Broad Street Realty, Inc. - Annual Report: 2012 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2012

or

For the transition period from __________ to __________

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   Yes ¨   No 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 $2,760,452 as of June 30, 2012.

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:  3,866,614 shares of common stock, $0.01 par value per share, as of March 15, 2013.

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.

Item 1. Business.

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, was a railroad tie reclamation and disposal company. Founded in 2001, we provided 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 2011) and industrial customers.   We operated primarily in the southern region of the United States of America. Our services included 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 2012, we removed and disposed of approximately 520,000 railroad ties, 73% of which were used by the co-generation market and 27% for the landscape and relay markets.

Bankruptcy. On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, Case No. 13 – 10688-PGH. We were not successful in arranging financing to continue to operate our business as debtors and debtors-in-possession under the jurisdiction of the Bankruptcy Court, and therefore on February 5, 2013 Wood Energy filed a motion to voluntarily convert the case to a Chapter 7 Bankruptcy. The filing of the Chapter 11 petitions triggered repayment obligations under a number of our debt instruments and agreements. As a result, all of our debt obligations became immediately payable. We believe that any efforts to enforce the payment obligations are stayed as a result of the Chapter 11 and Chapter 7 filings.

Appointment of Creditors Committee. The United States Trustee for the District of Florida will appoint an official committee of unsecured creditors of Wood Energy (the Creditors Committee). The Creditors Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to Wood Energy. There can be no assurance that the Creditors Committee will support Wood Energy’s positions or ultimate plan of liquidation, once proposed. Disagreements between Wood Energy and the Creditors Committee could protract the bankruptcy proceedings, negatively impact Wood Energy’s and our ability to satisfy the corporate guarantee related to the secured notes.

Rejection of Executory Contracts. Under Section 365 and other relevant sections of the Bankruptcy Code, Wood Energy may assume, assign, or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property, subject to the approval of the Bankruptcy Court and certain other conditions. In general, rejection of an executory contract or unexpired lease is treated as a pre-petition breach of the executory contract or unexpired lease in question and, subject to certain exceptions, relieves Wood Energy of performing future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases can file claims against Wood Energy estate for such damages. Generally, the assumption of an executory contract or unexpired lease requires Wood Energy to cure most existing defaults under such executory contract or unexpired lease and provide adequate assurance of future performance.

Accordingly, any description of an executory contract or unexpired lease elsewhere in this Form 10-K, including where applicable our express termination rights or a quantification of our obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights we have under Section 365 of the Bankruptcy Code.

We expect that liabilities subject to compromise and resolution in the bankruptcy proceedings will arise in the future as a result of damage claims created by Wood Energy rejection of various executory contracts and unexpired leases. Conversely, we expect that the assumption of certain executory contracts and unexpired leases may convert liabilities shown as subject to compromise to liabilities not subject to compromise. Due to the uncertain nature of many of the potential rejection claims, the magnitude of such claims is not reasonably estimable at this time. Such claims may be material.

Magnitude of Potential Claims. On January 11, 2013, Wood Energy filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the assets and liabilities of Wood Energy, subject to the assumptions contained in certain notes filed in connection therewith. The schedules can be found at the following website: www.pacer.gov. All of the schedules will be subject to further amendment or modification. Differences between amounts scheduled by Wood Energy and claims by creditors will be investigated and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

We are currently seeking to sell the assets of Wood Energy with Bankruptcy Court approval. The proceeds from the sale will be used to satisfy all or a portion of secured claims, with the remainder if any, allocated to the unsecured claims. The sale process may take considerable time and a sale price is not estimable at this time.

Management has considered the potential impairment of our property and equipment, primarily held by Wood Energy, as of December 31, 2012. Among other things, management compared the carrying values of such assets to the net orderly liquidation values (“NOLV”) included in third-party appraisals obtained during 2012 in connection with bank financings, and determined that the NOLV exceeded the carrying value. Accordingly, no impairment was recorded as of December 31, 2012. As additional information becomes available, including but not limited to actual sales of equipment as a result of the bankruptcy process, management will continue to assess the carrying value of property and equipment.

In addition, the uncertainty regarding the eventual outcome of the liquidation of Wood Energy, and the effect of other unknown adverse factors, could threaten our existence as a going concern. Continuing on a going-concern basis is dependent upon, among other things, satisfaction of the corporate guarantee, implementation of the reorganization plan and finding an operating business to acquire, and other factors, many of which are beyond our control.

Revenue Sources

Wood Energy had four sources of revenue during 2012:

Our contract with Union Pacific Corporation (UP) expired on December 31, 2012 and our contract with the Kansas City Southern Railroad (KCS) expires on March 31, 2013, although we are no longer working projects under this contract. We disposed of the majority of such railroad ties at an International Paper Company (IP) plant in Louisiana. In 2012, UP, KCS and IP accounted for approximately 66%, 5% and 11% of our revenue, respectively.

Total employees at December 31, 2012 were 16 full time employees.

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 were no longer a shell company and were engaged in the business of railroad tie reclamation and disposal until Wood Energy’s bankruptcy filing. On January 4, 2010, we changed our name to Banyan Rail Services Inc. to reflect our new business.

Item 1A. Risk Factors.

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 Company

 Wood Energy has declared bankruptcy and our railroad tie reclamation and disposal operations have ceased.

On January 11, 2013, our operating subsidiary, Wood Energy, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida (Case 13-10688-PGH). On February 5, 2013, the bankruptcy court granted Wood Energy’s motion to convert the case to one under Chapter 7 of the Bankruptcy Code. Wood Energy moved for the conversion because it lacks the funds necessary to continue operations. Wood Energy has ceased operating and the bankruptcy trustee is currently in the process of liquidating Wood Energy’s assets. Although we expect that proceeds from the sale of assets could significantly reduce or potentially eliminate Wood Energy’s debts, we cannot guarantee the results of the bankruptcy proceeding and potential sale of assets. Banyan has guaranteed certain debts of Wood Energy and may be liable for these obligations if they are not satisfied in the bankruptcy.

Wood Energy has defaulted on its loans and Banyan has been sued for payment.

Wood Energy failed to make the January 2013 payment to Fifth Third Bank under a $3.0 million term note. In addition to the term loan, Wood Energy has a $1.0 million working capital line of credit and a $500,000 capital expenditure line of credit with Fifth Third. Banyan has guaranteed all three loans. On February 7, 2013, Fifth Third filed an action against Banyan in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida (Case No. CA002288XXXXMB). In its complaint Fifth Third claims to accelerate the due date of all three loans and seeks payment pursuant to the guaranty in the principal amount of approximately $3.6 million plus interest. We are currently reviewing Fifth Third’s claim and will respond in a timely manner. In connection with the bankruptcy proceedings discussed above, we expect the assets of Wood Energy to be liquidated and to realize sale proceeds that would significantly reduce or eliminate the debt owed to Fifth Third. However, we cannot predict the outcome of the litigation or guarantee the results of the bankruptcy proceeding and potential sale of assets. The Fifth Third suit could place significant constraints on Banyan’s ability to attract additional investors for future growth.

We have incurred debt and issued preferred stock, all of which may decrease both our net income available to common shareholders and cash flow.

In addition to our credit lines and term note with Fifth Third discussed above, we have entered into a demand loan with Banyan Holdings, LLC, formerly known as Patriot Rail Services, Inc. (“Banyan Holdings”) in the amount of $225,000, and have issued 49,950 shares of preferred stock for working capital needs in the amount of $5.07 million. Our chairman is the President of Banyan Holdings. During 2012, due to lack of cash flow, we were unable to pay the required dividend on the preferred stock and offered to pay the accrued dividends in common stock in lieu of cash. Substantially all of our preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends are expected to be paid in March 2013. However, we cannot guarantee that the preferred shareholders will continue to accept common shares in lieu of cash.

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 could have important consequences for us and our investors. For example, it could:

Our ability to make scheduled payments of the principal of and to pay interest or dividends on 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. We currently have no operations generating cash flow to service our debt, pay preferred stock dividends or meet our other cash needs.

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

We will 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 will 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 a new business.

We face a variety of risks associated with acquiring and integrating new business operations, including the liquidation of Wood Energy.  The growth and success of our business will depend to a significant extent on a favorable liquidation of Wood Energy and 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:

Businesses that we acquire in the future could involve unforeseen difficulties, which could have a material adverse effect 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 and an independent director, control 46.5% of our outstanding shares (66.0% 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.

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 2012, there are shares of outstanding preferred stock which can be converted into as many as 2,664,673 shares of our common stock for $0.90 to $2.50 per share.  In addition, as of December 31, 2012 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 49,950 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.  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.

Item 2. Properties.

We do not own any real property. During 2011 through the lease termination in February 2012, Wood Energy leased executive office space from an unrelated third party in St. Louis for $1,250 per month. During 2011 through March 2012, Wood Energy 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, Wood Energy was leasing ten acres of fully permitted land and land improvements, including the storage track for loading and unloading railcars in Louisiana, 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.

Item 3. Legal Proceedings.

As a result of Wood Energy’s failure to make the January 2013 payment to Fifth Third Bank under a $3.0 million term note (in addition to the term loan, Wood Energy has a $1.0 million working capital line of credit and a $500,000 capital expenditure line of credit with Fifth Third; Banyan has guaranteed all three loans), and Wood’s subsequent bankruptcy filing, on February 7, 2013, Fifth Third filed an action against Banyan in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida (Case No. CA002288XXXXMB). In its complaint Fifth Third claims to accelerate the due date of all three loans and seeks payment pursuant to Banyan’s guaranty in the principal amount of approximately $3.6 million with interest of approximately $23,000.

We are currently reviewing Fifth Third’s claim and will respond in a timely manner. In connection with the bankruptcy proceedings discussed above, we expect the assets of Wood Energy to be liquidated and to realize sale proceeds that could significantly reduce or eliminate the debt owed to Fifth Third. However, we cannot predict the outcome of the litigation or guarantee the results of the bankruptcy proceeding and potential sale of assets.

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 15, 2013 was $0.79 per share. The following table lists the high and low closing sale prices of our stock during 2012 and 2011 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 1,686 stockholders of record of Banyan’s common stock as of March 15, 2013. There are additional stockholders who own stock in their accounts at brokerage firms and other financial institutions.

Common Stock

As of December 31, 2012, our certificate of incorporation provided that we were authorized to issue 7.5 million shares of common stock, par value $0.01 per share. 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.

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, coupled with Wood’s recent bankruptcy filing, make the payment of dividends by Banyan to its common shareholders unlikely.

Stock Options

In 2012, no compensatory stock options were issued.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

Bankruptcy. On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, Case No. 13 – 10688-PGH. We were not successful in arranging financing to continue to operate our business as debtors and debtors-in-possession under the jurisdiction of the Bankruptcy Court and on February 5, 2013 Wood Energy filed a motion to voluntarily convert the case to a Chapter 7 Bankruptcy.

Wood Energy

Wood Energy, headquartered in Boca Raton, Florida, was a railroad tie reclamation and disposal company. Founded in 2001, we provided 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 2011) and industrial customers.   We operated primarily in the southern region of the United States of America. Our services included 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 2012, we removed and disposed of approximately 520,000 railroad ties, 73% of which were used by the co-generation market and 27% for the landscape and relay markets.

Recent Events

Common and Preferred Stock Issuances

On September 24, 2012, the Company issued 434,783 shares of common stock to Banyan Holdings, LLC, formerly known as Patriot Rail Services, Inc. (“Banyan Holdings”). The common shares were issued for $1.15 per share, or $500,000 in the aggregate. The proceeds received were used to fund working capital requirements. Our chairman is the President of Banyan Holdings.

During 2012, the Company issued 2,150 and 9,950 shares of its Series C Preferred stock to a major shareholder and Banyan Holdings, respectively for $100 per share, or $1,210,000 in the aggregate. The proceeds received were used to fund working capital requirements.

On March 19, 2013, the Company issued 564,110 shares of common stock to Banyan Holdings in exchange for the cancellation of the loan payable in the amount of $225,000 and the advances of $186,800 subsequent to December 31, 2012.

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

Financing Agreements

On November 12, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $150,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements. The loan was subsequently converted into shares of its Series C Preferred stock.

On December 28, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $225,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements.

Contract Renewal

In October 2012 we submitted a bid to renew a portion of our expiring contract with a major customer. This proposal would eliminate the unprofitable tie pick up portion of our business with this customer but would retain the profitable grinding and disposal portion of our business. We were notified that we were not successful in our efforts to renew this contract.

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, 2012, 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, 2012 and 2011, the Company recorded an allowance for doubtful accounts of $63,938 and $0, respectively.

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 $0 and $2,050,163 as of December 31, 2012 and 2011, respectively. These amounts represented 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.

We are currently seeking to sell the assets of Wood Energy with Bankruptcy Court approval. The sale process may take considerable time and a sale price is not estimable at this time.

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 year ended December 31, 2012, the carrying amount of goodwill was deemed impaired, and $3,658,364 was recorded as a loss in impairment of goodwill and intangible assets in the consolidated statement of operations.

Intangible assets that have finite useful lives continue to be amortized over their estimated useful lives. During the year ended December 31, 2012, the carrying amount of intangible assets of $1,197,322 was deemed impaired and was recorded as a loss in impairment of goodwill and intangible assets in the consolidated statement of operations.

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, 2012 and 2011 was approximately $0 and $35,000 and included in prepaid and other current assets on the consolidated balance sheet.

Consolidated Results of Operations - Banyan and Wood Energy

The following table summarizes our results for the years ended December 31, 2012 and 2011:

Revenues

Revenue for the year ended December 31, 2012 was $5,917,259 an increase of $638,955 or 12% as compared to revenue of $5,278,304 in 2011. The principal reason for the increase was that the Company completed its work under an expiring contract which reduced deferred revenue to $0 in 2012, resulting in an increase in tie pickup revenue of approximately $1.6 million. The Company had a decrease of revenue at its grinding operations and tie and wood sales in 2012 of approximately $303,000 and $453,000, respectively. The decrease in fuel sales was primarily caused by the continued effects of the mechanical breakdown and fire at its grinding facility in September of 2011. The Company recorded an accrual for $190,000 for business interruption insurance proceeds, for which it expects to be paid in 2013.

Gross Profit (Loss)

Gross profit (loss) was (22%) for the year ended December 31, 2012, compared to a gross profit of 26% in 2011. The principal reasons for the change in gross profit were; a decreased higher margin landscape and relay tie sales of approximately $453,000 in 2012 as compared to 2011; a 33% decrease in gross profit on tie pickup projects.; and a 38% decrease in gross profit at the grinding facility, which was the result of lingering equipment and delivery issues experienced throughout the year. These issues resulted in unplanned production shutdowns and postponements of fuel deliveries to our customer.

The decrease in gross profit on the tie pickup projects was the result of management’s decision in the third quarter to not complete projects that were not deemed profitable. This decision resulted in a write off of approximately $918,000 of retainage against revenues for the year ended December 31, 2012, resulting in a -24% change in gross profit. In addition, cost of goods sold increased by $3,287,891 primarily due to the write off of prior deferred costs decreasing.

Impairment of Goodwill and Intangibles

Goodwill and intangible assets were deemed impaired as of December 31, 2012 and resulted in a charge of $4,855,686 for the period then ended. The assets were deemed impaired due to the non-renewal of the contract from which both of these assets related.

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, 2012 and 2011:

General and administrative expenses for the year ended December 31, 2012 were $1,758,384 as compared to $1,869,111 for the year ended December 31, 2011. The primary reasons for the decrease were reductions in compensation costs of $348,650 and $86,376 in scheduled amortization. The reduction in Wood Energy’s compensation costs was directly related to the restructuring of its management team. These savings were offset by an increase in other costs of $314,222, which were the result of losses on disposals of equipment of approximately $163,000, an increase in insurance costs of approximately $81,000 due to the higher loss runs in 2011, and the recording of an allowance for bad debts of approximately $64,000.

Interest expense

Interest expense was $444,024 for the year ended December 31, 2012 as compared to $316,500 for the year ended December 31, 2011. The increase was due to the increased borrowings during 2012 as compared to 2011 and the write off of approximately $93,000 of deferred loan costs.

Income tax expense

Income tax expense was $569,582 for the year ended December 31, 2012 as compared to $0 for the year ended December 31, 2011. The increase in expense is the result of the Company recording an additional valuation allowance against its deferred tax assets in the amount of $2,176,235.

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

The Company's net deferred tax assets before valuation allowance as of December 31, 2012 was $2,431,924, most of which relates to net operating losses that expire from 2018 to 2032. The Company recorded an operating loss for the year and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we currently believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the near future.

Net loss attributable to common stockholders

Net loss attributable to common stockholders was ($2.73) per share for the year ending December 31, 2012 compared to ($0.42) per share for the year ending December 31, 2011. The difference of ($2.31) per common share is primarily due the impairment of goodwill and intangibles ($1.40 per share), an increased loss from operations ($0.73 per share),the recording of the non-cash valuation allowance ($0.16 per share), amortization of the beneficial conversion feature embedded in the series A preferred stock issued in 2010 ($0.05 per share), the increase in preferred stock dividends ($0.04 per share), and the write off of deferred loan costs ($0.03) which increased the net loss attributable to common stockholders as compared to 2011.

Financial Condition and Liquidity

Cash and cash equivalents consist of cash and short-term investments. Our cash and cash equivalents balance at December 31, 2012 and 2011 were $5,745 and $314,233, respectively. The following is a summary of our cash flow activity for the years ended December 31, 2012 and 2011.

Net cash(used in) provided by operating activities

For the year ended December 31, 2012, our net loss of $(8,920,051) adjusted for non-cash expenses and benefits was approximately $(2,036,000). This was offset by an increase in accounts payable which provided cash of approximately $450,000 and a decrease in accounts receivable of approximately $65,000. For the year ended December 31, 2011, our net loss of $(829,050) adjusted for non-cash expenses and benefits was approximately $(65,000). 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.

At December 31, 2012, the Company had a net working capital deficiency of approximately $5,600,000 as compared to a net working capital deficiency of approximately $1,498,000 at December 31, 2011. For the year ended December 31, 2012 the Company incurred negative cash flows from operating activities of ($1,605,310) as compared to positive cash flows from operating activities of $197,698 for the year ended December 31, 2011. In addition, the Company reclassified its long term debt to current (approximately $3,000,000) due to the covenant violation as of the period ended September 30, 2012 and the subsequent bankruptcy filing of Wood Energy in January 2013. The Company recognizes that as a result of the Wood Energy bankruptcy petition and the lack of operations and cash flow that it will have to rely upon future capital contributions from investors to generate cash flow for the foreseeable future.

As of December 31, 2012 and 2011, deferred revenue was $0 and $2,050,163, respectively, which we invoiced as each of the projects was completed, and the deferred costs incurred related to the fulfillment of uncompleted jobs was $0 and $2,189,610, respectively. We completed the work associated with our expired contract with a Class I railroad, and therefore have recognized all deferred revenues and costs associated with the contract.

Net cash used in investing activities

During the year ended December 31, 2012, the Company purchased $1,023,945 of equipment primarily for the processing of ties at its new Gibsland, Louisiana grinding facility.

For the year ended December 31, 2011, the Company purchased $601,551 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.

Net cash provided by financing activities

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

On May 11, 2012, the Company completed the financing of a new $1.0 million line of credit for working capital and a $500,000 line of credit for capital expenditures (any availability was terminated in conjunction with the First Amendment to Amended and Restated Loan and Security Agreement dated November 30, 2012). The working capital line will mature on June 1, 2017 and the capital expenditure line will mature on June 1, 2013 at which time the amounts outstanding will convert to a term loan maturing on June 1, 2017. Both loans bear interest at the prime rate plus 3% or Libor (2.0% floor) plus 4.5% (6.5% as of December 31, 2012), and are secured by certain of the Company’s assets.

At December 31, 2012, the Company was in violation of the fixed cost charge and the total debt to EBITDA covenants of its term loans and credit lines.

As a result of the failure to make the January 2013 payment to Fifth Third Bank under a $3.0 million term note (in addition to the term loan, Wood Energy has a $1.0 million working capital line of credit and a $500,000 capital expenditure line of credit with Fifth Third. Banyan has guaranteed all three loans), and Wood’s subsequent bankruptcy filing, on February 7, 2013, Fifth Third filed an action against Banyan in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida (Case No. CA002288XXXXMB). In its complaint Fifth Third claims to accelerate the due date of all three loans and seeks payment pursuant to the guaranty in the principal amount of approximately $3.6 million with interest of approximately $23,000.

We are currently reviewing Fifth Third’s claim and will respond in a timely manner. In connection with the bankruptcy proceedings discussed above, we expect the assets of Wood Energy to be liquidated and to realize sale proceeds that could significantly reduce or eliminate the debt owed to Fifth Third. However, we cannot predict the outcome of the litigation or guarantee the results of the bankruptcy proceeding and potential sale of assets.

On November 12, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $150,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements. The loan was subsequently converted into 1,500 shares of its Series C Preferred stock.

On December 28, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $225,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements.

As of December 31, 2012, $151,412 was available under the working capital credit line. However due to the bankruptcy filing of Wood Energy, these lines have been terminated.

On September 24, 2012, the Company issued 434,783 shares of common stock for $500,000 to Banyan Holdings. The proceeds were used for both working capital purposes.

During 2012 the Company issued 9,950 shares of its Series C Preferred stock to Banyan Holdings. The preferred shares were issued for $100 per share, or $995,000 in the aggregate at a conversion price of ranging between $0.90 and $2.50 per share of common stock. Also in 2012, the Company issued 2,150 shares of Series C Preferred stock to a significant shareholder and board member for $100 per share, or $215,000 in the aggregate with a conversion price of $2.50 per share of common stock. The proceeds of the money received 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, 2012 in the amount of $483,660. During 2012, due to the lack of cash flow, the Company offered to pay the accrued dividends in common stock in lieu of cash. Substantially all preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends are expected to be distributed in March 2013.

On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, Case No. 13 – 10688-PGH. We were not successful in arranging financing to continue to operate our business as debtors and debtors-in-possession under the jurisdiction of the Bankruptcy Court and therefore on February 5, 2013 Wood Energy filed a motion to voluntarily convert the case to a Chapter 7 Bankruptcy.

On March 19, 2013, the Company issued 564,110 shares of common stock to Banyan Holdings in exchange for the cancellation of the loan payable in the amount of $225,000 and the advances of $186,800 subsequent to December 31, 2012.

New Accounting Pronouncements

See Note 4 to the consolidated financial statements, Recently Issued Accounting Pronouncements

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, 2012 and 2011.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Our consolidated financial statements for the years ended December 31, 2012 and 2011 follow this annual report, beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2012, 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, 2012.

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, 2012 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, 2012, based upon those evaluations, management concluded that our internal control over financial reporting was effective as of December 31, 2012.

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.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Our directors and executive officers are:

Gary O. Marino, age 68, joined our board in January 2007, was appointed chairman in January 2008 and chief executive officer in November 2008. Mr. Marino currently serves as the Chairman, President and CEO of International Rail Partners, LLC, a startup company in the business of investing in railroads around the world. Mr. Marino served as chairman, president and CEO of Patriot Rail Corp., an owner and operator of short line and regional railroads, from 2005 until its sale in 2012, 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 74, 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 64, joined the board and was appointed vice president and chief financial officer in November 2008. On May 26, 2011, 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, from 2005 until his resignation in December 2012 to pursue other business ventures. Mr. Marks currently serves as an Executive V.P. and CFO of International Rail Partners, LLC, a startup company in the business of investing in railroads around the world. 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 60, joined the board in January 2011 and has served as Banyan’s President since May 2011. Mr. Redfearn currently serves and Executive V.P. of International Rail Partners, LLC, a startup company in the business of investing in railroads around the world, and served in a similar capacity at Patriot Rail Corp. from 2010 until its sale in 2012. 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 41, has served as Banyan Rail’s Chief Financial Officer since May 2011. He has over 15 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 111-E, 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. In 2012 Gary O. Marino, our Chief Executive Officer, failed to timely file a Form 4 on one occasion reporting the acquisition of shares of Series C Preferred Stock. The report was subsequently filed. Based solely on our review of copies of reports furnished to us, we believe that all other Section 16(a) filing requirements were timely met in 2012. 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:

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.

Item 11. Executive Compensation.

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.

Outstanding Equity Awards at December 31, 2012

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, 2012.

Director Compensation

No compensation was paid to our directors in 2012.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table lists the stock ownership of our directors, executive officers listed under executive compensation and significant stockholders as of March 15, 2013.

______________

Equity Compensation Plan Information

In 2011, 25,000 options were issued to management. We have not issued any other options, warrants or rights in 2012. In 2011, 25,000 options expired for both a director and former member of management. Our equity plans are summarized in the following table.

Item 13.     Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Parties

Banyan had an agreement with Patriot Rail Corp. (“Patriot Rail”), a former related party through common ownership until June 2012, for office space and administrative services at the Company’s Boca Raton, Florida headquarters. Our Chairman and CEO, Gary O. Marino; President, Donald Redfearn; and Director, Bennett Marks; were officers and significant stockholders of Patriot Rail. Banyan paid Patriot Rail $6,000 a month for these services and the term of the agreement was 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. Banyan currently shares office space with International Rail Partners LLC, a party related to Banyan through the same common officers and directors. Banyan is not required to make any payments for this office space.

On August 29, 2011, Wood Energy entered into a lease with a former related party for a new facility in Gibsland, La. This lease is subject to compromise under the laws of Chapter 7 bankruptcy. This facility replaced the Company’s facility in Shreveport, La. The lease took effect in January 2012 upon the completion of development of the site. The lease calls for 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.

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 2012 the Company issued 9,950 shares of its Series C Preferred Stock of Banyan Holdings. The preferred shares were issued for $100 a share, or $995,000 in the aggregate.

On September 24, 2012, the Company issued 434,783 shares of common stock for $500,000 to Banyan Holdings. The proceeds were used for both working capital purposes.

On November 12, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $150,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements. The loan was subsequently converted into 1,500 shares of its Series C Preferred stock.

On December 28, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $225,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements.

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.

Item 14.     Principal Accounting Fees and Services.

DaszkalBolton LLP serves as our independent registered public accounting firm and was paid $95,500 and $87,500 for their audit and review of the financial statements and financial information contained in our filings for the years ended December 31, 2012 and 2011, respectively. Additionally, DaszkalBolton LLP has been approved by the audit committee and paid $13,500 and $21,950 to perform certain tax services for the years ended December 31, 2012 and 2011, respectively.

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.

Item 15.     Exhibits, Financial Statement Schedules.

*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
Banyan Rail Services, Inc.

We have audited the accompanying consolidated balance sheets of Banyan Rail Services, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these 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, 2012 and 2011, 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.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has a net capital deficiency and continues to experience recurring losses and negative cash flows from operations. In addition, subsequent to December 31, 2012, the operating subsidiary of the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, which consequently was converted to a case under Chapter 7 of the Bankruptcy Code. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are described in the footnotes accompanying the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Boca Raton, FL

March 25, 2013

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’ (Deficit) Equity

Periods Ended December 31, 2012 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 was engaged in the business of railroad tie reclamation and disposal, principally in the southern region.

Bankruptcy. On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, Case No. 13 – 10688-PGH. We were not successful in arranging financing to continue to operate our business as debtors and debtors-in-possession under the jurisdiction of the Bankruptcy Court, and therefore on February 5, 2013 Wood Energy filed a motion to voluntarily convert the case to a Chapter 7 Bankruptcy. The filing of the Chapter 11 petitions triggered repayment obligations under a number of our debt instruments and agreements. As a result, all of our debt obligations became immediately payable. We believe that any efforts to enforce the payment obligations are stayed as a result of the Chapter 11 and Chapter 7 filings.

Appointment of Creditors Committee. The United States Trustee for the District of Florida will appoint an official committee of unsecured creditors of Wood Energy (the Creditors Committee). The Creditors Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to Wood Energy. There can be no assurance that the Creditors Committee will support Wood Energy’s positions or ultimate plan of liquidation, once proposed. Disagreements between Wood Energy and the Creditors Committee could protract the bankruptcy proceedings, negatively impact Wood Energy.

Rejection of Executory Contracts. Under Section 365 and other relevant sections of the Bankruptcy Code, Wood Energy may assume, assign, or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property, subject to the approval of the Bankruptcy Court and certain other conditions. In general, rejection of an executory contract or unexpired lease is treated as a pre-petition breach of the executory contract or unexpired lease in question and, subject to certain exceptions, relieves Wood Energy of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases can file claims against Wood Energy estate for such damages. Generally, the assumption of an executory contract or unexpired lease requires Wood Energy to cure most existing defaults under such executory contract or unexpired lease and provide adequate assurance of future performance.

Accordingly, any description of an executory contract or unexpired lease elsewhere in these Notes, including where applicable our express termination rights or a quantification of our obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights we have under Section 365 of the Bankruptcy Code.

We expect that liabilities subject to compromise and resolution in the bankruptcy proceedings will arise in the future as a result of damage claims created by Wood Energy rejection of various executory contracts and unexpired leases. Conversely, we expect that the assumption of certain executory contracts and unexpired leases may convert liabilities shown as subject to compromise to liabilities not subject to compromise. Due to the uncertain nature of many of the potential rejection claims, the magnitude of such claims is not reasonably estimable at this time. Such claims may be material.

We are currently seeking to sell the assets of Wood Energy with Bankruptcy Court approval. The proceeds from the sale will be used to satisfy all or a portion of secured claims, with the remainder if any, allocated to the unsecured claims. The sale process may take considerable time and a sale price is not estimable at this time.

In addition, the uncertainty regarding the eventual outcome of the liquidation of Wood Energy, and the effect of other unknown adverse factors, could threaten our existence as a going concern. Continuing on a going-concern basis is dependent upon, among other things, satisfaction of the corporate guarantee for certain debt and other obligations, implementation of the reorganization plan and finding an operating business to acquire, and other factors, many of which are beyond our control.

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, 2012 and 2011 the Company recorded an allowance for doubtful accounts of $63,938 and $0, respectively.

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 $0 and $2,050,163 as of December 31, 2012 and December 31, 2011, respectively. These amounts represent unbilled future amounts due under existing contracts to be recognized as revenue upon the removal of all of each contract’s ties from the customer’s premises.

Property and Equipment

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

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.

We are currently seeking to sell the assets of Wood Energy with Bankruptcy Court approval. The sale process may take considerable time and a sale price is not estimable at this time. The ultimate sales price could have a material effect on the carrying value of long-lived assets as of December 31, 2012.

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 year ended December 31, 2012, the carrying amount of goodwill was deemed impaired due to the non-renewal of the customer contract from which goodwill related. The amount considered impaired of $3,658,364 was recorded as a loss on impairment of goodwill and intangible assets in the consolidated statement of operations.

Intangible assets that have finite useful lives continue to be amortized over their estimated useful lives. During the year ended December 31, 2012, the carrying amount of intangible assets was deemed impaired due to the loss of the customer contract for which the asset related. The amount considered impaired of $1,197,322 was recorded as a loss on the impairment of goodwill and intangible assets in the consolidated statement of operations.

Income Taxes

The Company determines deferred income taxes 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.

The Company recognizes 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, 2012 and 2011 was $0 and $35,000, 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”) issued Accounting Standards Update 2011-05, "Presentation of Comprehensive Income." This update provided entities with an option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The Company adopted this update in 2012. Adoption affected the manner of presentation of the components of comprehensive income in the Company's consolidated financial statements, but did not have an impact on the Company's consolidated balance sheets, statement operations or cash flows. Accounting Standards Update 2011-12 delayed the effective date of certain requirements of Accounting Standards Update 2011-05 related to the presentation of reclassifications of items out of accumulated other comprehensive income.

Note 5. Liquidity and Going Concern

At and for the period ended December 31, 2012, the Company had a net working capital deficiency of approximately $5,600,000 and incurred negative cash flows from operating activities of approximately $1,600,000. The Company recognizes that the timing of the realization of its remaining receivables from customers and its vendor and debt obligation payments will not allow the Company to generate positive working capital in the near future. In addition, the Company’s operating subsidiary, Wood Energy, has declared bankruptcy. We will need to raise additional funds in order to meet working capital requirements. 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 necessary capital, our growth and operations likely will be curtailed. In addition, if we raise capital by selling additional shares of stock, percentage ownership of current shareholders in Banyan will be diluted.

The term loan and lines of credit from the bank, for which we are in default, (see Note 9) may not be fully satisfied from the sale of all assets of Wood Energy. Any unsatisfied amount is guaranteed by Banyan and would require additional capital raises to meet the obligations of this guarantee. We cannot be certain that we will be able to obtain the funding required to meet this obligation. If we are unsuccessful in our attempts to raise additional capital, there would be a material adverse effect on the Company.

Note 6. Preferred Stock

During 2011, the Company issued 4,000 shares of its series B preferred stock to a shareholder, Banyan Holdings, LLC. The preferred shares were issued for $100 per share, or $400,000 in the aggregate. The proceeds of the money received were used to fund working capital requirements.

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.

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 2012 and 2011, the Company issued 9,950 and 7,850 shares of its Series C Preferred stock to Banyan Holdings, respectively. The preferred shares were issued for $100 per share, or $995,000 and 785,000 in the aggregate for 2012 and 2011, respectively at a conversion price of ranging between $0.90 and $2.50 per share of common stock. The proceeds of the money received were used to fund working capital requirements.

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

On September 24, 2012, the Company issued 434,783 shares of common stock for $500,000 to Banyan Holdings. The proceeds of the money received 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, 2012 in the amount of $483,660. During 2012, due to the lack of cash flow, the Company offered to pay the accrued dividends in common stock in lieu of cash. Substantially all preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends are expected to be paid in March 2013.

As of December 31, 2012, Banyan Holdings owned 3,000, 10,000, 17,800 and 1,121,066 shares of Series A Preferred, Series B Preferred, Series C Preferred and Common stock, respectively. If converted Banyan Holdings would own 2,899,739 shares of common stock.

Note 7.  Property and Equipment

Property and equipment consist of the following:

Depreciation expense was $938,993 and $678,060 for the years ended December 31, 2012 and 2011, respectively and are included in cost of sales in the consolidated statements of operations.

Substantially all of the Company’s property and equipment are being sold in the bankruptcy proceeds described in Note 1.

Management has considered the potential impairment of our property and equipment, primarily held by Wood Energy, as of December 31, 2012. Among other things, management compared the carrying values of such assets to the net orderly liquidation values (“NOLV”) included in third-party appraisals obtained during 2012 in connection with bank financings, and determined that the NOLV exceeded the carrying value. Accordingly, no impairment was recorded as of December 31, 2012. As additional information becomes available, including but not limited to actual sales of equipment as a result of the bankruptcy process, management will continue to assess the carrying value of property and equipment.

Note 8.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

Note 9.  Term Loans and Revolving Credit Lines

As of December 31, 2012, the Company’s outstanding debt is as follows:

The weighted average interest rate for the line of credit was 6.5% during the year ended December 31, 2012. The average amount of borrowings was $767,262 for the year ended December 31, 2012.

The credit facilities described above are subject to certain loan covenants that require, among other things, compliance with fixed charge coverage and total debt coverage ratios, as well as minimum levels of EBITDA or earnings before interest, taxes, depreciation and amortization. At December 31, 2012, the Company was not in compliance with respect to these covenants.

As a result of the Wood Energy’s failure to make the January 2013 payment to Fifth Third Bank under a $3.0 million term note (in addition to the term loan, Wood Energy has a $1.0 million working capital line of credit and a $500,000 capital expenditure line of credit with Fifth Third. Banyan has guaranteed all three loans), and Wood’s subsequent bankruptcy filing, on February 7, 2013, Fifth Third filed an action against Banyan in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida (Case No. CA002288XXXXMB). In its complaint Fifth Third claims to accelerate the due date of all three loans and seeks payment pursuant to the guaranty in the principal amount of approximately $3.6 million with interest of approximately $23,000. As a result, the indebtedness has been classified as current.

We are currently reviewing Fifth Third’s claim and will respond in a timely manner. In connection with the bankruptcy proceedings discussed above, we expect the assets of Wood Energy to be liquidated and to realize sale proceeds that could significantly reduce or eliminate the debt owed to Fifth Third. However, we cannot predict the outcome of the litigation or guarantee the results of the bankruptcy proceeding and potential sale of assets.

Capitalized loan costs were $235,502, less accumulated amortization of $235,502 at December 31, 2012.

Note 10.  Leases

Wood Energy leased equipment used in its operations under capital leases that expire over two to three years. Payments under these capital leases were $194,832 and $105,383 for the years ended December 31, 2012 and 2011, respectively. Depreciation of the equipment is included in the cost of goods sold section of the statement of operations. At December 31, 2012, the total future minimum rental commitments under all the above operating leases, which are subject to compromise under the laws of Chapter 7 bankruptcy, 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 $6,000 and $36,000 for the years ended December 31, 2012 and 2011, respectively.

On August 29, 2011, Wood Energy entered into a lease with a former related party for a new facility in Gibsland, La. This lease is subject to compromise under the laws of Chapter 7 bankruptcy. This facility replaced the Company’s facility in Shreveport, La. The lease took effect in January 2012 upon the completion of development of the site. The lease has a term of five years and calls for 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.  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, 2012 and 2011:

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

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

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

The fair value of shares that vested was $5,538 and $28,153 for the years ended December 31, 2012 and 2011, respectively.

As of December 31, 2012 total compensation cost related to non-vested awards not yet recognized was $7,807 to be recognized over an 18 month period.

Note 13. 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 identified in ASC 740 -10 Income Taxes. The components of deferred income tax assets and liabilities are as follows:

The Company’s federal net operating loss (“NOL”) carryforward balance as of December 31, 2012 was $8,317,418, expiring between 2018 and 2032.

A schedule of the NOLs is as follows:

The Company's net deferred tax assets before valuation allowance as of December 31, 2012 was approximately $2,431,924, most of which relates to net operating losses that expire from 2018 to 2032. The Company recorded an operating loss for the quarter and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the future. During the year ended December 31, 2012, the Company recorded an additional valuation allowance of $2,176,235.

The Company is subject to income taxes in the U.S. federal jurisdiction and a number of state jurisdictions. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for the years before 2009.

The income tax provision differs from the expense that would result from applying statutory rates to income before income taxes principally because of permanent differences and the release of the valuation allowance on net deferred tax assets for which realization is certain. The effective tax rates for 2012 and 2011 were computed by applying the federal and state statutory corporate tax rates as follows:

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

Interest and penalties related to unrecognized tax benefits, if any, are classified as income tax expense. The Company has no accrued interest and penalties for the years ended December 31, 2012 and 2011.

A reconciliation of beginning and ending amount of unrecognized tax benefits is as follows:

As of December 31, 2012 and December 31, 2011, the balance in unrecognized tax benefits was $11,400, respectively. The increases or decreases in each year are the result of management’s assessment that certain positions taken meet or no longer meet the more likely than not criteria established in ASC 740-10.  If these unrecognized tax benefits were ultimately recognized, they would have reduced the Company’s annual effective tax rate.

Note 14. Major Customers and Other Risk Concentrations

Revenue for the years ended December 31, 2012 and 2011, and accounts receivable from customers as of December 31, 2012 and 2011 representing over 10% of revenue or accounts receivable were as follows:

Due to the loss of a customer contract and the Wood Energy bankruptcy proceedings, described in Note 1, there are no continuing customers post petition.

Note 15. Business Interruption Insurance

In September 2011, the Company had a mechanical breakdown at its railroad tie fuel processing center, whereby its normal operations were interrupted. The Company is insured for such matters and has recorded $190,000 and $309,000 of estimated business interruption insurance recoveries for the periods ended December 31, 2012 and 2011, respectively. The Company has accounted for the recoveries of business interruption losses in accordance with Accounting Standard Codification 225, and has recorded the accrual in revenues on the Company’s statement of operations and in accounts receivables on the Company’s balance sheet, respectively. The accrual for 2011 was substantially paid in 2012.

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

Note 16. Related Party Transactions

The Company leased office space and received office services from Patriot Rail Corp., a company previously related by certain common management and ownership. In July 2011 the lease cost increased from $5,000 per month to $6,000 per month to include additional support services. The arrangement was terminated in September 2012. These costs are included in General and Administrative expenses in the statement of operations. The costs are included in the General and Administrative section of the statement of operations, and were: $54,000 and $65,000 for the year ended December 31, 2012 and 2011, respectively. The Company is currently sharing office space with International Rail Partners, LLC., a related party through the same common officers and directors, at no cost.

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

The Company’s board of directors, officers, and officers of its subsidiary directly or beneficially own 49,950 shares of the Company’s preferred stock and 1,485,858 shares of common stock as of December 31, 2012 or 3,500,531 shares, if the preferred is converted.

In September 2009, the Company entered into two 5-year employment agreements and one month-to-month consulting agreement with individuals who were shareholders and/or officers. The aggregate expense under these agreements for the periods ending December 31, 2012 and 2011 were $58,113 and $331,240, respectively. In October 2011, the Company renegotiated the 5-year employment contract of one of the shareholders whereby the old agreement was terminated and the Company and the employee entered into a new at-will employee agreement. In January 2012, the former President of Wood Energy resigned and the other individual was terminated in December of 2012.

On December 28, 2012, the Company entered into a demand loan with Banyan Holdings in the amount of $225,000 at an annual interest rate of 6%. The proceeds received were used to fund working capital requirements.

During the year ended December 31, 2011, the Company sold approximately $150,000 of relay ties to a related party for use in its track maintenance. The Company believes the term of sales were at arms-length.

During the year ended December 31, 2012, the Company entered into a lease with a former related party for a new facility in Gibsland, La., which commenced in January 2012. This facility replaced the Company’s facility in Shreveport, La. The lease calls for 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.

Note 17. Subsequent Events

Bankruptcy

On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, Case No. 13 – 10688-PGH. We were not successful in arranging financing to continue to operate our business as debtors and debtors-in-possession under the jurisdiction of the Bankruptcy Court, and therefore on February 5, 2013 Wood Energy filed a motion to voluntarily convert the case to a Chapter 7 Bankruptcy. The filing of the Chapter 11 petitions triggered repayment obligations under a number of our debt instruments and agreements. As a result, all of our debt obligations became immediately payable. We believe that any efforts to enforce the payment obligations are stayed as a result of the Chapter 11 and Chapter 7 filings.

Below is a summary balance sheet of Wood Energy (unaudited) as of December 31, 2012: