense for the three months ended March 31, 2012 of approximately $82,000, is comparable to net interest expense for the three months ended March 31, 2011 of approximately $75,000.

 

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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 March 31, 2012 was approximately $880,000, most of which relates to net operating losses that expire between 2012 and 2032. The Company recorded an operating loss for the three months ended March 31, 2012 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 1997 and 1998 net operating loss will expire before being utilized.

 

Net Loss

 

Net loss attributable to common stockholders of $(0.10) per share for the three months ended March 31, 2012 is comparable to $(0.11) per share March 31, 2011.

 

Financial Condition and Liquidity

 

Our cash and cash equivalents consist of cash. Our cash and cash equivalents balance at March 31, 2012 and 2011 was $8,250 and $12,708, respectively.

 

The following is a summary of our cash flow activity:

 

   Three months ended March 31, 
   2012   2011 
Net cash (used in) provided by operating activities  $(314,430)  $239,789 
Net cash used in investing activities  $(635,949)  $(122,314)
Net cash from (used in) financing activities  $644,396   $(166,740)

 

Net cash provided by (used) in operating activities

 

For the three months ended March 31, 2012, cash used by operating activities was approximately $314,000. The primary use of cash was the use of cash of $142,000 related to tie pickup and increased prepaid and other assets (primarily inventory) of approximately $175,000.

 

Net cash used in investing activities

 

During the three months ended March 31, 2012, the Company purchased approximately $635,000 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 an existing customer.

 

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Net cash provided by financing activities

  

On May 11, 2012, the Company completed a refinancing of its existing debt into one $3.0 million term note that matures on June 1, 2017. The new term note has principle payments of $50,000 per month plus interest. The note shall bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of March 31, 2012). The note is secured by certain of the Company's assets.

 

On May 11, 2012, the Company completed the financing of a new $1.0 million line of credit for working capital and a $500,000 line of credit for capital expenditures. The working capital line will mature on June 1, 2017 and the capital expenditure line will mature on June 1, 2013 at which time the amounts outstanding will convert to a term loan maturing on June 1, 2017. Both loans shall bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of March 31, 2012), and are secured by certain of the company’s assets.

 

As of March 31, 2012, the Company was in compliance with the financial covenants included in the modification and extension of its term loan and credit lines.

 

As of March 31, 2012, $207,860 was available under the working capital credit line.

 

At March 31, 2012, the Company had a net working capital deficiency of approximately $1.9 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 March 31, 2012, is $2,637,906, net of unbilled retainage, which we will invoice as each of the projects is completed. The deferred costs incurred related to the fulfillment of uncompleted jobs are $2,919,731. As of December 31, 2011 deferred revenue was $2,050,163, net of unbilled retainage, and the deferred costs related to the fulfillment of uncompleted jobs were $2,189,610. 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.

 

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

 

In March 2012, the Company issued 2,150 shares of its Series C Preferred stock to a significant shareholder and board member. The preferred shares were issued for $100 per share, or $215,000 in the aggregate at a conversion price of $2.50 per share of common stock. The proceeds were used to fund working capital requirements.

 

In April 2012, the Company issued 4,000 shares of its series C Preferred shares to Patriot Rail Services. The preferred shares were issued for $100 per share, or $400,000 in the aggregate at a conversion price between $2.50 and $2.40 per share of common stock. The proceeds received were used to fund working capital requirements.

 

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Based on our 2012 annual operating plan, changes management has made in reducing transportation costs, the reduction of general and administrative costs, the purchase of a new grinder at its new tie processing facility, and the above noted bank credit facility modification and extension, the Company anticipates it will meet future cash flow management and 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 March 31, 2012. Further, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2012 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 January through May 2012, the Company issued 6,150 shares of its Series C Preferred stock to a significant shareholder (2,150 shares at a conversion price of $2.50 per share) and Patriot Rail Services, Inc. (4,000 shares at a conversion price between $2.50 and $2.40 per share), respectively for $100 per share, resulting in proceeds of $615,000. 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 $2.40 and $2.50 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.

 

Page 27 of 29
 

 

Item 6.Exhibits

 

10.1 Third Substitute Revolving Note of The Wood Energy Group, Inc. payable to Fifth Third Bank dated March 30, 2012
   
10.2 Master Loan and Security Agreement between The Wood Energy Group, Inc. and Fifth Third Bank dated March 26, 2012
   
10.3 Promissory Note of The Wood Energy Group, Inc. payable to Fifth Third Bank dated March 26, 2012
   
10.4  Amended and Restated Loan and Security Agreement between The Wood Energy Group, Inc. and Fifth Third Bank dated May 11, 2012 
   
10.5 Revolving Note of The Wood Energy Group, Inc. payable to Fifth Third Bank dated May 11, 2012
   
10.6 Capex Note of The Wood Energy Group, Inc. payable to Fifth Third Bank dated May 11, 2012
   
10.7 Term Note of The Wood Energy Group, Inc. payable to Fifth Third Bank dated May 11, 2012
   
10.8 Amended and Restated Corporate Guaranty of Banyan Rail Services Inc. in favor of Fifth Third Bank dated May 11, 2012
   
10.9 Amended and Stock Pledge Agreement of Banyan Rail Services Inc. in favor of Fifth Third Bank dated May 11, 2012
   
31.1 Rule 13a-14(a)/15d-14(a) Certification of President Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
   
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
   
31.3 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

 

Page 28 of 29
 

 

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: May 15, 2012 /s/Jon Ryan
  Jon Ryan,
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

Page 29 of 29

 

XOTC:BARA Quarterly Report 10-Q Filling

XOTC:BARA Stock - Get Quarterly Report SEC Filing of XOTC:BARA stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:BARA Banyan Rail Services Inc Quarterly Report 10-Q Filing - 3/31/2012
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