Broad Street Realty, Inc. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

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

Commission file number: 1-9043

Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 10,567,235 shares of common stock, $0.01 par value per share, as of October 30, 2016.

Table of Contents

Part I — Financial Information

Item 1. Financial Statements

Banyan Rail Services Inc.

Condensed Balance Sheets

See Notes to Condensed Financial Statements

Banyan Rail Services Inc.

Condensed Statements of Operations

(Unaudited)

See Notes to Condensed Financial Statements.

Banyan Rail Services Inc.

Condensed Statements of Cash Flows

(Unaudited)

See Notes to Condensed Financial Statements.

Banyan Rail Services Inc.

Statements of Stockholders’ (Deficit) Equity

Periods Ended September 30, 2016 and December 31, 2015

See Notes to Condensed Financial Statements.

Notes to Condensed Financial Statements

Notes to Condensed Financial Statements

Note 1.  Nature of Operations

Banyan Rail Services, Inc. (the “Company”) was originally organized under the laws of the Commonwealth of Massachusetts in 1985, under the name VMS Hotel Investment Trust, for the purpose of investing in mortgage loans, principally to entities affiliated with VMS Realty Partners. The Company was subsequently reorganized as a Delaware corporation in 1987 and changed its name to B.H.I.T. Inc. In 2010, the Company changed its name from B.H.I.T. Inc. to Banyan Rail Services Inc. From 2009 to 2012, the Company operated and experienced severe losses from an operating subsidiary in the rail services sector and is now a shell company.

The Company is actively seeking acquisitions of leading companies within the transportation and medical office real estate industries throughout North America.

Liquidity and Going Concern (See Note 4) The Company’s ability to continue on a going-concern basis is dependent upon, among other things, raising capital and finding an operating business to acquire, and other factors, many of which are beyond our control.

Note 2.  Basis of Presentation

The unaudited condensed financial statements and notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The interim condensed consolidated financial information herein is unaudited. The information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods included in this report.

Note 3.  Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash. From time to time our cash deposits exceed federally insured limits.

Fair Value of Financial Instruments

Recorded financial instruments as of September 30, 2016, consist of cash, prepaid expenses, accounts payable, accrued liabilitiesand short-term obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.

(Loss) Per Common Share

The Company computes net loss per common share in accordance with the provision included in ASC 260, Earnings per Share (“ASC 260”). Under ASC 260, basic and diluted income per share is computed by dividing net loss available to shareholders by the weighted average number of common shares and common share equivalents outstanding during the period. Basic loss per common share excludes the effect of potentially dilutive securities, while diluted loss per common share reflects the potential dilution that would occur if securities or other contracts to issue common shares were exercised for, converted into or otherwise resulted in the issuance of common shares.

Income Taxes

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

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

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

Retained Earnings distributions

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

Recent Accounting Pronouncements

During 2016, the Financial Accounting Standards Board (the “FASB”) has issued Accounting Standards Updates (“ASUs”) 2016-01 through 2016-17. Except for ASU 2016-02, 2016-09, and 2016-15, which are discussed below, these ASUs provide technical corrections or simplification to existing guidance and to specialized industries or entities and therefore have minimal, if any, impact on the Company.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize most leases on the balance sheet. The provisions of this ASU are effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company is evaluating the requirements of this ASU and has not yet determined the impact of the adoption on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this ASU is to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The will not have a material impact on the Company’s condensed financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This ASU is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, with early adoption permitted. The implementation of this ASU is not expected to have a material impact on the Company’s financial statements.

Note 4. Liquidity and Going Concern

At and for the period ended September 30, 2016, the Company had a net working capital deficit of $505,212 and incurred negative cash flows from operating activities of $542,373. The Company’s future liquidity and capital requirements are dependent upon many factors, including our ability to identify and complete acquisitions as well as the success of any business we do acquire. We may need to raise additional funds in order to meet working capital requirements, make additional capital expenditures or to take advantage of other opportunities. We cannot be certain that we will be able to obtain additional financing on favorable terms or at all. If we are unable to raise needed capital, our growth may be impeded. In addition, if we raise capital by selling additional shares of stock, the percentage ownership of current Banyan shareholders will be diluted.

Note 5. Preferred Stock and Common Stock

Preferred stock dividends for Series A Preferred stock have been recorded for the three and nine months ended September 30, 2016, in the amount of $25,945 and $77,820, respectively. During 2012, due to the lack of cash flow, the Company offered to pay the accrued dividends in common stock in lieu of cash. In February of 2016, we issued 29,856 shares of common stock in lieu of $29,249 of cash dividends for dividends accrued through December 31, 2015. Substantially all preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends.

On August 8, 2016, the Company issued an aggregate of 220,000 shares of common stock to Donald S. Denbo, Paul S. Dennis, Mark L. Friedman, Gary O. Marino, and Jon D. Ryan as compensation for services as directors in 2016. The Company recorded compensation expense in the amount (included in general and administrative on the Condensed Statement of Operations) of $165,000 for the value of their services as of September 30, 2016. The compensation expense is based on the $0.75 a share market price of the Company’s stock at the time of issuance as required by applicable accounting guidance. However, the Company used a per share price of $0.25 in calculating the number of shares to issue to the board members due to: (i) the thinly traded nature of the Company’s stock; and (ii) the shares being unregistered and subject to Rule 144 resale restrictions. The issuance of the shares was made in reliance on Section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and Rule 506 of Regulation D of the Securities Act.

As of September 30, 2016, Banyan Rail Holdings LLC (“Banyan Holdings”) and Marino Family Holdings LLC owned 2,726,114 and 3,057,778 shares of common stock, respectively.

Note 6. Income Taxes 

For the three and nine months ended September 30, 2016 and 2015, the Company recorded an income tax provision of $0. The effective tax rate for the three and nine months ended September 30, 2016 and 2015 was 0%. The tax rate differs from the statutory federal rate of 34% primarily due to valuation allowances recorded on the Company’s net operating loss carry forward generated during the period. The Company recorded an operating loss for the quarter and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets, as we believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the future.

Note 7. (Loss) per Share

The Company excluded from the diluted earnings per share calculation 103,750 shares issuable upon conversion of shares of convertible preferred stock that were outstanding at September 30, 2016 and 2015, as their inclusion would be anti-dilutive. In addition, the Company excluded 5,000 stock options as of September 30, 2015, which subsequently expired in July 2016 as their inclusion would be anti-dilutive.

Note 8.  Stock-Based Compensation

The Company previously had stock option agreements with its directors and officers for serving on the Company’s Board of Directors and as officers. The options activity is as follows:

On July 1, 2010, at its annual meeting of stockholders, the 2010 Stock Option and Award Plan was approved.

The fair values of stock options are estimated using the Black-Scholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk free interest rate. The risk free interest rate is the five year treasury rate at the date of grant. The expected life is based on the contractual life of the options at the date of grant.

Note 9. Related Party Transactions

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

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

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

On July 27, 2016, the Company entered into a Demand Note and Loan Agreement (the “Note”) with BEP providing for draws of up to $250,000. Loans under the Note bear interest at an annual rate of 10% and outstanding principal and interest are due on demand. Gary O. Marino, the Company’s chairman of the board, is the chairman, president, and chief executive officer of BEP. Mr. Marino and directors Donald S. Denbo and Paul S. Dennis also hold membership interests in BEP. As of September 30, 2016, the Company had a balance outstanding on the Note of $250,000 and incurred additional advances of $25,000 from BEP for a total outstanding of $275,000 as of September 30, 2016.

The Company’s directors are currently not receiving cash compensation for their services but were compensated through the issuance of common shares, see Note 5. Preferred Stock and Common Stock.

The Company’s board of directors and officers directly or beneficially own 7,092,375 shares of common stock as of September 30, 2016.

Note 10. Recent Events

On August 8, 2016, Banyan Surprise Plaza LLC, an Arizona limited liability company and a wholly-owned subsidiary of the Company, and RKWEM, LLC, an Arizona limited liability company (“RKWEM”), executed a purchase and sale agreement for the purchase of RKWEM’s land, buildings, structures, improvements, intangible property, service contracts, and leases, located at 13995 West Statler Blvd., Surprise, Arizona, commonly known as Surprise Medical Plaza, for $8,700,000. As of September 30, 2016 the Company had made $100,000 of deposits related to this transaction, which will be applied toward the purchase price at closing.

On September 29, 2016, the previously announced purchase and sale agreement (the “Agreement”), dated August 8, 2016, between Banyan Third Street LLC, a wholly-owned subsidiary of the Company (“Banyan Third Street”), and Signal Healthcare, LLC (“Signal Healthcare”), for the purchase of Signal Healthcare’s land, buildings, structures, improvements, intangible property, service contracts, and leases, located at 2620 North 3rd Street, Phoenix, Arizona, commonly known as Third Street Healthcare Campus, was terminated by Banyan Third Street. Banyan Third Street terminated the Agreement in accordance with its right to terminate pursuant to 7(b) of the agreement concerning the inspection period.

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

Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains information about us, some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as “believes,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2015 Annual Report on Form 10-K, filed on March 22, 2016. 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 our annual report on Form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K, must be carefully considered by any investor or potential investor in the Company.

Overview

Banyan Rail Services, Inc. (the “Company”) is a shell company without significant operations or sources of revenues other than its investments. Our management team is aggressively investigating potential operating companies to acquire and additional sources of financing. Currently we are actively seeking acquisitions of leading companies within the transportation and medical office real estate industries throughout North America, but we cannot guarantee we will complete an acquisition in any of these industries. Accordingly, we may explore potential acquisitions in other industries.

Our History

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

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

Recent Events

Financing

On July 27, 2016, the Company entered into a Demand Note and Loan Agreement (the “Note”) with Boca Equity Partners LLC (“BEP”) providing for draws of up to $250,000. Loans under the Note bear interest at an annual rate of 10% and outstanding principal and interest are due on demand. Gary O. Marino, the Company’s chairman of the board, is the chairman, president, and chief executive officer of BEP. Mr. Marino and directors Donald S. Denbo and Paul S. Dennis also hold membership interests in BEP. As of September 30, 2016, the Company had a balance outstanding on the Note of $250,000 and incurred additional advances of $25,000 from BEP for a total outstanding of $275,000 as of September 30, 2016.

Stock Issuance

On August 8, 2016, the Company issued an aggregate of 220,000 shares of common stock to Donald S. Denbo, Paul S. Dennis, Mark L. Friedman, Gary O. Marino, and Jon D. Ryan as compensation for services as a director in 2016. The Company recorded compensation expense in the amount (included in general and administrative on the Condensed Consolidated Statement of Operations) of $165,000 for the value of their services as of September 30, 2016. The compensation expense is based on the $0.75 a share market price of the Company’s stock at the time of issuance as required by applicable accounting guidance. However, the Company used a per share price of $0.25 in calculating the number of shares to issue to the board members due to: (i) the thinly traded nature of the Company’s stock; and (ii) the shares being unregistered and subject to Rule 144 resale restrictions. The issuance of the Shares was made in reliance on Section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and Rule 506 of Regulation D of the Securities Act.

Banyan Third Street

On September 29, 2016, the previously announced purchase and sale agreement (the “Agreement”), dated August 8, 2016, between Banyan Third Street LLC, a wholly-owned subsidiary of the Company (“Banyan Third Street”), and Signal Healthcare, LLC (“Signal Healthcare”), for the purchase of Signal Healthcare’s land, buildings, structures, improvements, intangible property, service contracts, and leases, located at 2620 North 3rd Street, Phoenix, Arizona, commonly known as Third Street Healthcare Campus, was terminated by Banyan Third Street. Banyan Third Street terminated the Agreement in accordance with its right to terminate pursuant to 7(b) of the Agreement concerning the inspection period.

Critical Accounting Policies and Estimates

The following discussion and analysis of our results of operations and financial condition is based upon our condensed 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 financial statements may be material.

We review our financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. During the nine months ended September 30, 2016, there were no significant changes to the critical accounting policies.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash.

Fair Value of Financial Instruments

Recorded financial instruments at September 30, 2016 consist of cash, prepaid expenses, accounts payable, accrued expenses and short-term obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.

(Loss)  Per Common Share

The Company computes net loss per common share in accordance with the provision included in ASC 260, Earnings per Share (“ASC 260”). Under ASC 260, basic and diluted income per share is computed by dividing net loss available to shareholders by the weighted average number of common shares and common share equivalents outstanding during the period. Basic loss per common share excludes the effect of potentially dilutive securities, while diluted loss per common share reflects the potential dilution that would occur if securities or other contracts to issue common shares were exercised for, converted into or otherwise resulted in the issuance of common shares.

Income Taxes

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

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

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

Retained Earnings Distributions

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

Results from Operations

The following table summarizes our results for the three and nine months ended September 30, 2016 and 2015:

General and Administrative Expenses

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

For the nine months ended September 30, 2016, costs decreased $319,975, or 33.1% compared to the nine months ended September 30, 2015.

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

For the three months ended September 30, 2016, costs decreased $337,227 or 50.0% compared to the three months ended September 30, 2015.

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

Income Tax Expense

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

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

Net (Loss)

Net loss attributable to common stockholders was $0.04 and $0.07 per share for the three and nine months ended September 30, 2016 as compared to net loss of $0.07 and $0.14 per share for the three and nine months ended September 30, 2015. The change was primarily the result of a decrease in net loss attributable to common stockholders as describe above and an increase in the weighted average number of common shares outstanding during the periods respectively.

Financial Condition and Liquidity

Our cash balance at September 30, 2016 and 2015 was $60,009 and $458,392, respectively.

The following is a summary of our cash flow activity:

Net cash used in operating activities

For the nine months ended September 30, 2016, cash used in operating activities was $542,373 as compared to $459,009 for the nine months ended September 30, 2015. The primary use of cash was to fund the normal operating activities of the Company and acquisition related costs.

Net cash provided by financing activities

For the nine months ended September 30, 2016, net cash provided by financing activities of $275,000 was provided by a related party demand loan. For the nine months ended September 30, 2015, net cash provided by financing activities was $515,000, which was provided by the sale of common stock.

At September 30, 2016, the Company had net working capital deficit of $505,212 as compared to net working capital of $27,476 at December 31, 2015. The decrease in working capital is the result of normal operations of the Company in 2016 and acquisition related costs.

The Company recognizes that as a result of the lack of operations and cash flow that it will have to rely upon sales of stock or future capital contributions from investors to generate cash flow for the foreseeable future.

Off-Balance Sheet Arrangements

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

How to Learn More About Banyan

We file annual, quarterly and current reports and other information with the SEC. Our SEC filings are available to the public on the internet at the SEC’s web site at SEC.gov. To learn more about Banyan you can also contact our Chairman, Gary O. Marino, at 561-988-8480.

Under the direction of our chief executive officer and chief financial officer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2016. Further, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).

Part II — Other Information

None.

On August 8, 2016, the Company issued an aggregate of 220,000 shares of common stock to Donald S. Denbo, Paul S. Dennis, Mark L. Friedman, Gary O. Marino, and Jon D. Ryan as compensation for services as a director in 2016. The Company recorded compensation expense in the amount (included in general and administrative on the Condensed Consolidated Statement of Operations) of $165,000 for the value of their services as of September 30, 2016. The compensation expense is based on the $0.75 a share market price of the Company’s stock at the time of issuance as required by applicable accounting guidance. However, the Company used a per share price of $0.25 in calculating the number of shares to issue to the board members due to: (i) the thinly traded nature of the Company’s stock; and (ii) the shares being unregistered and subject to Rule 144 resale restrictions. The issuance of the Shares was made in reliance on Section 4(2) of the Securities Act of 1933 for the offer and sale of securities not involving a public offering and Rule 506 of Regulation D of the Securities Act.

None.

For information regarding recent significant events, please turn to “Recent Events” on page 11.

Signatures

In accordance with the requirements of the Securities Exchange Act of 1934, Banyan Rail Services Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.