Broad Street Realty, Inc. - Annual Report: 2011 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

or

Commission file number: 1-9043

Securities registered pursuant to Section 12(b) of the Exchange Act:  None

Securities registered pursuant to Section 12(g) of the Exchange Act:  Common stock, $0.01 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ¨   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes ¨   No x

Indicate by check mark whether the registrant (1) 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 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 x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K   x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  $3,868,760 as of June 30, 2011.

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:  3,045,856 shares of common stock, $0.01 par value per share, as of March 15, 2012.

Table of Contents

PART I

As used in this report, all references to “Banyan,” the “Company,” “we,” “our” and “us” for periods prior to the closing of the acquisition of The Wood Energy Group, Inc. (“Wood Energy”) refer to Banyan Rail Services Inc. (formerly B.H.I.T. Inc.), and references to the “Company,” “we,” “our” and “us” for periods subsequent to the closing of the acquisition refer to Banyan Rail Services Inc. and its wholly-owned subsidiary, Wood Energy.

Forward Looking Statements

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

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 this annual report on Form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K, must be carefully considered by any investor or potential investor in the Company.

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.

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.

Revenue Sources

Currently, the Company has four sources of revenue:

We have contracts expiring in 2013 with Union Pacific Corporation (UP) and Kansas City Southern Railway Company (KCS), both Class I railroads, for the reclamation and disposal of scrap railroad ties in primarily in the Southern Region, in addition to processing ties for reclamation and disposal for Class I railroads we have contracts with short line and regional railroads construction companies. We dispose of the majority of such railroad ties at International Paper Company (IP) plants in Louisiana. In 2011, UP, KCS and IP accounted for approximately 46%, 9% and 18% of our revenue, respectively.

The Railroad Tie Reclamation Industry

The Company estimates that there are approximately 15 rail tie recovery companies in North America with total industry revenue in 2011 of approximately $100 million.  Each company operates within specific geographic regions and each has Class I railroads as its major customers. Certain barriers to entry in these markets exist, since Class I railroad and co-generation customers require contractors who have experience and proven reliability in disposing non-usable railroad ties through co-generation or other environmentally approved methods.

The U.S. Railroad Industry and Increased Tie Replacement.

U.S. railroads operate over 139,000 miles of track, and generated more than $59 billion in revenues in 2010. In the U.S., railroads account for approximately 43% of all freight transportation by volume; more than trucks, boats, barges or planes. U.S. freight railroads are the world’s busiest, moving more freight than any rail system in any other country.

Due to high levels of railroad traffic and increased the maximum weight limit of rail cars to 286,000 pounds, Class I railroads, regional railroads and short line railroads continue to maintain and repair their infrastructure to ensure safe operation of their railways.  Demand for outsourcing of railroad maintenance services is expected to increase due to increased union labor costs as well as an aging population of railroad workers. Further, over the past five years, the increase of the maximum weight limit and increased traffic has accelerated wear and tear of railroad infrastructure, increasing the need for tie replacement. The nation’s railroads have struggled to keep pace with the resulting growth of maintenance needs due to the tremendous cost of qualified personnel and equipment.  Track maintenance is capital intensive and requires skilled personnel, therefore many railroads turn to independent contractors to provide tie recovery services. In 2011, Class I railroads replaced over 17 million rail ties.  

Railroad Ties as a Fuel Source

Chipped railroad ties are a viable source of fuel for industrial plants and utilities. In 2009 and 2010 we purchased railroad tie grinding equipment to diversify our operations by allowing us to grind the railroad ties at our Shreveport, Louisiana location. In early 2010, in addition to selling ties to a third party for grinding, we began to sell chipped ties directly to co-generation plants at a higher price and profit per ton than by selling to third party processors. In the summer of 2011, we began construction on a grinding facility at a new transload center located on the Louisiana and North West Railroad (LNW)located in Gibsland, Louisiana. The LNW is owned by a significant shareholder of the Company. We believe there is potential to increase the dollar margins on this business segment, and the move to the new location in January 2012 has provided more space and efficiencies to improve our margins.

Growth Opportunities

Project Management

A primary focus of management is to continuously improve the efficiency of its operations. Information flow between on-site employees and management personnel is critical to achieve goals assigned for each project and complete projects efficiently and effectively. Daily information flow provides management an accurate view of productivity of each project so that our costs can be closely monitored, and helps us effectively manage our projects. 

Staffing

Railroad professionals are the core of our company. Experienced managers and supervisors are critical to success in our industry, as are skilled equipment operators and laborers. Many of our employees have worked for us for many years. Our personnel are assembled into crews of various sizes depending on the needs of a given project and the crews have performance standards which support our safety, quality, productivity and profitability goals.  As of December 31, 2011, we had approximately 30 full time non-union employees.

Government Regulation

Our operations are subject to federal, state and local regulation under transportation and environmental laws. Our operations may be subject to various regulations of the Surface Transportation Board, the Federal Railroad Administration (FRA), the Occupational Safety and Health Administration, Federal Environmental Protection Agency, state departments of transportation, and other state and local regulatory agencies. Because the FRA regulates railroad safety and equipment standards, its regulations affect certain aspects of our business operations and the services we provide, including worker safety. For example, the FRA promulgated the Roadway Worker Protection Rules, which apply to rail contractors and establish certain safety criteria that must be complied with on rail projects. At this time, we believe we are in compliance with the regulations applicable to our business.

Seasonality

Because we generally operate in warm weather states, our business is generally not seasonal.

Our History Prior to Acquiring Wood Energy

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

On January 24, 2007, a group of private investors purchased 41.7% of our outstanding shares held by our largest shareholder at the time. Because members of our new management team have experience with the railroad industry, we began investigating acquisitions of companies in the rail industry. In the spring of 2009, we entered negotiations with the owners of Wood Energy to acquire the company. As a result of the acquisition of Wood Energy, we 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.

The following is a description of what we consider the key challenges and risks relating to our business and investing in our common stock. This discussion should be considered in conjunction with the discussion under the caption “Forward-Looking Information” preceding Part I, the information set forth under Item 1, “Business” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks comprise the material risks of which we are aware. If any of the events or developments described below or elsewhere in this Annual Report on Form 10-K, or in any documents that we subsequently file publicly were to occur, it could have a material adverse effect on our business, financial condition or results of operations.

Risks Relating to Our Business

We depend upon a limited number of customers and contracts to generate revenue, and this concentration of customers and contracts may expose us to heightened financial exposure.

Our business is a service business, and our revenue is generated from a limited number of customers. For instance, in 2011 and 2010 we derived 46% and 67% of our revenue, respectively, from services performed for Union Pacific, and we anticipate deriving a similar percentage of our revenue from them in 2012.  Although we have agreements and relationships with that customer and certain other customers, the agreements may be terminated on short notice.  In addition, our agreements with two of our significant customers are expiring at December 31, 2012 and in April 2013, respectively.  Thus, our concentration of customers and contracts exposes us to greater financial risk than businesses with a broader customer base.  A significant reduction in the volume with one of these customers or the loss of a customer could have a material adverse effect on our business, financial condition and results of operations. In addition, we rely on timely and regular payments from our customers on ordinary course business terms. The failure of our customers to pay on ordinary course business terms may also have a material adverse effect on our business, financial condition and results of operations.

Our business is competitive and, as a service business, is based largely on long-term contracts and personal relationships, which makes it difficult for us to obtain new customers and contracts.

The rail tie reclamation and disposal industry is competitive.  Most companies have long-term contracts and long-standing relationships with their customers, which makes obtaining new business difficult.  If we are unable to obtain new customers and contracts and expand into other geographic markets, growth of revenue and profitability could be slow or non-existent.

We depend heavily upon highly skilled and knowledgeable management personnel.

The railroad construction, rehabilitation and maintenance industry is a highly specialized one; therefore we depend significantly upon key management personnel. We cannot guarantee that these employees will not choose to terminate their employment. Similarly, we cannot guarantee that employees with employment agreements can be renegotiated upon expiration or that skilled individuals can be found to replace these employees. The loss of the services of one or more of these employees before we are able to attract and retain qualified replacement personnel could have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to substantial environmental and other government regulation, and failure to comply with these laws and obtain necessary permits and approvals could adversely affect our operations.

Our operations are subject to federal, state and local regulation under transportation laws and environmental laws, and sometimes require us to obtain permits or other approvals. Our operations may be significantly affected by regulations of the Federal Railroad Administration (FRA), and may also be affected by regulations of the Surface Transportation Board, the Occupational Safety and Health Administration, state departments of transportation and other federal, state and local regulatory agencies. Our grinding and disposal operations may also be affected by Federal Environmental Protection Agency, and other state and local regulatory agencies environmental laws and regulations regarding emissions, handling, storage, transportation and disposal of waste and hazardous chemicals, soil contamination and groundwater contamination. We could incur significant costs from such claims as well as ongoing costs associated with mere environmental regulatory compliance for which we have an environmental insurance policy. Although we believe that we materially comply with all of the various regulations applicable to our business and obtain all necessary regulatory permits and approvals, a change in regulations or a failure or delay in obtaining a necessary permit or approval could cause us to incur significant additional costs in excess of our environmental insurance coverage or suffer a decrease in revenue or profitability.

In 2010 the U.S. Environmental Protections Agency (“EPA”) ruled that creosote treated railroad ties are non-hazardous secondary material that are considered solid waste and do not qualify as bio-fuel. Although industrial plants and utilities will still be able to utilize ties as fuel, they will be required to retrofit their wood burning furnaces to comply with the solid waste designation. In 2011 the EPA suspended its decision for a minimum of three years before these retrofits will be required, to provide for further study. The EPA’s designation of ties as solid waste could increase our tie disposal costs and limit higher margin sales of ties as fuel. We are currently exploring alternative solutions for tie disposal and cannot predict the long-term impact of the new rules on the Company’s operations.

Our business is inherently dangerous for our employees, requiring us to consistently incur costs to minimize our potential liability exposure.

We operate a labor-intensive service business where our employees are regularly subjected to dangerous conditions. We consistently incur costs to mitigate these dangers and risks, including but not limited to safety training and payment of workers’ compensation and employee liability premiums. We cannot guarantee that these measures, or others taken by us, will successfully prevent accidents and the potentially substantial losses that can result from accidents.

Changes in technology may have a material adverse effect on our profitability.

Research and development activities are ongoing to provide alternative and more efficient technologies to dispose of wood waste or produce power. It is possible that advances in these or other technologies will reduce the cost of wood waste disposal methods to a level below our costs. Furthermore, increased conservation efforts could reduce the demand for power or reduce the value of our services. Any of these changes could have a material adverse effect on our revenues and profitability.

Risks Relating to Our Company

We have established short term credit lines and long term notes for working capital and capital expenditure needs. Further we have issued preferred stock, all of which may decrease both our net income available to common shareholders and cash flow.

We have credit lines and term notes in the aggregate amount of approximately $2.6 million.  We have issued 40,000 shares of preferred stock for working capital needs in the amount of $4.0 million. Although investments in leveraged companies offer the opportunity for capital appreciation, leveraged investments also involve a high degree of risk.  The amount of our debt and preferred stock outstanding from time to time could have important consequences for us and our investors.  For example, it could:

Our ability to make scheduled payments of the principal of, to pay interest or dividends on, or to refinance our indebtedness will depend primarily on our future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond our control.  There can be no assurance that our business will generate sufficient cash flow from operations to service our debt, pay mandatory preferred stock dividends or meet our other cash needs.  If we are unable to generate this cash flow from our business, we may be required to refinance all or a portion of our existing debt or obtain additional financing from our lender or investors to meet our debt obligations, mandatory preferred stock dividends and other cash needs.  

Our ability to comply with financial covenants of our term loans and credit lines could materially and adversely affect our business, earnings, cash flow, liquidity, and financial condition.

Our loan agreements with Fifth Third Bank contain various financial covenants. The loan covenants may adversely affect our ability to respond to adverse changes in economic, business or market conditions. Our debt covenants may also limit our ability to obtain additional financing for working capital, capital expenditures and other general corporate activities. Although we are currently in compliance with our financial covenants, our failure to comply with the financial covenants may result in an event of default which, if not cured or waived, could result in the acceleration of the debt under our credit facilities or other agreements that we may enter into from time to time that contain cross-acceleration or cross-default provisions.

Banyan’s operating entity is Wood Energy, and our credit facilities include financial covenants that limit our ability to obtain cash distributions from Wood Energy, limiting our operating activities and results of operations.

Banyan is a holding company with no direct operations and our principal asset is our stock of Wood Energy.  Wood Energy is legally distinct from Banyan, and our ability to obtain distributions from Wood Energy by way of dividends, interest or other payments (including intercompany loans) is subject to restrictions imposed by our term loan and credit facilities (under which Wood Energy is the borrower and Banyan is a guarantor), such as:

These covenants could place constraints on our business and may adversely affect our growth, earnings, cash flow, liquidity and financial condition.  Further, we may be required to comply with additional covenants.  Failure to comply with financial covenants may result in the acceleration of the debt, which would have a material adverse effect on our business, earnings, cash flow, liquidity and financial condition.

If we are unable to hire additional qualified personnel, including members of senior management, our ability to grow our business may be affected.

We currently have a small management team. Our failure to attract competent and qualified personnel would have a material adverse effect on our operations. We will need to hire qualified personnel with expertise in the railroad industry to implement our business plan and to operate companies we acquire. Attracting and retaining qualified and competent personnel in a timely manner will be critical to our success. We compete for qualified individuals with numerous other companies. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful.  In addition, the loss of a key member of our management team could negatively impact our Company, and we carry no key-man life insurance for our executive officers or members of senior management.

We may need to raise additional capital, which may not be available to us and may limit our operations or growth.

We may need additional capital to fund the implementation of our business plan. We cannot assure you that any necessary subsequent financing will be successful. Our future liquidity and capital requirements are difficult to predict as they depend upon many factors, including our ability to identify and complete acquisitions and the success of any business we do acquire. We may need to raise additional funds in order to meet working capital requirements or additional capital expenditures or to take advantage of other opportunities. We cannot be certain that we will be able to obtain additional financing on favorable terms or at all. If we are unable to raise needed capital, our growth and operations may be impeded. In addition, if we raise capital by selling additional shares of stock, your percentage ownership in Banyan will be diluted.

We may not be able to successfully acquire or integrate new business.

We face a variety of risks associated with acquiring and integrating new business operations, including Wood Energy.  The growth and success of our business will depend to a significant extent on our ability to acquire and operate new assets or businesses. We may compete with companies that have significantly greater resources than we do for potential acquisition candidates.  We cannot provide assurance that we will be able to:

Our management and operation of Wood Energy and of other businesses that we acquire in the future could involve unforeseen difficulties, which could have a material adverse affect on our business, financial condition, and operating results.

Certain affiliates and employees own a significant interest in Banyan.

A company affiliated with certain directors, officers, an independent director and an employee, control 45.5% of our outstanding shares (64.2% if they exercised their options and converted their shares of preferred stock). Accordingly, they possess a significant vote on all matters submitted to a vote of our shareholders including the election of the members of our board. This concentration of ownership may have the effect of preventing or discouraging transactions involving an actual or a potential change of control of Banyan, regardless of whether a premium is offered over then-current market prices.

If the value of our intangible assets is materially impaired, our financial condition, results of operations and stockholders’ equity could be materially adversely affected.

Due largely to our acquisition of Wood Energy and the nature of our operations as a service business, goodwill and other intangible assets represent a substantial portion of our assets.  If we make additional acquisitions, it is likely that we will record additional intangible assets on our books. We periodically evaluate our goodwill and other intangible assets to determine whether all or a portion of their financial statement carrying values may no longer be recoverable, in which case a charge to earnings may be necessary. Any future evaluations requiring an asset impairment of our goodwill and other intangible assets could materially affect our financial condition, results of operations and stockholders’ equity in the period in which the impairment occurs.

The current state of debt markets could have a material adverse impact on our earnings and financial condition.

The cost of commercial debt may increase or may contract as a result of certain factors including the tightening of underwriting standards by lenders and credit rating agencies. Credit spreads for major sources of capital may grow significantly as investors may demand a higher risk premium. Should our borrowing cost increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our business plan. This may result in our generating lower overall economic returns and potentially reducing cash flow available for business operations and business development.

Risks Relating to Our Shares

Directors’ options and outstanding convertible preferred stock may depress the price of our common stock.

As a result of the private placements including issuances of preferred stock in 2011, there are shares of outstanding preferred stock which can be converted into as many as 1,878,030 shares of our common stock for $1.10 to $2.50 per share.  In addition, as of December 31, 2011 we have issued options to purchase 175,000 shares to our directors as compensation for serving on the board at prices ranging from $2.00 to $3.50 a share. If the directors’ options are exercised or the shares of preferred stock are converted, your ownership of the Company will be diluted. In addition, the issuance of a significant number of shares upon conversion of shares of preferred stock or the exercise of options could depress the price of our stock if there isn’t enough demand for the shares in the market. Even if the shares of preferred stock are not converted, the large number of shares issuable upon conversion of the preferred stock could cause an overhang on the market.

If you invest in Banyan, you may experience substantial dilution and the market price of our shares may decrease.

In the event we obtain any additional funding, there may be a dilutive effect on the holders of our securities. In addition, as part of our recruitment process and in connection with our efforts to attract and retain employees and directors, we may offer stock options, restricted stock shares or other types of equity-based incentives to its future employees and directors. The Company’s issuance of equity-based incentives to new hires, senior management and directors, may cause you significant dilution as a result of such issuances. Also, we agreed that if we conduct a registered offering of securities, we will register the shares of common stock issued to the sellers of Wood Energy and underlying the preferred stock issued in connection with our acquisition of Wood Energy.   Further, although shares of common stock issued to the sellers and to be issued upon conversion of our preferred stock will be “restricted” securities under the Securities Act of 1933 prior to any registration statement being filed and being declared effective by the SEC, they may nonetheless be sold prior to that time in reliance on registration exemptions contained in Rule 144 of the Securities Act, subject to certain resale restrictions imposed by Rule 144.  Such issuances and sales may also depress the market price of our shares.

Our common stock may be considered a “penny stock.”

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price for our common stock has been below $5.00 per share and so long as our stock trades for less than $5.00 per share, it will be considered a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.

You may not be able to sell your shares because there is a limited market for our stock.

Although our common stock is traded on the OTC Bulletin Board®, currently there is limited trading volume in our stock and there may be very limited demand for it as well. As a result, it may be difficult for you to sell our common stock despite the fact it is traded on the OTC Bulletin Board®.

Our preferred stock could adversely affect the holders of our common stock.

We have issued 40,000 shares of preferred stock, pursuant to our certificate of incorporation, our board of directors has the authority to fix the rights, preferences, privileges and restrictions of unissued preferred stock and to issue those shares without any further action or vote by the common stockholders. The holders of the preferred stock are entitled to receive payment before any of the common stockholders upon liquidation of the Company and we cannot pay a dividend on our common stock unless we first pay dividends required by our preferred stock. In addition, the rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock that may be issued in the future. These adverse effects could include subordination to preferred shareholders in the payment of dividends and upon our liquidation and dissolution, and the use of preferred stock as an anti-takeover measure, which could impede a change in control that is otherwise in the interests of holders of our common stock.

We do not intend to pay any cash dividends on our common stock.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. The payment of cash dividends depends on our future earnings, financial condition and other business and economic factors that our board of directors may consider relevant. Additionally, our credit facilities prohibit Wood Energy from paying dividends to Banyan without our senior lender’s consent, and limits the amount of management fees Wood Energy may pay to Banyan.  Wood Energy may pay “reasonable amounts” of management fees in future years.  These current restrictions on Wood Energy make the payment of dividends by Banyan to its shareholders unlikely.  Because we do not intend to pay cash dividends, the only return on your investment may be limited to the market price of the shares.

We do not own any real property. During 2011 through the lease termination in February 2012, we leased executive office space from an unrelated third party in St. Louis for $1,250 per month. During 2011 through March 2012, we also leased fully permitted land and improvements in Louisiana for the storage, grinding and handling of our railroad ties from an unrelated third party on a year-to-year basis for $3,000 per month.

As of January 2012, we are leasing ten acres of fully permitted land and land improvements, including the storage track for loading and unloading railcars in Louisiana from the Louisiana North West Railroad, a company related by certain common management and ownership, for $10,000 per year, with a contractual obligation for 1,200 rail car loads at the facility at an average price of $300 per car.

In addition, we lease executive office space and receive office support services from Patriot Rail Corp. for $6,000 per month.

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.

PART II

Item 5.      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Shares of our common stock are traded over-the-counter and sales are reported on the OTC Bulletin Board® under the symbol “BARA”. The last reported sale price on March 19, 2012 was $2.50 per share. The following table lists the high and low closing sale prices of our stock during 2011 and 2010 as reported on OTC Bulletin Board®. These sale prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

There were approximately 1,743 stockholders of record of Banyan’s common stock as of March 19, 2012. There are additional stockholders who own stock in their accounts at brokerage firms and other financial institutions.

Common Stock

As of December 31, 2011, our certificate of incorporation provided that we were authorized to issue 7.5 million shares of common stock, par value $0.01 per share. On January 4, 2010, we amended our certificate of incorporation with the State of Delaware to authorize 1.0 million shares of blank check preferred stock. The holders of our common stock are entitled to one vote per share on all matters to be voted upon by our stockholders, including the election of directors. Our shares of common stock are not convertible into any other security and do not have any preemptive rights, conversion rights, redemption rights or sinking fund provisions. Stockholders are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of directors may determine. In the event of our liquidation, dissolution, or winding up, our stockholders receive ratably any net assets that remain after the payment of all of our debts, preferred stock and other liabilities.

Our certificate of incorporation also limits the number of shares that may be held by any one person or entity.  No person or entity may directly or indirectly acquire shares if it would cause the person or entity to be:

Our board has the authority and has in the past exercised their discretion to exempt shareholders from the foregoing limitations if such shareholders can provide evidence to assure the board that no NOLs will be lost or limited by such exemption or the board determines such exemption is in the best interests of Banyan.

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 Annual Report on Form 10-K have been adjusted retroactively to reflect this reverse stock split.

Dividends

We intend to reinvest our earnings, if any, in the business, and have never declared or paid, and do not intend to declare or pay, any cash dividends on our common stock.  Even if we did not intend to reinvest our earnings, our credit facilities prohibit Wood Energy from paying dividends to Banyan without our senior lender’s consent and limits the amount of management fees Wood Energy may pay to Banyan.  These restrictions on Wood Energy make the payment of dividends by Banyan to its common shareholders unlikely.

Stock Options

In 2010 and 2011, we issued compensatory stock options to certain members of our Board of Directors and management exercisable for five years from the date of grant.  During 2010 and 2011, 165,500 stock options were issued.  For further information on stock options issued, see Item 11 “Executive Compensation.”

Not applicable.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

Overview

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

Wood Energy

Wood Energy, headquartered in 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) and industrial customers. Wood Energy operates primarily in the Southern Region. Wood Energy’s services include picking up scrap railroad ties for major Class I and short line railroads and disposing of the ties by selling them to the relay, landscape tie market or having the ties ground to create chipped wood for subsequent sale as fuel to the co-generation market. In 2011, we recovered over approximately 1.6 million railroad ties, 34% of which were used by the co-generation market, 19% for the landscape market, the remainder will be disposed of in 2012.

Recent Events

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

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

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

The Company has no obligation to redeem the series B or C preferred stock at any time.

Series B and C Preferred Stock Issuances

Through December 31, 2010, the Company issued 6,000 shares of its series B preferred stock to Patriot Rail Services, Inc. (“PRS”). The preferred shares were issued for $100 a share, or $600,000 in the aggregate. In 2011, the Company issued 4,000 additional shares of its series B preferred stock for $400,000, as well as 7,850 shares of its Series C Preferred stock to PRS, respectively. In March 2012, the Company issued 2,150 shares of its Series C Preferred stock to a major shareholder.

Amended Tie Reclamation Contracts 

In 2011, the Company has agreed to an amendment to its service agreement with a Class 1 railroad which designates the Company to pick up and dispose of approximately 500,000 railroad ties per year through 2013 for its railroad system. The original service agreement designated the Company to dispose of the ties once delivered by the railroad to the Company.

In 2011, the Company agreed to a change order to its service agreement with its largest customer, a Class 1 railroad, which will reduce the retainage withheld on the progress payments received by the Company from 50% to 25%. The impact of this change will be faster realization of our receivables from that customer.

Critical Accounting Policies and Estimates

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

We review our financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. During the year ended December 31, 2011, there were no significant changes to the critical 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 and accepted by 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, 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 expected losses. An allowance is estimated from historical performance and projections of trends. Bad debt expense is charged to operations if write offs are deemed necessary. As of December 31, 2011 and 2010 no allowance is provided as all accounts receivable are deemed collectible.

Under the completed contract method of revenue recognition the Company has recorded progress payments received for uncompleted contracts as deferred revenue in the amounts of $2,050,163 and $758,849 as of December 31, 2011 and December 31, 2010, respectively. These amounts represent unbilled future amounts due under existing contracts to be recognized as revenue upon the removal of all of each contract’s ties from the customer’s premises.

Property and Equipment

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

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

Goodwill and Indefinite Lived Intangible Assets

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 years ended December 31, 2011 and 2010, there were no impairments of goodwill.

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

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes.  Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.

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

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

Inventory

Inventory includes the costs of material, labor and direct overhead and is stated at the lower of cost or market. Inventory is accumulated to service the landscape tie and scrap tie fuel markets. Inventory at December 31, 2011 was approximately $30,000 and included in prepaid and other current assets on the consolidated balance sheet.

Consolidated Results of Operations - Banyan and Subsidiary

The following table summarizes our results for the years ended December 31, 2011 and 2010:

Revenues

Revenue for the year ended December 31, 2011 was $5,278,304, a decrease of $364,240 or 6% compared to revenue of $5,642,544 in 2010. The principal reason for the decrease was that the Company did not complete as many projects as in 2010, which resulted in additional deferred revenue in 2011 of approximately $1,200,000. In addition, the Company had a decrease of revenue at its grinding operations in 2011 of approximately $147,000 which was primarily caused by a decrease of revenues from production of $366,000 due to a mechanical breakdown and fire at its grinding facility, which was offset by business interruption insurance proceeds of approximately $219,000. The Company had an increase of revenues of relay and landscape tie sales of approximately $671,000.

Gross Profit

Gross profit was 26% for the year ended December 31, 2011, compared to a gross profit of 15% in 2010. The principal reasons for the change in gross profit were (1) increased higher margin landscape and relay tie sales of approximately $671,000 in 2011 as compared to 2010, (2) a 3% increase in gross profit due to efficiencies experienced as the result of the Company’s switch from trucking to railcars, and (3) a 38% decrease in gross profit at the grinding facility as the result of equipment and delivery issues experienced throughout the year which resulted from planned shutdowns and postponements of fuel to our customer.

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 below table summarizes the general and administrative expenses for the years ended December 31, 2011 and 2010:

General and administrative expenses for the year ended December 31, 2011 were comparable to the year ended December 31, 2010.

Interest expense

Interest expense of $316,500 for the year ended December 31, 2011 was comparable to interest expense of $320,167 for the year ended December 31, 2010.

Income tax benefit

An income tax benefit of $0 was recorded for the year ended December 31, 2011 as compared to an income tax benefit of ($308,490) for the year ended December 31, 2010. The Company has evaluated its deferred tax assets and has established a valuation allowance against net operating losses that expire through 2024, which is an amount equivalent to the deferred tax assets generated in 2011.

Net loss attributable to common stockholders

Net loss attributable to common stockholders was ($0.42) per share for the year ending December 31, 2011 compared to ($1.05) per share for the year ending December 31, 2010. The difference of $0.63 per common share is primarily due to the non-cash preferred stock dividend resulting from the amortization of the beneficial conversion feature embedded in the series A preferred stock issued in 2010, the effect of which is $0.62 per common share, and the increase in preferred stock dividends of $106,902 or a loss to common shareholders of ($0.04), and the decreased net loss of $148,801 or $0.05 decreased the net loss attributable to common stockholders as compared to 2010.

Financial Condition and Liquidity

Cash and cash equivalents consist of cash and short-term investments. Our cash and cash equivalents balance at December 31, 2011 and 2010 were $314,233 and $61,969 respectively. The following is a summary of our cash flow activity for the years ended December 31, 2011 and 2010.

Net cash provided by (used in) operating activities

For the year ended December 31, 2011, our net loss of $(829,050) adjusted for non-cash expenses and benefits was approximately $(65,464). This was offset by a decrease in accounts receivable which provided cash of approximately $240,000 and cash generated from deferred revenues in excess of deferred costs of approximately $65,000. For the year ended December 31, 2010, our net loss of $(977,851) adjusted for non-cash expenses and benefits was approximately $(430,000) and the primary cause for the $(472,896) cash used in operating activities.

At December 31, 2011, the Company had a net working capital deficiency of approximately $1,498,000 as compared to a net working capital deficiency of approximately $1,620,000 at December 31, 2010. For the year ended December 31, 2011 the Company incurred positive cash flows from operating activities of $197,698 as compared to negative cash flows from operating activities of ($472,896) for the year ended December 31, 2010. The Company recognizes that the timing of the realization of its receivables from customers and its vendor and debt obligations payments may not allow the Company to continue to generate positive cash flow in the near future.

As of December 31, 2011 and 2010, deferred revenue was $2,050,163 and $758,849, respectively, which we invoice as each of the projects is completed, and the deferred costs incurred related to the fulfillment of uncompleted jobs is and the deferred costs related to the fulfillment of uncompleted jobs was $2,189,610 and $977,878, respectively. The increase in the simultaneous number of projects, the increased unit volume and length of time of the projects increased our cash cycle time and thus our operating cash requirements. Due to the impact on the Company, in 2010 we initiated and agreed to a change order to our service agreement with our largest customer, a Class 1 railroad, which reduced the retainage withheld on the progress payments received by the Company from 50% to 25%. The impact of this change was the faster realization of our receivables from that customer.

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

Net cash used in investing activities

For the year ended December 31, 2011, the Company purchased approximately $601,000 of equipment primarily for the processing of ties at its Louisiana grinding facility, as well as additional equipment required for the pickup and removal of ties for a new customer. This was offset by the sale of equipment taken out of service for approximately $523,000 primarily due to the fire at our grinding facility in September of 2011.

For the year ended December 31, 2010 Wood Energy invested in equipment primarily to support the growth in fuel production.

Net cash provided by financing activities

To finance the acquisition of Wood Energy, we entered into a five-year senior secured term loan with a bank in the amount of $3.0 million. Wood Energy is the borrower and Banyan guaranteed the loan. Payments of $50,000 of principal and interest are due monthly. As of December 31, 2011, there was $1,650,000 outstanding under this term loan. Also, in connection with the acquisition of Wood Energy, we obtained two bank credit lines in the amounts of $500,000 and $1.5 million for working capital and capital expenditures respectively. Maximum loan advances on the working capital line are based on specific percentages of eligible working capital amounts, including accounts receivable and inventory. Draws on the capital expenditures line are based on 80% of the cost of such capital expenditures. On May 21, 2010, to better meet the Company’s current financing requirements, the Company and the bank amended the terms of the credit lines whereby the working capital and capital expenditures lines of credit were modified to $1.0 million and $1.0 million each. As of December 31, 2011, $300,860 and $99,875 were available under the working capital and capital expenditure lines, respectively.

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 per share. In February 2010, the holders of all of the convertible debentures elected to exchange their debentures for 15,250 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, because the preferred stock has no redemption privileges. This exchange reduces our long-term cash requirements. During the remainder of the year ended December 31, 2010, the Company issued another 4,750 shares of series A convertible preferred stock the proceeds of which were used for working capital purposes.

On April 7, 2011, the Company and its subsidiary Wood Energy amended the credit facility with its bank in several respects. Wood Energy converted approximately $720,000 borrowed on its $1.0 million line of credit for capital expenditures into a term loan and a new capital expenditure (“capex”) line of $500,000 was granted. The $720,000 term loan will mature September 3, 2014 at the same time as Wood Energy’s existing $1.8 million term loan. The new $500,000 capex line will mature April 1, 2012 at which time the amount outstanding will also convert to a term loan maturing on September 3, 2014. Wood Energy also extended the maturity date of its $1.0 million working capital credit line to April 1, 2012. Loan covenants pertaining to fixed charges, total debt and minimum EBITDA were modified with respect to all of the bank loans. Other material terms of the loans remain the same. As of December 31, 2011, the Company is in compliance with the financial covenants of our term loan and credit lines.

In October 2010, the Company filed a certificate of designation with the Delaware Secretary of State designating 10,000 shares of its preferred stock as series B preferred stock. The issuance price of the series B preferred stock is $100 per share and it is convertible into common stock by the holder at the earlier of:

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

The series B preferred stock ranks senior to the common stock and pari-passu with the series A preferred stock of the Company as to dividends and distribution of assets upon the liquidation, dissolution or winding up of the Company. The Company has no obligation to redeem the series B preferred stock at any time.

During 2010, the Company issued 6,000 shares of its series B preferred stock to Patriot Rail Services, Inc. The preferred shares were issued for $100 per share, or $600,000 in the aggregate. The proceeds of the money received were used to fund working capital requirements.

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

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

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

During 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 $100,000 in the aggregate at a conversion price of ranging between $1.10 and $2.06 per share of common stock. The proceeds of the money received in 2011 were used to fund working capital requirements.

Preferred stock dividends for Series A, B and C are accrued for the semi-annual period ended December 31, 2011 in the amount of approximately $216,000. These dividends are expected to be paid in March 2012.

In December 2011, the Company developed and began implementation of its 2012 operating plan and it is anticipated the Company will achieve profitability and continue to generate positive cash flows from operating activities into the foreseeable future as a result of increased sales levels and improved gross margins.

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income. In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option under the current guidance that permits the presentation of components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated. The amendment becomes effective on January 1, 2012 and is applied retrospectively. Early adoption is permitted. This guidance will not have an impact on the Company’s consolidated financial position, results of operations or cash flows as it is disclosure-only in nature.

In May 2011, the FASB issued amendments to existing standards for fair value measurement and disclosure, which are effective in the first quarter of 2012. The amendments clarify or change the application of existing fair value measurements, including: that the highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement.  The impact of adopting these amendments is expected to be immaterial to the financial statements.

In September 2011, the FASB issued a revised standard on testing for goodwill impairment. The revised standard allows an entity to first assess qualitatively whether it is necessary to perform step one of the two-step annual goodwill impairment test. An entity is required to perform step one only if the entity concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a likelihood of more than 50 percent. An entity can choose to perform the qualitative assessment on none, some, or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then perform the qualitative assessment in any subsequent period. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company does not believe this guidance will have any impact on its consolidated financial position, results of operations, or cash flows.

Off-Balance Sheet Financing Arrangements

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

Inflation

We do not believe inflation had a material impact on our results of operations for the years ended December 31, 2011 and 2010.

Not applicable.

Our consolidated financial statements for the years ended December 31, 2011 and 2010 follow this annual report, beginning on page F-1.

Not applicable.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2011, our management, under the direction of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and chief financial officer each concluded that our disclosure controls and procedures were effective as of December 31, 2011.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles defined in the Exchange Act.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

At the end of December 31, 2011 we carried out evaluations under the direction of the Chief Executive Officer and Chief Financial Officer of our effectiveness of internal control over financial reporting. In making this evaluation, management used the criteria set forth in Internal Control Over Financial Reporting — Guidance for Smaller Public Companies (2006) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. At December 31, 2011, based upon those evaluations, management concluded that our internal control over financial reporting was effective as of December 31, 2011.

Attestation Report of Independent Registered Public Accounting Firm

This annual report does not include an attestation report of our registered public accounting firms regarding internal control over financial reporting. Management’s report on internal control over financial reporting was not subject to attestation by our registered public accounting firms pursuant to Section 989G of the Dodd Frank Wall Street Reform and Consumer Protection Act and rules of the Securities and Exchange Commission.

None.

PART III

Directors and Executive Officers

Our directors and executive officers are:

Gary O. Marino, age 67, joined our board in January 2007, was appointed chairman in January 2008 and chief executive officer in November 2008. Mr. Marino has served as chairman, president and CEO of Patriot Rail Corp., an owner and operator of short line and regional railroads, since 2005, and formerly held the same positions at RailAmerica, Inc. a company he founded in 1985, until his retirement in 2004. From 1984 until 1993, Mr. Marino served as chairman, president and CEO of Boca Raton Capital Corporation, a publicly owned venture capital investment company. Prior to that he spent more than fifteen years in commercial banking in New York as a senior loan officer and was also president and CEO of two small business investment companies (SBICs), as well as president of a Florida-based commercial bank. Mr. Marino received his B.A. degree from Colgate University and his M.B.A. from Fordham University. From 1966 to 1969, he served as an officer of the United States Army Ordnance Corps. He has also served on the board of directors of the American Association of Railroads. We believe Mr. Marino is well qualified to serve on the board due to his extensive knowledge of the railroad industry as well as his banking experience.

Paul S. Dennis, age 73, joined the board in January 2007 and was appointed interim chief financial officer in February 2007 and interim chief executive officer in April 2008. Mr. Dennis stepped down as interim CEO and CFO in November 2008. Mr. Dennis has served as president and CEO of Associated Health Care Management Company, Inc. since 1977. Health Care Management is a Cleveland, Ohio based company that managed eight nursing care facilities and four congregate living facilities. The company has sold all but one of its facilities. Mr. Dennis has also been a director and officer with various companies and business ventures in the hardware distribution, pharmaceuticals distribution and steel fabrication industries and a real estate developer, general contractor, owner and investor. We believe Mr. Dennis is highly qualified to serve on Banyan’s board due to his broad experience as an entrepreneur and CEO.

Bennett Marks, age 63, joined the board and was appointed vice president and chief financial officer in November 2008. On May 26, 2010, Mr. Marks resigned as chief financial officer due to other business responsibilities. Mr. Marks remains a director of the Company. Mr. Marks has been executive vice president and CFO of Patriot Rail Corp., an owner and operator of short line and regional railroads, since 2005. Mr. Marks has served as EVP and CFO of six publicly-held and privately-owned companies in the transportation, healthcare, manufacturing, distribution and telecommunications industries. While CFO at RailAmerica, Inc., he developed and implemented the financial framework of the company as revenues grew from $130 million to $450 million. Mr. Marks has more than twenty years of experience in public accounting, including ten years as an audit/client services partner with KPMG where he was an Associate SEC Reviewing Partner and the Administrative Partner in Charge of the West Palm Beach, Florida office. A licensed CPA in Florida and New York, he has held leadership positions in a variety of community, charitable, and professional organizations. Mr. Marks received his degree in accounting from New York University. We believe Mr. Marks is well qualified to serve on the board due to his extensive finance and accounting knowledge as well as his experience in the railroad industry.

Donald D. Redfearn, age 59, joined the board in January 2010 and was appointed Banyan’s President in May 2011. Mr. Redfearn has been the owner of Redfearn Enterprises, LLC, a real estate holding company, since 2007. From 2004 to 2007, he served as president of RailAmerica, Inc., a railroad holding company, and from 1989 to 2004 he served as executive vice president of RailAmerica. He also served as a director of RailAmerica since its inception in 1986 through 2007. Mr. Redfearn received his B.A. degree in Business Administration from the University of Miami and graduated from the School of Banking of the South at Louisiana State University. Active in local charities, Mr. Redfearn is a member of the United Way Leadership Circle. We believe Mr. Redfearn is highly qualified to serve as a director due to his experience in the railroad industry.

Jon Ryan, age 40, serves as and was appointed as Banyan Rail’s Chief Financial Officer in May 2011, and was appointed Wood Energy’s President in 2012. He has over 14 years of major accounting firm experience, including as a Senior Assurance Manager at both Ernst & Young in Fort Lauderdale, Florida, and Smoak, Davis & Nixon LLP in Jacksonville, Florida. Most recently he was Corporate Controller at the The Gazit Group, USA, a subsidiary of Gazit-Globe, one of the world’s leading multi-national real estate development and management companies. Mr. Ryan, a CPA, holds a Bachelor of Business Administration from the University of North Florida.

Committees of the Board

Our board currently has four members. Because of the small size of our board, our directors have not designated audit, nominating or other committees. Instead, these responsibilities are handled by the entire board. Without an audit committee, we have not designated a director as an “audit committee financial expert” as defined by SEC rules. Although we are pleased with the diverse skills and level of expertise that our directors possess, we intend to add additional directors as our operations grow. Our board plans to form appropriate committees at that time.

Code of Ethics

In March 2004, our board of directors unanimously adopted a code of conduct and ethics that applies to all of our officers, directors and employees, including our principal executive officer and principal financial and principal accounting officer. We will provide a copy of our code without charge upon written request to Gary O. Marino, 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, to make filings with the SEC reporting their ownership of our common stock and to furnish us with copies of these filings. Based solely on our review of copies of reports furnished to us, we believe that all Section 16(a) filing requirements were timely met 2011. Copies of these filings are available on the SEC’s website at www.sec.gov.

Director Nominations

Our board of directors does not have a nominating committee. Instead, the board believes it is in the best interests of the Company to rely on the insight and expertise of all directors in the nominating process.

Our directors will recommend qualified candidates for director to the full board and nominees are subject to approval by a majority of our board members. Nominees are not required to possess specific skills or qualifications; however, nominees are recommended and approved based on various criteria including relevant skills and experience, personal integrity and ability and willingness to devote their time and efforts to Banyan. Qualified nominees are considered without regard to age, race, color, sex, religion, disability or national origin. We do not use a third party to locate or evaluate potential candidates for director. The board of directors considers nominees recommended by stockholders according to the same criteria. A stockholder desiring to nominate a director for election must deliver a notice to our president at our principal executive office. The notice must include as to each person whom the stockholder proposes to nominate for election or re-election as director:

and as to the stockholder giving the notice:

We may require any proposed nominee to furnish additional information reasonably required by us to determine the eligibility of the proposed nominee to serve as our director.

Summary Compensation Table

The following table summarizes the compensation paid by us to our chairman, president and chief executive officer and our other most highly compensated executive officers receiving more than $100,000 annually.

Executive Employment Agreements

Andy C. Lewis and Wood Energy entered into an employment agreement, dated September 4, 2009 (the “Employment Agreement”). In consideration of his obligations under his respective Employment Agreement, Mr. Lewis received a salary of $150,000 per year until we restructured his agreement in October 2011. Under the new agreement Mr. Lewis will receive a salary of $60,000 per year plus various performance incentives based upon the operations at the Company’s tie processing facility. He is also to receive employee benefits that are customary for executive officers, is entitled to equity compensation as determined by our board of directors and is eligible for an annual bonus based upon Wood Energy’s EBITDA for the prior year. The Employment Agreement requires Mr. Lewis to refrain from participating in the railroad tie reclamation and disposal businesses for a period of two years following termination of his employment.  The Employment Agreement also imposes prohibitions on soliciting customers and employees of Wood Energy.

Greg Smith and Wood Energy entered into an employment agreement, dated September 4, 2009 (the “Employment Agreement”). In consideration of his obligations under his Employment Agreement until his date of resignation on January 25, 2012, Mr. Smith received a salary of $150,000, employee benefits that are customary for executive officers, was entitled to equity compensation as determined by our board of directors and eligible for an annual bonus based upon Wood Energy’s EBITDA for the prior year. The Employment Agreement requires Mr. Smith to refrain from participating in the railroad tie reclamation and disposal businesses for a period of two years following termination of his employment.  The Employment Agreement also imposes prohibitions on soliciting customers and employees of Wood Energy.

Outstanding Equity Awards at December 31, 2011

The following table summarizes information with respect to the stock options held by the executive officers and employees listed in our summary compensation table as of December 31, 2011.

Director Compensation

No compensation was paid to our directors in 2011.

The following table lists the stock ownership of our directors, executive officers listed under executive compensation and significant stockholders as of March 1, 2012.

Equity Compensation Plan Information

In 2011, 25,000 options were issued to management. We have not issued any other options, warrants or rights in 2011. In 2011, 25,000 options expired for both a director and former member of management. Our equity plans are summarized in the following table.

Transactions with Related Parties

Banyan has an agreement with Patriot Rail Corp. (“Patriot Rail”) for office space and administrative services at the Company’s Boca Raton, Florida headquarters. Our Chairman and CEO, Gary O. Marino; President, Donald Redfearn; Director, Bennett Marks; are officers and significant stockholders of Patriot Rail. Banyan pays Patriot Rail $6,000 a month for these services and the term of the agreement is month to month. We believe that Banyan would not be able to obtain these services from an unrelated third party on terms equivalent to those offered by Patriot Rail.

Wood Energy sold relay ties to Patriot Rail during 2011 for use in Patriot Rail’s short line track maintenance. We believe the amount per tie is commensurate with what Patriot Rail would pay for a similar quality tie from an unrelated third party.

During 2011 the Company issued 4,000 shares of its Series B Preferred and 7,850 shares of its Series C Preferred Stock of Patriot Rail Services, Inc. (“PRS”). The preferred shares were issued for $100 a share, or $1,185,000 in the aggregate.

On August 29, 2011, Wood Energy entered into a lease with Louisiana and Northwest Railroad Company, Inc., a subsidiary of Patriot Rail, for a new facility in Gibsland, Louisiana, which commenced in January 2012. This facility replaced the Company’s facility in Shreveport, Louisiana. 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 $300 per car pursuant to a service agreement dated September 23, 2011 between LNR and Wood Energy.

We did not engage in any other transaction with related parties in 2011.

Director Independence

Our board has determined that one of our four directors, Paul S. Dennis, is “independent” as defined by NASDAQ Stock Market Listing Rule 5605(a) (2). Although we are not listed for trading on the NASDAQ stock market, we have selected the NASDAQ rules as an appropriate guideline for determining the independence of our board members.

DaszkalBolton LLP serve as our independent registered public accounting firm and was paid $109,450 for their audit and review of the financial statements and financial information contained in our filings and certain tax services. Additionally, DaszkalBolton LLP has been approved by the audit committee to perform certain tax services for the year ended December 31, 2011.

Grant Thornton LLP served as our independent registered public accounting firm from 2000 until 2009. We paid Grant Thornton $175,000 in 2010 for audit fees. Grant Thornton did not render any other services to Banyan during 2010. In 2010, DaszkalBolton LLP became our auditors and during 2010 they were paid $38,000 for their review of our quarterly filings. Additionally, DaszkalBolton LLP has been approved by the audit committee to perform certain tax services for the year ended December 31, 2010.

Because of the small size of our board, the directors have not designated an audit committee.  Instead, these responsibilities are handled by the entire board, which considers and pre-approves any audit or non-audit services to be performed by DaszkalBolton LLP. Our board believes the services provided by DaszkalBolton LLP are compatible with maintaining our auditor’s independence.

* Filed herewith.

** Management contract or compensatory plan or arrangement.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, Banyan Rail Services Inc. caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of Banyan Rail Services Inc. and in the capacities and on the dates indicated.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Banyan Rail Services, Inc.

We have audited the accompanying consolidated balance sheets of Banyan Rail Services, Inc. (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banyan Rail Services, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

Daszkal Bolton LLP

Boca Raton, FL

March 20, 2012

Banyan Rail Services Inc. and Subsidiary

Consolidated Balance Sheets

As of December 31,

See Notes to Consolidated Financial Statements

Banyan Rail Services Inc. and Subsidiary

Consolidated Statements of Operations

See Notes to Consolidated Financial Statements.

Banyan Rail Services Inc. and Subsidiary

Consolidated Statements of Cash Flows

See Notes to Consolidated Financial Statements.

Banyan Rail Services Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2010 and 2011

See Notes to Consolidated Financial Statements.

Notes to 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. 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 the southern region.

Note 2.  Basis of Presentation

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

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.

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.

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. From time to time our cash deposits exceed federally insured limits.

Accounts Receivable

Trade accounts receivable are recorded net of an allowance for expected losses. An allowance is estimated from historical performance and projections of trends. Bad debt expense is charged to operations if write offs are deemed necessary. As of December 31, 2011 and 2010 no allowance is provided as all accounts receivable are deemed to be 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 $2,050,163 and $758,849 as of December 31, 2011 and December 31, 2010, respectively. These amounts represent unbilled future amounts due under existing contracts to be recognized as revenue upon the removal of all of each contract’s ties from the customer’s premises.

Property and Equipment

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

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 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 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 Indefinite Lived Intangible Assets

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 years ended December 31, 2011 and 2010, there were no impairments of goodwill.

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

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes.  Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.

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

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

Inventory

Inventory includes the costs of material, labor and direct overhead and is stated at the lower of cost or market. Inventory is accumulated to service the landscape tie and scrap tie fuel markets. Inventory at December 31, 2011 and 2010 was approximately $35,000 and $30,000, respectively and included in prepaid and other current assets on the consolidated balance sheet.

Retained Earnings distributions

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

Note 4.  Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income. In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option under the current guidance that permits the presentation of components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated. The amendment becomes effective on January 1, 2012 and is applied retrospectively. Early adoption is permitted. This guidance will not have an impact on the Company’s consolidated financial position, results of operations or cash flows as it is disclosure-only in nature.

In May 2011, the FASB issued amendments to existing standards for fair value measurement and disclosure, which are effective in the first quarter of 2012. The amendments clarify or change the application of existing fair value measurements, including: that the highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement.  The impact of adopting these amendments is expected to be immaterial to the financial statements.

In September 2011, the FASB issued a revised standard on testing for goodwill impairment. The revised standard allows an entity to first assess qualitatively whether it is necessary to perform step one of the two-step annual goodwill impairment test. An entity is required to perform step one only if the entity concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a likelihood of more than 50 percent. An entity can choose to perform the qualitative assessment on none, some, or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then perform the qualitative assessment in any subsequent period. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company does not believe this guidance will have any impact on its consolidated financial position, results of operations, or cash flows.

Note 5. Liquidity

At December 31, 2011, the Company had a net working capital deficiency of approximately $1,673,000 and for 2011 incurred positive cash flows from operating activities of approximately $198,000. The Company recognizes that the timing of the realization of its receivables from customers and its vendor and debt obligation payments may not allow the Company to generate positive working capital in the near future. The term loan and lines of credit from the bank (described in Notes 8 and 9) are subject to certain loan covenants that require, among other things, compliance with fixed charge coverage and total debt coverage ratio, as well as minimum levels of EBITDA (earnings before interest, taxes, depreciation and amortization).

The Company is in compliance with the financial covenants of our term loan and credit lines.

The Company continued to raise equity capital in 2010 and 2011 issuing 37,850 shares of Series A, B and C convertible preferred stock during the years ended December 31, 2011 and 2010 for $1.0 and $2.0 million, respectively. The proceeds were used for both working capital purposes and for the exchange of its outstanding convertible debentures to shares of this convertible preferred stock. The holders of 100% of the outstanding debentures agreed to the exchange, and 15,250 shares of Series A convertible preferred stock were issued during 2010.

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

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

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

During 2010 and 2011, Company issued 6,000 and 4,000 shares of its Series B preferred stock to Patriot Rail Services Inc., respectively. The preferred shares were issued for $100 a share, or $1,000,000 in the aggregate. The proceeds of the money received in 2010 and 2011 were used to fund working capital requirements.

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

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

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

During 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 of ranging between $1.10 and $2.06 per share of common stock. The proceeds of the investments received in 2011 were used to fund working capital requirements.

As of December 31, 2011, 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 6.  Property and Equipment

Property and equipment consist of the following:

Depreciation expense was $678,060 and $465,652 for the years ended December 31, 2011 and December 31, 2010, respectively and are included in cost of sales in the consolidated statements of operations.

Note 7.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

Note 8.  Revolving credit line

The Company has a working capital line of credit from a bank in the amount of $1,000,000 due in April 2012, and is expected to be refinanced. Borrowings or advances under the line, are $699,140 as of December 31, 2011, and bear interest at the Company’s option equal to either (i) the Prime Rate plus the 5% or (ii) the LIBOR Rate with a 2% floor plus 4.5%. Monthly payments of interest only are due on the credit line. Advance limits are based on specific percentages of eligible working capital amounts, including accounts receivable and inventory. As of December 31, 2011, $300,860 of the line of credit was unutilized. The line of credit is cross-collateralized with the long-term debt described in Note 9. The Company incurs a non-utilization fee equal to one half of one percent (.5%) of the net of the total line of credit less the outstanding line of credit

The Company has a $325,000 capital expenditure line which will mature on April 1, 2012 at which time the amount outstanding will also convert to a term loan maturing on September 3, 2014. Borrowings or advances under the line, are $225,125 as of December 31, 2011, and bear interest at the Company’s option equal to either (i) the Prime Rate plus the 5% or (ii) the LIBOR Rate with a 2% floor plus 4.5%. Monthly payments of interest only are due on the credit line. As of December 31, 2011, $99,875 of the line of credit was available. The line of credit is cross-collateralized with the long-term debt described in Note 9.

The weighted average interest rate for the line of credit was 6.5% during the year ended December 31, 2011. The average amount of borrowings was $740,196 for the year ended December 31, 2011.

Note 9.  Long-term Debt

Long-term debt consists of the following:

The following is a summary of principal maturities of long-term debt as of December 31, 2011 during the next five years:

The credit facilities described above, as well as the line of credit described in Note 8, 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 or earnings before interest, taxes, depreciation and amortization. At December 31, 2011, the Company was in compliance with respect to these covenants.

Capitalized loan costs were $235,502, less accumulated amortization of $112,535 at December 31, 2011. Amortization of loan costs is charged to interest expense. Loan costs are being amortized on the straight-line basis, which approximates the effective yield method, over the five year term of the loans. Amortization expense related to deferred loan costs for the remaining term of the loans is as follows:

Note 10.  Leases

The Company leases equipment used in its operations under capital leases that expire over two to three years. Payments under these capital leases were $105,383 and $96,297 for the years ended December 31, 2011 and 2010, respectively. Depreciation of the equipment is included in the cost of goods sold section of the statement of operations. At December 31, 2011, the total future minimum rental commitments under all the above operating leases are as follows:

The Company also has an operating lease for unimproved land where its processing facility is 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 $36,000 for the years ended December 31, 2011 and 2010, respectively.

On August 29, 2011, the Company entered into a lease with a related party for a new facility in Gibsland, La. This facility will replace the Company’s current facility in Shreveport, La. The lease 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.

Note 11.  Convertible Debentures and Preferred Stock

In connection with the purchase of Wood Energy, the Company issued $1,525,000 of convertible debentures bearing interest at 10% per annum and payable in five years. The debentures were convertible into the Company’s common stock at $2.00 per share. In accordance with ASC 470-20 (Debt with Conversion and Other Options), the Company determined that the convertible debentures had beneficial conversion features because the embedded conversion feature was an “in-the-money” issuance. Therefore the embedded beneficial conversion feature was valued separately at issuance. The convertible debentures met the definition of “conventional convertible debt” because the number of shares which may be issued upon the conversion of the debt is fixed. Therefore, the beneficial conversion feature 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. A deferred tax liability of $388,875 for the beneficial conversion feature was recorded in connection with the issuance of the convertible debentures.

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

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

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

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

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

The Company issued 10,000 shares of its Series B preferred stock through December 31, 2011. The total amount was issued to Patriot Rail Services Inc. The preferred shares were issued for $100 a share, or $1,000,000 in the aggregate.

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

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

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

During 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 $100,000 in the aggregate at a conversion price of ranging between $2.00 and $2.50 per share of common stock. The proceeds of the investments received in 2011 were used to fund working capital requirements.

Preferred stock dividends for Series A, B and C are accrued for the semi-annual period ended December 31, 2011 in the amount of approximately $216,000. These dividends are expected to be paid in March 2012.

Note 12.  Stock-Based Compensation

The Company has stock option agreements with its directors for serving on the Company’s board of directors and with certain officers and employees as part of their compensation. The option activity is as follows for years ended December 31, 2011 and 2010:

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 and 2010 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:

The fair value of shares that vested was $28,153 and $91,097 for the years ended December 31, 2011 and 2010, respectively.

As of December 31, 2011 total compensation cost related to non-vested awards not yet recognized was $13,346 to be recognized over a 30 month period.

Note 13. Treasury Stock

In March 2009, the Company purchased 25,000 shares of its common stock in a non-market transaction. The Company uses the cost method of accounting for treasury stock purchases. The treasury shares were purchased at a price of $2.50 per share (the market price on the day of the transaction) for a total of $62,500.

Note 14. Income Taxes 

The provision for income taxes consists of the following components:

The current income tax benefit relates to a reduced level of uncertain tax positions indentified in ASC 740 -10 Income Taxes. The components of deferred income tax assets and liabilities are as follows: