UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K


(Mark
One)


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


For the
fiscal year ended December 31,
2009


or


o
            Transition report pursuant to
      Section 13 or 15(d) of the Exchange
Act


For the
transition period from __________ to __________





Commission
file number: 1-9043




Banyan
Rail Services Inc.


(Exact
name of registrant as specified in its charter)




Delaware
              
              36-3361229(State of
      incorporation)
              
              (I.R.S.
      Employer Identification No.)





2255
Glades Road, Suite 342-W, Boca Raton, Florida 33431


(Address
of principal executive offices)





561-997-7775


(Registrant’s
telephone number)




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
þ




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
þ




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 þ   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  ̈




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   þ




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.




Large
Accelerated Filer  ̈                                                           Accelerated
Filer  ̈




Non-accelerated
filer  ̈                                                               Smaller
Reporting Company þ




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





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.  $7,371,462 as of June 30, 2009.




Indicate
the number of shares outstanding of each of the registrant’s classes of common
equity, as of the latest practicable date: 3,017,138 shares of
common stock, $0.01 par value per share, as of April 9, 2010.










Table
of Contents


PART
      I
              
              3Forward
      Looking Statements
              3Item
      1.
              Business.
              3Employees
              6Recent
      Events
              6Our
      History Prior to Acquiring Wood Energy
              7Item
      1A.
              Risk
      Factors.
              7Item
      2.
              Properties.
              12Item
      3.
              Legal
      Proceedings.
              13PART
      II
              
              14Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
              14Item
      6.
              Selected
      Financial Data.
              15Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              15Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              20Item
      8.
              Financial
      Statements and Supplementary Data.
              20Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.
              20Item
      9A(T).  Controls and Procedures.
              20Item
      9B.
              Other
      Information.
              21PART
      III
              
              22Item
      10.
              Directors,
      Executive Officers and Corporate Governance.
              22Item
      11.
              Executive
      Compensation.
              24Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
              25Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
              26Item
      14.
              Principal
      Accounting Fees and Services.
              26Item
      15.
              Exhibits,
      Financial Statement Schedules.
              27SIGNATURES
              29


2





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





Some of
the statements that we make in this report, including statements about our
confidence in our prospects and strategies, are forward-looking statements
within the meaning of §21E of the
Securities Exchange Act. Some of these forward-looking statements can be
identified by words like “believe,” “expect,” “will,” “should,” “intend,”
“plan,” or similar terms; others can be determined by context. Statements
contained in this report that are not historical facts are forward-looking
statements. These statements are necessarily estimates reflecting our best
judgment based upon current information, and involve a number of risks and
uncertainties. Many factors could affect the accuracy of these forward-looking
statements, causing our actual results to differ significantly from those
anticipated in these statements. While it is impossible to identify all
applicable risks and uncertainties, they include our ability to:




·
            successfully operate Wood
      Energy;





·
            maintain our relationships with
      Class I railroads;





·
            execute our acquisition/expansion
      plan by identifying and acquiring additional operating
      companies;





·
            obtain appropriate financing to
      complete potential
acquisitions;





·
            generate adequate revenue to
      service our debt; and





·
            comply with SEC regulations and
      filing requirements applicable to us as a public
      company.





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.





On
September 4, 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.  The
purchase price was $6,169,036, consisting of $5,002,369 in cash (after giving
effect to the finalization of the working capital adjustment) and $1,166,667 in
shares of common stock of Banyan, or 333,334 shares (after giving effect to the
Company’s recent reverse stock split).  Prior to acquiring Wood
Energy, Banyan was a shell company without significant operations or sources of
revenues other than its investments. Our management team continues to
investigate acquisition opportunities and additional sources of financing.
Currently we are focusing our efforts on railroad track construction, repair and
maintenance businesses, but may explore potential acquisitions in other
industries as well.





Wood
Energy, headquartered in St. Louis, Missouri, is one of the nation’s largest
railroad tie recovery/energy generation companies.  Founded in 2001,
we provide railroad tie pickup, reclamation and disposal services to the Class 1
railroads (defined by the American Association of Railroads as a railway company
with annual operating revenue over $401.4 million) and industrial
customers.  Prior to 2001, Wood Energy’s founder Greg Smith provided
the same services through Wood Waste Energy, Inc., a company he founded in 1991,
built into the largest railroad tie recovery business in the U.S., and sold in
1999.  We operate primarily in Texas, Louisiana and
Mississippi.





Our
services include picking up scrap railroad ties for major Class I railroads and
disposing of the ties by selling them to the landscape tie market or having the
ties ground to create chipped wood for sale as biomass fuel to the co-generation
market.  In 2009, we picked up over 1,030,000 railroad ties, 73% of
which were used by the co-generation market, 22% for the landscape market and 5%
went to landfill.  We believe our strengths include:




·
            A proven senior management
      team;


·
            Long-term
      contracts  that provide a stable and consistent revenue
      stream;


3


·
            An efficient and profitable
      operating methodology;


·
            Management personnel with the
      expertise to grow the alternative fuel segment of the
      business;


·
            The pursuit of roll-ups of other
      North American railroad tie pick-up companies, which present a significant
      opportunity for long-term growth;
  and


·
            Creating economies of scale
      through regional expansion.





Revenue Sources




Currently,
the Company has four sources of revenue:




·
            Railroad Tie Pick-Up – the
      Company charges Class I railroads for picking up and recovering spent
      railroad ties from their
tracks;


·
            Railroad
      Tie Disposal – the Company sells scrap railroad ties for grinding as a
      biomass fuel source;


·
            Landscape Ties – the Company
      sells higher-quality reclaimed railroad ties to wholesale landscape
      companies; and


·
            Wood Products – processing wood
      products for co-generation markets as biomass
  fuel.





We have a
contract expiring in 2014 with Union Pacific Corporation, a Class I railroad, to
pick up scrap railroad ties in Texas and Louisiana, and dispose of the majority
of such railroad ties at International Paper Company plants in Louisiana. In
2009, Union Pacific and International Paper accounted for approximately 71% and
6% of our revenue, respectively.




The
Railroad Tie Recovery/Energy Generation Industry




There are
approximately 15 rail tie recovery companies in North America with total
industry revenue of approximately $65-75 million.  Each company
operates within specific geographic regions and each has Class I railroads as
its major customers.




Income
can be generated from the rail ties that are recovered by:




·
            Grinding and selling rail ties to
      co-generation plants and utilities for use as alternative
      fuel;


·
            Re-selling rail ties for use in
      the landscape industry; and


·
            Selling ties that are
      reconditioned back to the railroads for
  re-use.





The
income potential from these revenue sources is increased by certain barriers to
entry that exist in the rail tie recovery industry.  Class I railroads
require that contractors have experience and reliability in disposing non-usable
railroad ties through co-generation.




The
U.S. Railroad Industry and Increased Tie Replacement




U.S.
railroads operate over 139,000 miles of track, and generated $63 billion in
revenues in 2008.  In the U.S., railroads account for more than 42% of
all freight transportation by volume — more than trucks, boats, barges or
planes. U.S. freight railroads are the world’s busiest, moving more freight than
any rail system in any other country.  North American railroads move
more than four times as much freight as do all of Western Europe’s freight
railroads combined.




Due to
high levels of railroad traffic and the increased maximum weight limit of rail
cars to 286,000 pounds, Class I railroads, regional railroads and short
line railroads continue to maintain and repair their infrastructure to ensure
safe operation of their railways.  Demand for outsourcing of railroad
maintenance services is expected to increase due to increased union labor costs
as well as an aging population of railroad workers.




Further,
over the past five years, the increase of the maximum weight limit and increased
traffic has accelerated wear and tear of railroad infrastructure, increasing the
need for tie replacement. The nation’s railroads have struggled to keep pace
with the resulting growth of maintenance needs due to the tremendous cost of
qualified personnel and equipment.  Track maintenance is capital
intensive and requires skilled personnel, resulting in railroads turning to
independent contractors to provide tie recovery services.




In 2008,
Class I railroads replaced over 15 million rail ties.  Over the next
five years, they are expected to replace over 80 million ties.




Railroad
Ties as Biomass Fuel Source





Chipped
railroad ties are a viable source of biomass fuel for industrial plants and
utilities.  Historically, we have sold ties to a third party for
grinding. We recently purchased railroad tie grinding equipment to more fully
integrate our operations by allowing us to grind the railroad ties in-house. Now
we are able to sell chipped ties directly to co-generation plants at a higher
price than we have received by selling to third party processors, increasing our
margin on this portion of our business, although we also continue to sell ties
to third party processors for the co-generation industry.


4




Three
areas where railroad ties provide significant advantages as a biomass fuel
source include:




·
            In the burn
      process:


-
              Burning ties increases combustion
      efficiency and produces less
ash


-
              Composition of shredded railroad
      ties allows for higher burn
rates


-
              Creosote-treated ties burn
      cleaner than untreated
wood





·
            Environmental
      impact:


-
              Life cycle of treated wood ties
      is “carbon neutral”


-
              Utilizing railroad ties for fuel
      results in fewer ties being placed into landfill, where the
      ties’ carbon will be biologically converted into methane, a gas with
      21 times the global warming potency of CO2


-
              using chipped wood railroad ties
      has been classified as a “green” environmental
      alternative





·
            Compared to other fuel
      sources:


-
              Every two tons of treated wood
      ties used to generate electricity replace one ton of coal or 90 gallons of
      oil (18 ties equal one
ton)


-
              Railroad ties have a higher BTU
      value (7,500-10,000) compared to untreated wood
    (3,500)


-
              Ties have less moisture (12-26%)
      compared to fresh cut wood
(40-60%)


-
              Railroad ties cost less than
      natural gas to
generate energy





Growth Opportunities




We
believe Wood Energy has significant growth opportunities over the next several
years, including:





-
              Expanding use of railroad ties as
      an alternative fuel and energy
source,


-
              Investing in new tie
      grinding equipment, thus reducing outsourcing and increasing
      margins,


-
              Recovering
      other wood products that grinding equipment can accept such as telephone
      poles, bridge timbers and
pallets,


-
              Adding new business with Class I
      railroads by expanding our service
area,


-
              Providing ancillary services such
      as rail car cleaning,
and


-
              Providing tie recovery service to
      short line railroads in addition to the Class I railroads we already
      service.





-
              Acquiring competitor tie recovery
      businesses and consolidating management
  teams,


-
              Expanding service capabilities of
      existing companies, particularly with respect to alternative fuel,
      and


-
              Expanding our customer base by
      increasing the number of services we offer and entering new geographic
      markets.





Project
Management




The
Company’s business model focuses on efficient operations and improved profit
margins. Information flow between on-site employees and management personnel is
critical to achieve goals assigned for each project and complete projects
efficiently and effectively. Daily information flow provides management an
accurate view of productivity of each project so that our costs can be closely
monitored, and helps us effectively manage our projects.




Staffing




Railroad
professionals are the core of our company. Experienced managers and supervisors
are critical to success in our industry, as are skilled equipment operators and
laborers. Many of our employees have worked for us for many years. Our personnel
are assembled into crews of various sizes depending on the needs of a given
project, and the crews have specific goals and incentives tailored to the
project which support safety, quality, productivity and profitability
goals.  As of December 31, 2009, we had 21 employees. Our current
infrastructure is capable of handling up to 1.5 million railroad ties each
year.





Competition




There are
approximately 15 rail tie recovery companies in North America with total
industry revenue of approximately $65-75 million.  Each company
operates within specific limited geographic region and each has Class I
railroads as its major customers.  Competitors in the tie recovery
market include Wood Waste Energy, Shade Railroad Services and Recycle
Technologies International, Inc.


5




Government
Regulation




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




Government Initiatives




Last year
the U.S. House passed the American Clean Energy and Security Act of 2009 (H.R.
2454) which requires electrical suppliers to procure a certain percentage of
electricity from renewable energy sources. The bill includes biomass fuel and/or
cogeneration plants. The Treated Wood Council has petitioned the U.S. Senate to
include treated wood waste as biomass fuel.




In 2008,
the Texas legislature passed House Bill 1090 (HB-1090), which provides
incentives through a grant program at the Texas Department of Agriculture for
the delivery of agricultural and wood waste material to facilities that generate
electricity through the use of biomass.  Producers of qualified
biomass that deliver the material to a biomass power plant in Texas receive $20
a dry ton.  A qualified biomass power facility placed in service after
August 31, 2009 can receive up to $6.0 million in reimbursements from the
Department of Agriculture.





Seasonality





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





Employees





As of
December 31, 2009, we had 21 full time employees, none of which are members of a
union.  We plan to add additional personnel as our operations
infrastructure dictates.





Recent
Events





Changes
to Our Board of Directors





On
January 4, 2010, we increased the number of directors on our board from four to
five and appointed Donald D. Redfearn as a director.  For more
information about Mr. Redfearn, please turn to “Directors and Executive
Officers” on page 22.  Director Harvey J. Polly retired from the board
on February 1, 2010 to focus on personal matters.





Amendments
to Our Certificate of Incorporation





On
January 4, 2010, we amended our certificate of incorporation with the State of
Delaware to change our name to Banyan Rail Services Inc.  We also
increased our authorized capital stock to 76.0 million shares consisting of 75.0
million shares of common stock and 1.0 million shares of blank check preferred
stock.  For more information regarding our common stock, see the
section of this report captioned Item 5 – “Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.”  In connection with the name change, we changed the
trading symbol for our common stock to BARA.OB on the Over-the-Counter Bulletin
Board. On February 1, 2010, we filed a certificate of designation with the State
of Delaware designating 20,000 shares of our blank check preferred stock as
Series A Preferred Stock, par value $.01 per share (the “Preferred
Stock”).





Exchange
of Debentures into Shares of Preferred Stock and Issuance of Additional
Preferred Stock





In order to raise additional capital
for our acquisition of Wood Energy, we conducted a private placement of Series A
Convertible Debentures (the “Debentures”).  The Debentures bore
interest at the rate of 10%, payable semi-annually.  Each Debenture
was convertible at the holder’s option into shares of common stock of Banyan at
a conversion price of $2.00 per share, subject to customary adjustments for any
future stock dividends, stock splits and certain reorganizations and
recapitalizations.   Also, we agreed that if we conduct a registered
offering of securities following the private placement, we would register the
shares of common stock underlying the Debentures at the request of the holders
of these shares.  Through this private placement, we
issued Debentures in the aggregate principal amount of $1,525,000 on September
4, 2009.


6





Effective
January 1, 2010, all of the holders of the Debentures exchanged their Debentures
for 15,250 shares of Preferred Stock. Similar to the Debentures, the Preferred
Stock pays cash dividends at the rate of 10%, payable semi-annually, and each
share of Preferred Stock is convertible at the holder’s option into shares of
common stock of Banyan at a conversion price of $2.00 per share, subject to
customary adjustments for any future stock dividends, stock splits and certain
reorganizations and recapitalizations.   Also, we agreed that if we
conduct a registered offering of securities, we will register the shares of
common stock underlying the Preferred Stock at the request of the holders of
these shares. There is no requirement for the Company to redeem the Preferred
Stock at any time.





In
February 2010, the Company sold an additional 2,725 shares of Preferred Stock in
a private placement for aggregate proceeds of $272,500. The proceeds from the
sale of Preferred Stock were used for working capital purposes.





Reverse
Stock Split





In April
2010 the Company effectuated a 1-for-10 reverse stock split pursuant to which
each stockholder received one share of common stock for every ten shares owned
prior to the reverse split. All share and per share amounts in this Annual
Report on Form 10-K have been adjusted retroactively to reflect this reverse
stock split.





Our
History Prior to Acquiring Wood Energy





The
Company was originally organized under the laws of the State 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.
These loans were collateralized by hotel and resort properties. From 1989 to
1992 we experienced severe losses as a result of a decline in real estate values
and the resulting defaults on the mortgages we held.  The Company was
reorganized as a Delaware corporation in 1987, changed its name to B.H.I.T. Inc.
in 1998, and again changed its name to Banyan Rail Services Inc. in
2010.





On
January 24, 2007, a group of private investors purchased 41.7% of our
outstanding shares held by our largest shareholder at the time, Summa Holdings,
Inc. As a result of the transaction, James Benenson, Jr. and John V. Curci each
resigned as directors and officers of the Company and new directors were
appointed to fill vacancies in the board.





Because
members of our new management team have experience with the railroad industry,
we began investigating acquisitions of companies in the rail
industry.  In the spring of 2009, we entered negotiations with the
owners of Wood Energy to acquire the company. As a result of the acquisition of
Wood Energy, we are no longer a shell company and are now engaged in the
business of railroad tie reclamation and disposal.  On January 4,
2010, we changed our name to Banyan Rail Services Inc. to reflect our new
business.





Item
1A.     Risk Factors.





You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities.  There are numerous and varied risks,
known and unknown, that may prevent us from achieving our goals, and the risks
described below are not the only ones we will face.  The risks below
are intended to reflect the material risks that are specific to our Company, to
our industry and to companies that seek to maintain a class of securities that
is registered or traded on any exchange or over-the-counter market.




Risks
Relating to Our Business




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




Our
business is a service business, and our revenue is generated from a limited
number of customers.  For instance, in 2009 and 2008 we derived 71%
and 70% of our revenue, respectively, from services performed for Union Pacific,
and we anticipate deriving a similar percentage of our revenue from Union
Pacific in 2010.  Although we have long-term agreements and
relationships with that customer and certain other customers, the agreements may
be terminated on short notice.  Thus, our concentration of customers
and contracts exposes us to greater financial risk than businesses with a
broader customer base.  A significant reduction in the number of
contracts or the loss of a customer would have a material adverse effect on our
business, financial condition and results of operations.  In addition,
we rely on timely and regular payments from our customers on ordinary course
business terms. The failure of our customers to pay on ordinary course business
terms may also have a material adverse effect on our business, financial
condition and results of operations.


7




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




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




We
depend heavily upon highly skilled and knowledgeable management
personnel.




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




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




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




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




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




Our
future growth is dependent upon many factors, some of which are not within our
control, such as whether demand for ties will increase as a “green” energy
source.




Growing
our business will require us to attract new customers and contracts while
expanding our workforce to accommodate their needs.  However, the
level of demand for ties is largely beyond our control, and depends on whether
shredded ties will, in the future, be perceived as a biomass or “green” energy
source.  Even if we are successful in obtaining new business, we
cannot guarantee that we will be able to manage cash flow sufficiently to expand
our supplies and workforce to accommodate our new business, nor can we guarantee
that we will be able to maintain high-quality services to our customers if we
are faced with rapid growth.  In short, because we operate a
labor-intensive service business in a “niche” industry, future growth must be
carefully managed and sought at an achievable rate.





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




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


8




Risks
Relating to Our Company




We
financed a substantial portion of the purchase price for the acquisition of Wood
Energy, and we recently obtained credit lines for working capital and capital
expenditure needs, all of which may decrease our profitability and cash flow,
and increase our leverage.




We
borrowed $3.0 million of the $5.0 million cash portion of the purchase price for
Wood Energy, and we obtained credit lines in the aggregate amount of $2.0
million.  For additional capital for the acquisition, we also issued
Debentures in the amount of $1,525,000 which were subsequently converted into
shares of Preferred Stock in 2010.  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
outstanding from time to time could have important consequences for us and our
investors.  For example, it could:




·
            require
      us to dedicate a substantial portion of our cash flow from operations to
      payments on our debt, thereby reducing funds available for operations,
      acquisitions, redevelopments and other appropriate business development
      opportunities that may arise in the
future,





·
            make it difficult to satisfy our
      debt service requirements,





·
            limit
      our flexibility in planning for, or reacting to, changes in our business
      and the factors that affect the profitability of our business, including a
      downturn in business or the general economy,
and





·
            limit our flexibility in
      conducting our business, which may place us at a disadvantage compared to
      competitors with less debt or debt with less restrictive
      terms.





Our
ability to make scheduled payments of the principal of, to pay interest on, or
to refinance our indebtedness will depend primarily on our future performance,
which to a certain extent is subject to economic, financial, competitive and
other factors beyond our control.  There can be no assurance that our
business will generate sufficient cash flow from operations to service our debt
or meet our other cash needs.  If we are unable to generate this cash
flow from our business, we may be required to refinance all or a portion of our
existing debt or obtain additional financing from our lender to meet our debt
obligations and other cash needs.  We cannot assure you that any such
refinancing, sale of assets or additional financing would be possible on terms
that we would find acceptable, and failure to pay or refinance our debt could
result in the acceleration of our debt and foreclosure of substantially all of
our assets.




Our
primary asset is Wood Energy, and our credit facilities include financial
covenants that limit our ability to obtain cash distributions from Wood Energy,
limiting our operating activities and results of operations.




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





·
            Wood
      Energy was permitted to distribute no more than $50,000 in management fees
      to us during the 2009 calendar year, and “reasonable amounts” in future
      years, and any other transactions between us and Wood
      Energy  (or between Wood Energy and any related party) must be
      arm’s length transactions,





·
            We must ensure that Wood Energy
      meets certain financial tests on a quarterly basis, including loan
      covenants that require, among other things, compliance with fixed charge
      coverage and total debt coverage ratios, as well as minimum levels of
      EBITDA (earnings before interest, taxes, depreciation and amortization).
      As described on page 18, we included certain add-backs in calculating
      these covenants for the period ended December 31, 2009, with which the
      bank concurred and accepted for purpose of determining compliance at that
      date.





·
            If
      certain equipment is sold in the ordinary course of business, the sale
      proceeds must be used to reduce debt unless they are used to purchase
      replacement equipment,





·
            We may not cause Wood Energy to
      invest in, acquire assets of, or merge or consolidate with, other
      companies, and





·
            We
      may not cause Wood Energy to grant liens, incur additional indebtedness or
      contingent obligations or obtain additional
  financing.





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


9




Our
performance depends substantially on the experience and judgment of our
management team.




Our
executive officers and directors are responsible for making critical decisions
regarding our business and strategies.  Our stockholders will not be
entitled to vote on day-to-day operating decisions or even many significant
transactions, such as whether or not to acquire new assets or businesses and on
what terms.  Poor execution on the part of our management team would
adversely affect our business and financial condition.





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




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




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




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




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




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




·
            identify suitable acquisition
      candidates or opportunities,





·
            acquire assets or business
      operations on commercially acceptable
  terms,





·
            obtain financing necessary to
      complete an acquisition on reasonable terms or at
    all,





·
            manage effectively the operations
      of Wood Energy or other acquired businesses,
  or





·
            achieve our operating and growth
      strategies with respect to the acquired assets or
      businesses.




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




Our
directors and officers own a significant interest in Banyan.




Our
directors and officers, together with Greg Smith and Andy Lewis who serve as
president and vice president of our operating subsidiary, control 32.5% of our
outstanding shares (45.1% 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.


10




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




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




As
of December 31, 2009, management determined that our disclosure controls and
procedures and internal control over financial reporting were ineffective due to
material weaknesses in our internal control over financial reporting following
our acquisition of Wood Energy.





Our
internal controls and operations are subject to extensive SEC regulation and
reporting obligations.  A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.  Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. A material
weakness is a control deficiency, or combination of control deficiencies, such
that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected on a
timely basis.





In
connection with management’s assessment of our internal control over financial
reporting, management has identified the following material weaknesses in our
internal control over financial reporting as of December 31, 2009:





The Company acquired The Wood Energy
Group, Inc. (“Wood Energy”) in September 2009. The Company’s management began to
integrate Wood Energy into the Company, and enhance the internal controls
structure and policies and procedures surrounding financial reporting. As of
December 31, 2009, all of these enhancements had not been finalized,
specifically the recording of deferred revenues and costs associated with
projects in process and timely reconciliation of certain balance sheet
accounts.  Further, the Company was in need of an additional resource to
handle the increase in business activities, and resulting GAAP financial
statement and SEC reporting requirements, as a result of the recent
acquisition.





Accordingly,
the Company’s management determined that as of December 31, 2009, our disclosure
controls and procedures and internal control over financial reporting were
ineffective due to material weaknesses in our internal control over financial
reporting following our acquisition of Wood Energy.Although we believe that
we have addressed the material weaknesses in our internal controls,we cannot be certain
that our efforts to develop and maintain our internal controls will be
successful, that we will be able to maintain adequate controls over our
financial processes and reporting in the future or that we will be able to
comply with our obligations under Section 404 of the Sarbanes-Oxley
Act.  Our failure to develop or maintain effective internal controls,
or difficulties encountered in implementing or improving our internal controls,
could impair our ability to accurately report our financial results or prevent
fraud, harm our operating results, or cause us to fail to meet our reporting
obligations.  Ineffective internal controls could also cause investors
to lose confidence in our reported financial information, which could have a
negative effect on the trading price of our shares.




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




The
commercial debt markets are currently experiencing volatility as a result of
certain factors including the tightening of underwriting standards by lenders
and credit rating agencies and the significant inventory of unsold
collateralized mortgage backed securities in the market.  Credit
spreads for major sources of capital have widened significantly as investors
have demanded a higher risk premium.  This is resulting in lenders
increasing the cost for debt financing.  Should the overall cost of
borrowings increase, either by increases in the index rates or by increases in
lender spreads, we will need to factor such increases into the economics of our
business plan.  This may result in our generating lower overall
economic returns and potentially reducing cash flow available for business
operations and business development.




Risks
Relating to Our Shares




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




As a
result of the private placement and subsequent issuances of Preferred Stock in
February 2010, there are shares of Preferred Stock to purchase as many as
898,750 shares of our common stock for $2.00 per share.  In addition,
as of December 31, 2009 we have issued options to purchase 300,000 shares to our
directors as compensation for serving on the board at prices ranging from $1.50
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 on overhang on the market and prevent the market price of our stock from
rising above the Preferred Stock conversion price of $2.00.


11




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, such financings may have a dilutive
effect on the holders of our securities. In addition, as part of its recruitment
process and in connection with our efforts to attract and retain employees and
directors, we may offer stock options, restricted 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, especially senior
management and directors, may be substantial and you may suffer 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 convertible
securities 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 OTCBB, because we have had no significant
business operations for several years, 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 OTCBB.





Our
Preferred Stock could adversely affect the holders of our common
stock.





We have
issued 17,975 shares of Preferred Stock and, 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 stock.




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




Item
2.      Properties.




We do not
own any real property. We lease executive office space from an unrelated third
party in St. Louis for $1,250 per month. We also lease property for our wood
grinding operation from an unrelated third party on a year-to-year basis for
$3,000 per month. In addition, we lease office space and receive office services
from Patriot Rail Corp., a company related by certain common management, for a
fixed amount of $5,000 per month.


12





Item
3.      Legal Proceedings.





We are
not aware of any pending legal proceedings involving Banyan or Wood Energy other
than litigation arising in the ordinary course of business.  We
believe the outcome of the litigation will not have a material adverse
effect on our financial condition, cash flows or results of
operations.


13




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.OB” (formerly “BHIT.OB”).  The last reported sale
price on April 9, 2010 was $3.50 per share.  The following table lists
the high and low closing sale prices of our stock during 2009 and 2008 as
reported on OTCBB.  These sale prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.  In addition, the sale prices have been adjusted for our
recent 1-for-10 reverse stock split.





Fiscal Year EndingDecember 31, 2009
                  
                  
                  2008High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  LowFourth
      Quarter
                  
                  $
                  3.00
                  
                  
                  $
                  2.50
                  
                  
                  $
                  4.20
                  
                  
                  $
                  1.70Third
      Quarter
                  
                  $
                  4.30
                  
                  
                  $
                  2.80
                  
                  
                  $
                  6.00
                  
                  
                  $
                  2.50Second
      Quarter
                  
                  $
                  4.00
                  
                  
                  $
                  2.80
                  
                  
                  $
                  5.40
                  
                  
                  $
                  2.60First
      Quarter
                  
                  $
                  3.00
                  
                  
                  $
                  1.70
                  
                  
                  $
                  5.10
                  
                  
                  $
                  1.60





There
were approximately 1,790 stockholders of record of Banyan’s common stock as of
April 9, 2010. There are additional stockholders who own stock in their accounts
at brokerage firms and other financial institutions.





Common
Stock





As of
December 31, 2009, our certificate of incorporation provided that we were
authorized to issue 75.0 million shares of common stock, par value $0.01 per
share.  On January 4, 2010, we amended our certificate of
incorporation with the State of Delaware to increase our authorized capital
stock to 76.0 million shares consisting of 75.0 million shares of common stock
and 1.0 million shares of blank check preferred stock.  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 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:





(1)
            treated
      as a 5% shareholder within the meaning of Section 382 of the Internal
      Revenue Code, which relates to net operating losses (NOLs) and limitations
      on a company’s ability to utilize
them,





(2)
            treated as a holder of shares in
      an amount that could otherwise result in a limitation on our use of, or a
      loss of, NOLs, or





(3)
            the beneficial owner (as defined
      under Rule 13d-3 of the Securities Exchange Act of 1934) of more than 4.5%
      of our outstanding shares.





Our board
may, at its option, exempt a shareholder from the foregoing limitations if such
shareholder can provide evidence to assure the board that no NOLs will be lost
or limited by such exemption or the board determines such exemption is in the
best interests of Banyan.





In April
2010, the Company effectuated a 1-for-10 reverse stock split pursuant to which
each stockholder received one share of common stock for every ten shares owned
prior to the reverse split. All share and per share amounts in this Annual
Report on Form 10-K have been adjusted retroactively to reflect this reverse
stock split.


14


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.  Wood Energy was permitted to pay management fees of no
more than $50,000 to us during the 2009 calendar year and may pay “reasonable
amounts” in future years.  These restrictions on Wood Energy make the
payment of dividends by Banyan to its common shareholders unlikely.





Stock
Options





In 2008
and 2009, we issued compensatory stock options to certain members of our Board
of Directors and management exercisable for 3 to 5 years from the date of
grant.   As of December 31, 2009, 312,500 stock options had been
issued, of which 12,500 options were cancelled, and 75,000 had been
exercised.  For further information on stock options issued, see Item
11 “Executive Compensation.”





Item
6.      Selected Financial Data.





Not
applicable.





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





This
discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this Annual Report on Form
10-K. Management’s discussion and analysis contains forward-looking statements
that are provided to assist in the understanding of anticipated future
performance. However, future performance involves risks and uncertainties which
may cause actual results to differ materially from those expressed in the
forward-looking statements. See “ Forward-Looking Statements .”





Overview





Prior to
acquiring Wood Energy, Banyan was a shell company without significant operations
or sources of revenues other than its investments. Upon the acquisition of Wood
Energy on September 4, 2009, we became a railroad tie reclamation and disposal
company. We operate primarily in Texas, Louisiana and Mississippi, and we
employ 21 people.  Our contractual relationships are generally long
term, lasting several years, but specific tasks are often completed within 90
days. Accordingly, we utilize the completed contract method of accounting for
revenue recognition.  We recognize revenue for the pick-up and
disposal of used railroad ties upon the completion of the scope of work required
under our contracts, which is when we consider amounts to be earned (evidence of
an arrangement has been obtained, services are delivered, fees are fixed or
determinable and collectibility is reasonably assured). Billings related to the
services for which contracts have not been completed are recorded as deferred
revenue. Direct costs, including payroll, fuel, equipment rental, trucking
expense and steel strapping costs that are related to the pick-up and disposal
of used railroad ties are deferred until the related revenue recognition process
is complete. We also receive revenue from the sale of a portion of the reclaimed
ties. These revenues are recorded when the ties are sold to third parties.
Operating costs and expenses consist primarily of payroll and transportation
expenses.




Critical
Accounting Policies and Estimates





Our
discussion and analysis of our financial condition and results of operation is
based upon 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 are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates.  Certain of these critical accounting policies and
estimates are outlined below. For a complete list of our significant accounting
policies, see Note 3 of the notes to the consolidated financial statements
included herein.




Revenue Recognition
- We utilize the completed contract method of accounting for revenue
recognition. We recognize 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 we consider amounts to be earned (evidence of an arrangement has
been obtained, services are delivered, fees are fixed or determinable and
collectability is reasonably assured). Accordingly, billings related to the
services for which contracts have not been completed have been recorded as
deferred revenue. Direct costs, including payroll, fuel, equipment rental,
trucking expense and steel strapping costs that are related to the pick-up and
disposal of used railroad ties are deferred until the related revenue
recognition process is complete. We also receive revenue from the sale of a
portion of the reclaimed ties to landscapers. These revenues are recorded when
the ties are sold to the landscapers.


15




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, 2009 and 2008 no allowance is provided as all accounts
receivable are deemed collectible.




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
estimated useful lives ranging from 5 to 10 years.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. Because substantially all property and equipment is used
in the process of picking up and disposing of used railroad ties, we classify
depreciation as a part of cost of sales.




Valuation of Long-Lived
Assets - We review long-lived assets, including identifiable intangible
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.





Business Combinations
- We account for all business combinations using the acquisition method
(formerly called the purchase method). In general, this method requires
acquisition-date fair value measurement of identifiable assets acquired and
liabilities assumed.  Measurement requirements result in the
recognition of the full amount of acquisition-date goodwill. Neither the direct
costs incurred to effect a business combination nor the costs we expect to incur
under a plan to restructure an acquired business are included as part of the
business combination accounting. As a result, those costs are charged to expense
when incurred, except for debt or equity issuance costs, which are accounted for
in accordance with other generally accepted accounting principles.





Goodwill and Indefinite
Lived Intangible Assets -  Goodwill and intangible assets that
have indefinite lives are not amortized, but rather are tested at least annually
for impairment by comparing their carrying values to their fair market values.
If the carrying amount exceeds the carrying amount, we record an impairment loss
in an amount equal to the excess. We amortize intangible assets that have finite
lives over their estimated useful lives. There are many factors which could
negatively impact the carrying value of goodwill, including but not limited to a
significant decline in revenue, loss of a major customer, deterioration of
profit margins, etc. Such negative impact could result in a charge to earnings
in the period in which a negative event occurs.





Income Taxes-  We account 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.





Consolidated
Results of Operations – Banyan and Subsidiary (Actual)





Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008





Revenue
for the year ended December 31, 2009 was $1,142,738 compared to revenue of $-0-
for the year ended December 31, 2008.  In 2008, Banyan was a shell
company and had no revenues other than interest earned on its cash balances. The
revenue recorded in 2009 consists of the revenue generated by Banyan’s
subsidiary, Wood Energy, which was acquired on September 4, 2009.





Gross
margins in 2009 were 23.3% of revenues as compared to 0% in 2008. This is due to
the fact that there were no operations in 2008, prior to the acquisition of Wood
Energy which occurred on September 4, 2009. The 2009 gross margin is generally
consistent with the range of gross margin traditionally realized by Wood Energy
in prior years.





Selling,
general and administrative expenses were $666,749 in 2009, an increase of
$459,241 or 221.3% compared to $207,508 in 2008. This increase is primarily due
to selling, general and administrative expenses incurred in the operations of
Wood Energy of $295,721 from the date of its acquisition, an increase in
compensation to a new officer of $63,000, an increase in various professional
fees (legal, accounting and stock transfer agent) of $67,821, and miscellaneous
other expenses which are individually not significant.


16





Stock
based compensation was $87,500 in 2009, an increase of $58,750 or 204.3%
compared to $28,750 in 2008. This increase is due to the net effect of an
increase in the number of stock options granted in 2009 (87,500 options)
compared to 12,500 options in 2008, and the lower fair value computed for the
2009 options.





Expenses
of $224,414 were incurred for the acquisition of Wood Energy in 2009, whereas no
such expenses were incurred in 2008. Effective January 1, 2009, companies are
required to charge acquisition costs to expense, whereas such costs were often
capitalized as part of the purchase price prior to 2009.





During
2009, Banyan incurred $497,200 of costs relating to the failed acquisition of
L.A. Colo, LLC, a company which provides railroad maintenance and construction
services to short line railroads and industrial customers, compared to $374,193
of such costs in 2008. The 2009 costs were for the return of a deposit, legal
fees and interest as a result of an arbitration award against the Company,
whereas the 2008 costs were principally for the due diligence and negotiation
costs for the proposed transaction.





Banyan
earned $12,063 of interest income in 2009 compared to $47,615 in 2008. The
decrease in interest income is due to lower cash balances carried by Banyan in
2009 than in 2008, as well as lower interest rates in effect in 2009. Interest
expense was $207,354 in 2009, compared to $-0- in 2008. Interest expense in 2009
relates to the senior debt facilities and convertible debentures incurred in
connection with the September 4, 2009 acquisition of Wood Energy. Interest
expense also includes amortization of loan costs and amortization of the
beneficial conversion feature related to the convertible
debentures.





Banyan
recorded an income tax benefit of $1,356,862, net of a $2,775 provision for
uncertain tax positions, in 2009. There was no provision for income taxes in
2008. The 2009 income tax benefit has been recorded principally as a result of
permanent differences and the release of the valuation allowance due to
management’s estimate that the Company’s net operating loss carryforwards will
be realized as an offset to the deferred tax liability recorded upon the
acquisition of Wood Energy and the beneficial conversion feature on the
Debentures.





Results
of Operations – Predecessor Company (Wood Energy)





Eight
Months Ended August 31, 2009 Compared to Year Ended December 31,
2008





Revenue
for the eight months ended August 31, 2009 were $3,545,477. On an annualized
basis, revenues for 2009 would have been $5,318,216, an increase of $240,647 or
4.7%, when compared to revenues of $5,077,569 for the year ended December 31,
2008. Annualized revenues increased due to a change in the payment methodology
by Wood Energy’s major customer which lowered the amount of progress billings
permitted prior to completion of a job. This change incentivized Wood Energy to
complete jobs sooner in 2009 than in 2008, thus leading to more revenue being
recorded in the 2009 period than the 2008 period.





Gross
margins for the periods were 16.0% for 2009 and 21.0% in 2008. The reduction in
the gross margin of 5.0% in 2009 is primarily due to higher costs for repairs
and maintenance, steel strapping and depreciation, offset by lower costs for
fuel and oil.





Selling,
general and administrative expenses for the eight months ended August 31, 2009
were $624,075. On an annualized basis, selling, general and administrative
expenses for 2009 would have been $936,113, a decrease of $84,919 or 8.3%, when
compared to selling, general and administrative expenses of $1,021,032 for the
year ended December 31, 2008. This decrease is due primarily to $181,144 of cost
incurred in 2008 for the settlement of a worker’s compensation
lawsuit.





Interest
expense for the eight months ended August 31, 2009 was $55,918. On an annualized
basis, interest expense for 2009 would have been approximately $84,000, which is
comparable to interest expense of $84,702 for the year ended December 31,
2008.





Income
tax expense for the eight months ended August 31, 2009 was $7,400. On an
annualized basis, income tax expense for 2009 would have been $11,100, which is
comparable to income tax expense of $11,400 for the year ended December 31,
2008. The income tax expense is to provide for uncertain income tax
positions.


17


Liquidity
and Capital Resources





To
finance the acquisition of Wood Energy, we entered a five-year senior secured
term loan in the amount of $3.0 million with Fifth Third Bank.  Banyan
guaranteed the loan and Wood Energy is the borrower.  Payments of
principal and interest are due monthly.  Therefore the term loan will
increase our need for liquidity on an ongoing basis throughout the
year.  As of December 31, 2009, there was $2,850,000 outstanding under
the term loan, and monthly principal payments of $50,000 are required. To obtain
additional funds for the acquisition, Banyan also issued Series A Convertible
Debentures bearing interest at the rate of 10%, payable
semi-annually.  We raised $1,525,000 through the
issuance.  The debentures were due in five years, and were convertible
into shares of common stock of Banyan at a conversion price of $2.00 a share. A
beneficial conversion feature in the amount of $1,143,750 was recorded as of the
date of issuance, which was being amortized over the five year term of the
convertible debentures. In February 2010, the holders of all of the convertible
debentures elected to exchange their debentures for shares of Series A
Convertible Preferred Stock. The terms of the Preferred Stock are substantially
the same as the terms of the convertible debentures, except that Banyan has no
obligation to redeem the Preferred Stock at any time. This exchange reduces the
long-term cash requirements of the Company.





In
connection with the acquisition of Wood Energy, we also obtained two credit
lines in the amounts of $500,000 and $1.5 million from Fifth Third Bank for
working capital and capital expenditures respectively. Draws on the
working capital line are based on specific percentages of eligible working
capital amounts, including accounts receivable and inventory.  Draws
on the capital expenditures line are based on 80% of the cost of such capital
expenditures.  As of December 31, 2009, $225,000 and $1,163,400 are
available under the working capital and capital expenditure lines, respectively.
At this time, we have no other material commitments for capital
expenditures.





The term
loan and bank facilities from Fifth Third Bank described above are subject to
certain loan covenants that require, among other things, compliance with fixed
charge coverage and total debt coverage ratios, as well as minimum levels of
EBITDA (earning before interest, taxes, depreciation and amortization). The
Company has included certain add-backs in calculating such covenants for the
period ended December 31, 2009 with which the bank has concurred and accepted
such add-backs for purposes of determining compliance as of and for the period
ended December 31, 2009. Based on our operating plan as described below, we
believe that we will comply with the loan covenants in the foreseeable future.
However, there can be no assurances in this regard.





At
December 31, 2009, we had a net working capital deficit of $746,615 and incurred
negative cash flows from operating activities of $563,840 in 2009. We
acknowledge that timing of the realization of our receivables from customers and
our payables to vendors may not allow us to generate positive working capital in
the near future.





Subsequent
to the acquisition of Wood Energy, we adopted a plan designed to operate at a
profit and generate positive cash flows from operations into the foreseeable
future. Also, as mentioned above, we have availability under our credit
facilities to help finance our cash needs should the need arise. Our line of
credit matures in September 2010 and we believe that we will be able to
refinance or extend the term of this facility into fiscal 2011, although we
cannot guarantee that we will be able to do so on terms that are acceptable to
us or at all. In addition, in February 2010 we sold 2,725 shares of Preferred
Stock, resulting in proceeds of $272,500 which was used for working capital
purposes. Although we believe that we will be able to successfully execute our
plan and meet our future liquidity needs, there can be no assurances in this
regard.





We are
exploring various additional acquisition opportunities and may incur due
diligence, legal and accounting costs in connection with evaluating these
opportunities.  We are also exploring additional sources of financing
to fund such possible opportunities. However, we cannot guarantee we will be
able to obtain adequate financing on acceptable terms.





New
Accounting Pronouncements





FASB
Accounting Standards Codification





The
Company adopted authoritative guidance issued by the FASB codifying U.S.
GAAP.  The adoption of this authoritative guidance changed how the Company
references U.S. GAAP in the financial statement disclosures.  The guidance
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009.  Applying the guidance did not impact
the Company’s financial condition and results of operations. The Company has
revised its references to pre-Codification GAAP in its financial statements for
the year ended December 31, 2009.





Fair
Value Measurements





On
January 1, 2009, the Company adopted accounting guidance issued by the
Financial Accounting Standards Board (“FASB”) which had previously deferred the
effective date of fair value measurements for all nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed in
financial statements at fair value on a recurring basis (at least annually). The
adoption of this guidance did not have a material impact on the consolidated
financial statements.





Business
Combinations





In
December 2007, the FASB issued a standard to change how an entity accounts for
the acquisition of a business.  The standard carries forward the existing
requirements to account for all business combinations using the acquisition
method (formerly called the purchase method). In general, it requires
acquisition-date fair value measurement of identifiable assets acquired,
liabilities assumed, and noncontrolling interests in the acquiree. The standard
eliminates the current cost-based purchase method that was previously
available.


18





The new
measurement requirements result in the recognition of the full amount of
acquisition-date goodwill, which includes amounts attributable to noncontrolling
interests. The acquirer recognizes in income any gain or loss on the
remeasurement to acquisition-date fair value of consideration transferred or of
previously acquired equity interests in the acquiree. Neither the direct costs
incurred to effect a business combination nor the costs the acquirer expects to
incur under a plan to restructure an acquired business may be included as part
of the business combination accounting. As a result, those costs are charged to
expense when incurred, except for debt or equity issuance costs, which are
accounted for in accordance with other generally accepted accounting
principles.





The
statement also changes the accounting for contingent consideration, in process
research and development, and restructuring costs. In addition, after the
statement is adopted, changes in uncertain tax positions or valuation allowances
for deferred tax assets acquired in a business combination are recognized as
adjustments to income tax expense or contributed capital, as appropriate, even
if the deferred tax asset or tax position was initially acquired prior to the
effective date of the statement.





The
Company adopted the statement as of the required effective date of
January 1, 2009 and applies its provisions prospectively to business
combinations that occur after adoption.  The Company acquired Wood
Energy in 2009. See Note 6 to the consolidated financial statements which
describes the accounting for this acquisition and the application of the new
standards.





Determining
the Useful Life of Intangible Assets





In April
2008, the FASB issued a statement to provide guidance for determining the useful
life of recognized intangible assets and to improve consistency between the
period of expected cash flows used to measure the fair value of a recognized
intangible asset and the useful life of the intangible asset. The statement
requires that an entity consider its own historical experience in renewing or
extending similar arrangements. However, the entity must adjust that experience
based on entity-specific factors included in the statement. If the company lacks
historical experience to consider for similar arrangements, it would consider
assumptions that market participants would use about renewal or extension, as
adjusted for the entity-specific factors under the statement.





The
Company adopted the statement as of the required effective date of
January 1, 2009. In connection with the acquisition of Wood Energy in 2009,
the Company acquired certain identifiable intangible assets which are described
in Note 6 to the consolidated financial statements.




Uncertain
Tax Positions





On
January 1, 2009, the Company adopted accounting guidance issued by the FASB
which had previously deferred the effective date of the statement related to
uncertain tax positions.  As required by the uncertain tax position
guidance, 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. At the adoption date, the Company applied the uncertain tax position
guidance to all tax positions for which the statute of limitations remained
open. The Company files a federal income tax return and certain state income tax
returns. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. With few exceptions, the Company is no longer subject to U.S.
federal and state income tax examinations by tax authorities for the years
before 2007.  Interest and penalties, if any, relating to uncertain tax
positions are classified as income tax expenses. The Company has provided for
uncertain tax positions in its financial statements as stated in Note 17 to the
consolidated financial statements.





Subsequent
Events





In May
2009, the FASB issued a statement to incorporate the accounting and disclosure
requirements for subsequent events into U.S. generally accepted accounting
principles which was amended in February 2010. The statement, as amended,
introduces new terminology, defines a date through which management must
evaluate subsequent events, and lists the circumstances under which an entity
must recognize and disclose events or transactions occurring after the
balance-sheet date. The Company adopted the statement, which increases the
disclosure surrounding subsequent events in the Company’s financial statements,
as of June 30, 2009, the required effective date.





Off-Balance
Sheet Financing Arrangements





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


19


Inflation





We do not
believe inflation had a material impact on our results of operations in 2008,
the eight month period ended August 31, 2009 or the year ended December 31,
2009.





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





Not
applicable.




Item
8.      Financial Statements and Supplementary
Data.




Our 2009
and 2008 consolidated financial statements audited by Grant Thornton LLP follow
this annual report beginning on page F-1.





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





None.





Item
9A(T).  Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures





As of
December 31, 2009, 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, and the identification of material
weaknesses in internal control over financial reporting as described below, our
chief executive officer and chief financial officer each concluded that our
disclosure controls and procedures were not effective as of December 31,
2009.





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.





We
carried out an evaluation under the direction of our 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.





A
material weakness is a control deficiency, or combination of control
deficiencies, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.  In connection with management’s
assessment of our internal control over financial reporting described above,
management has identified the following material weaknesses in the Company’s
internal control over financial reporting as of December 31, 2009:





The Company acquired The Wood Energy
Group, Inc. (“Wood Energy”) in September 2009. The Company’s management began to
integrate Wood Energy into the Company, and enhance the internal controls
structure and policies and procedures surrounding financial reporting. As of
December 31, 2009, all of these enhancements had not been finalized,
specifically the recording of deferred revenues and costs associated with
projects in process and timely reconciliation of certain balance sheet
accounts.  Further, the Company was in need of an additional resource to
handle the increase in business activities, and resulting GAAP financial
statement and SEC reporting requirements, as a result of the recent
acquisition.


20


Based
upon their evaluation, and as a result of the material weaknesses discussed
above, our chief executive officer and chief financial officer each concluded
that our internal control over financial reporting was not effective as of
December 31, 2009.  However, we have implemented a number of changes
in internal control over financial reporting, as described in the next
paragraph, to remediate these material weaknesses and management believes that
our internal control over financial reporting has significantly improved. In
addition, based on their knowledge, our chief executive officer and chief
financial officer each believe that the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this report.





Changes
in Internal Control Over Financial Reporting





There
have been a number of changes in our internal control over financial reporting
during the last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting as a
result of the Wood Energy acquisition and the material weaknesses described
above.  Since the acquisition of Wood Energy was consummated in
September 2009, we have made changes to the internal control procedures of Wood
Energy to strengthen such controls.  For example, among other things,
we have (i) added a controller and an assistant to the President to the staff of
Wood Energy, (ii) increased the oversight provided by Banyan’s executives over
Wood Energy’s operations and financial activities, and (iii) instituted
procedures to more accurately identify direct costs incurred for each of Wood
Energy’s contracts. In addition, the Company is planning to hire another full
time person to further strengthen these functions, which will assist in the
process of establishing effective internal controls over all
processes.





Attestation
Report of Independent Registered Public Accounting Firm





This
annual report does not include an attestation report of our registered public
accounting firm 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
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in this annual
report.





Item
9B.     Other Information.





On
September 18, 2009, our board of directors, believing it to be in the best
interests of the Company and our stockholders, approved amendments to our
certificate of incorporation to:





·
            change
      the name of the company to Banyan Rail Services
  Inc.,


·
            authorize
      one million shares of preferred stock,
and


·
            effectuate
      a one-for-ten reverse stock split of our common
  stock.





Delaware
law permits the holders of a majority of our outstanding shares to approve the
amendments by written consent without holding a meeting.  To avoid the
significant costs and delays associated with holding a meeting, our board
elected to seek approval of the amendments by written consent.  On
October 5, 2009, the holders of an aggregate of 1,670,649 shares of our common
stock, which represented approximately 57.3% of the shares entitled vote on the
amendments to the certificate, consented in writing without a meeting to the
amendments.  As a result, no further vote was required.  We
distributed an information statement dated October 14, 2009 to our stockholders
describing the action in greater detail.  For additional information
about the amendments, please turn to “Recent Events” on page 6.


21




PART
III




Item
10.     Directors, Executive Officers and Corporate
Governance.




Directors
and Executive Officers




Our
directors and executive officers are:




Gary O. Marino, age 65, joined
our board in January 2007, was appointed chairman in January 2008 and chief
executive officer in November 2008.  Mr. Marino has served as
chairman, president and CEO of Patriot Rail Corp., an owner and operator of
short line and regional railroads, since 2005, and formerly held the same
positions at RailAmerica, Inc. (NYSE: RRA), 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 investment banking experience.





Paul S. Dennis, age 71, 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 and was appointed as vice
president and treasurer. 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 61, joined
the board and was appointed vice president and chief financial officer in
November 2008.  Mr. Marks has been executive vice president and CFO of
Patriot Rail Corp., an owner and operator of short line and regional railroads,
since 2005.  Mr. Marks has served as EVP and CFO of six publicly-held
and privately-owned companies in the transportation, healthcare, manufacturing,
distribution and telecommunications industries. While CFO at RailAmerica, Inc.
(NYSE: RRA), 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
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 57,
joined the board in January 2010.  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.
(NYSE: RRA), 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.




C. Lawrence Rutstein, age 65,
serves as our vice president of administration.  He also serves as
manager of special projects for Patriot Rail Corp.  Mr. Rutstein has
over 40 years of legal and business experience.  From 1968 through
1970, Mr. Rutstein practiced securities law and corporate banking for several
major Philadelphia law firms, including Morgan, Lewis & Bockius and Blank,
Rome.  In 1971-72, he served as Assistant Attorney General and Chief
Counsel to the Pennsylvania Department of Banking and later in 1972 became the
first in-house counsel for Continental Bank.  In 1980, Mr. Rutstein
founded Parker & Rutstein, a corporate law firm in
Philadelphia.  In 1989, he led an IPO for Cedar Group, Inc., and
served as its CEO until 1991.  Mr. Rutstein has also served on the
boards of several NASDAQ companies.  Mr. Rutstein earned his
undergraduate degree from the University of Massachusetts and his law degree
from Harvard Law School.


22


Greg Smith, age 47, founded
Wood Energy in 2001 and has served as its president ever since.  Mr.
Smith has been in the business of railroad tie reclamation and disposal since
1991.  He founded Wood Waste Energy and built it into the country’s
largest railroad tie recovery service. Wood Waste Energy was the first company
to produce railroad tie-derived fuel, with Mr. Smith developing a patented
design for processing used ties.  He also developed an efficient
system for crews to pick up rail ties behind railroad system gangs. He has
worked as a contractor for many large railroads: BNSF (1997-2001); Union Pacific
(1991-present); Norfolk Southern (1994-2000); Illinois Central (1997-2001); and
Kansas City Southern (1998-2001).  Mr. Smith sold Wood Waste Energy in
1999 and it remains the largest railroad tie recovery company in the
U.S.  Mr. Smith is a graduate of the University of
Kansas.




Andy C. Lewis, age 41, has
served as vice president of Wood Energy since 2001.  Mr. Lewis has
been managing railroad tie pick-up crews since 1997, and has extensive
experience in managing field crew employees, hi-rail boom trucks, tie-cranes,
railcars and semi-tractor trailers.  He has worked with many of the
Class I railroads over the past 12 years as a manager of Wood Waste Energy and
as vice president of Wood Energy.




Committees
of the Board




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




Code
of Ethics




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




Compliance
with Section 16(a) of the Exchange Act




Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more than 10% of our common stock, to
make filings with the SEC reporting their ownership of our common stock and to
furnish us with copies of these filings.  Based solely on our review
of copies of reports furnished to us, we believe that all Section 16(a) filing
requirements were met in 2009. 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:





•
            the name, age, business address
      and residence address of the
person,


•
            the principal occupation or
      employment of the person,


•
            the written consent of the person
      to being named in the proxy as a nominee and to serving as a
      director,


•
            the class and number of our
      shares of stock beneficially owned by the person,
    and


•
            any
      other information relating to the person that is required to be disclosed
      in solicitations for proxies for election of director pursuant to
      Rule 14a under the Securities Exchange Act of
  1934;





and as to
the stockholder giving the notice:





•
            the name and record address of
      the stockholder, and


•
            the class and number of our
      shares beneficially owned by the
  stockholder.


23





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.




Name and Principal Position
                                                
                                                Year
                                                
                                                Salary
                                                  ($)
                                                
                                                Bonus
                                                  ($)
                                                
                                                Option
                                                  Awards (1)
                                                  ($)
                                                
                                                All Other
                                                  Compensation
                                                  ($)
                                                
                                                Total
                                                  ($)Gary
      O. Marino
                                                
                                                2009
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                —
                                                
                                                
                                                25,000
                                                
                                                25,000Chairman, President and Chief Executive
      Officer (1)
                                                
                                                2008
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                —Greg
      Smith
                                                
                                                2009
                                                
                                                194,154
                                                
                                                
                                                —
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                194,154President
      of Wood Energy Group
                                                
                                                2008
                                                
                                                313,000
                                                
                                                
                                                —
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                313,000Andy
      C. Lewis
                                                
                                                2009
                                                
                                                194,154
                                                
                                                
                                                —
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                194,154Vice
      President of Wood Energy Group
                                                
                                                2008
                                                
                                                283,222
                                                
                                                
                                                —
                                                
                                                —
                                                
                                                
                                                —
                                                
                                                283,222





(1)
            Mr.
      Marino does not receive compensation for service as our chairman,
      president and chief executive officer.  “All other compensation”
      consists of option awards granted to Mr. Marino for service as a
      director.  Mr. Marino was appointed our chief executive officer
      in November 2008.  The fair value of stock options is determined
      as of the date of grant. We use the Black-Scholes option pricing model to
      estimate compensation cost for stock option awards. Please see the table
      regarding the assumptions used in this calculation in Note 15,
      “Stock-Based Compensation” to our attached consolidated financial
      statements.





Outstanding
Equity Awards at December 31, 2009




The
following table summarizes information with respect to the stock options held by
the executive officers in our summary compensation table as of December 31,
2009.





Name
                        
                        Number of
                          Underlying
                          Unexercised
                          Options
                          Exercisable
                        
                        Number of
                          Underlying
                          Unexercised
                          Options
                          Unexercisable
                        
                        Option
                          Exercise
                          Price
                        
                        Option
                          Expiration
                          DateGary
      O. Marino
                        
                        
                        25,000
                        
                        —
                        
                        $
                        3.50
                        
                        06/01/2014
                        (1)25,000
                        
                        —
                        
                        $
                        3.50
                        
                        10/23/2010
                        (2)





(1)
            Options
      vested on June 1, 2009, the date of
grant.


(2)
            Options
      vested on October 23, 2007, the date of
grant.




24





Director
Compensation




The
following table summarizes information with respect to the compensation paid to
our directors in 2009.  As an executive officer of Banyan, Gary Marino
is included in our summary compensation table and, therefore, is not included in
this table.




Name
                  
                  Fees
                    Earnedor
                    Paid in
                    Cash
                  
                  
                  Option
                    Awards(1)
                  
                  
                  All Other
                    Compensation
                  
                  
                  TotalPaul
      S. Dennis
                  
                  
                  —
                  
                  
                  $
                  25,000
                  
                  
                  
                  —
                  
                  
                  $
                  25,000Bennett
      Marks
                  
                  
                  —
                  
                  
                  $
                  25,000
                  
                  
                  
                  —
                  
                  
                  $
                  25,000Harvey
      J. Polly(2)
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  —








(1)
            The
      fair value of stock options is determined as of the date of grant. We use
      the Black-Scholes option pricing model to estimate compensation cost for
      stock option awards. Please see the table regarding the assumptions used
      in this calculation in Note 15, “Stock-Based Compensation” to our attached
      consolidated financial statements.


(2)
            Mr.
      Polly resigned as a director on February 1, 2010. Mr. Polly did not
      receive any stock options or other form of compensation in
      2009.





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 20,
2010.





Name and Address(1)
                                                
                                                Common
                                                  Stock
                                                
                                                Stock
                                                  Options(2)
                                                
                                                Preferred
                                                  Stock(3)
                                                
                                                Total
                                                
                                                Percentage(4)Gary
      O. Marino(5)
                                                  Patriot
      Equity, LLC
                                                  2255
      Glades Road,
                                                  Suite
      342-W
                                                  Boca
      Raton, FL 33431
                                                
                                                
                                                212,728
                                                
                                                56,250
                                                
                                                50,000
                                                
                                                318,978
                                                
                                                10.2
                                                %Paul
      S. Dennis(6)
                                                  16330
      Vintage Oaks Lane,
                                                  Delray
      Beach, FL 33484
                                                
                                                
                                                364,792
                                                
                                                56,250
                                                
                                                200,000
                                                
                                                621,042
                                                
                                                19.0
                                                %Bennett
      Marks
                                                  Patriot
      Rail, LLC
                                                  2255
      Glades Road,
                                                  Suite
      342-W
                                                  Boca
      Raton, FL 33431
                                                
                                                
                                                31,135
                                                
                                                56,250
                                                
                                                —
                                                
                                                87,385
                                                
                                                2.8
                                                %Donald
      D. Redfearn(7)
                                                  4629
      Gleneagles Drive
                                                  Boynton
      Beach, FL 334316
                                                
                                                
                                                1,000
                                                
                                                6,250
                                                
                                                25,000
                                                
                                                32,250
                                                
                                                1.1
                                                %Greg
      Smith(8)
                                                  2016
      Kingspointe Drive
                                                  Chesterfield,
      MO 63005
                                                
                                                
                                                166,667
                                                
                                                —
                                                
                                                100,000
                                                
                                                266,667
                                                
                                                8.6
                                                %Andy
      C. Lewis(9)
                                                  868
      South Allis Rd.
                                                  Wilmar,
      AR 71675
                                                
                                                
                                                166,667
                                                
                                                —
                                                
                                                100,000
                                                
                                                266,667
                                                
                                                8.6
                                                %All
      directors, and executive officers as a group (7
    individuals)
                                                
                                                
                                                981,134
                                                
                                                190,625
                                                
                                                500,000
                                                
                                                1,671,759
                                                
                                                45.1
                                                %







(1)
            Unless otherwise indicated, we
      believe that all persons named in the table have sole voting and
      investment power over the shares of stock
  owned.




25





(2)
            Shares
      of common stock the beneficial owners have the right to acquire through
      stock options that are or will become exercisable within 60
      days.


(3)
            Shares
      of common stock into which shares of series A preferred stock held by the
      beneficial owner are currently
convertible.


(4)
            Assumes
      the exercise of options and conversion of series A preferred stock into
      common stock by that beneficial owner, but no
  others.


(5)
            All
      shares of common stock and preferred stock are held by Patriot Equity,
      LLC, a limited liability company of which Mr. Marino is sole
      member.


(6)
            297,042 shares of common stock
      and all shares of preferred stock are owned by Paul S. Dennis, Trustee
      under the Paul S. Dennis Trust Agreement dated August 9, 1983, as
      modified.


(7)
            Shares
      of preferred stock held by Redfearn Enterprises
  LLC.


(8)
            All shares of common stock and
      preferred stock are held by the Stephanie G. Smith Trust u/a dated
      December 20, 1995, as amended, Stephanie G. Smith and Greg Smith,
      Trustees.


(9)
            All shares of common stock and
      preferred stock are held by the Andy C. Lewis and Michelle D. Lewis
      Revocable Trust.





Equity Compensation Plan
Information




Our
directors received a total of 200,000 options, or 50,000 options each, as
compensation for serving on our board in 2007 and 2008.  12,500 of
these options were subsequently cancelled upon a board member’s resignation from
the board.  In 2008, a newly appointed director and officer received
12,500 options in connection with joining the board and 12,500 options for
serving as an officer.  In 2009, 87,500 options were issued, 25,000 to
each of three directors and 12,500 to a member of senior
management.  We have not issued any other options, warrants or rights
in 2009.  Our directors and a former director exercised a total of
75,000 options in 2009.  Our equity plans are summarized in the
following table.


Plan category
                
                Number of
                  securities
                  to be issued
                  upon
                  exercise of
                  outstanding
                  options
                
                
                Weighted-average
                  exercise price of
                  outstanding options
                
                
                Number of
                  securities
                  remaining available
                  for future issuance
                  under equity
                  compensation plans
                  (excluding securities
                  reflected
                  in the first column)Equity
      compensation plans approved by security holders
                
                
                —
                
                
                
                —
                
                
                
                —Equity
      compensation plans not approved by security holders
                
                
                225,000
                
                
                $
                3.20
                
                
                
                —Total
                
                
                225,000
                
                
                $
                3.20
                
                
                
                —





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




Transactions
with Related Parties





Banyan
has entered into an agreement with Patriot Rail Corp. for office space and
administrative services at the Company’s Boca Raton, Florida
headquarters.  Our chairman and CEO, Gary O. Marino, CFO, Bennett
Marks, and vice president of administration, C. Lawrence Rutstein, are officers
and significant stockholders of Patriot Rail.  Banyan pays Patriot
Rail $5,000 a month for these services and the term of the agreement is month to
month.  We believe that Banyan would not be able to obtain these
services from an unrelated third party on terms equivalent to those offered by
Patriot Rail.  We did not engage in any other transaction with related
parties in 2009.





Director
Independence





Our board
has determined that two of our four directors, Paul S. Dennis and Donald D.
Redfearn, are “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.




Grant
Thornton LLP has served as our independent registered public accounting firm
since 2000. We paid Grant Thornton $282,000 in 2009 and $38,809 in 2008 for
audit fees.  Grant Thornton did not render any other services to
Banyan during 2009 or 2008.


26





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 Grant Thornton. Our board believes the services provided by Grant
Thornton are compatible with maintaining our auditor’s
independence.





Item
15.     Exhibits, Financial Statement
Schedules.




(b)           Exhibit Index.




2.1
                                          Stock
      Purchase Agreement, dated May 28, 2009, by and among the Registrant,
      Stephanie G. Smith and Greg Smith, Trustees of the Stephanie G. Smith
      Trust U/A dated December 20, 1995, as amended, Andy C. Lewis, and The Wood
      Energy Group, Inc.  Exhibit 10.1 to the Form 8-K filed July 28,
      2009 is incorporated by reference herein.2.2
                                          Amendment
      to Stock Purchase Agreement, dated August 31, 2009, by and among the
      Registrant, Stephanie G. Smith and Greg Smith, Trustees of the Stephanie
      G. Smith Trust U/A dated December 20, 1995, as amended, Andy C. Lewis, and
      The Wood Energy Group, Inc. Exhibit 2.2 to the Form 8-K filed September
      11, 2009 is incorporated by reference herein.2.3
                                          Second
      Amendment to Stock Purchase Agreement, dated September 3, 2009, by and
      among the Registrant, Stephanie G. Smith and Greg Smith, Trustees of the
      Stephanie G. Smith Trust U/A dated December 20, 1995, as amended, Andy C.
      Lewis, and The Wood Energy Group, Inc. Exhibit 2.3 to the Form 8-K filed
      September 11, 2009 is incorporated by reference herein.3.1*
                                          Restated
      Certificate of Incorporation3.2
                                          Certificate
      of Designation of Series A Preferred Stock. Exhibit 3.1 to the Form 8-K
      dated February 1, 2010 is incorporated by reference
  herein.3.3
                                          Amended
      and Restated Bylaws of the Registrant.  Exhibit D to the
      Definitive Proxy Statement filed August 9, 2000 is incorporated by
      reference herein.4.1
                                          Form
      of Series A Convertible Debenture. Exhibit 4.1 to the Form 8-K filed
      September 11, 2009 is incorporated by reference herein.10.1
                                          Contract
      for Work or Services dated as of January 1, 2009 between Union Pacific
      Railroad Company and Wood Energy Group Inc. Exhibit 10.1 to the
      Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
      30, 2009 is incorporated by reference herein.10.2
                                          Loan
      and Security Agreement, dated September 4, 2009 by and between The Wood
      Energy Group, Inc. and Fifth Third Bank. Exhibit 10.1 to the Form 8-K
      filed September 11, 2009 is incorporated by reference
    herein.10.3
                                          Term
      Note, dated September 4, 2009 from The Wood Energy Group, Inc. in favor of
      Fifth Third Bank. Exhibit 10.2 to the Form 8-K filed September 11, 2009 is
      incorporated by reference herein.10.4
                                          Revolving
      Note for Working Capital Credit Line, dated September 4, 2009 from The
      Wood Energy Group, Inc. in favor of Fifth Third Bank. Exhibit 10.3 to the
      Form 8-K filed September 11, 2009 is incorporated by reference
      herein.10.5
                                          Capex
      Note, dated September 4, 2009 from The Wood Energy Group, Inc. in favor of
      Fifth Third Bank. Exhibit 10.4 to the Form 8-K filed September 11, 2009 is
      incorporated by reference herein.10.6
                                          Guaranty,
      dated September 4, 2009 by the Registrant in favor of Fifth Third Bank.
      Exhibit 10.5 to the Form 8-K filed September 11, 2009 is incorporated by
      reference herein.10.7**
                                          Employment
      Agreement, dated September 4, 2009 by and between The Wood Energy Group,
      Inc. and Greg Smith. Exhibit 10.6 to the Form 8-K filed September 11, 2009
      is incorporated by reference herein.10.8**
                                          Employment
      Agreement, dated September 4, 2009 by and between The Wood Energy Group,
      Inc. and Andy C. Lewis. Exhibit 10.7 to the Form 8-K filed September 11,
      2009 is incorporated by reference herein.10.9*
                                          Agreement
      for Use of Office and Administrative Services between the Registrant and
      The Wood Energy Group, Inc. dated September 4,
  2009




27





14.1
                  Code
      of Ethics.  Exhibit 14 to the Registrant’s Form 10-K for the
      fiscal year ended December 31, 2006 filed on April 16, 2007 is
      incorporated by reference herein.31.1*
                  Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive Officer Pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200231.2*
                  Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial Officer Pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200232.1*
                  Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002





* Filed
herewith.


**
Management contract or compensatory plan or arrangement.




28





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.





Banyan
      Rail Services Inc.Date:
      April 15, 2010
                /s/ Gary O. MarinoBy
      Gary O. Marino,Chief
      Executive Officer and Chairman of the Board(Principal
      Executive Officer)Date:
      April 15, 2010
                /s/ Bennett MarksBy
      Bennett Marks,Vice
      President and Chief Financial Officer(Principal
      Financial and Accounting
Officer)





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.





Date:
      April 15, 2010
            /s/ Gary O. MarinoBy
      Gary O. Marino,Chief
      Executive Officer and Chairman of the BoardDate:
      April 15, 2010
            /s/ Bennett MarksBy
      Bennett Marks,Vice
      President, Chief Financial Officer and DirectorDate:
      April 15, 2010
            /s/ Paul S. DennisBy
      Paul S. Dennis, Vice President, Treasurer andDirectorDate:
      April 15, 2010
            /s/ Donald D. RedfearnBy
      Donald D. Redfearn, Director




29





Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Stockholders of


Banyan
Rail Services Inc.





We have
audited the accompanying consolidated balance sheets of Banyan Rail Services
Inc. (formerly B.H.I.T. Inc.) (a Delaware corporation) as of December 31, 2009
and 2008, and the related consolidated statements of operations, stockholders’
deficit, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. 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, 2009 and 2008, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.





/s/ Grant
Thornton LLP





Fort
Lauderdale, Florida


April 14,
2010


F-1





Report
of Independent Registered Public Accounting Firm





Board of
Directors and Shareholders of


The Wood
Energy Group, Inc.





We have
audited the accompanying balance sheets of The Wood Energy Group, Inc. (a
Missouri Corporation) as of August 31, 2009 and December 31, 2008 and the
related statements of operations, stockholders’ deficit, and cash flows for the
period from January 1, 2009 through August 31, 2009 and the year ended December
31, 2008. These financial statements are the responsibility of the
Company's management.  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 audits 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 financial statements referred to above present fairly, in all
material respects, the financial position of The Wood Energy Group, Inc. as of
August 31, 2009 and December 31, 2008 , and the results of its operations
and its cash flows for each of the  period from January 1, 2009
through August 31, 2009 and the year ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.





/s/ Grant
Thornton LLP





Fort
Lauderdale, Florida


April 14,
2010


F-2





Banyan
Rail Services Inc. and Subsidiary


Consolidated
Balance Sheets


December
31, 2009 and 2008





December 31, 2009
                      
                      
                      December 31, 2008ASSETSCurrent
      assetsCash
      and cash equivalents
                      
                      $
                      101,361
                      
                      
                      $
                      1,613,173Accounts
      receivable - trade
                      
                      
                      533,661
                      
                      
                      
                      -Due
      from sellers
                      
                      
                      341,863
                      
                      
                      
                      -Cost
      incurred related to deferred revenue
                      
                      
                      224,176
                      
                      
                      
                      -Prepaid
      expenses and other current assets
                      
                      
                      5,362
                      
                      
                      
                      9,857Total
      current assets
                      
                      
                      1,206,423
                      
                      
                      
                      1,623,030Property
      and equipment, net
                      
                      
                      2,146,086
                      
                      
                      
                      -Other
      assetsDeferred
      loan costs, net
                      
                      
                      199,993
                      
                      
                      
                      -Identifiable
      intangible assets, net
                      
                      
                      1,824,827
                      
                      
                      
                      -Goodwill
                      
                      
                      3,658,364
                      
                      
                      
                      -Deposit
                      
                      
                      -
                      
                      
                      
                      340,000Total
      other assets
                      
                      
                      5,683,184
                      
                      
                      
                      340,000Total
      assets
                      
                      $
                      9,035,693
                      
                      
                      $
                      1,963,030LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                      
                      $
                      871,533
                      
                      
                      $
                      10,303Deferred
      revenue
                      
                      
                      151,924
                      
                      
                      
                      -Line
      of credit
                      
                      
                      275,000
                      
                      
                      
                      -Current
      portion of long-term debt
                      
                      
                      619,206
                      
                      
                      
                      -Income
      tax payable
                      
                      
                      35,375
                      
                      
                      
                      -Total
      current liabilities
                      
                      
                      1,953,038
                      
                      
                      
                      10,303Deferred
      income taxes
                      
                      
                      110,088
                      
                      
                      
                      -Long-term
      debt, less current portion
                      
                      
                      2,567,394
                      
                      
                      
                      -Convertible
      debentures, net
                      
                      
                      441,073
                      
                      
                      
                      -Total
      liabilities
                      
                      
                      5,071,593
                      
                      
                      
                      10,303Commitments
      and contingencies
                      
                      
                      -
                      
                      
                      
                      -Stockholders'
      equityCommon
      stock, $0.01 par value. 75,000,000 sharesauthorized.  3,020,414  and
      2,612,081 shares issued atDecember
      31, 2009 and 2008, respectively
                      
                      
                      30,204
                      
                      
                      
                      26,121Additional
      paid-in capital
                      
                      
                      91,885,935
                      
                      
                      
                      89,768,476Accumulated
      deficit
                      
                      
                      (87,881,350
                      )
                      
                      
                      (87,833,681
                      )Treasury
      stock, at cost, for 28,276 and 3,276 shares atDecember
      31, 2009 and 2008, respectively
                      
                      
                      (70,689
                      )
                      
                      
                      (8,189
                      )Total
      stockholders' equity
                      
                      
                      3,964,100
                      
                      
                      
                      1,952,727Total
      liabilities and stockholders' equity
                      
                      $
                      9,035,693
                      
                      
                      $
                      1,963,030





The
accompanying notes are an integral part of these financial
statements


F-3





Banyan
Rail Services Inc. and Subsidiary


Balance
Sheets





Predecessor
      - The Wood Energy Group, Inc.August
      31, 2009
                
                
                December 31, 2008ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                22,303
                
                
                $
                2,175Accounts
      receivable
                
                
                538,713
                
                
                
                319,582Prepaid
      expenses
                
                
                18,903
                
                
                
                -Cost
      incurred related to deferred revenue
                
                
                549,255
                
                
                
                870,879Total
      current assets
                
                
                1,129,174
                
                
                
                1,192,636Property
      and equipment, net
                
                
                710,139
                
                
                
                818,262Total
      assets
                
                $
                1,839,313
                
                
                $
                2,010,898LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                882,761
                
                
                $
                397,261Income
      taxes payable
                
                
                32,600
                
                
                
                25,200Deferred
      revenue
                
                
                876,705
                
                
                
                1,389,924Line
      of credit
                
                
                500,000
                
                
                
                500,000Current
      portion of capital lease obligations
                
                
                152,584
                
                
                
                170,042Current
      portion of long-term debt
                
                
                53,939
                
                
                
                42,964Total
      current liabilities
                
                
                2,498,589
                
                
                
                2,525,391Capital
      lease obligations, less current portion
                
                
                213,571
                
                
                
                282,831Long-term
      debt, less current portion
                
                
                103,044
                
                
                
                58,429Total
      liabilities
                
                
                2,815,204
                
                
                
                2,866,651Commitments
      and contingencies
                
                
                -
                
                
                
                -Stockholders'
      deficitCommon
      stock, $1.00 par value. 30,000 shares authorized; 1,000 shares issued
      and outstanding
                
                
                1,000
                
                
                
                1,000Stockholders'
      loans
                
                
                (111,000
                )
                
                
                (111,000
                )Accumulated
      deficit
                
                
                (865,891
                )
                
                
                (745,753
                )Total
      stockholders' deficit
                
                
                (975,891
                )
                
                
                (855,753
                )Total
      liabilities and stockholders' deficit
                
                $
                1,839,313
                
                
                $
                2,010,898





The
accompanying notes are an integral part of these financial
statements


F-4





Banyan
Rail Services Inc. and Subsidiary


Consolidated
Statements of Operations





Years
      Ended December 31,2009
                                    
                                    
                                    2008Revenues
                                    
                                    $
                                    1,142,738
                                    
                                    
                                    $
                                    -Cost
      of sales
                                    
                                    
                                    876,115
                                    
                                    
                                    
                                    -Gross
      profit
                                    
                                    
                                    266,623
                                    
                                    
                                    
                                    -Selling,
      general and administrative expenses
                                    
                                    
                                    666,749
                                    
                                    
                                    
                                    207,508Stock
      based compensation
                                    
                                    
                                    87,500
                                    
                                    
                                    
                                    28,750Acquisition
      costs for Wood Energy
                                    
                                    
                                    224,414
                                    
                                    
                                    
                                    -Unconsummated
      acquisition costs
                                    
                                    
                                    497,200
                                    
                                    
                                    
                                    374,193Loss
      from operations
                                    
                                    
                                    (1,209,240
                                    )
                                    
                                    
                                    (610,451
                                    )Other
      income (expenses)Interest
      income
                                    
                                    
                                    12,063
                                    
                                    
                                    
                                    47,615Interest
      expense
                                    
                                    
                                    (207,354
                                    )
                                    
                                    
                                    -Loss
      before income taxes
                                    
                                    
                                    (1,404,531
                                    )
                                    
                                    
                                    (562,836
                                    )Income
      tax benefit
                                    
                                    
                                    1,356,862
                                    
                                    
                                    
                                    -Net
      (loss)
                                    
                                    $
                                    (47,669
                                    )
                                    
                                    $
                                    (562,836
                                    )Weighted
      average number of  common shares outstanding:Basic
      and diluted
                                    
                                    
                                    2,507,990
                                    
                                    
                                    
                                    2,511,027Net
      income (loss) per common share:Basic
      and diluted
                                    
                                    $
                                    (0.02
                                    )
                                    
                                    $
                                    (0.22
                                    )





The
accompanying notes are an integral part of these financial
statements


F-5





Banyan
Rail Services Inc. and Subsidiary


Statements
of Operations





Predecessor
      - The Wood Energy Group, Inc.Eight
      Months Ended
                
                
                Year
      EndedAugust
      31, 2009
                
                
                December
      31, 2008Revenues
                
                $
                3,545,477
                
                
                $
                5,077,569Cost
      of sales
                
                
                2,978,222
                
                
                
                4,013,315Gross
      profit
                
                
                567,255
                
                
                
                1,064,254Selling,
      general and administrative expenses
                
                
                624,075
                
                
                
                1,021,032Income
      (loss) from operations
                
                
                (56,820
                )
                
                
                43,222Interest
      expense
                
                
                (55,918
                )
                
                
                (84,702
                )Loss
      before income taxes
                
                
                (112,738
                )
                
                
                (41,480
                )Income
      tax expense
                
                
                (7,400
                )
                
                
                (11,400
                )Net
      loss
                
                $
                (120,138
                )
                
                $
                (52,880
                )Weighted
      average number of  common shares outstanding
                
                
                1,000
                
                
                
                1,000Basic
      and diluted net loss per common share
                
                $
                (120.14
                )
                
                $
                (52.88
                )





The
accompanying notes are an integral part of these financial
statements


F-6





Banyan
Rail Services Inc. and Subsidiary


Consolidated
Statements of Stockholders’ Equity


Years
Ended December 31, 2009 and 2008





Common
      Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  Treasury
      StockAdditional
                  
                  
                  AccumulatedShares
      Issued
                  
                  
                  Amount
                  
                  
                  Paid-in
      Capital
                  
                  
                  Deficit
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  TotalStockholders’
      equity January 1, 2008 (restated for the 1 for 10 reverse stock
      split)
                  
                  
                  2,502,081
                  
                  
                  $
                  25,021
                  
                  
                  $
                  89,465,826
                  
                  
                  $
                  (87,270,845
                  )
                  
                  
                  3,276
                  
                  
                  $
                  (8,189
                  )
                  
                  $
                  2,211,813Proceeds
      from sale of common stock
                  
                  
                  110,000
                  
                  
                  
                  1,100
                  
                  
                  
                  273,900
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  275,000Stock
      compensation expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  28,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  28,750Net
      loss for the year ended December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  (562,836
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (562,836
                  )Stockholders’
      equity December 31, 2008
                  
                  
                  2,612,081
                  
                  
                  
                  26,121
                  
                  
                  
                  89,768,476
                  
                  
                  
                  (87,833,681
                  )
                  
                  
                  3,276
                  
                  
                  
                  (8,189
                  )
                  
                  
                  1,952,727Proceeds
      from exercise of stock options
                  
                  
                  75,000
                  
                  
                  
                  750
                  
                  
                  
                  111,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  112,500Purchase
      of treasury stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000
                  
                  
                  
                  (62,500
                  )
                  
                  
                  (62,500
                  )Stock
      compensation expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  87,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  87,500Beneficial
      conversion feature for convertible debentures
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  754,875
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  754,875Issuance
      of shares for acquisition of Wood Energy
                  
                  
                  333,333
                  
                  
                  
                  3,333
                  
                  
                  
                  1,163,334
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,166,667Net
      loss for the year ended December 31, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (47,669
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (47,669
                  )Stockholders’
      equity December 31, 2009
                  
                  
                  3,020,414
                  
                  
                  $
                  30,204
                  
                  
                  $
                  91,885,935
                  
                  
                  $
                  (87,881,350
                  )
                  
                  
                  28,276
                  
                  
                  $
                  (70,689
                  )
                  
                  $
                  3,964,100





The
accompanying notes are an integral part of these financial
statements


F-7





Banyan
Rail Services Inc. and Subsidiary


Statements
of Stockholders’ Equity


Eight
Months Ended August 31, 2009 and the Year Ended December 31, 2008





Predecessor
      - The Wood Energy Group, Inc.Common
      Stock
                
                
                Shareholder
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Loans
                
                
                Deficit
                
                
                TotalBalance
      January 1, 2008
                
                
                1,000
                
                
                $
                1,000
                
                
                $
                (111,000
                )
                
                $
                (692,873
                )
                
                $
                (802,873
                )Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (52,880
                )
                
                
                (52,880
                )Balance
      December 31, 2008
                
                
                1,000
                
                
                
                1,000
                
                
                
                (111,000
                )
                
                
                (745,753
                )
                
                
                (855,753
                )Net
      loss (January 1, 2009 to August 31, 2009)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (120,138
                )
                
                
                (120,138
                )Balance
      August 31, 2009
                
                
                1,000
                
                
                $
                1,000
                
                
                $
                (111,000
                )
                
                $
                (865,891
                )
                
                $
                (975,891
                )





The
accompanying notes are an integral part of these financial
statements


F-8





Banyan
Rail Services Inc. and Subsidiary


Statements
of Cash Flows


Year
Ended December 31, 2009 and 2008





2009
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (47,669
                )
                
                $
                (562,836
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                
                
                102,704
                
                
                
                -Stock
      compensation expense
                
                
                87,500
                
                
                
                28,750Amortization
      of deferred loan costs
                
                
                13,860
                
                
                
                -Amortization
      of identifiable intangible assets
                
                
                87,510
                
                
                
                -Amortization
      of discount on convertible debentures
                
                
                59,823
                
                
                
                -Acquisition
      costs written off (deferred)
                
                
                340,000
                
                
                
                (340,000
                )Deferred
      income taxes
                
                
                (1,359,637
                )
                
                
                -Changes
      in assets and liabilities net of the effect of the business
      acquisition:Decrease
      in accounts receivable
                
                
                5,052
                
                
                
                -Increase
      in costs incurred related to deferred revenue
                
                
                (185,855
                )
                
                
                -Decrease
      in prepaid expenses and other current assets
                
                
                23,398
                
                
                
                5,826Increase
      (decrease) in accounts payable and accrued expenses
                
                
                189,351
                
                
                
                (62,621
                )Increase
      in income taxes payable
                
                
                35,375
                
                
                
                -Increase
      in deferred revenue
                
                
                84,748
                
                
                
                -Net
      cash used in operating activities
                
                
                (563,840
                )
                
                
                (930,881
                )Cash
      flows from investing activities:Acquisition
      of property and equipment
                
                
                (448,790
                )
                
                
                -Purchase
      of common stock in the acquisition of Wood Energy, net of cash
      acquired
                
                
                (4,921,929
                )
                
                
                -Net
      cash used in investing activities
                
                
                (5,370,719
                )
                
                
                -Cash
      flows from financing activities:Proceeds
      from convertible debentures
                
                
                1,125,000
                
                
                
                -Proceeds
      from long-term debt
                
                
                3,336,600
                
                
                
                -Proceeds
      from line of credit
                
                
                275,000
                
                
                
                -Payment
      of long-term debt
                
                
                (150,000
                )
                
                
                -Deferred
      loan costs
                
                
                (213,853
                )
                
                
                -Proceeds
      from sale of common stock
                
                
                -
                
                
                
                275,000Proceeds
      from exercise of stock options
                
                
                112,500
                
                
                
                -Purchase
      of treasury stock
                
                
                (62,500
                )
                
                
                -Net
      cash provided by financing activities
                
                
                4,422,747
                
                
                
                275,000Net
      decrease in cash and cash equivalents
                
                
                (1,511,812
                )
                
                
                (655,881
                )Cash
      and cash equivalents, beginning of period
                
                
                1,613,173
                
                
                
                2,269,054Cash
      and cash equivalents, end of period
                
                $
                101,361
                
                
                $
                1,613,173Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
                
                $
                187,024
                
                
                
                -Taxes
                
                $
                -
                
                
                
                -Supplemental
      cash flow information:Issuance
      of convertible debentures for purchase of Wood Energy
                
                $
                400,000
                
                
                
                -Issuance
      of common stock for purchase of Wood Energy
                
                $
                1,166,667
                
                
                
                -





The
accompanying notes are an integral part of these financial
statements


F-9





Banyan
Rail Services Inc. and Subsidiary


Statements
of Cash Flows





Predecessor
      - The Wood Energy Group, Inc.Eight
      Months Ended
                  
                  
                  Year
      EndedAugust
      31, 2009
                  
                  
                  December
      31, 2008Cash
      flows from operating activities:Net
      loss
                  
                  $
                  (120,138
                  )
                  
                  $
                  (52,880
                  )Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesDepreciation
                  
                  
                  225,678
                  
                  
                  
                  302,927Changes
      in assets and liabilities:Increase
      in accounts receivable
                  
                  
                  (219,131
                  )
                  
                  
                  (119,129
                  )Increase
      in prepaid expenses
                  
                  
                  (18,903
                  )
                  
                  
                  -Decrease
      in costs incurred related to deferred revenue
                  
                  
                  321,624
                  
                  
                  
                  254,071Increase
      in accounts payable and accrued expenses
                  
                  
                  485,500
                  
                  
                  
                  151,403Increase
      in income taxes payable
                  
                  
                  7,400
                  
                  
                  
                  11,400Decrease  in
      cash overdraft
                  
                  
                  -
                  
                  
                  
                  (90,020
                  )Decrease
      in deferred revenue
                  
                  
                  (513,219
                  )
                  
                  
                  (396,722
                  )Net
      cash provided by operating activities
                  
                  
                  168,811
                  
                  
                  
                  61,050Cash
      flows from investing activities:Acquisition
      of property and equipment
                  
                  
                  (117,555
                  )
                  
                  
                  (39,050
                  )Net
      cash used in investing activities
                  
                  
                  (117,555
                  )
                  
                  
                  (39,050
                  )Cash
      flows from financing activities:Proceeds
      from long-term debt
                  
                  
                  88,274
                  
                  
                  
                  39,050Payments
      on long-term debt
                  
                  
                  (32,684
                  )
                  
                  
                  (66,059
                  )Payments
      on capital leases
                  
                  
                  (86,718
                  )
                  
                  
                  (179,467
                  )Proceeds
      from line of credit
                  
                  
                  -
                  
                  
                  
                  1,067,322Payments
      on line of credit
                  
                  
                  -
                  
                  
                  
                  (880,671
                  )Net
      cash used in financing activities
                  
                  
                  (31,128
                  )
                  
                  
                  (19,825
                  )Net
      increase in cash and cash equivalents
                  
                  
                  20,128
                  
                  
                  
                  2,175Cash
      and cash equivalents, beginning of period
                  
                  
                  2,175
                  
                  
                  
                  -Cash
      and cash equivalents, end of period
                  
                  $
                  22,303
                  
                  
                  $
                  2,175Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
                  
                  $
                  55,918
                  
                  
                  $
                  84,702Taxes
                  
                  $
                  -
                  
                  
                  $
                  -Non
      cash financing activities:Property
      acquired under capital leases
                  
                  $
                  -
                  
                  
                  $
                  115,400





The
accompanying notes are an integral part of these financial
statements


F-10




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008




Note
1.  Nature of Operations





Banyan
Rail Services Inc. (“Banyan,” “we,” “our” or the “Company”) was originally
organized under the laws of the State of Massachusetts in 1985, under the name
VMS Hotel Investment Trust, for the purpose of investing in mortgage loans,
principally to entities affiliated with VMS Realty Partners. The Company was
subsequently reorganized as a Delaware corporation in 1987 and changed its name
to B.H.I.T. Inc. The Company changed its name from B.H.I.T. Inc. to Banyan Rail
Services Inc. in 2010.





Banyan
was a shell company without significant operations or sources of revenues other
than interest on its investments. With a change in management in 2008, it was
determined that the Company would seek acquisitions in rail related businesses.
On September 4, 2009, the Company purchased 100% of the common stock of The Wood
Energy Group, Inc. (“Wood Energy”). Wood Energy engages in the business of
railroad tie reclamation and disposal, principally in Texas and
Louisiana.





Note
2.  Basis of Presentation





The
accompanying consolidated financial statements give effect to all normal
recurring adjustments necessary to present fairly the financial position and
results of operations and cash flows of the Company and Wood Energy, its wholly
owned subsidiary, for the period during which the Company owned Wood Energy. Pro
forma consolidated financial information, reflecting the ownership of Wood
Energy as if it had been owned on the first day of the financial periods
presented, is included in Note 6. Because Wood Energy is deemed to be a
predecessor to the Company, the financial statements of Wood Energy for
operations prior to the acquisition are presented. The Company’s results of
operations on a consolidated basis subsequent to the acquisition of Wood Energy
are not comparative to the stand alone financial statements of the acquired
business because the acquired assets and liabilities have been adjusted to fair
value pursuant to ASC 805 “Business Combinations”. All significant intercompany
transactions and accounts have been eliminated in consolidation.





Certain
reclassifications have been made to the December 31, 2008 financial statements
to conform to the classifications used in 2009, principally to classify
depreciation expense as part of cost of sales.


F-11


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Note
3.  Summary of Significant Accounting Policies




Revenue
Recognition




The
Company utilizes the completed contract method of accounting for revenue
recognition. The Company recognizes revenue for the pick-up and disposal of used
railroad ties upon the completion of the scope of work required under its
contracts, which is when the Company considers amounts to be earned (evidence of
an arrangement has been obtained, services are delivered, fees are fixed or
determinable and collectability is reasonably assured). Accordingly, billings
related to the services for which contracts have not been completed have been
recorded as deferred revenue. Direct costs, including payroll, fuel, equipment
rental, trucking expense and steel strapping costs that are related to the
pick-up and disposal of used railroad ties are deferred until the related
revenue recognition process is complete. The Company also receives revenue from
the sale of a portion of the reclaimed ties to landscapers. These revenues are
recorded when the ties are sold to the landscapers.





Use of
Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those
estimates.  Significant estimates included deferred revenue, costs
incurred related to deferred revenue, the useful lives of property and
equipment, the useful lives of intangible assets and accounting for the business
combination.




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.


F-12




Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


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, 2009 and 2008 no allowance is provided as all accounts
receivable are deemed collectible.




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:




YearsMachinery
      and equipment
                      
                      5-10Furniture
      and fixtures
                      
                      5




Expenditures
for major renewals and betterments that extend the useful lives of property and
equipment are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred.




Valuation of Long-Lived
Assets





The
Company reviews long-lived assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.  In evaluating the fair value and future benefits of
its assets, management performs an analysis of the anticipated undiscounted
future net cash flows of the individual assets over the remaining amortization
period or an appraisal of market value is obtained.





Fair Value of Financial
Instruments





Recorded
financial instruments consist of cash, accounts receivable, accounts payable,
short-term debt obligations, convertible debt and long-term debt
obligations.  The related fair values of these financial instruments
approximated their carrying values due to either the short-term nature of these
instruments or based on the interest rates currently available to the
Company.


F-13


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Earnings Per
Share





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





Goodwill and Indefinite
Lived Intangible Assets





Goodwill
and intangible assets that have indefinite lives are not amortized but rather
are tested at least annually for impairment. The Company assesses impairment by
comparing the fair value of an intangible asset or goodwill with its carrying
value. The determination of fair value involves significant management judgment.
Impairments are expensed when incurred. For intangible assets the impairment
test compares the fair value of an intangible asset with its carrying amount. If
the carrying amount of an intangible asset exceeds its fair value, an impairment
loss is recognized in an amount equal to that excess. For goodwill, a two-step
impairment model is used. The first step compares the fair value of the
reporting unit with its carrying amount, including goodwill. If the fair value
of the reporting unit is less than the carrying amount, goodwill would be
considered impaired. The second step measures the goodwill impairment as the
excess of recorded goodwill over the asset’s implied fair value. Intangible
assets that have finite useful lives continue to be amortized over their
estimated useful lives. During the years ended December 31, 2009 and 2008, there
were no impairments of goodwill and indefinite lived intangibles.





Income
Taxes





The
Company accounts for income taxes in accordance with ASC 740, Accounting for
Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income
Taxes.  Under this method, deferred income taxes are determined based on
the estimated future tax effects of differences between the financial statement
and tax basis of assets and liabilities given the provisions of enacted tax
laws. Deferred income tax provisions and benefits are based on changes to the
assets or liabilities from year to year. In providing for deferred taxes, the
Company considers tax regulations of the jurisdictions in which the Company
operates, estimates of future taxable income, and available tax planning
strategies. If tax regulations, operating results or the ability to implement
tax-planning strategies vary, adjustments to the carrying value of deferred tax
assets and liabilities may be required. Valuation allowances are recorded
related to deferred tax assets based on the “more likely than not” criteria of
ASC 740.





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





F-14




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Note
4.  New Accounting Pronouncements





Fair Value
Measurements




On
January 1, 2009, the Company adopted accounting guidance issued by the
Financial Accounting Standards Board (“FASB”) which had previously deferred the
effective date of fair value measurements for all nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed in
financial statements at fair value on a recurring basis (at least annually). The
adoption of this guidance did not have a material impact on the consolidated
financial statements.




Business
Combinations




In
December 2007, the FASB issued a standard to change how an entity accounts for
the acquisition of a business.  The standard carries forward the existing
requirements to account for all business combinations using the acquisition
method (formerly called the purchase method). In general, it requires
acquisition-date fair value measurement of identifiable assets acquired,
liabilities assumed, and noncontrolling interests in the acquiree.




The new
measurement requirements result in the recognition of the full amount of
acquisition-date goodwill, which includes amounts attributable to noncontrolling
interests. The acquirer recognizes in income any gain or loss on the
remeasurement to acquisition-date fair value of consideration transferred or of
previously acquired equity interests in the acquiree. Neither the direct costs
incurred to effect a business combination nor the costs the acquirer expects to
incur under a plan to restructure an acquired business may be included as part
of the business combination accounting. As a result, those costs are charged to
expense when incurred, except for debt or equity issuance costs, which are
accounted for in accordance with other generally accepted accounting
principles.




The
statement also changes the accounting for contingent consideration, in process
research and development, and restructuring costs. In addition, after the
statement is adopted, changes in uncertain tax positions or valuation allowances
for deferred tax assets acquired in a business combination are recognized as
adjustments to income tax expense or contributed capital, as appropriate, even
if the deferred tax asset or tax position was initially acquired prior to the
effective date of the statement.




The
Company adopted the statement as of the required effective date of
January 1, 2009 and applies its provisions prospectively to business
combinations that occur after adoption. The results of operations of acquired
businesses are recorded in the Company’s consolidated financial
statements.




The
Company acquired Wood Energy in 2009. See Note 6 which describes the accounting
for this acquisition and the application of the new standards.


F-15


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Determining the Useful Life
of Intangible Assets




In April
2008, the FASB issued a statement to provide guidance for determining the useful
life of recognized intangible assets and to improve consistency between the
period of expected cash flows used to measure the fair value of a recognized
intangible asset and the useful life of the intangible asset. The statement
requires that an entity consider its own historical experience in renewing or
extending similar arrangements. However, the entity must adjust that experience
based on entity-specific factors included in the statement. If the company lacks
historical experience to consider for similar arrangements, it would consider
assumptions that market participants would use about renewal or extension, as
adjusted for the entity-specific factors under the statement.




The
Company adopted the statement as of the required effective date of
January 1, 2009. In connection with the acquisition of Wood Energy in 2009,
the Company acquired certain identifiable intangible assets which are described
in Note 6.




Uncertain Tax
Positions





On
January 1, 2007, the Company adopted accounting guidance issued by the FASB
which had previously deferred the effective date of the statement related to
uncertain tax positions.  As required by the uncertain tax position
guidance, 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. At the adoption date, the Company applied the uncertain tax position
guidance to all tax positions for which the statute of limitations remained
open. The Company files a federal income tax return and certain state income tax
returns. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. With few exceptions, the Company is no longer subject to U.S.
federal and state income tax examinations by tax authorities for the years
before 2006.  The Company has provided for uncertain tax positions in its
financial statements as described in Note 17.




Subsequent
Events




In May
2009, the FASB issued a statement to incorporate the accounting and disclosure
requirements for subsequent events into U.S. generally accepted accounting
principles which was amended in February 2010. The statement, as amended,
introduces new terminology, defines a date through which management must
evaluate subsequent events, and lists the circumstances under which an entity
must recognize and disclose events or transactions occurring after the
balance-sheet date. The Company adopted the statement as of June 30, 2009, which
was the required effective date.





F-16




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008




FASB Accounting Standards
Codification




The
Company adopted authoritative guidance issued by the FASB codifying U.S.
GAAP.  The adoption of this authoritative guidance changed how the Company
references U.S. GAAP in the financial statement disclosures.  The guidance
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009.  Applying the guidance did not impact
the Company’s financial condition and results of operations. The Company has
revised its references to pre-Codification GAAP in its financial statements for
the year ended December 31, 2009.





Note
5. Liquidity





At
December 31, 2009, the Company had a net working capital deficiency of $746,615
and incurred negative cash flows from operating activities of $563,840 in fiscal
2009. The Company acknowledges that timing of the realization of its receivables
from customers and its payables to vendors may not allow the Company to generate
positive working capital in the near future.





Subsequent
to the acquisition of Wood Energy, the Company adopted a plan designed to
operate at a profit and generate positive cash flows from operations into the
foreseeable future. Also, as mentioned in Note 9 the Company has availability
under its credit facilities to help finance the Company’s cash needs should the
need arise. The Company’s line of credit matures in September 2010 and
management believes that the Company will be able to refinance or extend the
term of this facility into fiscal 2011. Further, as described in Note 21, in
February 2010 the Company sold 2,725 shares of convertible preferred stock
resulting in proceeds of $272,500 which was used for working capital purposes.
Although management believes that it will be able to successfully execute its
plan and meet the Company’s future liquidity needs, there can be no assurances
in that regard.


F-17


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Note
6.  Acquisition of The Wood Energy Group, Inc.




On
September 4, 2009, the Company purchased all of the issued and outstanding
common stock of Wood Energy for a purchase price of $5,002,369 in cash
(including $309,989 of “retainage” on uncompleted contracts at the date of
closing and deducting approximately $100,000 for working capital) and $1,166,667
in shares of common stock of the Company, or 333,334 shares. The cash portion of
the purchase price reflects a reduction of $364,475 as a result of the final
determination of the uncompleted contract position of Wood Energy as of the date
the transaction closed. This amount is included in due from seller in the
accompanying balance sheet. The number of shares of common stock of the Company
was determined by the market value of the shares based on the average closing
price of the stock for the five business days prior to June 1, 2009, the date
the purchase agreement was signed, and the value of such shares were determined
on September 4, 2009, the date the transaction closed.




The
purchase price was allocated pursuant to the following table. The amounts
allocated to identifiable intangible assets and property and equipment were
based on independent third party appraisals. Goodwill was recorded as a result
of this allocation due to the purchase price being based on the Company’s
historical cash flow and work force in place.




Purchase
      price
                    
                    $
                    6,169,036Allocated
      to:Identifiable
      intangible assets
                    
                    
                    (1,912,337
                    )Property
      and equipment
                    
                    
                    (1,800,000
                    )Deferred
      income taxes
                    
                    
                    1,080,850Costs
      related to unbilled accounts receivable
                    
                    
                    (38,321
                    )Deferred
      revenue
                    
                    
                    67,176Current
      assets acquired
                    
                    
                    (579,919
                    )Current
      liabilities acquired
                    
                    
                    671,879Goodwill
                    
                    $
                    3,658,364




F-18




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


The
following unaudited pro forma condensed combined statements of income data
provide the consolidated revenue, net income and earnings per share data for the
years ended December 31, 2009 and 2008 giving effect to the purchase of Wood
Energy’s common stock as if it had occurred on January 1, 2009 and 2008. The
unaudited pro forma condensed combined statements of income data is not intended
to represent or be indicative of the results of operations of the Company that
would have been reported had the acquisition of Wood Energy been completed as of
the dates presented, and should not be construed as representative of the future
results of operations or financial condition after such acquisition.




UnauditedYears
      Ended December 31,2009
                  
                  
                  2008Revenue
                  
                  $
                  4,688,215
                  
                  
                  $
                  5,077,569Net
      loss
                  
                  $
                  (453,434
                  )
                  
                  $
                  (1,015,058
                  )Basic
      and diluted net loss per share
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.40
                  )





As
defined by ASC 805 “Business Combinations”, acquisition related costs the
acquirer incurs to effect a business combination are expensed in the period in
which the costs were incurred. Accordingly, costs of $224,414 were expensed for
the acquisition of Wood Energy for the year ended December 31,
2009.





As of
December 31, 2009, identifiable intangible assets consist of the
following:





Weighted AverageOriginal
                  
                  
                  Accumulated
                  
                  
                  Balance,
                  
                  AmortizationAmount
                  
                  
                  Amortization
                  
                  
                  December
      31, 2009
                  
                  PeriodCustomer
      contracts
                  
                  $
                  1,840,089
                  
                  
                  $
                  75,470
                  
                  
                  $
                  1,764,619
                  
                  10.5
      yearsEmployee
      non-compete agreements
                  
                  
                  72,248
                  
                  
                  
                  12,040
                  
                  
                  
                  60,208
                  
                  2.0
      years$
                  1,912,337
                  
                  
                  $
                  87,510
                  
                  
                  $
                  1,824,827





Neither
the identifiable intangible assets nor the goodwill are deductible for income
tax purposes.


F-19


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008




A
rollforward of goodwill is as follows for the two years ended December 31,
2009:





Balance,
      December 31, 2008 and 2007
                    
                    $
                    -Purchase
      of Wood Energy
                    
                    
                    3,658,364Impairment
                    
                    
                    -Balance,
      December 31, 2009
                    
                    $
                    3,658,364




The
Company estimates the aggregate amortization expense related to the intangible
assets as of December 31, 2009, will be as follows for the periods
presented:





2010
                      
                      $
                      262,5312011
                      
                      
                      225,6742012
                      
                      
                      151,9632013
                      
                      
                      151,9632014
                      
                      
                      151,963Thereafter
                      
                      
                      880,733$
                      1,824,827




Note
7.  Property and Equipment




Property
and equipment consist of the following:




PredecessorDecember
      31,
                    
                    
                    August
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Machinery
      and equipment
                    
                    $
                    2,248,266
                    
                    
                    $
                    -
                    
                    
                    $
                    1,952,891
                    
                    
                    $
                    1,832,236Furniture
      and fixtures
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,1002,248,266
                    
                    
                    
                    -
                    
                    
                    
                    1,952,891
                    
                    
                    
                    1,835,336Accumulated
      depreciation
                    
                    
                    (102,180
                    )
                    
                    
                    -
                    
                    
                    
                    (1,242,752
                    )
                    
                    
                    (1,017,074
                    )$
                    2,146,086
                    
                    
                    $
                    -
                    
                    
                    $
                    710,139
                    
                    
                    $
                    818,262




Prior to
2009 the Company had no property and equipment. Depreciation expense was
$102,704 for the year ended December 31, 2009 and is included in cost of sales
in the consolidated statements of operations. Depreciation expense of $225,678
and $302,927 for the eight months ended August 31, 2009 and the year ended
December 31, 2008, respectively, for the predecessor are also included in cost
of sales.




F-20




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008




Note
8.  Accounts Payable and Accrued Expenses





Accounts
payable and accrued expenses consist of the following at December 31, 2009 and
2008 (August 31, 2009 and December 31, 2008 for the predecessor):


PredecessorDecember
      31,
                
                
                August
      31,
                
                
                December
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008Accounts
      payable
                
                $
                503,405
                
                
                $
                10,303
                
                
                $
                488,176
                
                
                $
                157,981Accrued
      expenses
                
                
                368,128
                
                
                
                -
                
                
                
                394,585
                
                
                
                239,280$
                871,533
                
                
                $
                10,303
                
                
                $
                882,761
                
                
                $
                397,261





Note
9.  Line of Credit





The
Company has a working capital line of credit from a bank in the amount of
$500,000 due in September 2010. Borrowings under the line, which totaled
$275,000 at December 31, 2009, bear interest at the prime rate plus 5% or Libor
(2.0% floor) plus 4.5% (6.5% as of December 31, 2009). Monthly payments of
interest only are due on the line. Draws are based on specific percentages of
eligible working capital amounts, including accounts receivable and inventory.
As of December 31, 2009, $225,000 was available for use by the Company under
this line of credit. The line of credit is cross-collaterized with the long-term
debt described in Note 10.




The
weighted average interest rate for short-term borrowings outstanding was 9.0%
during the year ended December 31, 2009. The average amount of borrowings was
$146,429 for the year ended December 31, 2009.




F-21




Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Note
10.  Long-term Debt


Long-term
      debt consists of the following:December 31,2009
                          
                          
                          2008Senior
      secured term loan with a bank bearing interest at the prime rate plus 5%
      or Libor (2.0% floor) plus 4.5% (6.5% as of December 31, 2009). Monthly
      payments of principal and accrued interest are required throughout the
      five-year term as well as 75% of any excess cash flow (as defined in the
      loan agreement). Secured by all of the Company's assets, due September
      2014
                          
                          $
                          2,850,000
                          
                          
                          $
                          -Capital
      expenditure loan of up to $1,500,000 bearing interest at the prime rate
      plus 5% or Libor (2.0% floor) plus 4.5% (6.5% as of December 31, 2009).
      Monthly payments of accrued interest only are required throughout the
      initial one-year term; thereafter, monthly payments of principal and
      accrued interest based on a five-year amortization. Secured by all of the
      Company's assets, due September 2014
                          
                          
                          336,600
                          
                          
                          
                          -3,186,600
                          
                          
                          
                          -Less
      current portion
                          
                          
                          (619,206
                          )$
                          2,567,394
                          
                          
                          $
                          -





The
following is a summary of principal maturities of long-term debt as of December
31, 2009 during the next five years:





2010
                        
                        $
                        619,2062011
                        
                        
                        660,1732012
                        
                        
                        664,2032013
                        
                        
                        668,5022014
                        
                        
                        574,516Total
      long-term debt
                        
                        
                        3,186,600Convertible
      debentures due in 2014 (see Note 14)
                        
                        
                        1,525,000$
                        4,711,600




F-22




Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


The
credit facilities described above, as well as the line of credit described in
Note 9, are subject to certain loan covenants that require, among other things,
compliance with fixed charge coverage and total debt coverage ratios, as well as
minimum levels of EBITDA (earnings before interest, taxes, depreciation and
amortization). The Company has included certain add-backs in calculating such
covenants for the period ended December 31, 2009 with which the bank has
concurred and accepted such add-backs for purposes of determining compliance as
of and for the period ended December 31, 2009.





Capitalized
loan costs were $213,853, less accumulated amortization of $13,860 at December
31, 2009. Amortization of loan costs is charged to interest expense. Loan costs
are being amortized on the straight-line basis over the five year term of the
loans. Amortization expense related to deferred loan costs for the remaining
term of the loans is as follows:





2010
                  
                  $
                  42,7712011
                  
                  
                  42,7712012
                  
                  
                  42,7712013
                  
                  
                  42,7712014
                  
                  
                  28,909$
                  199,993




Note
11.  Line of Credit - Predecessor




The
predecessor company’s line of credit consisted of the following at August 31,
2009 and December 31, 2008:




August 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Line
      of credit, interest only payable monthly at a variable rate of interest
      ranging between 3.25% and 5.25% with a balloon payment due on April 17,
      2009 (subsequently paid off upon the sale of Wood Energy to Banyan),
      secured by all inventory, accounts receivable and equipment. The note
      was personally guaranteed by all of the former Wood Energy
      stockholders
                    
                    $
                    500,000
                    
                    
                    $
                    500,000




The
weighted average interest rate for short-term borrowings outstanding was 4.1%
and 3.8% during the eight months ended August 31, 2009 and December 31, 2008,
respectively. The average borrowing was $500,000 and $406,675 during
the eight months ended August 31, 2009 and the year ended December 31, 2008,
respectively.


F-23




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008




Note
12.  Long-term Debt - Predecessor




The
predecessor company’s long-term debt consists of the following:




August 31,
                  
                  
                  December 31,2009
                  
                  
                  20087.50%
      note payable, $442 payments of monthly principal and interest, secured by
      vehicle, due September, 2013
                  
                  $
                  19,222
                  
                  
                  $
                  21,1325.75%
      note payable, $397 payments of monthly principal and interest, secured by
      vehicle,  due March, 2012
                  
                  
                  11,968
                  
                  
                  
                  14,1028.84%
      note payable, $1,666 payments of monthly principal and interest, secured
      by a trailer, due April, 2009
                  
                  
                  -
                  
                  
                  
                  6,5356.25%
      note payable, $757 payments of monthly principal and interest, secured by
      vehicle, due January, 2009
                  
                  
                  -
                  
                  
                  
                  1,2985.74%
      note payable, $975 payments of monthly principal and interest, secured by
      vehicle, due July, 2008
                  
                  
                  -
                  
                  
                  
                  1,9248.05%
      note payable, $2,157 payments of monthly principal and interest, secured
      by vehicle, due December, 2012
                  
                  
                  81,069
                  
                  
                  
                  -7.95%
      note payable, $2,288 payments of monthly principal and interest, secured
      by vehicle, due January, 2011
                  
                  
                  44,724
                  
                  
                  
                  56,402156,983
                  
                  
                  
                  101,393Less
      current portion
                  
                  
                  (53,939
                  )
                  
                  
                  (42,964
                  )$
                  103,044
                  
                  
                  $
                  58,429





The
following is a summary of principal maturities of long-term debt during the next
five years at August 31, 2009:




2010
                  
                  $
                  53,9392011
                  
                  
                  50,7062012
                  
                  
                  32,1062013
                  
                  
                  19,1542014
                  
                  
                  1,078$
                  156,983




These
notes were all paid off by Wood Energy’s former shareholders upon the sale to
Banyan.


F-24


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008




Note
13.  Leases - Predecessor




The
predecessor company leased equipment used in its operations under operating and
capital leases that expired over one to five years. Certain leases contained
minimum escalation clauses, purchase options and options to extend the leases
for additional years. In connection with the sale of Wood Energy to Banyan, all
of the leases were paid off by Wood Energy’s former shareholders.




The
following is a schedule by years of future minimum rental payments required
under operating leases that had initial or remaining noncancelable lease terms
in excess of one year as of August 31, 2009:




2010
                        
                        $
                        42,861




Rental
expense was $234,531 and $503,290 for the eight months ended August 31, 2009 and
the year ended December 31, 2008, respectively.




The
following is a schedule by years of minimum future rentals on noncancelable
capital leases as of August 31, 2009:





Twelve
      months ending August 31,2010
                    
                    $
                    153,1502011
                    
                    
                    116,9002012
                    
                    
                    98,1362013
                    
                    
                    27,6632014
                    
                    
                    2,226Net
      minimum lease payments
                    
                    
                    398,075Less
      amount representing interest
                    
                    
                    31,920Present
      value of net minimum lease payments
                    
                    
                    366,155Amount
      representing current portion
                    
                    
                    (152,584
                    )Capital
      leases payable, less current portion
                    
                    $
                    213,571




F-25


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Property
and equipment under capital leases consist of the following as of August 31,
2009 and December 31, 2008:


August 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Machinery
      and equipment
                    
                    $
                    867,045
                    
                    
                    $
                    867,045Accumulated
      depreciation
                    
                    
                    (486,571
                    )
                    
                    
                    (370,965
                    )$
                    380,474
                    
                    
                    $
                    496,080




Note
14.  Convertible Debentures





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





The
convertible debentures were assigned an initial value of $381,250, based on the
estimated intrinsic value of the beneficial conversion feature. The amount
allocated as a discount on the convertible debentures for the original value of
the conversion option ($1,143,750) is being amortized to interest expense, using
the effective interest method, over the five year term of the convertible
debentures. A total of $59,823 was amortized as interest expense for the year
ended December 31, 2009. A deferred tax liability of $388,875 for the beneficial
conversion feature has been recorded in connection with the issuance of the
convertible debentures.





The
convertible debenture liability is as follows at December 31, 2009:




Convertible
      debentures payable
                    
                    $
                    1,525,000Less:
      unamortized discount on debentures
                    
                    
                    (1,083,927
                    )Convertible
      debentures, net
                    
                    $
                    441,073


F-26




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008




As of the
date of the acquisition of Wood Energy, the selling shareholders agreed to
purchase $400,000 of the convertible debentures. The selling shareholders and
the Company agreed that as payments are received on the “retainage” for
uncompleted contracts discussed in Note 6, such payments would be credited as
partial payment for these debentures. As of December 31, 2009, the sellers owed
the Company $256,855 relating to this matter. Further, a working capital
adjustment was to be provided for in accordance with the purchase agreement,
pursuant to which the seller owed the Company $85,008. The total of these
amounts, $341,863, is expected to be collected from the sellers within one year,
and has been included on the balance sheet as a current asset. In February 2010,
all of the convertible debentures were exchanged for convertible preferred stock
(see Note 21).





Note
15.  Stock-Based Compensation





The
Company has stock option agreements with its directors and officers for serving
on the Company’s Board of Directors and as officers. The options activity is as
follows for the two years ended December 31, 2009:





Weighted Average
                                  
                                  
                                  Weighted Average
                                  
                                  Weighted AverageNumber
                                  
                                  
                                  Exercise Price
                                  
                                  
                                  Fair
      Value at
                                  
                                  Remaining
                                  
                                  Intrinsicof Shares
                                  
                                  
                                  per Share
                                  
                                  
                                  Grant
      Date
                                  
                                  Contractual Life
                                  
                                  ValueBalance
      January 1, 2008
                                  
                                  
                                  200,000
                                  
                                  
                                  $
                                  2.50
                                  
                                  
                                  
                                  
                                  0.5
      years
                                  
                                  $
                                  150,000Options
      granted
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  2.60
                                  
                                  
                                  $
                                  28,750
                                  
                                  1.9
      years
                                  
                                  
                                  10,000Options
      cancelled
                                  
                                  
                                  (12,500
                                  )
                                  
                                  
                                  3.50Balance
      December 31, 2008
                                  
                                  
                                  212,500
                                  
                                  
                                  
                                  2.50
                                  
                                  
                                  
                                  
                                  
                                  1.2
      years
                                  
                                  
                                  160,000Options
      granted
                                  
                                  
                                  87,500
                                  
                                  
                                  
                                  3.50
                                  
                                  
                                  $
                                  87,500
                                  
                                  4.4
      years
                                  
                                  
                                  -Options
      exercised
                                  
                                  
                                  (75,000
                                  )
                                  
                                  
                                  1.50
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (112,500
                                  )Outstanding,
      December 31, 2009
                                  
                                  
                                  225,000
                                  
                                  
                                  $
                                  3.20
                                  
                                  
                                  
                                  
                                  
                                  1.9
      years
                                  
                                  $
                                  47,500





Because
the Company has not adopted a formal stock option plan, the number of options
issued and the grant dates were determined at the discretion of the Company’s
Board. The options vested at the date of grant, and are exercisable for periods
not to exceed three to five years from the date of grant. The “out-of-the-money”
stock options are not considered in calculating diluted earnings per share;
accordingly, the Company excluded from the diluted earnings per share
calculation 112,500 shares related to stock options that were outstanding at
December 31, 2009, which could potentially be dilutive in the
future.


F-27


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


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. For 2008, the
expected volatility rate was estimated using the average volatility rates of
fourteen public companies in the financial and business services industry. In
2009, it was determined that the Company was seeking an acquisition in a
railroad-related business. Accordingly, the 2009 expected volatility rate was
estimated using the average volatility rates of seven public companies in the
railroad industry. Currently, the Company has assumed no forfeiture rate. The
weighted average assumptions used in the option-pricing models during 2009 and
2008 were as follows:





2009
                    
                    
                    2008Risk
      free interest rate
                    
                    
                    2.55
                    %
                    
                    
                    1.84
                    %Expected
      life (years)
                    
                    
                    5
                    
                    
                    
                    3Expected
      volatility
                    
                    
                    27.00
                    %
                    
                    
                    64.28
                    %Dividend
      yield
                    
                    
                    0
                    
                    
                    
                    0




Note
16. Treasury Stock





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





Note
17. Income Taxes




The
provision for income taxes consists of the following components:


PredecessorEight
      MonthsYear
      Ended
                          
                          
                          Ended
                          
                          
                          Year
      EndedDecember
      31,
                          
                          
                          August
      31,
                          
                          
                          December
      31,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Current
      expense
                          
                          $
                          2,775
                          
                          
                          $
                          -
                          
                          
                          $
                          7,400
                          
                          
                          $
                          11,400Deferred
      benfit
                          
                          
                          (1,359,637
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -$
                          (1,356,862
                          )
                          
                          $
                          -
                          
                          
                          $
                          7,400
                          
                          
                          $
                          11,400





The
current provision for income taxes for the predecessor company relates to
uncertain tax positions indentified in ASC 740 (Income Taxes). The tax benefit
of the Company for the year ended December 31, 2009 relates to the benefit
derived from the 2009 tax loss and the reversal of the valuation allowance for
deferred tax assets.


F-28




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008




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




PredecessorDecember
      31,
                                        
                                        
                                        August
      31,
                                        
                                        
                                        December
      31,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Short-term
      deferred tax assets:Accrued
      expenses
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (29,000
                                        )
                                        
                                        $
                                        29,000Total
      short-term deferred tax assets
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (29,000
                                        )
                                        
                                        
                                        29,000Valuation
      allowance
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        29,000
                                        
                                        
                                        
                                        (29,000
                                        )-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Long-term
      deferred tax assets:Deferred
      revenue net of related costs
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        137,000
                                        
                                        
                                        
                                        210,000Stock
      compensation benefit
                                        
                                        
                                        169,307
                                        
                                        
                                        
                                        155,975
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      operating loss carryforward
                                        
                                        
                                        1,204,142
                                        
                                        
                                        
                                        912,779
                                        
                                        
                                        
                                        179,000
                                        
                                        
                                        
                                        76,000Total
      long-term deferred tax assets
                                        
                                        
                                        1,373,449
                                        
                                        
                                        
                                        1,068,754
                                        
                                        
                                        
                                        316,000
                                        
                                        
                                        
                                        286,000Valuation
      allowance
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,068,754
                                        )
                                        
                                        
                                        (174,000
                                        )
                                        
                                        
                                        (144,000
                                        )1,373,449
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        142,000
                                        
                                        
                                        
                                        142,000Long-term
      deferred tax liabilities:Convertible
      debenture
                                        
                                        
                                        (368,535
                                        )Intangible
      assets
                                        
                                        
                                        (620,442
                                        )Property
      and equipment
                                        
                                        
                                        (494,560
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (142,000
                                        )
                                        
                                        
                                        (142,000
                                        )Total
      long-term deferred tax liabilities
                                        
                                        
                                        (1,483,537
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (142,000
                                        )
                                        
                                        
                                        (142,000
                                        )Net
      deferred tax assets (liabilities)
                                        
                                        $
                                        (110,088
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -





F-29




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


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 2009 and 2008 were computed by applying the federal and
state statutory corporate tax rates as follows:





PredecessorEight
      MonthsYear
      Ended
                            
                            
                            Ended
                            
                            
                            Year
      EndedDecember
      31,
                            
                            
                            August
      31,
                            
                            
                            December
      31,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Statutory
      Federal income tax rate
                            
                            
                            34
                            %
                            
                            
                            34
                            %
                            
                            
                            34
                            %
                            
                            
                            34
                            %State
      income tax rates
                            
                            
                            -5
                            %
                            
                            
                            
                            
                            
                            
                            7
                            %
                            
                            
                            27
                            %Release
      of valuation allowance for deferred tax assets
                            
                            
                            81
                            %Loss
      of expiring NOL's
                            
                            
                            -13
                            %Less
      valuation allowance
                            
                            
                            
                            
                            
                            
                            -34
                            %
                            
                            
                            -34
                            %
                            
                            
                            -34
                            %97
                            %
                            
                            
                            0
                            %
                            
                            
                            7
                            %
                            
                            
                            27
                            %




F-30


Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008




Our
Federal net operating loss (“NOL”) carryforward balance as of December 31, 2009
was $3,541,000, expiring between 2010 and 2029. Management has reviewed the
provisions of ASC 740 regarding assessment of their valuation allowance on
deferred tax assets and based on that criteria determined that it has sufficient
taxable income to offset those assets.  Therefore, Management has
assessed the realization of the deferred tax assets and has determined that it
is more likely than not that they will be realized.  The change in the
valuation allowance from December 31, 2008 to December 31, 2009 is
$1,068,754.





The
Company adopted the provisions of ASC 740, previously FASB Interpretation No. 48
(FIN 48), Accounting for
Uncertainty in Income Taxes, on January 1, 2007. Previously the Company
has accounted for tax contingencies in accordance with Statement of Financial
Accounting Standards 5, Accounting for Contingencies. The statute of limitations
is still open on years 2006 and subsequent. The Company recognizes the financial
statement impact of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit.
For tax positions meeting the more-likely-than–not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater
than 50 percent likelihood of being realized upon ultimate settlement with the
relevant tax authority. At the adoption date the Company applied ASC 740 to all
tax positions for which the statute of limitations remained open. As a result of
the implementation of ASC 740, the Company did not recognize a material increase
in the liability for uncertain tax positions.




The
Company is subject to income taxes in the U.S. federal jurisdiction and a number
of state jurisdictions. The tax regulations within each jurisdiction are subject
to interpretation of related tax laws and regulations and require significant
judgment to apply. With few exceptions, the Company is no longer subject to U.S.
federal, state and local examinations by tax authorities for the years before
2006.




In
adopting ASC 740-10, the Company elected to classify interest and penalties
related to unrecognized tax benefits as income tax expenses. The Company has no
accrued interest and penalties as of the years ended December 31, 2009 and 2008,
respectively (as of the eight months ended August 31, 2009 and year ended
December 31, 2008 for the predecessor) because they are not
material.


F-31




Banyan
Rail Services Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


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





Banyan
      RailServices
      Inc.
                          
                          
                          PredecessorBalance
      at January 1, 2008
                          
                          $
                          -
                          
                          
                          $
                          13,800Additions
      based on tax positions related to the current year
                          
                          
                          -
                          
                          
                          
                          11,400Balance
      at December 31, 2008
                          
                          
                          -
                          
                          
                          
                          25,200Additions
      based on tax positions related to the current year
                          
                          
                          2,775
                          
                          
                          
                          7,400Balance
      at December 31, 2009 (August 31, 2009 - predecessor)
                          
                          $
                          2,775
                          
                          
                          $
                          32,600





As of
December 31, 2009 and December 31, 2008, the balance in unrecognized tax
benefits is $35,375 ($32,600 and $25,200 for the predecessor).  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
18. Major Customers




In 2009
the Company recorded 75% of its revenues under a contract with one major
customer (69% of outstanding accounts receivable - trade) and 11% of its
revenues under a contract with another major customer (19% of outstanding
accounts receivable - trade). The Company had no operations for the year ended
December 31, 2008. With respect to the predecessor company, 61% and 70% of
revenue were under a contract with one major customer in 2009 and 2008 (70% and
81% of outstanding accounts receivable - trade), respectively, and 6% and 15%
under a contract with another major customer in 2009 and 2008 (0% and 0% of
outstanding accounts receivable - trade), respectively.





Note
19. Related Party Transactions





The
Company leases office space and receives office services from Patriot Rail
Corp., a company related by certain common management, for $5,000 per month. The
Company’s directors, chief executive officer and chief financial officer are
currently not receiving cash compensation for their services, and no amounts
have been recorded in the Company’s financial statements for the cash value of
their services. Such persons are compensated solely with stock options. The
Company’s officers and directors own a total of $1,000,000 of the convertible
debentures outstanding as of December 31, 2009.





In 2009,
the Company entered into two 5-year employment agreements and one month-to-month
consulting agreement with individuals who are shareholders and debenture
holders. Compensation under these agreements aggregate $378,000 per year. The
aggregate expense under these agreements was $106,500 in 2009 and $-0- in
2008.


F-32




Banyan
Rail Services Inc. and Subsidiary


Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008


Note
20. Contingencies





On July
24, 2008, the Company entered into an asset purchase agreement with L.A. Colo,
LLC (“Colo”) and Iron Rail Group, LLC (“Iron Rail”), the owner of Colo, pursuant
to which the Company agreed to purchase substantially all of the assets of Colo
for $15.0 million, subject to adjustment. Colo provides railroad maintenance and
construction services to short line railroads and industrial customers. The
transaction was delayed due to deteriorating financial and economic conditions
and was ultimately terminated by the Company due to a reported reduction in the
financial results of Colo, which were contrary to prior representations of Colo
as to their financial performance. As part of the purchase agreement, the
Company made a deposit payment into an escrow account. Colo demanded payment of
the escrowed funds in connection with the termination of the purchase amount.
The matter was subsequently arbitrated, at which time the Company was ordered to
pay the escrowed funds plus interest and legal fees to Colo. As a result, the
Company recorded a charge of $497,200, which is classified as a write-off of
unconsummated acquisition costs in 2009 in the accompanying statement of
operations.





The
Company is subject to various claims arising in the ordinary course of business,
none of which is significant as of December 31, 2009.





Note
21. Subsequent Events




In April
2010, the Company effected a 1 for 10 reverse split of its common stock. Share
and per share amounts have been adjusted retroactively to reflect this
transaction.





In
January 2010, the Company initiated an exchange of its outstanding convertible
debentures for shares of convertible preferred stock. In February 2010, the
holders of 100% of the outstanding debentures agreed to the exchange, and 15,250
shares of convertible preferred stock were issued. Similar to the debentures,
holders of the convertible preferred stock are entitled to an annual cash
dividend of 10% payable semi-annually, and each share of preferred stock is
convertible into 50 shares of common stock. The holders of the preferred stock
are not entitled to redeem their shares for cash. Also, in February 2010, the
Company sold an additional 2,725 shares of convertible preferred stock for
proceeds of $272,500. The proceeds were used for working capital
purposes.


F-33