UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





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




For the
quarterly period endedSeptember 30, 2010





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





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)561-443-7775(Registrant’s
      telephone number)





Indicate
by a check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes þ   No
 ̈





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





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





Large
Accelerated Filer   ̈                                                  Accelerated
Filer   ̈


Non-Accelerated
Filer   ̈                                                    Smaller
Reporting Company  þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈   No
þ





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 3,046,067 shares of common stock,
$0.01 par value per share, as of November 9, 2010.











Table
of Contents




Part
      I — Financial Information
              
              
              3Item
      1. Financial Statements
              
              
              3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              
              
              14Cautionary
      Statement Concerning Forward-Looking Statements
              
              
              14Overview
              
              
              14Wood
      Energy
              
              
              14Recent
      Events
              
              
              14Issuance
      of Preferred Stock Series B
              
              
              14Critical
      Accounting Policies and Estimates
              
              
              15Reverse
      Stock Split
              
              
              15Pro
      Forma Consolidated Results of Operations - Banyan and
      Subsidiary
              
              
              15Revenues
              
              
              16Gross
      margin
              
              
              17General
      and administrative expenses
              
              
              17Interest
      expense
              
              
              18Financial
      Condition and Liquidity
              
              
              18Off-Balance
      Sheet Arrangements
              
              
              19How
      to Learn More about Banyan
              
              
              19Item
      4. Controls and Procedures
              
              
              19Part
      II — Other Information
              
              
              20Item
      1.Legal
      Proceedings
              
              
              20Item
      2.Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              
              20Item
      3.Defaults
      Upon Senior Securities
              
              
              20Item
      5.Other
      Information
              
              
              20Item
      6.Exhibits
              
              
              20Signatures
              
              
              21




2




Part
I — Financial Information — Item 1.  Financial Statements




Banyan
Rail Services Inc. and Subsidiary
 Condensed
Consolidated Balance Sheets
 As
of


September
      30,
                2010
              
              
              December
      31,
                2009ASSETS
              
              (Unaudited)Current
      assetsCash
      and cash equivalents
              
              $
              649,281
              
              
              $
              101,361Accounts
      receivable - trade
              
              
              632,632
              
              
              
              533,661Inventory
              
              
              48,041
              
              
              
              -Due
      from sellers
              
              
              -
              
              
              
              341,863Cost
      incurred related to deferred revenue
              
              
              1,216,828
              
              
              
              224,176Prepaid
      expenses and other current assets
              
              
              66,971
              
              
              
              5,362Total
      current assets
              
              
              2,613,753
              
              
              
              1,206,423Property
      and equipment, net
              
              
              2,452,116
              
              
              
              2,146,086Other
      assetsDeferred
      loan costs, net
              
              
              169,558
              
              
              
              199,993Deferred
      income taxes
              
              
              359,171
              
              
              
              -Identifiable
      intangible assets, net
              
              
              1,627,930
              
              
              
              1,824,827Goodwill
              
              
              3,658,364
              
              
              
              3,658,364Deposit
              
              
              12,059
              
              
              
              -Total
      other assets
              
              
              5,827,082
              
              
              
              5,683,184Total
      assets
              
              $
              10,892,951
              
              
              $
              9,035,693LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
              
              $
              1,102,575
              
              
              $
              871,533Deferred
      revenue
              
              
              834,465
              
              
              
              151,925Line
      of credit
              
              
              1,000,000
              
              
              
              275,000Current
      portion of long-term debt
              
              
              680,149
              
              
              
              619,206Current
      portion of capital leases
              
              
              93,133
              
              
              
              -Dividends
      Payable
              
              
              79,684
              
              
              
              -Income
      tax payable
              
              
              42,985
              
              
              
              35,375Total
      current liabilities
              
              
              3,832,991
              
              
              
              1,953,039Deferred
      income taxes
              
              
              -
              
              
              
              110,088Long-term
      debt, less current portion
              
              
              2,132,162
              
              
              
              2,567,394Capital
      Leases, less current portion
              
              
              182,913
              
              
              
              -Convertible
      debentures, net
              
              
              -
              
              
              
              441,073Total
      liabilities
              
              
              6,148,066
              
              
              
              5,071,594Commitments
      and contingencies
              
              
              -
              
              
              
              -Stockholders'
      equitySeries
      A Preferred stock, $100 par value. 20,000 shares authorized. 19,600 issued
      at September 30, 2010
              
              
              196
              
              
              
              -Series
      B Preferred stock, $100 par value. 10,000 shares authorized. 2,500 shares
      issued at September 30, 2010
              
              
              249,642
              
              
              
              -Common
      stock, $0.01 par value. 75,000,000 shares authorized. 3,045,856 and
      3,020,414 shares issued at September 30, 2010 and December 31, 2009,
      respectively
              
              
              30,458
              
              
              
              30,204Additional
      paid-in capital
              
              
              93,029,253
              
              
              
              91,885,935Accumulated
      deficit
              
              
              (88,493,975
              )
              
              
              (87,881,351
              )Treasury
      stock, at cost, for 28,276 shares
              
              
              (70,689
              )
              
              
              (70,689
              )Total
      stockholders' equity
              
              
              4,744,885
              
              
              
              3,964,099Total
      liabilities and stockholders' equity
              
              $
              10,892,951
              
              
              $
              9,035,693


See Notes
to Condensed Consolidated Financial Statements.




3




Banyan
Rail Services Inc. and Subsidiary
 Condensed
Consolidated Statements of Operations
 (Unaudited)
  Banyan
      Rail Services
                
                
                Predecessor
                
                
                Banyan
      Rail Services
                
                
                PredecessorNine
      Months Ended
                  September
      30,
                
                
                Eight
      Months Ended
                  August
      31,
                
                
                Three
      Months Ended
                  September
      30,
                
                
                Two
      Months Ended
                  August
      31,2010
                
                
                2009
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2009Revenues
                
                $
                4,000,223
                
                
                $
                377,126
                
                
                $
                3,520,450
                
                
                $
                1,377,984
                
                
                $
                377,126
                
                
                $
                900,522Cost
      of sales
                
                $
                3,178,068
                
                
                
                169,407
                
                
                
                2,824,237
                
                
                $
                1,082,034
                
                
                
                169,407
                
                
                
                799,210Gross
      profit
                
                $
                822,155
                
                
                
                207,719
                
                
                
                696,213
                
                
                $
                295,950
                
                
                
                207,719
                
                
                
                101,312General
      & administrative expenses
                
                $
                1,292,862
                
                
                
                354,246
                
                
                
                560,684
                
                
                $
                400,936
                
                
                
                113,236
                
                
                
                153,418Acquisition
      costs for Wood energy
                
                $
                -
                
                
                
                100,354
                
                
                
                -
                
                
                $
                -
                
                
                
                100,354
                
                
                
                -Write
      off of acquisition costs not completed
                
                $
                -
                
                
                
                508,349
                
                
                
                -
                
                
                $
                -
                
                
                
                508,349
                
                
                
                -Income
      (loss) from operations
                
                $
                (470,707
                )
                
                
                (755,230
                )
                
                
                135,529
                
                
                $
                (104,986
                )
                
                
                (514,220
                )
                
                
                (52,106
                )Other
      expenses (income)(Gain)
      on extinguishment of debt
                
                $
                (25,092
                )
                
                
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                
                -Interest
      expense
                
                $
                239,783
                
                
                
                24,818
                
                
                
                45,971
                
                
                $
                80,418
                
                
                
                34,288
                
                
                
                6,838Income
      (loss) before income taxes
                
                $
                (685,399
                )
                
                
                (780,048
                )
                
                
                89,558
                
                
                $
                (185,404
                )
                
                
                (548,508
                )
                
                
                (58,944
                )Income
      tax provision (benefit)
                
                $
                (72,774
                )
                
                
                30,000
                
                
                
                36,600
                
                
                $
                (77,074
                )
                
                
                30,000
                
                
                
                30,400Net
      profit (loss)
                
                $
                (612,625
                )
                
                $
                (810,048
                )
                
                $
                52,958
                
                
                $
                (108,330
                )
                
                $
                (578,508
                )
                
                $
                (89,344
                )Dividends
      for the benefit of preferred stockholders:Preferred
      stock dividends
                
                $
                (127,441
                )
                
                
                -
                
                
                
                -
                
                
                $
                (38,967
                )
                
                
                -
                
                
                
                -Amortization
      of beneficial conversion feature discount on preferred
    stock
                
                $
                (1,959,855
                )
                
                
                -
                
                
                
                -
                
                
                $
                (87,355
                )
                
                
                -
                
                
                
                -Total
      dividends for the benefit of preferred stockholders
                
                $
                (2,087,296
                )
                
                
                -
                
                
                
                -
                
                
                $
                (126,322
                )
                
                
                -
                
                
                
                -Net
      income (loss) attributable to common stockholders
                
                $
                (2,699,921
                )
                
                $
                (810,048
                )
                
                $
                52,958
                
                
                $
                (234,651
                )
                
                $
                (578,508
                )
                
                $
                (89,344
                )Weighted
      average number of common shares outstanding:Basic
      and diluted
                
                
                3,042,387
                
                
                
                2,607,432
                
                
                
                
                
                
                
                3,045,959
                
                
                
                2,607,432Net
      income (loss) per common share:Basic
      and diluted
                
                $
                (0.89
                )
                
                $
                (0.31
                )
                
                
                
                
                
                $
                (0.08
                )
                
                $
                (0.22
                )


See Notes
to Condensed Consolidated Financial Statements.




4


Banyan
Rail Services Inc. and Subsidiary
 Condensed
Consolidated Statements of Cash Flows
 (Unaudited)
  Nine
      Months Ended
                September
      30,
              
              
              Predecessor
                Eight
      Months Ended
                August
      31,2010
              
              
              2009
              
              
              2009Cash
      flows provided by (used in) operating activities:Net
      income (loss)
              
              $
              (612,625
              )
              
              $
              (810,049
              )
              
              $
              52,958Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
              
              
              332,119
              
              
              
              21,405
              
              
              
              225,678Amortization
      of identifiable intangible assets
              
              
              196,898
              
              
              
              -
              
              
              
              -Stock
      compensation expense
              
              
              63,066
              
              
              
              87,500
              
              
              
              -Deferred
      income taxes
              
              
              (80,384
              )
              
              
              -Amortization
      of deferred loan costs
              
              
              30,436
              
              
              
              3,364
              
              
              
              -Amortization
      of beneficial conversion feature
              
              
              15,269
              
              
              
              -
              
              
              
              -Gain
      on extinguishment of debt
              
              
              (25,092
              )
              
              
              -
              
              
              
              -Amortization
      of discount on convertible debenture
              
              
              -
              
              
              
              14,770
              
              
              
              -Changes
      in assets and liabilities:Decrease
      (increase) in accounts receivable
              
              
              (98,971
              )
              
              
              (102,149
              )
              
              
              (194,105
              )Decrease
      (increase) in inventory
              
              
              (48,041
              )
              
              
              -
              
              
              
              -Decrease
      (increase) in costs incurred related to deferred revenue
              
              
              (992,653
              )
              
              
              (89,307
              )
              
              
              321,625Decrease
      (increase) in due from Sellers
              
              
              341,863
              
              
              
              -
              
              
              
              -Decrease
      (increase) in prepaid expenses and other current assets
              
              
              (61,609
              )
              
              
              28,538
              
              
              
              -Decrease
      (increase) in other assets
              
              
              (12,059
              )
              
              
              -
              
              
              
              -Increase
      (decrease) in accounts payable and accrued expenses
              
              
              231,042
              
              
              
              56,828
              
              
              
              337,496Increase
      (decrease) in income taxes payable
              
              
              7,610
              
              
              
              30,000
              
              
              
              36,600Increase
      (decrease) in deferred revenue
              
              
              682,540
              
              
              
              103,047
              
              
              
              (513,219
              )Net
      cash provided by (used in) operating activities
              
              
              (30,591
              )
              
              
              (656,053
              )
              
              
              267,033Cash
      flows from investing activities:Acquisition
      of property and equipment
              
              
              (310,892
              )
              
              
              (29,500
              )
              
              
              (205,830
              )Purchase
      of net assets in the acqusition of Wood, net of cash
    acquired
              
              
              -
              
              
              
              (4,724,362
              )
              
              
              -Deferred
      acqusition costs
              
              
              -
              
              
              
              340,000
              
              
              
              -Net
      cash used in investing activities
              
              
              (310,892
              )
              
              
              (4,413,862
              )
              
              
              (205,830
              )Cash
      flows from financing activities:Proceeds
      from long-term debt
              
              
              75,711
              
              
              
              3,000,000
              
              
              
              88,274Deferred
      loan costs
              
              
              -
              
              
              
              (201,814
              )
              
              
              -Proceeds
      from line of credit
              
              
              725,000
              
              
              
              -
              
              
              
              -Preferred
      dividends paid
              
              
              (47,756
              )
              
              
              -
              
              
              
              -Payment
      of capital leases
              
              
              (51,211
              )
              
              
              -
              
              
              
              (96,665
              )Proceeds
      from exercise of stock options
              
              
              37,500
              
              
              
              -
              
              
              
              -Proceeds
      from sale of preferred stock
              
              
              600,160
              
              
              
              -
              
              
              
              -Payments
      of long-term debt
              
              
              (450,000
              )
              
              
              -
              
              
              
              (32,684
              )Proceeds
      from convertible debentures
              
              
              -
              
              
              
              1,125,000
              
              
              
              -Purchase
      of treasury stock
              
              
              -
              
              
              
              (62,500
              )
              
              
              -Net
      cash provided by (used in) financing activities
              
              
              889,404
              
              
              
              3,860,686
              
              
              
              (41,075
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              547,921
              
              
              
              (1,209,229
              )
              
              
              20,128Cash
      and cash equivalents, beginning of period
              
              
              101,361
              
              
              
              1,613,173
              
              
              
              2,175Cash
      and cash equivalents, end of period
              
              $
              649,282
              
              
              $
              403,944
              
              
              $
              22,303Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
              
              $
              128,601
              
              
              $
              36,543
              
              
              $
              45,971Taxes
              
              $
              -
              
              
              $
              -
              
              
              $
              -Non
      cash financing activities:Issuance
      of preferred stock for exchange of convertible debentures
              
              $
              1,525,000
              
              
              $
              -
              
              
              $
              -Issuance
      of convertible debentures for purchase of Wood
              
              $
              -
              
              
              $
              400,000
              
              
              $
              -Issuance
      of common stock for purchase of Wood
              
              $
              -
              
              
              $
              1,166,667
              
              
              $
              -Preferred
      stock dividend in excess of payments
              
              $
              79,684
              
              
              $
              -
              
              
              $
              -Property
      acquired under capital leases
              
              $
              327,257
              
              
              $
              -
              
              
              $
              -




See Notes
to Condensed Consolidated Financial Statements.




5


Banyan
Rail Services Inc. and Subsidiary
 Consolidated
Statements of Stockholders’ Equity
 Periods
Ended December 31, 2009 and September 30, 2010




Common
      Stock
              
              
              Preferred
      Stock
              
              
              Additional
              
              
              
              
              
              
              
              
              Treasury
      StockShares
                Issued
              
              
              Amount
              
              
              Shares
                Issued
              
              
              Amount
              
              
              Paidin
                Capital
              
              
              Accumulated
                Deficit
              
              
              Subscription
                Receivable
              
              
              Shares
              
              
              Amount
              
              
              TotalStockholders’
      equity January 1, 2009
              
              
              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
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              87,500Convertible
      debentures beneficial conversion feature
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              754,875
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              754,875Issuance
      of shares for acquisition of Wood Energy
              
              
              333,333
              
              
              
              3,333
              
              
              
              -
              
              
              
              -
              
              
              
              1,163,335
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,166,668Net
      loss for the year ended December 31, 2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (47,669
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (47,669
              )Stockholders’
      equity December 31, 2009
              
              
              3,020,414
              
              
              
              30,204
              
              
              
              -
              
              
              
              -
              
              
              
              91,885,936
              
              
              
              (87,881,350
              )
              
              
              -
              
              
              
              28,276
              
              
              
              (70,689
              )
              
              
              3,964,101Issuance
      of preferred stock - Series A
              
              
              -
              
              
              
              -
              
              
              
              19,600
              
              
              
              196
              
              
              
              1,170,090
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,170,286Issuance
      of preferred stock - Series B
              
              
              -
              
              
              
              -
              
              
              
              2,500
              
              
              
              249,642
              
              
              
              358
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              250,000Stock
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              63,066
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              63,066Exercise
      of stock options
              
              
              25,000
              
              
              
              250
              
              
              
              -
              
              
              
              -
              
              
              
              37,250
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              37,500Net
      loss for the nine months ended September 30, 2010
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (612,625
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (612,625
              )Preferred
      stock dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (127,441
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (127,441
              )Rounding
              
              
              442
              
              
              
              4
              
              
              
              -
              
              
              
              -
              
              
              
              (6
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2
              )Stockholders’
      equity September 30, 2010
              
              
              3,045,856
              
              
              $
              30,458
              
              
              
              22,100
              
              
              $
              249,838
              
              
              $
              93,029,253
              
              
              $
              (88,493,975
              )
              
              
              -
              
              
              
              28,276
              
              
              $
              (70,689
              )
              
              $
              4,744,885




See Notes
to Condensed Consolidated Financial Statements.
  6


Notes
to Condensed Consolidated Financial Statements





Note
1.  Nature of Operations





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





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





Note
2.  Basis of Presentation





We have
prepared the accompanying unaudited condensed consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”) for Form 10-Q and Regulation S-X. In the opinion of management, these
condensed consolidated financial statements give effect to all normal recurring
adjustments necessary to present fairly the financial position and results of
operations and cash flows of the Company and Wood Energy, its wholly owned
subsidiary, for the periods presented. 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 also presented.





7


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” and
the consolidated financial statements include costs related to Banyan, the
parent, whereas the stand alone financial statements of Wood Energy
(predecessor) do not include Banyan costs. All significant intercompany
transactions and accounts have been eliminated in consolidation.





Certain
reclassifications have been made to the 2009 financial statements to conform to
the classifications used in 2010. 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.





Although
we believe that the disclosures included in our condensed consolidated financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. Accordingly, the accompanying condensed
consolidated financial statements should be read in conjunction with the
Company’s latest annual report on Form 10-K for the year ended December 31, 2009
filed with the Securities and Exchange Commission.





The
results of operations for the three and nine month periods ended September 30,
2010 are not necessarily indicative of the results to be expected for the full
2010 year.





Note
3.  Summary of Significant Accounting Policies





Revenue
Recognition




The
Company utilizes the completed performance method of accounting for revenue
recognition. The Company recognizes revenue for the pick-up and disposal of
railroad ties upon the completion of the scope of work required under its
contract projects. At that point evidence of an arrangement has been obtained,
services are delivered, fees are fixed or determinable and collectability is
reasonably assured. Accordingly, billings for services for which projects have
not been completed have been recorded as deferred revenue. Direct costs,
including payroll, outside labor and trucking expenses that are related to the
pick-up and disposal of the railroad ties as well as certain indirect costs, are
deferred until the related revenue is recognized and recorded as costs incurred
related to deferred revenue. The
Company also receives revenue from the processing of railroad ties into saleable
biomass fuel and the sale of certain railroad ties to landscapers and other
railroad tie processors. These revenues are recorded when the ties or derivative
materials are delivered to the customer.





Use of
Estimates




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





Fair Value of Financial
Instruments




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





Earnings Per
Share




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





8


Income
Taxes




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




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


Inventory


Inventory
includes the costs of material, labor and direct overhead and is stated at the
lower of cost or market. This  inventory is accumulated to service the
landscape tie market.





Note
4. New Accounting Pronouncement





Disclosures about Loss
Contingencies




The
proposed ASU would amend ASC Topic 450 and require additional information to be
disclosed concerning all reasonably-possible loss contingencies. In addition,
the disclosure threshold would be lowered to include remote contingencies under
certain conditions, and public companies would be required to provide a tabular
analysis of the activity in recognized (accrued) loss contingencies for the
period. The new disclosure requirements would be effective for annual financial
statements covering fiscal years ending after December 15, 2010 and for interim
periods thereafter.The Company does not
expect the amended guidance to have a material effect on its
disclosures.




Note
5.  Capital Leases





The
Company leases equipment used in its operations under capital leases that expire
over three to four years.


Payments
under these capital leases were $28,623 and $62,477 for the three and nine
months ended September 30, 2010. There were no payments in the comparable
periods of 2009.  At September 30, 2010, the total future minimum
rental commitments under all the above operating leases are as
follows:





Fiscal
      year ending December 31,2010
              
              $
              28,6262011
              
              
              114,5052012
              
              
              114,5052013
              
              
              54,521Net
      minimum lease payments
              
              
              312,158Less
      amount representing interest
              
              
              36,112Present
      value of net minimum lease payments
              
              
              276,046Amount
      representing current portion
              
              
              (93,133
              )Capital
      leases payable, less current portion
              
              
              182,913





9





Note
6. Convertible Debentures and Preferred Stock





On
February 1, 2010, the Company initiated an exchange of its outstanding
convertible debentures for shares of convertible preferred stock. The holders of
100% of the outstanding debentures agreed to the exchange, and 15,250 shares of
Series A Convertible preferred stock were issued. Similar to the debentures,
holders of the Series A Convertible preferred stock are entitled to an annual
cash dividend of 10% payable semi-annually, and each share of preferred stock is
convertible into 50 shares of common stock. The holders of the preferred stock
are not entitled to redeem their shares for cash. The preferred stock is
convertible at the holder’s option into shares of common stock of Banyan. In
accordance with ASC 470-20, the Company has determined that the preferred
stock includes a beneficial conversion feature and a discount valued at
$1,525,000 has been accounted for as a dividend. A gain of $25,092 was recorded
on the extinguishment of this debt for the three months ended March 31,
2010.





The
Company issued 4,345 additional shares of Series A Convertible preferred
stock during the nine months ended September 30, 2010. The Company has
determined that these issuances also include beneficial conversion features
and discounts valued at $ $434,500 and $87,000 which have been accounted for as
dividends for the nine and three months ended September 30, 2010,
respectively. The proceeds were used for working capital purposes.





On
October 18, 2010, the Company filed a certificate of designation with the
Delaware Secretary of State designating 10,000 shares of its preferred stock as
Series B Preferred Stock. The issuance price of the Series B Preferred Stock is
$100 a share and it is convertible by the holder at any time after certain
events (the dates of which cannot presently be determined) have occurred or
October 15, 2013, into the Company’s common stock at a price of $2.25 per share
of common stock, subject to adjustment for stock dividends, stock splits and
reorganizations.  At that time the Company may also elect to convert
or redeem the Series B Preferred Stock.  The Series B Preferred Stock
ranks senior to the common stock and pari-passu with the Series A Preferred
Stock of the Company as to dividends and distribution of assets upon the
liquidation, dissolution or winding up of the Company.





On
October 20, 2010, pursuant to a subscription agreement dated September 29, 2010,
the Company issued 2,500 shares of its newly-authorized Series B Preferred Stock
to Patriot Rail Services Inc. Gary O. Marino, the Company’s chairman and chief
executive officer, is the president and a significant stockholder of Patriot’s
parent company.  The preferred shares were issued for $100 a share, or
$250,000 in the aggregate.





Note
7. Income Taxes





The
provision for income taxes consists of the following components:


Nine
      Months Ended
              
              
              PredecessorSeptember
      30,
              
              
              Eight
      Months Ended2010
              
              
              2009
              
              
              August
      31, 009Current
      expense
              
              $
              7,610
              
              
              $
              30,000
              
              
              $
              7,400Deferred
      Tax benefit
              
              
              (80,384
              )
              
              
              -
              
              
              
              -$
              (72,774
              )
              
              $
              30,000
              
              
              $
              7,400





The
current provision for income taxes for the Company and the predecessor company
relates to uncertain tax positions indentified in ASC 740 (Income
Taxes).





10




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





September
      30,
                2010
              
              
              December
      31,
                2009Long-term
      deferred tax assets:Stock
      compensation benefit
              
              $
              190,749
              
              
              $
              169,307Net
      operating loss carryforward
              
              
              1,154,742
              
              
              
              1,204,142Total
      long-term deferred tax assets
              
              
              1,345,491
              
              
              
              1,373,449Valuation
      allowance
              
              
              -
              
              
              
              -1,345,491
              
              
              
              1,373,449Long-term
      deferred tax liabilities:Convertible
      debenture
              
              
              -
              
              
              
              (368,535
              )Intangible
      assets
              
              
              (553,497
              )
              
              
              (620,442
              )Property
      and equipment
              
              
              (439,529
              )
              
              
              (494,560
              )Total
      long-term deferred tax liabilities
              
              
              (993,026
              )
              
              
              (1,483,537
              )Net
      deferred tax assets (liabilities)
              
              $
              352,465
              
              
              $
              (110,088
              )




Our
Federal net operating loss (“NOL”) carryforward balance as of September 30, 2010
was $3,853,051, expiring between 2010 and 2029. 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.





A
schedule of the NOLs is as follows:





NOL
      carryforward by year:1996
              
              $
              111,0171997
              
              
              66,7071998
              
              
              184,3601999
              
              
              187,9202000
              
              
              25,0952001
              
              
              104,1542002
              
              
              15,0762003
              
              
              96,9772004
              
              
              78,2932005
              
              
              70,8242006
              
              
              48,5262007
              
              
              180,5212008
              
              
              534,0872009
              
              
              1,444,831Subtotal
              
              
              3,148,388Current
      year tax loss
              
              
              247,911Available
      NOL
              
              $
              3,396,299





The
Company adopted the provisions of ASC 740, on January 1, 2007. The statute of
limitations is still open on years 2007 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.




11




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
2007.




Note
8. Earnings per Share





The
Company excluded from the diluted earnings per share calculation 61,000 shares
related to stock options and 1,047,400 shares issuable upon conversion of
convertible preferred stock that were outstanding at September 30, 2010, as
their inclusion would be anti-dilutive.





Note
9.  Stock-Based Compensation





The
Company has stock option agreements with its directors for serving on the
Company’s Board of Directors and officers and employees as part of their
compensation. The options activity is as follows for year ending December 31,
2009 and the nine months ended September 30, 2010:





Number
                of
      Shares
              
              
              Weighted
      Average
                Exercise
      Price
                per
      Share
              
              
              Weighted
      Average
                Fair
      Value at
                Grant
      Date
              
              Weighted
      Average
                Remaining
                Contractual
      Life
              
              Intrinsic
                ValueBalance
      January 1, 2009
              
              
              212,500
              
              
              $
              2.50
              
              
              
              
              2.5
      years
              
              $
              160,000Options
      granted
              
              
              87,500
              
              
              
              3.50
              
              
              $
              87,500
              
              4.2
      years
              
              
              -Options
      exercised
              
              
              (75,000
              )
              
              
              1.50
              
              
              
              
              
              
              
              
              (112,500
              )Balance
      December 31, 2009
              
              
              225,000
              
              
              
              3.20
              
              
              
              
              
              
              
              
              47,500Options
      granted
              
              
              140,500
              
              
              
              2.91
              
              
              $
              121,125
              
              4.5
      years
              
              
              153,145Options
      exercised
              
              
              (25,000
              )
              
              
              1.50
              
              
              
              
              
              
              
              
              (62,500
              )Balance,
      June 30, 2010
              
              
              340,500
              
              
              $
              3.19
              
              
              
              
              
              3.1
      years
              
              $
              270,250




Prior to
June 30, 2010 the Company had not adopted a formal stock option
plan.  The number of options issued and the grant dates were
determined at the discretion of the Company’s Board. On July 1, 2010 at its
annual meeting of stockholders, the 2010 Stock Option and Award Plan was
approved under which 300,000 options may be issued. 18,000 options have been
granted under this plan. Outstanding options vest at the date of grant or over a
period of one or three years. The options are exercisable for periods not
exceeding three to five years from the date of grant.





The fair
values of stock options are estimated using the Black-Scholes method, which
takes into account variables such as estimated volatility, expected holding
period, dividend yield, and the risk free interest rate. The risk free interest
rate is the five year treasury rate at the date of grant. The expected life is
based on the contractual life of the options at the date of grant. With a change
in management in 2008, it was determined that the Company would seek
acquisitions in railroad related businesses.  Accordingly, the 2010
and 2009 expected volatility rate was estimated using the average volatility
rates of seven public companies in the railroad industry. The Company uses an
estimated forfeiture rate of 0% due to limited experience with historical
forfeitures. The assumptions used in the option-pricing models during 2010 and
2009 were as follows:





2010
              
              
              2009Risk
      free interest rate
              
              
              1.39-2.37
              %
              
              
              2.55
              %Expected
      life (years)
              
              
              5
              
              
              
              5Expected
      volatility
              
              
              29
              %
              
              
              27
              %Dividend
      yield
              
              
              0
              
              
              
              
              0





12





Note
10. Major Customers




For the
three and nine months ended September 30, 2010, the Company earned 61% and 69%
of its revenues under a contract with one major customer (88% of outstanding
accounts receivable - trade) and 27% and 21% of its revenues under a contract
with another major customer (3% of outstanding accounts receivable -
trade). For the three and nine months ended September 30, 2009, the Company
earned 78% and 72% of its revenues under a contract with one major
customer.




Note
11. Related Party Transactions





The
Company’s directors and chief executive officer are currently not receiving cash
compensation for their services. Such persons are compensated via the issuance
of stock options which are recognized as a non-cash expense in the Company’s
financial statements.





In 2009,
Wood Energy entered into two 5-year employment agreements with individuals who
are common and preferred stockholders and Banyan entered into a month-to-month
consulting agreement with an individual who is a common and preferred
stockholder. The expense under these agreements for the three and nine-month
periods ended September 30, 2010 was $104,000 and $312,000,
respectively.





The
Company’s officers and directors own a total of 10,000 shares of the Series A
convertible preferred stock outstanding as of September 30, 2010.





As
described in Note 6.
Convertible Debentures and Preferred Stock, pursuant to a subscription
agreement dated September 29, 2010, the Company issued 2,500 shares of its
newly-authorized Series B Preferred Stock to Patriot Rail
Services.  Gary O. Marino, the Company’s chairman and chief executive
officer, is the president and a significant stockholder of Patriot Rail
Services, Inc’s parent company.





The
Company leases office space and receives office services from Patriot Rail
Corp., a company related by certain preferred and common stock ownership and
management, for $5,000 per month.




Note 12. Subsequent Event





On
October 29 2010, Wood Energy purchased grinding equipment complementing its
existing process to more efficiently convert ties into biomass fuel. The
equipment cost $460,000 and was financed largely through one of the Wood Energy
credit lines.




13




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





Cautionary
Statement Concerning Forward-Looking Statements




We and
our representatives may from time to time make written or oral statements that
are “forward-looking,” including statements contained in this Quarterly Report
on Form 10-Q and other filings with the Securities and Exchange Commission,
reports to our stockholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Section 21E of the Securities Exchange Act. In
addition, other written or oral statements which constitute forward-looking
statements may be made by us or on our behalf. Words such as “expects,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,”
“forecasts,” “may,” “should,” variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve risks, uncertainties and
assumptions which are difficult to predict. These risks may relate to, without
limitation:





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


· obtaining
appropriate funding to complete potential acquisitions;


· generating
adequate revenue and cash to service our debt and meet our bank loan financial
covenants;


· complying
with SEC regulations and filing requirements applicable to us as a public
company;


· the
impact of current or future laws and government regulations affecting the
disposal of rail ties and our  operations;


· any of
our other plans, objectives, expectations and intentions contained in this
report that are not historical facts;


· changing
external competitive, business, technology, weather or economic
conditions;


· successfully
operating Wood Energy;


· changes
in our relationships with employees or with our customers; and


· the
market opportunity for our services, including expected demand for our
services.





Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in or suggested by such forward-looking statements. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Readers should carefully
review the factors described herein and in other documents we file from time to
time with the Securities and Exchange Commission, including our Quarterly
Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on
Form 8-K filed by us.





Overview




In
September 2009, we acquired The Wood Energy Group, Inc., a Missouri corporation
engaged in the business of railroad tie reclamation and disposal. Prior to
acquiring Wood Energy, Banyan was a shell company without significant operations
or sources of revenues other than its investments. Currently our management team
is focused on acquisition opportunities and additional sources of funding. We
are focusing our efforts on railroad track construction, and railroad repair and
maintenance businesses, and may explore potential acquisitions in other
industries as well.





Wood
Energy




Wood
Energy, headquartered in St. Louis, Missouri, is one of the nation’s largest
railroad tie reclamation and disposal companies. Founded in 2001, we provide
railroad tie pickup, reclamation and disposal services to the Class 1 railroads
(defined by the American Association of Railroads as a railway company with
annual operating revenue over $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. Wood Energy
operates primarily in Texas and Louisiana.




Wood
Energy’s 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 subsequent sale as biomass
fuel to the co-generation market. In 2009, we recovered over one million
railroad ties, 73% of which were used by the co-generation market, 22% for the
landscape market and 5% went to landfill.





Recent
Events




Issuance
of Preferred Stock Series B




On
October 18, 2010, the Company filed a certificate of designation with the
Delaware Secretary of State designating 10,000 shares of its preferred stock as
Series B Preferred Stock. The issuance price of the Series B Preferred Stock is
$100 a share and it is convertible by the holder at any time after certain
events (the dates of which cannot presently be determined) have occurred or
October 15, 2013, into the Company’s common stock at a price of $2.25 per share
of common stock, subject to adjustment for stock dividends, stock splits and
reorganizations.  At that time the Company may also elect to convert
or redeem the Series B Preferred Stock.  The Series B Preferred Stock
ranks senior to the common stock and pari-passu with the Series A Preferred
Stock of the Company as to dividends and distribution of assets upon the
liquidation, dissolution or winding up of the Company.




14


On
October 20, 2010, pursuant to a subscription agreement dated September 29, 2010,
the Company issued 2,500 shares of its newly-authorized Series B Preferred Stock
to Patriot Rail Services Inc. Gary O. Marino, the Company’s chairman and chief
executive officer, is the president and a significant stockholder of
Patriot.  The preferred shares were issued for $100 a share, or
$250,000 in the aggregate.





Critical
Accounting Policies and Estimates




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





We review
our financial reporting and disclosure practices and accounting policies
quarterly to ensure that they provide accurate and transparent information
relative to the current economic and business environment. During the nine
months ended September 30, 2010, there were no significant changes to the
critical accounting policies that we disclosed in our 2009 Form 10-K filed with
the SEC on April 15, 2010. Please see a complete list of significant accounting
policies in Note 3 of the notes to our consolidated financial statements
included with our 2009 Form 10-K. In addition, a summary of significant
accounting policies is included in Note 3 of the notes to the financial
statements included with this Form 10-Q.





Reverse
Stock Split




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




Pro
Forma Consolidated Results of Operations - Banyan and Subsidiary




Our
actual results of operations for the three month and nine month periods ended
September 30, 2010 and 2009 do not provide a meaningful basis for comparison and
analysis since we only have been an operating company since we acquired Wood
Energy on September 4, 2009. To provide a more comprehensive analysis of the
combined operating results of Banyan together with those of Wood Energy for the
three and nine month periods ended September 30, 2010 and 2009, the following
selected pro forma financial information combines Banyan’s and Wood Energy’s
unaudited results, as if Banyan had acquired Wood Energy as of January1,
2009.





15




Pro
Forma Consolidated Results of Operations




For
      the nine months ended September 30,
              
              
              For
      the three months ended September 30,Pro
      Forma
              
              
              Variance
              
              
              
              
              
              Pro
      Forma
              
              
              Variance2010
              
              
              2009
              
              
              $
              
              
              
              %
              
              
              2010
              
              
              2009
              
              
              $
              
              
              
              %Revenues
              
              $
              4,000,223
              
              
              $
              3,897,576
              
              
              
              102,647
              
              
              
              3
              %
              
              $
              1,377,984
              
              
              $
              1,277,648
              
              
              
              100,336
              
              
              
              8
              %Cost
      of goods sold
              
              $
              3,178,068
              
              
              
              2,993,644
              
              
              
              (184,424
              )
              
              
              -6
              %
              
              
              1,082,034
              
              
              
              968,617
              
              
              
              113,417
              
              
              
              12
              %Gross
      profit
              
              $
              822,155
              
              
              
              903,932
              
              
              
              (81,777
              )
              
              
              -9
              %
              
              
              295,950
              
              
              
              309,031
              
              
              
              (13,081
              )
              
              
              -4
              %General
      & administrative expenses
              
              $
              1,292,862
              
              
              
              914,930
              
              
              
              (377,932
              )
              
              
              -41
              %
              
              
              400,936
              
              
              
              266,654
              
              
              
              134,282
              
              
              
              -50
              %Loss
      from operations beforeacquisition
      costs
              
              $
              (470,707
              )
              
              
              (10,998
              )
              
              
              (459,709
              )
              
              
              -4180
              %
              
              
              (104,986
              )
              
              
              42,377
              
              
              
              (147,363
              )
              
              
              348
              %Acquisition
      costs for Wood Energy
              
              $
              -
              
              
              
              100,354
              
              
              
              100,354
              
              
              
              -
              
              
              
              -
              
              
              
              100,354
              
              
              
              (100,354
              )
              
              
              -Write
      off of acquisition costs notcompleted
              
              $
              -
              
              
              
              508,349
              
              
              
              508,349
              
              
              
              -
              
              
              
              -
              
              
              
              508,349
              
              
              
              (508,349
              )
              
              
              -Interest
      expense - net
              
              $
              239,783
              
              
              
              70,789
              
              
              
              (168,994
              )
              
              
              -239
              %
              
              
              80,418
              
              
              
              41,126
              
              
              
              39,292
              
              
              
              -96
              %Gain
      on extinguishment of debt
              
              $
              (25,092
              )
              
              
              -
              
              
              
              (25,092
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Loss
      before income taxes
              
              $
              (685,399
              )
              
              
              (690,490
              )
              
              
              5,091
              
              
              
              1
              %
              
              
              (185,404
              )
              
              
              (607,452
              )
              
              
              (186,655
              )
              
              
              -31
              %Income
      tax provision (benefit)
              
              $
              (72,774
              )
              
              
              66,600
              
              
              
              139,374
              
              
              
              209
              %
              
              
              (77,074
              )
              
              
              60,400
              
              
              
              (137,474
              )
              
              
              228
              %Net
      loss
              
              $
              (612,625
              )
              
              
              (757,090
              )
              
              
              144,465
              
              
              
              19
              %
              
              
              (108,330
              )
              
              
              (667,852
              )
              
              
              559,522
              
              
              
              84
              %




Revenues




Revenues
include the pickup and disposal of railroad ties, the sale of ties to landscape
tie distributors and to other tie converters and the conversion of railroad
ties into biomass fuel.




Revenues
      for the nine months ended 9/30/10
              
              
              Revenues
      for the three months ended 9/30/109/30/2010
              
              
              9/30/2009
              
              
              %
      Variance
              
              
              9/30/2010
              
              
              9/30/2009
              
              
              %
      VarianceBio
      Mass fuel
              
              $
              833,568
              
              
              
              -
              
              
              
              -
              
              
              $
              370,873
              
              
              
              -
              
              
              
              -Tie
      pick-up
              
              
              2,763,229
              
              
              
              2,988,210
              
              
              
              -8
              %
              
              
              835,652
              
              
              
              1,051,338
              
              
              
              -21
              %Tie
      and Wood Sales
              
              
              403,426
              
              
              
              909,366
              
              
              
              -56
              %
              
              
              171,458
              
              
              
              226,310
              
              
              
              -24
              %Total
              
              $
              4,000,223
              
              
              $
              3,897,576
              
              
              
              3
              %
              
              $
              1,377,983
              
              
              $
              1,277,648
              
              
              
              8
              %




Revenue for the nine months
ended September 30, 2010 was $102,647 or 3% greater than comparable
period in 2009. In February 2010 the company initiated biomass fuel production
utilizing industrial grinding equipment. Revenues from the sales of biomass fuel
were $833,568 for the nine months ended September 30, 2010 whereas the company
had not entered into the biomass fuel market until 2010.




This
increase was offset by lower tie sales of $505,940, or 56%, and a reduction of
tie pick-up revenues of $224,981, or 8%. Sales of wood ties that were sold to
other tie grinders was reduced by approximately $400,000 from $500,000 for the
nine months in 2009. The 2010 decline in tie and wood sales resulted from the
decision to process the collected ties for the biomass fuel market where it
would realize higher selling prices margins.




The
reduction in tie pick up revenue resulted primarily from larger individual
projects. The Company has been working these larger projects in 2010 which have
resulted in extending the period of time before its completion and the
associated revenue recognition. An additional impact is that deferred revenue on
the balance sheet has increased by $682,000 as compared to December 31, 2009.
The Company anticipates that a high proportion of these projects will be
completed and recognized as revenue during the fourth quarter of
2010.




16




Revenues increased for the
three months ended September 30, 2010 above the comparable 2009 period by
$100,335 or 8% as a result of new revenues from the sale of biomass fuel of
$370,873 in 2010 partly offset by a decrease in tie pick up revenue of $215,686,
or 21%, due to the increase in project length noted above.





Gross
margin




Gross margin for the nine
months ended September 30, 2010 was 9% lower than the comparable period
in 2009 The
decline is attributable the relative proportion of the biomass fuel to tie and
wood revenues. The margin on the tie and wood sales during the period was not
compensated for by a sufficient increase in the biomass fuel revenues to
compensate for the difference in margin rates. Our biomass fuel customer
incurred several unplanned shutdowns and postponed receipts of biomass fuel due
to their equipment malfunctions. Wood Energy also incurred equipment
modification expenses which negatively impacted production and margin. This
problem has since been corrected. These challenges have negatively influenced
margins as a high proportion of the production cost is fixed or independent of
the volume of processing.





As a
consequence of the events in the biomass fuel production, during the nine months
ended September 30, 2010, ties available for processing and subsequent shipment
have increased $305,000 to approximately $465,000 (when valued at selling
price).





Gross margin for the three
months ended September 30, 2010 was 4% lower than the comparable period
in 2009 due primarily to tie-pickup labor costs increased as a proportion of
revenues due to the need to use more expensive contract labor caused by
increased unit volume in the 2010 period and inefficient scheduling coordination
with its major customer. This problem has since been corrected. Additionally as
noted above, our biomass fuel customer experienced several unplanned equipment
failures.  Wood Energy also incurred equipment modification expenses
to improve future cost efficiencies.





General
and administrative expenses




General
and administrative expenses include: compensation, professional fees and costs
related to being a public company, amortization of identifiable intangible
assets and other costs. The below table summarizes the general and
administrative expenses for the nine and three months ended September
30:




Nine
      Months Ended September 30,
              
              
              Three
      Months Ended September 30,2010
              
              
              2009
              
              
              Variance
      %
              
              
              2010
              
              
              2009
              
              
              Variance
      %Compensation
      costs
              
              $
              548,863
              
              
              $
              523,370
              
              
              
              -5
              %
              
              $
              142,693
              
              
              $
              80,083
              
              
              
              -78
              %Professional
      fees and public company costs
              
              $
              271,698
              
              
              
              151,957
              
              
              
              -79
              %
              
              
              37,189
              
              
              
              87,259
              
              
              
              57
              %Amortization
      of intangible assets
              
              $
              196,898
              
              
              
              -
              
              
              ND
              
              
              
              65,633
              
              
              
              -
              
              
              NDOther
      costs
              
              $
              275,404
              
              
              
              239,603
              
              
              
              -15
              %
              
              
              109,621
              
              
              
              99,312
              
              
              
              -10
              %Consolidated
      general and administrative
              
              $
              1,292,863
              
              
              $
              914,930
              
              
              
              -41
              %
              
              $
              355,136
              
              
              $
              266,654
              
              
              
              -33
              %




General and administrative
expenses for the nine months ended September 30, 2010




For the
nine months ended September 30, 2010 costs increased $377,932 or 41% as compared
to the same period in 2009. This increase is primarily due to: (i) the
amortization cost of $196,898 for identifiable intangible assets pertaining to
the revaluation of assets upon the purchase of Wood Energy in September, 2009;
(ii) an increase of $119,741 in professional fees and other costs related to
being a public company, which were sharply higher due to non-recurring audit and
accounting fees in conjunction with work performed to incorporate its new
subsidiary into the public filings; and (iii) an increase of $61,294 in
compensation, rent and office services incurred for the nine months ended
September 30, 2010 over the comparable 2009 periods in connection with the
transition of Banyan from a shell company to an operating company after the
acquisition in September 2009 of Wood Energy.




17




General and administrative
expenses for the three months ended September 30, 2010




For the
three months ended September 30, 2010 costs increased $88,482 or 33% as compared
to the same period in 2009. This increase is primarily due to: (i) the
amortization cost of $65,633 for identifiable intangible assets pertaining to
the revaluation of assets upon the purchase of Wood Energy in September, 2009;
and (ii) an increase of $62,610 in compensation costs as we increased the
management team by adding a full time CFO late in the second quarter of
2010.





Interest
expense




Net
interest expense for the nine and three months ended September 30, 2010 was
$239,784 and $80,418, compared to $70,789 and $41,126 for the comparable periods
in 2009. The increases of 239% and 96% respectively result from: (i) interest
expense related to the senior debt facilities incurred in connection with the
acquisition of Wood Energy; (ii) interest expense on the credit line to support
Wood Energy’s increased working capital requirements; and (III) interest expense
on capitalized leases and debt for equipment acquired in 2010 for our new
grinding facility and to support increased tie pickup volume.




Financial
Condition and Liquidity




Cash and
cash equivalents consist of cash and short-term investments. Our cash and cash
equivalents balance at September 30, 2010 was $649,281, as compared to $101,361
of cash and cash equivalents at December 31, 2009.





The
Company utilizes the completed performance method of accounting for revenue
recognition. The Company recognizes revenue for the pick-up and disposal of
railroad ties upon the completion of the scope of work required by the customer
for each project and based on the historical agreement between the customer and
Wood Energy of the defined “final act” (defined as the ties are delivered to our
grinding plant for further processing).





Each
project requires the completion of two major phases before a contract’s project
is completed. Under the contract terms, we invoice 50% of the work upon
completion of the first phase of each project, which is deferred revenue in our
balance sheet. Upon the completion of the second phase the project, we invoice
the remaining 50% and recognize 100% of that project’s revenue. The first phase
is typically more cost intensive then the second phase.  These project
costs are shown in our balance sheet as costs incurred related to deferred
revenue, until the associated project is completed.





Deferred
revenues as of September 30, 2010, were $834,465 for the completion of phase one
of these projects and we will invoice another $834,465 upon contract completion.
The costs incurred related for both phases of the projects are estimated to be
$1,216,828.  We expect the majority of the projects outstanding as of
September 30, 2010 to be completed before December 31, 2010. As of December 31,
2009 deferred revenue was $151,925 and the costs incurred related to these
deferred revenues were $224,176. The increase in the simultaneous number of tie
pick-up projects and the expanded unit volume of certain projects has
increased our cash requirements.





To
finance the acquisition of Wood Energy, we entered into a five-year senior
secured term loan with a bank in the amount of $3.0 million. Banyan guaranteed
the loan and Wood Energy is the borrower. Payments of $50,000 of principal and
interest are due monthly. As of September 30, 2010, there was $2,400,000
outstanding under the term loan.  To obtain additional funds for the
acquisition, Banyan also issued Series A Convertible Debentures bearing interest
at the rate of 10%, payable semi-annually. We raised $1,525,000 through the
issuance of the debentures. The debentures were due in five years, and were
convertible into shares of common stock of Banyan at a conversion price of $2.00
a share. In February 2010, the holders of all of the convertible debentures
elected to exchange their debentures for shares of Series A Convertible
Preferred Stock. The terms of the preferred stock are substantially the same as
the terms of the convertible debentures, except that Banyan has no obligation to
redeem the preferred stock at any time. This exchange reduces our long-term cash
requirements.





In
connection with the acquisition of Wood Energy, we also obtained two bank credit
lines in the amounts of $500,000 and $1.5 million for working capital and
capital expenditures respectively. Maximum loan advances on the working capital
line are based on specific percentages of eligible working capital amounts,
including accounts receivable and inventory. Draws on the capital expenditures
line are based on 80% of the cost of such capital expenditures. On May 21, 2010,
the Company and the bank amended the terms of the credit lines whereby the
working capital and capital expenditures lines of credit are now $1.0 Million
and $1.0 Million, respectively. As of September 30, 2010, $588,000 was available
under the capital expenditure line. As of the balance sheet date we committed to
the purchase of another enhancement to the grinding production in the amount of
$460,000 of which 80% will be drawn from the available capital expenditure. We
have no other material commitments for capital expenditures. We have utilized
all of the working capital line primarily as a result of the costs incurred for
each project until the second phase of the project is completed.





18


The term
loan and lines of credit from the bank described above are subject to certain
loan covenants that require, among other things, compliance with fixed charge
coverage and total debt coverage ratios, as well as minimum levels of EBITDA
(earnings before interest, taxes, depreciation and amortization). As of
September 30, 2010, we were in compliance with the covenants. Based on our
operating plan as described below, we believe that we will comply with the loan
covenants in the foreseeable future. However, we can make no assurances that we
will maintain compliance with the loan covenants.




At
September 30, 2010, we had a net working capital deficit of $1,219,238 and
incurred negative cash flows from operating activities for the nine months ended
September 30, 2010 of $30,589. Although we anticipate that cash flow will
improve in the last three months of 2010 as we complete our annual contracts
with our major customer, the future timing of these customer contract
completions and realization of our deferred revenues may not allow us to
generate positive cash flow in the near future.





Our
working capital line of credit matures in July 2011 (as amended on May 21, 2010)
and we believe that we will be able to refinance or extend the term of this
facility, although we cannot guarantee that we will be able to do so on terms
that are acceptable to us or at all. In addition, during 2010 we have sold 4,350
and 2,500 convertible preferred shares of Series A and B respectively, resulting
in net proceeds of $375,000 and $250,000, respectively, which was used for
working capital purposes. Although we believe that we will be able to
successfully execute our plan and meet our future liquidity needs, there can be
no assurances in this regard.





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





Off-Balance
Sheet Arrangements




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





How to Learn More about Banyan




We file
annual, quarterly and current reports and other information with the SEC. Our
SEC filings are available to the public on the internet at the SEC’s web site at
SEC.gov. To learn more about Banyan you can also contact our CEO, Gary O.
Marino, at 561-443-7775.





Item
4.  Controls and Procedures





Under the
direction of our chief executive officer and chief financial officer, management
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on
this evaluation, our chief executive officer and chief financial officer each
concluded that our disclosure controls and procedures were effective as of
September 30, 2010. Further, there have been no changes in our internal control
over financial reporting during the quarter ended September 30, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f)).





19




Part
II — Other Information





Item
1.  Legal Proceedings




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





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds





We sold
870 shares of Series A preferred stock between July 1 and September 30, 2010 to
private investors resulting in proceeds of $87,000. In September we sold 2,500
shares of Series B preferred stock to Patriot Rail Services Inc. resulting in
proceeds of $250,000. The sales proceeds from both were used for working capital
purposes. The issuances of the preferred shares were made in reliance on Section
4(2) of the Securities Act of 1933 for the offer and sale of securities not
involving a public offering and Rule 506 of Regulation D of the Securities
Act.





During
August 2010, the Company granted qualified stock options to purchase 18,000
shares of the Company’s common stock for $3.70 per share to the Company’s
officers and employees in compensation for their services to the Company. The
options vest over a period of one or three years and expire five years from the
grant date. The options were not registered under the securities Act of 1933
(the “Act”) in reliance on the private offering exception from registration
provided in paragraph 4(2) of the Act.





Item
3.  Defaults Upon Senior Securities





Not
applicable.





Item
5.  Other Information





For
information regarding significant events of the third quarter, please turn to
“Recent Events” on page 14.





Item
6.  Exhibits





31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive Officer Pursuant
      to § 302 of the Sarbanes-Oxley Act of
2002





31.2
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial Officer Pursuant
      to § 302 of the Sarbanes-Oxley Act of
2002





32
            Rule
      13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley
      Act of 2002





20




Signatures





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




Banyan
      Rail Services Inc.Date:
      November 15, 2010
              
              /s/
      Larry FormanLarry
      Forman,Vice
      President and Chief Financial Officer(Principal
      Financial and Accounting Officer)
  21