Broad Street Realty, Inc. - Quarter Report: 2010 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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þ
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Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended March 31,
2010
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o
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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Commission
file number: 1-9043
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Banyan
Rail Services Inc.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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36-3361229
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(State
of incorporation)
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(I.R.S.
Employer Identification No.)
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2255
Glades Road, Suite 342-W, Boca Raton,
Florida 33431
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(Address
of principal executive offices)
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561-997-7775
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(Registrant’s
telephone number)
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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
¨
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: 3,017,791 shares of common stock,
$0.01 par value per share, as of May 18, 2010.
Table
of Contents
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Part
I — Financial Information
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1
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Item
1.
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Financial
Statements
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1
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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1
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Forward
Looking Statements
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1
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Overview
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1
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Wood
Energy
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2
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Recent
Events
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2
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Changes
to Our Board of Directors
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2
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Amendments
to Our Certificate of Incorporation
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2
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Exchange
of Debentures for Preferred Stock and Issuance of Additional Preferred
Stock
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2
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Reverse
Stock Split
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3
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Completion
of Shreveport Tie Grinding Facility
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3
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Our
History Prior to Acquiring Wood Energy
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3
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Critical
Accounting Policies
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4
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Consolidated
Results of Operations — Banyan and Subsidiary
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4
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Financial
Condition and Liquidity
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6
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Off-Balance
Sheet Arrangements
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7
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How
to Learn More About Banyan
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7
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Item
4(T).
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Controls
and Procedures
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7
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Part
II — Other Information
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8
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Item
1.
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Legal
Proceedings
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8
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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8
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Item
3.
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Defaults
Upon Senior Securities
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8
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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8
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Item
5.
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Other
Information
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9
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Item
6.
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Exhibits
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9
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Signatures
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10
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Part
I — Financial Information
Item
1. Financial
Statements
Our March
31, 2010 unaudited condensed consolidated financial statements follow this
quarterly report beginning on page F-1.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward
Looking Statements
Some of
the statements that we make in this report, including statements about our
confidence in our prospects and strategies, are forward-looking statements
within the meaning of §21E of the Securities Exchange Act. Some of these
forward-looking statements can be identified by words like “believe,” “expect,”
“will,” “should,” “intend,” “plan,” or similar terms; others can be determined
by context. Statements contained in this report that are not historical facts
are forward-looking statements. These statements are necessarily estimates
reflecting our best judgment based upon current information, and involve a
number of risks and uncertainties. Many factors could affect the accuracy of
these forward-looking statements, causing our actual results to differ
significantly from those anticipated in these statements. While it is impossible
to identify all applicable risks and uncertainties, they include our ability
to:
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·
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successfully
operate Wood Energy;
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maintain
our relationships with Class I
railroads;
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execute
our acquisition/expansion plan by identifying and acquiring additional
operating companies;
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obtain
appropriate financing to complete potential
acquisitions;
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generate
adequate revenue to service our debt;
and
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comply
with SEC regulations and filing requirements applicable to us as a public
company.
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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 Banyan.
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. Our management team continues
to investigate acquisition opportunities and additional sources of financing.
Currently we are focusing our efforts on railroad track construction, repair and
maintenance businesses, but may explore potential acquisitions in other
industries as well.
1
Wood
Energy
Wood
Energy, headquartered in St. Louis, Missouri, is one of the nation’s largest
railroad tie recovery/energy generation companies. Founded in 2001, we provide
railroad tie pickup, reclamation and disposal services to the Class 1 railroads
(defined by the American Association of Railroads as a railway company with
annual operating revenue over $401.4 million) and industrial customers. Prior to
2001, Wood Energy’s founder Greg Smith provided the same services through Wood
Waste Energy, Inc., a company he founded in 1991, built into the largest
railroad tie recovery business in the U.S., and sold in 1999. We operate
primarily in Texas, Louisiana and Mississippi.
Our
services include picking up scrap railroad ties for major Class I railroads and
disposing of the ties by selling them to the landscape tie market or having the
ties ground to create chipped wood for sale as biomass fuel to the co-generation
market. In 2009, we recovered over one million railroad ties, 73% of which were
used by the co-generation market, 22% for the landscape market and 5% went to
landfill.
Recent
Events
Changes
to Our Board of Directors
On
January 4, 2010, we increased the number of directors on our board from four to
five and appointed Donald D. Redfearn as a director. Director Harvey J. Polly
retired from the board on February 1, 2010 to focus on personal
matters.
Amendments
to Our Certificate of Incorporation
On
January 4, 2010, we amended our certificate of incorporation with the State of
Delaware to change our name to Banyan Rail Services Inc. We also increased our
authorized capital stock to 76.0 million shares consisting of 75.0 million
shares of common stock and 1.0 million shares of blank check preferred stock. In
connection with the name change, we changed the trading symbol for our common
stock to BARA.OB on the Over-the-Counter Bulletin Board. On February 1, 2010, we
filed a certificate of designation with the State of Delaware designating 20,000
shares of our blank check preferred stock as Series A Preferred Stock, par value
$.01 per share.
Exchange
of Debentures for Preferred Stock and Issuance of Additional Preferred
Stock
In order
to raise additional capital for our acquisition of Wood Energy, we conducted a
private placement of Series A Convertible Debentures. The debentures bore
interest at the rate of 10%, payable semi-annually. Each debenture was
convertible at the holder’s option into shares of common stock of Banyan at a
conversion price of $2.00 per share, subject to customary adjustments for any
future stock dividends, stock splits and certain reorganizations and
recapitalizations. Also, we agreed that if we conduct a registered offering of
securities following the private placement, we would register the shares of
common stock underlying the debentures at the request of the holders of these
shares. Through this private placement, we issued debentures in the aggregate
principal amount of $1,525,000 on September 4, 2009.
2
On
February 1, 2010, all of the holders of the debentures exchanged their
debentures for 15,250 shares of newly authorized Series A Preferred Stock.
Similar to the debentures, the preferred stock pays cash dividends at the rate
of 10%, payable semi-annually, and each preferred share is convertible at the
holder’s option into shares of common stock of Banyan at a conversion price of
$2.00 per share, subject to customary adjustments for any future stock
dividends, stock splits and certain reorganizations and recapitalizations. Also,
we agreed that if we conduct a registered offering of securities, we will
register the shares of common stock underlying the preferred stock at the
request of the holders of these shares. There is no requirement for the Company
to redeem the preferred stock at any time.
In
February 2010, the Company sold an additional 2,725 shares of Series A preferred
stock in a private placement for aggregate proceeds of $272,500. The proceeds
from the sale of preferred stock were used for working capital
purposes.
Reverse
Stock Split
In April
2010 the Company effectuated a 1-for-10 reverse stock split pursuant to which
each stockholder received one share of common stock for every ten shares owned
prior to the reverse split. All share and per share amounts in this Quarterly
Report on Form 10-Q have been adjusted retroactively to reflect this reverse
stock split.
Completion
of Shreveport Tie Grinding Facility
In
February 2010, Wood Energy completed the construction of a railroad tie grinding
facility in Shreveport, Louisiana. Wood Energy is now grinding a substantial
portion of its reclaimed rail ties at the newly-completed Shreveport facility
and continues to outsource its remaining grinding requirements. We provide the
chipped wood product to International Paper (NYSE: IP) as a source of biomass
fuel for its containerboard mill in Mansfield, Louisiana. The new tie grinding
facility increases Wood Energy’s operating margin for this business as all of
the grinding was previously outsourced. Class I rail carrier Kansas City
Southern Railway Company (NYSE: KSU) recently signed an agreement with Wood
Energy to deliver reclaimed railroad ties to the Shreveport grinding
facility.
Our
History Prior to Acquiring Wood Energy
The
Company was originally organized as a Massachusetts corporation 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.
These loans were collateralized by hotel and resort properties. From 1989 to
1992 we experienced severe losses as a result of a decline in real estate values
and the resulting defaults on the mortgages we held. The Company was reorganized
as a Delaware corporation in 1987, changed its name to B.H.I.T. Inc. in 1998,
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, Summa Holdings, Inc., and new
directors and officers were appointed.
Because
members of our new management team have experience with the railroad industry,
we began investigating acquisitions of companies in that 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 are no longer a shell
company and are now engaged in the business of railroad tie reclamation and
disposal. On January 4, 2010, we changed our name to Banyan Rail Services Inc.
to reflect our new business.
3
Critical
Accounting Policies
The
following discussion and analysis of our financial condition and results of
operations is based upon our 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 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 first
quarter of 2010, there were no significant changes to the critical accounting
policies that we disclosed in our 2009 Form 10-K filed with the SEC on April 15,
2010. Please see a complete list of significant accounting policies in Note 3 of
the notes to our consolidated financial statements included with our 2009 Form
10-K. In addition, a summary of significant accounting policies is included in
Note 3 of the notes to the financial statements included with this Form
10-Q.
Consolidated
Results of Operations — Banyan and Subsidiary
We
acquired Wood Energy effective September 1, 2009 and our operating results
discussed below include the consolidated results of operations of Banyan and
Wood Energy for the three months ended March 31, 2010. Prior to acquiring Wood
Energy, Banyan was a shell company without significant operations or sources of
revenues other than its investments, as reflected in the results of operations
of Banyan for the three months ended March 31, 2009. The “predecessor” results
of operations for the three months ended March 31, 2009 include only the results
of Wood Energy for that period.
Revenue
for the three months ended March 31, 2010 was $1,256,558 compared to revenue of
$0 for the three months ended March 31, 2009. In 2009, Banyan was a shell
company and had no revenues other than interest earned on its cash balances. The
revenue recorded in 2010 consists of the revenue generated by Banyan’s
subsidiary, Wood Energy (the “predecessor”), which was acquired on September 4,
2009. For the three months ended March 31, 2009, the predecessor’s revenue was
$1,579,842, or 20.5% more compared to $1,256,558 of revenue for the three months
ended March 31, 2010. The reason that revenue is lower in the 2010 period than
in the 2009 period is due to the timing of completion of contracts that carried
over from the prior year end.
The gross
margin was 34.0% in the three months ended March 31, 2010 compared to 0% in the
2009 period, as there were no operations for Banyan in 2009. However, the gross
margin for the predecessor for the three months ended March 31, 2009 was 15.2%.
The increase in the gross margin in 2010 is due primarily to (1) reduction of
operating lease expenses to $13,106 in the first quarter of 2010 from $96,556 in
2009, and (2) an improvement in the 2010 profitability of Wood Energy’s
operations from the grinding facility built by Wood Energy and put into service
in February 2010.
4
Selling,
general and administrative expenses were $476,331 for the three months ended
March 31, 2010, an increase of $427,688 or 879.2%, compared to $48,643 for the
three months ended March 31, 2009. This increase is primarily due to (1)
$210,426 of selling, general and administrative expenses for Wood Energy for the
three months ended March 31, 2010 whereas no such expenses were incurred in the
comparable 2009 quarter, (2) an increase of approximately $133,000 in legal and
accounting fees expensed by Banyan in the 2010 period over the 2009 period, (3)
and an increase of approximately $63,000 in consulting costs, rent and payroll
incurred in the 2010 period in connection with the transition of Banyan from a
shell company to an operating company after the acquisition in September 2009 of
Wood Energy. For the three months ended March 31, 2009, the predecessor’s
selling, general and administrative expenses were $143,071, or 47.1% less
compared to $210,426 of the predecessor’s selling, general and administrative
expenses for the three months ended March 31, 2010. The increase in selling,
general and administrative expenses in 2010 is due to approximately $66,000 of
amortization expense for identifiable intangible assets in the 2010 period from
the acquisition of Wood Energy.
In the
three months ended March 31, 2010, Banyan recognized a gain of $25,092 from the
extinguishment of debt. Banyan had outstanding debentures in the amount of
$1,525,000 at December 31, 2009, all of which were exchanged for shares of
Series A preferred stock in February 2010. This exchange is further described
under “Financial Condition and Liquidity” below.
Net
interest expense for the three months ended March 31, 2010 was $88,688, compared
to net interest income of $5,566 for the three months ended March 31, 2009. This
is due primarily to interest expense related to the senior debt facilities
incurred in connection with the September 4, 2009 acquisition of Wood Energy.
Interest expense also includes amortization of deferred loan costs.
Income
tax expense of $4,300 was recorded in the three months ended March 31, 2010
compared to $0 in the 2009 period. The computation of income tax expense is
based on the expected effective tax rate for each full fiscal year, net of the
valuation allowance that has been applied to deferred tax assets recorded for
the 2010 period.
Net loss
attributable to common stockholders was $(0.64) per share in the three months
ended March 31, 2010 compared to $(0.02) per share in the 2009 period. The
difference of $(0.62) per common share is primarily due to a non-cash preferred
stock dividend resulting from the beneficial conversion feature embedded in the
preferred stock issued in the first quarter of 2010 ($(0.59) per common
share).
5
Financial
Condition and Liquidity
Cash and
cash equivalents consist of cash and short-term investments. Our cash and cash
equivalents balance at March 31, 2010 was $116,075, which is comparable to
$101,361 of cash and cash equivalents at December 31, 2009.
To
finance the acquisition of Wood Energy, we entered a five-year senior secured
term loan in the amount of $3.0 million with Fifth Third Bank. Banyan guaranteed
the loan and Wood Energy is the borrower. Payments of principal and interest are
due monthly. As a result, the term loan will increase our need for liquidity on
an ongoing basis throughout the year. As of March 31, 2010, there was $2,700,000
outstanding under the term loan, and monthly principal payments of $50,000 are
required. To obtain additional funds for the acquisition, Banyan also issued
Series A Convertible Debentures bearing interest at the rate of 10%, payable
semi-annually. We raised $1,525,000 through the issuance of the debentures. The
debentures were due in five years, and were convertible into shares of common
stock of Banyan at a conversion price of $2.00 a share. A beneficial conversion
feature in the amount of $1,143,750 was recorded as of the date of issuance,
which was being amortized over the five year term of the convertible debentures.
In February 2010, the holders of all of the convertible debentures elected to
exchange their debentures for shares of Series A Convertible Preferred Stock.
The terms of the preferred stock are substantially the same as the terms of the
convertible debentures, except that Banyan has no obligation to redeem the
preferred stock at any time. This exchange reduces our long-term cash
requirements.
In
connection with the acquisition of Wood Energy, we also obtained two credit
lines in the amounts of $500,000 and $1.5 million from Fifth Third Bank for
working capital and capital expenditures respectively. Draws 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. As
of March 31, 2010, $125,000 and $1,120,174 are available under the working
capital and capital expenditure lines, respectively. At this time, we have no
other material commitments for capital expenditures. On May 21, 2010, the
Company and Fifth Third Bank agreed to amend the terms of the lines of credit
and the working capital and capital expenditures lines of credit are now each
$1.0 million.
The term
loan and bank facilities from Fifth Third Bank described above are subject to
certain loan covenants that require, among other things, compliance with fixed
charge coverage and total debt coverage ratios, as well as minimum levels of
EBITDA (earnings before interest, taxes, depreciation and amortization). We have
included certain add-backs in calculating such covenants for the periods ended
March 31, 2010 and December 31, 2009 with which the bank has concurred and
accepted such add-backs for purposes of determining compliance for these
periods. Based on our operating plan as described below, we believe that we will
comply with the loan covenants in the foreseeable future. However, there can be
no assurances in this regard.
At March
31, 2010, we had a net working capital deficit of $910,882 and incurred negative
cash flows from operating activities of $41,046 for the three months then ended.
We acknowledge that timing of the realization of our receivables from customers
and our payables to vendors may not allow us to generate positive working
capital in the near future.
6
After our
acquisition of Wood Energy, we adopted a plan designed to operate at a profit
and generate positive cash flows from operations into the foreseeable future.
Also, as mentioned above, we have availability under our credit facilities to
help finance our cash needs should the need arise. Our working capital line of
credit matures in May 2011 (as amended on May 21, 2010) and we believe that we
will be able to refinance or extend the term of this facility beyond
May 2011, although we cannot guarantee that we will be able to do so on
terms that are acceptable to us or at all. In addition, in February 2010 we sold
2,725 shares of preferred stock, resulting in proceeds of $272,500 which was
used for working capital purposes. Although we believe that we will be able to
successfully execute our plan and meet our future liquidity needs, there can be
no assurances in this regard.
We are
exploring various additional acquisition opportunities and may incur due
diligence, legal and accounting costs in connection with evaluating these
opportunities. We are also exploring additional sources of financing
to fund such possible opportunities. However, we cannot guarantee we will be
able to obtain adequate financing on acceptable terms.
Off-Balance
Sheet Arrangements
We do not
have any material off-balance sheet arrangements.
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 561-443-5300.
Item
4(T). 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 March
31, 2010. Further, except that we have instituted new controls over the internal
control systems of Wood Energy, such as (i) adding a controller and an assistant
to the president of Wood Energy, (ii) increasing the oversight provided by
Banyan’s executives over Wood Energy’s operations and financial activities, and
(iii) instituting procedures to more accurately identify direct costs incurred
for each of Wood Energy’s contracts, there have been no changes in our internal
control over financial reporting during the quarter ended March 31, 2010 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)). Further, we have hired a new full-time employee who is expected to
begin with the Company shortly, which we expect will improve internal controls
over financial reporting.
7
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
In order
to raise additional capital for our acquisition of Wood Energy, we conducted a
private placement of Series A Convertible Debentures. Through this private
placement, we issued debentures in the aggregate principal amount of $1,525,000
on September 4, 2009.
Effective
January 1, 2010, all of the holders of the debentures exchanged their debentures
for 15,250 shares of newly authorized Series A Preferred Stock. Similar to the
debentures, the preferred stock pays cash dividends at the rate of 10%, payable
semi-annually, and each preferred share is convertible at the holder’s option
into shares of common stock of Banyan at a conversion price of $2.00 per share,
subject to customary adjustments for any future stock dividends, stock splits
and certain reorganizations and recapitalizations. Also, we agreed that if we
conduct a registered offering of securities, we will register the shares of
common stock underlying the preferred stock at the request of the holders of
these shares. There is no requirement for Banyan to redeem the preferred stock
at any time.
In
February 2010, we sold an additional 2,725 shares of Series A preferred stock in
a private placement for aggregate proceeds of $272,500. The proceeds from the
sale of preferred stock were used for working capital purposes.
The
issuance of the preferred shares to the debenture holders and the private
placement of additional 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
4. Submission of Matters to a Vote of Security Holders
Not
applicable.
8
Item
5. Other Information
In
connection with the acquisition of Wood Energy, we obtained two credit lines in
the amounts of $500,000 (working capital) and $1.5 million (capital
expenditures) from Fifth Third Bank. On May 21, 2010, we entered into amendments
with Fifth Third increasing the working capital line to $1.0 million and
decreasing the capital expenditures line to $1.0 million. In addition, the due
date of the working capital line was extended from September 2010 to May
2011.
For
information regarding other significant events of the first quarter, please turn
to “Recent Events” on page 2.
Item
6. Exhibits
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Executive Officer Pursuant
to § 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial Officer Pursuant
to § 302 of the Sarbanes-Oxley Act of
2002
|
|
32
|
Rule
13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley
Act of 2002
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9
Signatures
In
accordance with the requirements of the Securities Exchange Act of 1934, Banyan
Rail Services Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
| Banyan Rail Services Inc. | |||
|
Date:
May 24, 2010
|
/s/ Bennett Marks | ||
| By Bennett Marks, | |||
| Vice President and Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||
10
Banyan
Rail Services Inc. and Subsidiary
Condensed
Consolidated Balance Sheets
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March
31,
2010
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December 31,
2009
|
|||||||
|
(Unaudited)
|
||||||||
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ASSETS
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||||||||
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Current
assets
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||||||||
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Cash
and cash equivalents
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$ | 116,075 | $ | 101,361 | ||||
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Accounts
receivable - trade
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847,388 | 533,661 | ||||||
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Due
from sellers
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147,122 | 341,863 | ||||||
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Costs
in excess of billings on uncompleted contracts
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735,192 | 224,176 | ||||||
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Prepaid
expenses and other current assets
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16,625 | 5,362 | ||||||
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Total
current assets
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1,862,403 | 1,206,423 | ||||||
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Property
and equipment, net
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2,417,964 | 2,146,086 | ||||||
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Other
assets
|
||||||||
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Deferred
loan costs, net
|
189,848 | 199,993 | ||||||
|
Deferred
income taxes
|
278,787 | - | ||||||
|
Identifiable
intangible assets, net
|
1,759,195 | 1,824,827 | ||||||
|
Goodwill
|
3,658,364 | 3,658,364 | ||||||
|
Deposit
|
5,618 | - | ||||||
|
Total
other assets
|
5,891,812 | 5,683,184 | ||||||
|
Total
assets
|
$ | 10,172,178 | $ | 9,035,693 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 1,185,847 | $ | 871,533 | ||||
|
Billings
in excess of costs on uncompleted contracts
|
486,127 | 151,924 | ||||||
|
Line
of credit
|
375,000 | 275,000 | ||||||
|
Current
portion of long-term debt
|
633,886 | 619,206 | ||||||
|
Current
portion of long-term capital lease obligations
|
52,750 | - | ||||||
|
Income
taxes payable
|
39,675 | 35,375 | ||||||
|
Total
current liabilities
|
2,773,285 | 1,953,038 | ||||||
|
Deferred
income taxes
|
- | 110,088 | ||||||
|
Long-term
debt, less current portion
|
2,445,940 | 2,567,394 | ||||||
|
Capital
lease obligations, less current portion
|
135,995 | - | ||||||
|
Convertible
debentures, net
|
- | 441,073 | ||||||
|
Total
liabilities
|
5,355,220 | 5,071,593 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity
|
||||||||
|
Series
A preferred stock, $.01 par value. 20,000 shares
|
||||||||
|
authorized, 17,975
shares issued at March 31, 2010
|
180 | - | ||||||
|
Common
stock, $0.01 par value. 75,000,000 shares
|
||||||||
|
authorized.
3,046,067 and 3,020,414 shares issued at
|
||||||||
|
March
31, 2010 and December 31, 2009, respectively
|
30,461 | 30,204 | ||||||
|
Additional
paid-in capital
|
92,980,596 | 91,885,935 | ||||||
|
Accumulated
deficit
|
(87,998,590 | ) | (87,881,350 | ) | ||||
|
Subscription
receivable for Series A preferred stock
|
(125,000 | ) | - | |||||
|
Treasury
stock, 28,276 shares at cost
|
(70,689 | ) | (70,689 | ) | ||||
|
Total
stockholders' equity
|
4,816,958 | 3,964,100 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 10,172,178 | $ | 9,035,693 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-1
Banyan
Rail Services Inc. and Subsidiary
Condensed
Consolidated Statements of Operations
(Unaudited)
|
Predecessor
|
||||||||||||
|
Three
Months Ended March 31,
|
Three
Months Ended
|
|||||||||||
|
2010
|
2009
|
March
31, 2009
|
||||||||||
|
Revenues
|
$ | 1,256,558 | $ | - | $ | 1,579,842 | ||||||
|
Cost
of sales
|
829,571 | - | 1,339,543 | |||||||||
|
Gross
profit
|
426,987 | - | 240,299 | |||||||||
|
Selling,
general and administrative expenses
|
476,331 | 48,643 | 143,071 | |||||||||
|
Income
(loss) from operations
|
(49,344 | ) | (48,643 | ) | 97,228 | |||||||
|
Other
income (expenses)
|
||||||||||||
|
Gain
on extinguishment of debt
|
25,092 | - | - | |||||||||
|
Interest
income (expense), net
|
(88,688 | ) | 5,566 | (12,663 | ) | |||||||
|
Income
(loss) before income taxes
|
(112,940 | ) | (43,077 | ) | 84,565 | |||||||
|
Income
taxes
|
(4,300 | ) | - | (3,000 | ) | |||||||
|
Net
income (loss)
|
(117,240 | ) | (43,077 | ) | 81,565 | |||||||
|
Dividends
for the benefit of preferred stockholders:
|
||||||||||||
|
Preferred
stock dividend
|
(42,667 | ) | - | - | ||||||||
|
Amortization
of beneficial conversion feature discount on
|
||||||||||||
|
preferred
stock
|
(1,797,500 | ) | - | - | ||||||||
|
Total
dividends for the benefit of preferred stockholders
|
(1,840,167 | ) | - | - | ||||||||
|
Net
income (loss) attributable to common stockholders
|
$ | (1,957,407 | ) | $ | (43,077 | ) | $ | 81,565 | ||||
|
Weighted
average number of common shares outstanding:
|
||||||||||||
|
Basic
and diluted
|
3,035,291 | 2,607,432 | ||||||||||
|
Net
loss per common share:
|
||||||||||||
|
Basic
and diluted
|
$ | (0.64 | ) | $ | (0.02 | ) | ||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-2
Banyan
Rail Services Inc. and Subsidiary
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
Predecessor
|
||||||||||||
|
Three
Months Ended March 31,
|
Three
Months Ended
|
|||||||||||
|
2010
|
2009
|
March
31, 2009
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (117,240 | ) | $ | (43,077 | ) | $ | 81,565 | ||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used
in)
|
||||||||||||
|
operating
activities:
|
||||||||||||
|
Depreciation
|
39,333 | - | 70,750 | |||||||||
|
Stock
compensation expense
|
7,640 | - | - | |||||||||
|
Amortization
of deferred loan costs
|
10,145 | - | - | |||||||||
|
Amortization
of identifiable intangible assets
|
65,632 | - | - | |||||||||
|
Amortization
of beneficial conversion feature
|
15,269 | - | - | |||||||||
|
Gain
on extinguishment of debt
|
(25,092 | ) | - | - | ||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Increase
in accounts receivable
|
(313,727 | ) | - | (137,801 | ) | |||||||
|
Decrease
(increase) in costs incurred related to deferred revenue
|
(511,016 | ) | - | 449,362 | ||||||||
|
Decrease
in prepaid expenses and other current assets
|
183,478 | 3,357 | - | |||||||||
|
Increase
in other assets
|
(5,618 | ) | - | - | ||||||||
|
Increase
in accounts payable and accrued expenses
|
271,647 | 4,696 | 174,577 | |||||||||
|
Increase
in income taxes payable
|
4,300 | - | - | |||||||||
|
Increase
(decrease) in deferred revenue
|
334,203 | - | (574,592 | ) | ||||||||
|
Net
cash provided by (used in) operating activities
|
(41,046 | ) | (35,024 | ) | 63,861 | |||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Acquisition
of property and equipment
|
(105,075 | ) | - | (88,275 | ) | |||||||
|
Net
cash used in investing activities
|
(105,075 | ) | - | (88,275 | ) | |||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from long-term debt
|
43,226 | - | 88,275 | |||||||||
|
Proceeds
from line of credit
|
100,000 | - | - | |||||||||
|
Payment
of long-term debt
|
(150,000 | ) | - | (40,498 | ) | |||||||
|
Payment
of long-term capital leases
|
(17,391 | ) | - | (25,493 | ) | |||||||
|
Proceeds
from exercise of stock options
|
37,500 | - | - | |||||||||
|
Proceeds
from sale of preferred stock
|
272,500 | - | - | |||||||||
|
Increase
in subscription receivable
|
(125,000 | ) | - | - | ||||||||
|
Purchase
of treasury stock
|
- | (62,500 | ) | - | ||||||||
|
Net
cash provided by (used in) financing activities
|
160,835 | (62,500 | ) | 22,284 | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
14,714 | (97,524 | ) | (2,130 | ) | |||||||
|
Cash
and cash equivalents, beginning of period
|
101,361 | 1,613,173 | 2,175 | |||||||||
|
Cash
and cash equivalents, end of period
|
$ | 116,075 | $ | 1,515,649 | $ | 45 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
|
$ | 116,362 | - | $ | 12,663 | |||||||
|
Taxes
|
$ | - | - | $ | - | |||||||
|
Non
cash financing activities:
|
||||||||||||
|
Preferred
stock dividend
|
$ | 42,667 | $ | - | $ | - | ||||||
|
Issuance
of preferred stock for exchange of convertible debentures
|
$ | 1,525,000 | $ | - | $ | - | ||||||
|
Property
acquired under capital leases
|
$ | 206,136 | $ | - | $ | - | ||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-3
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Note
1. Nature of Operations
Banyan
Rail Services Inc. (“Banyan,” “we,” “our” or the “Company”) was originally
organized as a Massachusetts corporation 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. The Company changed its name from B.H.I.T. Inc. to Banyan Rail Services
Inc. in 2010.
Banyan
was a shell company without significant operations or sources of revenues other
than interest on its investments. With a change in management in 2008, it was
determined that the Company would seek acquisitions in rail-related businesses.
On September 4, 2009, the Company purchased 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 Texas and
Louisiana.
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 period during which the Company owned Wood Energy. Because
Wood Energy is deemed to be a predecessor to the Company, the financial
statements of Wood Energy for operations prior to the acquisition are presented.
The Company’s results of operations on a consolidated basis subsequent to the
acquisition of Wood Energy are not comparative to the stand alone financial
statements of the acquired business because the acquired assets and liabilities
have been adjusted to fair value pursuant to ASC 805 “Business Combinations”.
All significant intercompany transactions and accounts have been eliminated in
consolidation.
Certain
reclassifications have been made to the December 31, 2009 financial statements
to conform to the classifications used in 2010.
F-4
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Although
we believe that the disclosures included in our 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 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, 2009 filed with the
SEC.
The
results of operations for the three months ended March 31, 2010 are not
necessarily indicative of the results to be expected for the full 2010
year.
Note
3. Summary of Significant Accounting Policies
Revenue
Recognition
The
Company utilizes the completed contract method of accounting for 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, billings
related to the services for which contracts have not been completed have been
recorded as deferred revenue. Direct costs, including payroll, fuel, equipment
rental, trucking expense and steel strapping costs that are related to the
pick-up and disposal of used railroad ties are deferred until the related
revenue recognition process is complete. The Company also receives revenue from
the sale of a portion of the reclaimed ties to landscapers. These revenues are
recorded when the ties are sold to the landscapers.
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 included 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.
F-5
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Fair Value of Financial
Instruments
Recorded
financial instruments consist of cash, accounts receivable, accounts payable,
short-term debt obligations, convertible debt 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 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.
Diluted
earnings per share excludes 312,500 shares issuable upon exercise of options and
898,750 shares issuable upon conversion of convertible preferred stock as their
inclusion would be anti-dilutive.
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.
F-6
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Note
4. Capital Leases
The
Company leases certain equipment used in its operations under capital leases
that expire over three to four years.
Rental
expense was $13,106 and $96,556 for the three months ended March 31, 2010 and
2009 (predecessor), respectively.
The following is a schedule by years of minimum future rentals on
noncancelable capital leases as of March 31, 2010:
|
Fiscal
year ending December 31,
|
||||
|
2010
|
$ | 50,777 | ||
|
2011
|
67,702 | |||
|
2012
|
67,702 | |||
|
2013
|
31,793 | |||
|
Net
minimum lease payments
|
217,974 | |||
|
Less
amount representing interest
|
(29,229 | ) | ||
|
Present
value of net minimum lease payments
|
188,745 | |||
|
Amount
representing current portion
|
(52,750 | ) | ||
|
Capital
leases payable, less current portion
|
$ | 135,995 | ||
Property
and equipment under capital leases consist of the following as of March 31,
2010:
|
Machinery
and equipment
|
$ | 206,136 | ||
|
Accumulated
depreciation
|
(7,362 | ) | ||
| $ | 198,774 | |||
F-7
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Note
5. Convertible Debentures and Preferred Stock
In
connection with the purchase of Wood Energy, the Company issued $1,525,000 of
convertible debentures bearing interest at 10% per annum and payable in five
years. The debentures are convertible into the Company’s common stock at $2.00
per share. In accordance with ASC 470-20 (Debt with Conversion and Other
Options), the Company determined that the convertible debentures had beneficial
conversion features because the embedded conversion feature was an
“in-the-money” issuance. Therefore the embedded beneficial conversion feature
was valued separately at issuance. The convertible debentures meet the
definition of “conventional convertible debt” because the number of shares which
may be issued upon the conversion of the debt is fixed. Therefore, the
beneficial conversion feature qualifies for equity classification.
The
convertible debentures were assigned an initial value of $381,250, based on the
estimated intrinsic value of the beneficial conversion feature. The amount
allocated as a discount on the convertible debentures for the original value of
the conversion option ($1,143,750) was being amortized to interest expense,
using the effective interest method, over the five year term of the convertible
debentures. A total of $15,269 was amortized as interest expense for the three
months ended March 31, 2010. A deferred tax liability of $388,875 for the
beneficial conversion feature was recorded in connection with the issuance of
the convertible debentures.
In
January 2010, the Company initiated an exchange of its outstanding
convertible debentures for shares of convertible preferred stock. In February
2010, the holders of 100% of the outstanding debentures agreed to the exchange,
and 15,250 shares of convertible preferred stock were issued. Similar to the
debentures, holders of the convertible preferred stock are entitled to an annual
cash dividend of 10% payable semi-annually, and each share of preferred stock is
convertible into 50 shares of common stock. The holders of the preferred stock
are not entitled to redeem their shares for cash. A gain of $25,092 was recorded
on the extinguishment of this debt for the three months ended March 31, 2010.
Also, in February 2010, the Company sold an additional 2,725 shares of
convertible preferred stock for proceeds of $272,500. The proceeds were used for
working capital purposes.
In
accordance with ASC 470-20, the Company has determined that the preferred
stock includes a beneficial conversion feature, and a discount valued at
$1,525,000 has been accounted for as a dividend for the quarter ended March
31, 2010. In addition, the Company has determined that the preferred stock
sold in February 2010 includes a beneficial conversion feature, and a discount
valued at $272,500 has also been accounted for as a dividend for
the quarter ended March 31, 2010.
F-8
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Note
6. Stock-Based Compensation
The
Company has stock option agreements with certain of its directors and officers
as compensation for serving on the Company’s Board of Directors and as officers.
The options activity is as follows for the three months ended March 31,
2010:
|
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, 2009
|
212,500
|
$ |
2.50
|
$
|
-
|
1.0
years
|
$
|
160,000
|
||||
|
Options
granted
|
87,500
|
3.50
|
87,500
|
4.2
years
|
-
|
|||||||
|
Options
exercised
|
(75,000)
|
1.50
|
-
|
(112,500)
|
||||||||
|
Outstanding,
December 31, 2009
|
225,000
|
3.20
|
-
|
1.7
years
|
47,500
|
|||||||
|
Options
granted
|
112,500
|
2.70
|
30,559
|
4.8
years
|
146,250
|
|||||||
|
Options
exercised
|
(25,000)
|
1.50
|
-
|
(62,500)
|
||||||||
|
Outstanding,
March 31, 2010
|
312,500
|
$
|
3.00
|
2.6
years
|
$ |
268,750
|
||||||
Because
the Company has 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. The options vested at the date of grant, and are exercisable for periods
not to exceed three to five years from the date of grant. The “out-of-the-money”
stock options are not considered in calculating diluted earnings per share. The
Company excluded from the earnings per share calculation 312,500 shares related
to stock options that were outstanding at March 31, 2010, which were
antidilutive.
F-9
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
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. In 2010 and
2009, it was determined that the Company was seeking an acquisition in a
railroad-related business. Accordingly, the 2010 and 2009 expected volatility
rate was estimated using the average volatility rates of seven public companies
in the railroad industry. Currently, the Company has assumed no forfeiture rate.
The weighted average assumptions used in the option-pricing models during 2010
and 2009 were as follows:
|
2010
|
2009
|
|||||||
|
Risk
free interest rate
|
2.55 | % | 2.55 | % | ||||
|
Expected
life (years)
|
5 | 5 | ||||||
|
Expected
volatility
|
29.00 | % | 27.00 | % | ||||
|
Dividend
yield
|
0 | 0 | ||||||
Note
7. Stockholders’ Equity
In
January 2010, the Company initiated an exchange of its outstanding convertible
debentures for shares of convertible preferred stock. In February 2010, the
holders of 100% of the outstanding debentures agreed to the exchange, and 15,250
shares of convertible preferred stock were issued. Similar to the debentures,
holders of the convertible preferred stock are entitled to an annual cash
dividend of 10% payable semi-annually, and each share of preferred stock is
convertible into 50 shares of common stock. The holders of the preferred stock
are not entitled to redeem their shares for cash. Also, in February 2010, the
Company sold an additional 2,725 shares of convertible preferred stock for
proceeds of $272,500. The proceeds were used for working capital
purposes.
Note
8. Income Taxes
The
provision for income taxes consists of the following components:
|
Predecessor
|
||||||||||||
|
Three
Months
|
||||||||||||
|
Three
Months Ended
|
Ended
|
|||||||||||
|
March
31,
|
March
31,
|
|||||||||||
|
2010
|
2009
|
2009
|
||||||||||
|
Current
expense
|
$ | 43,022 | $ | - | $ | 3,000 | ||||||
|
Deferred
benefit
|
(38,722 | ) | - | - | ||||||||
| $ | 4,300 | $ | - | $ | 3,000 | |||||||
F-10
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
The
current provision for income taxes for the Company and the predecessor company
relates to uncertain tax positions indentified in ASC 740 (Income
Taxes).
The
components of deferred income tax assets and liabilities are as
follows:
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Long-term
deferred tax assets:
|
||||||||
|
Stock
compensation benefit
|
171,904 | 169,307 | ||||||
|
Net
operating loss carryforward
|
1,240,267 | 1,204,142 | ||||||
|
Total
long-term deferred tax assets
|
1,412,171 | 1,373,449 | ||||||
|
Valuation
allowance
|
- | - | ||||||
| 1,412,171 | 1,373,449 | |||||||
|
Long-term
deferred tax liabilities:
|
||||||||
|
Convertible
debentures
|
- | (368,535 | ) | |||||
|
Intangible
assets
|
(627,880 | ) | (620,442 | ) | ||||
|
Property
and equipment
|
(505,504 | ) | (494,560 | ) | ||||
|
Total
long-term deferred tax liabilities
|
(1,133,384 | ) | (1,483,537 | ) | ||||
|
Net
deferred tax assets (liabilities)
|
$ | 278,787 | $ | (110,088 | ) | |||
F-11
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Our
Federal net operating loss (“NOL”) carryforward balance as of December 31, 2009
was $3,541,000, expiring between 2010 and 2029. Management has reviewed the
provisions of ASC 740 regarding assessment of their valuation allowance on
deferred tax assets and based on that criteria determined that it has sufficient
taxable income to offset those assets. Therefore, Management has
assessed the realization of the deferred tax assets and has determined that it
is more likely than not that they will be realized.
The
Company adopted the provisions of ASC 740, previously FASB Interpretation No. 48
(FIN 48), Accounting for
Uncertainty in Income Taxes, on January 1, 2007. Previously the Company
has accounted for tax contingencies in accordance with Statement of Financial
Accounting Standards 5, Accounting for Contingencies. The statute of limitations
is still open on years 2006 and subsequent. The Company recognizes the financial
statement impact 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. At the adoption date the Company applied ASC 740 to all
tax positions for which the statute of limitations remained open. As a result of
the implementation of ASC 740, the Company did not recognize a material increase
in the liability for uncertain tax positions.
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
2006.
In
adopting ASC 740-10, the Company elected to classify interest and penalties
related to unrecognized tax benefits as income tax expenses. The Company has no
accrued interest and penalties as of the three months ended March 31, 2010 and
2009, respectively (as of the three months ended March 31, 2009 for the
predecessor) because they are not material.
F-12
Banyan
Rail Services Inc. and Subsidiary
Notes
to Condensed Consolidated Financial Statements
March
31, 2010
Note
9. Major Customers
For the
quarter ended March 31, 2010, the Company recorded 76% of its revenues under a
contract with one major customer (78% of outstanding accounts receivable -
trade) and 16% of its revenues under a contract with another major customer (4%
of outstanding accounts receivable - trade). The Company had no operations for
the year ended December 31, 2008. With respect to the predecessor company, 61%
of revenue was under a contract with one major customer in 2009 and 6% under a
contract with another major customer for the quarter ended March 31, 2009,
respectively.
Note
10. Related Party Transactions
The
Company leases office space and receives office services from Patriot Rail
Corp., a company related by certain common management, for $5,000 per month. The
Company’s directors, chief executive officer and chief financial officer 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. Such persons are compensated solely with stock options. The
Company’s officers and directors own a total of 10,000 shares of the convertible
preferred stock outstanding as of March 31, 2010.
In 2009,
the Company entered into two 5-year employment agreements and one month-to-month
consulting agreement with individuals who are shareholders and debenture
holders. The expense under these agreements was $94,500 and $106,500 for the
quarters ended March 31, 2010 and 2009, respectively.
Note
11. Subsequent Events
In April
2010, the Company effected a 1 for 10 reverse split of its common stock. Share
and per share amounts have been adjusted retroactively to reflect this
transaction.
On May
21, 2010, the Company and Fifth Third Bank agreed to amend the terms of the
lines of credit whereby the working capital and capital expenditures lines of
credit are now $1,000,000 and $1,000,000, respectively. In addition, the working
capital line of credit now matures in May 2011.
F-13