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 endedJune 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)561-997-7775(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 August 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
                  13Cautionary
      Statement Concerning Forward-Looking Statements
                  13Overview
                  13Wood
      Energy
                  14Recent
      Events
                  14Changes
      to and the Election of our Board of Directors
                  14Exchange
      of Debentures for Preferred Stock and Issuance of Additional Preferred
      Stock
                  14Reverse
      Stock Split
                  14Completion
      of Shreveport Tie Grinding Facility
                  14Critical
      Accounting Policies and Estimates
                  15Consolidated
      Results of Operations — Banyan and Subsidiary
                  15Revenues
                  15Gross
      margin
                  16General
      and administrative expenses
                  16Interest
      expense
                  16Financial
      Condition and Liquidity
                  17Off-Balance
      Sheet Arrangements
                  18How
      to Learn More about Banyan
                  18Item
      4(T). Controls and Procedures
                  18Part
      II — Other Information
                  19Item
      1.
                  Legal
      Proceedings
                  19Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  19Item
      3.
                  Defaults
      Upon Senior Securities
                  19Item
      5.
                  Other
      Information
                  19Item
      6.
                  Exhibits
                  20Signatures
                  
                  20




Page 2 of
20




Part
I — Financial Information


Item
1.    Financial Statements





Banyan
Rail Services Inc. and Subsidiary


Condensed
Consolidated Balance Sheets


As
of




June 30, 2010
                  
                  
                  December 31, 2009(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  49,484
                  
                  
                  $
                  101,361Accounts
      receivable - trade
                  
                  
                  1,061,422
                  
                  
                  
                  533,661Due
      from sellers
                  
                  
                  57,737
                  
                  
                  
                  341,863Cost
      incurred related to deferred revenue
                  
                  
                  808,052
                  
                  
                  
                  224,176Prepaid
      expenses and other current assets
                  
                  
                  28,371
                  
                  
                  
                  5,362Total
      current assets
                  
                  
                  2,005,065
                  
                  
                  
                  1,206,423Property
      and equipment, net
                  
                  
                  2,509,044
                  
                  
                  
                  2,146,086Other
      assetsDeferred
      loan costs, net
                  
                  
                  179,703
                  
                  
                  
                  199,993Deferred
      income taxes
                  
                  
                  278,787
                  
                  
                  
                  -Identifiable
      intangible assets, net
                  
                  
                  1,693,562
                  
                  
                  
                  1,824,827Goodwill
                  
                  
                  3,658,364
                  
                  
                  
                  3,658,364Deposit
                  
                  
                  12,059
                  
                  
                  
                  -Total
      other assets
                  
                  
                  5,822,475
                  
                  
                  
                  5,683,184Total
      assets
                  
                  $
                  10,336,584
                  
                  
                  $
                  9,035,693LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                  
                  $
                  1,140,360
                  
                  
                  $
                  871,533Deferred
      revenue
                  
                  
                  558,234
                  
                  
                  
                  151,925Line
      of credit
                  
                  
                  800,000
                  
                  
                  
                  275,000Current
      portion of long-term debt
                  
                  
                  616,468
                  
                  
                  
                  619,206Current
      portion of capital leases
                  
                  
                  90,656
                  
                  
                  
                  -Dividends
      Payable
                  
                  
                  88,474
                  
                  
                  
                  -Income
      tax payable
                  
                  
                  39,675
                  
                  
                  
                  35,375Total
      current liabilities
                  
                  
                  3,333,867
                  
                  
                  
                  1,953,039Deferred
      income taxes
                  
                  
                  -
                  
                  
                  
                  110,088Long-term
      debt, less current portion
                  
                  
                  2,326,442
                  
                  
                  
                  2,567,394Capital
      Leases, less current portion
                  
                  
                  209,021
                  
                  
                  
                  -Convertible
      debentures, net
                  
                  
                  -
                  
                  
                  
                  441,073Total
      liabilities
                  
                  
                  5,869,330
                  
                  
                  
                  5,071,594Commitments
      and contingenciesStockholders'
      equitySeries
      A Preferred stock, $100 par value. 20,000 shares authorized. 18,725
      shares issued at  June 30, 2010
                  
                  
                  187
                  
                  
                  
                  -Common
      stock, $0.01 par value. 75,000,000 shares authorized. 3,046,067
      and 3,020,414 and shares issued at June 30, 2010 December
      31, 2009, respectively
                  
                  
                  30,460
                  
                  
                  
                  30,204Additional
      paid-in capital
                  
                  
                  93,017,942
                  
                  
                  
                  91,885,935Accumulated
      deficit
                  
                  
                  (88,385,646
                  )
                  
                  
                  (87,881,351
                  )Treasury
      stock, at cost, for 28,276 shares
                  
                  
                  (70,689
                  )
                  
                  
                  (70,689
                  )Subscription
      receivable for Series A preferred stock
                  
                  
                  (125,000
                  )
                  
                  
                  -Total
      stockholders' equity
                  
                  
                  4,467,254
                  
                  
                  
                  3,964,099Total
      liabilities and stockholders' equity
                  
                  $
                  10,336,584
                  
                  
                  $
                  9,035,693





See Notes
to Condensed Consolidated Financial Statements.


Page 3 of
20




Banyan
Rail Services Inc. and Subsidiary


Condensed
Consolidated Statements of Operations


(Unaudited)





Predecessor
                      
                      
                      
                      
                      
                      
                      
                      
                      PredecessorSix
      Months
                      
                      
                      Three
      Months
                        Ended
      June30,
                      
                      
                      Three
      Months
                        Ended
      June30,Six
      Months Ended June 30
                      
                      
                      Ended
      June30,2010
                      
                      
                      2009
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009
                      
                      
                      2009Revenues
                      
                      $
                      2,622,238
                      
                      
                      $
                      -
                      
                      
                      $
                      2,619,928
                      
                      
                      $
                      1,365,680
                      
                      
                      $
                      -
                      
                      
                      $
                      1,040,086Cost
      of sales
                      
                      
                      2,096,035
                      
                      
                      
                      -
                      
                      
                      
                      2,259,070
                      
                      
                      
                      1,266,464
                      
                      
                      
                      -
                      
                      
                      
                      844,574Gross
      profit
                      
                      
                      526,204
                      
                      
                      
                      -
                      
                      
                      
                      360,858
                      
                      
                      
                      99,217
                      
                      
                      
                      -
                      
                      
                      
                      195,512General
      & administrative expenses
                      
                      
                      891,926
                      
                      
                      
                      241,010
                      
                      
                      
                      173,223
                      
                      
                      
                      415,595
                      
                      
                      
                      192,367
                      
                      
                      
                      102,103Income
      (loss) from operations
                      
                      
                      (365,722
                      )
                      
                      
                      (241,010
                      )
                      
                      
                      187,635
                      
                      
                      
                      (316,378
                      )
                      
                      
                      (192,367
                      )
                      
                      
                      93,408Other
      expenses (income)(Gain)
      on extinguishment of debt
                      
                      
                      (25,092
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Interest
      expense (income)
                      
                      
                      159,365
                      
                      
                      
                      (9,470
                      )
                      
                      
                      39,133
                      
                      
                      
                      70,677
                      
                      
                      
                      (3,904
                      )
                      
                      
                      26,470Income
      (loss) before income taxes
                      
                      
                      (499,995
                      )
                      
                      
                      (231,540
                      )
                      
                      
                      148,502
                      
                      
                      
                      (387,055
                      )
                      
                      
                      (188,463
                      )
                      
                      
                      66,939Income
      tax provision (benefit)
                      
                      
                      4,300
                      
                      
                      
                      -
                      
                      
                      
                      6,200
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,200Net
      profit (loss)
                      
                      $
                      (504,295
                      )
                      
                      $
                      (231,540
                      )
                      
                      $
                      142,302
                      
                      
                      $
                      (387,055
                      )
                      
                      $
                      (188,463
                      )
                      
                      $
                      60,739Dividends
      for the benefit of preferred stockholders:Preferred
      stock dividend
                      
                      
                      (88,474
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (45,807
                      )
                      
                      
                      -
                      
                      
                      
                      -Amortization
      of beneficial conversion feature discount on preferred
    stock
                      
                      
                      (1,872,500
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (75,000
                      )
                      
                      
                      -
                      
                      
                      
                      -Total
      dividends for the benefit of preferred stockholders
                      
                      
                      (1,960,974
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (120,807
                      )
                      
                      
                      -
                      
                      
                      
                      -Net
      income (loss) attributable to common stockholders
                      
                      $
                      (2,465,269
                      )
                      
                      $
                      (231,540
                      )
                      
                      $
                      142,302
                      
                      
                      $
                      (507,862
                      )
                      
                      $
                      (188,463
                      )
                      
                      $
                      60,739Weighted
      average number of common shares outstanding:Basic
      and diluted
                      
                      
                      3,040,571
                      
                      
                      
                      2,607,432
                      
                      
                      
                      
                      
                      
                      
                      3,042,791
                      
                      
                      
                      2,607,432Net
      income (loss) per common share:Basic
      and diluted
                      
                      $
                      (0.81
                      )
                      
                      $
                      (0.09
                      )
                      
                      
                      
                      
                      
                      $
                      (0.17
                      )
                      
                      $
                      (0.07
                      )




See Notes
to Condensed Consolidated Financial Statements.


Page 4 of
20




Banyan Rail Services Inc. and Subsidiary


Condensed
Consolidated Statements of Cash Flows





PredecessorSix Months Ended June 30,
                      
                      
                      Six
      Months Ended2010
                      
                      
                      2009
                      
                      
                      June 30, 2009Cash
      flows provided by (used in) operating activities:Net
      income (loss)
                      
                      $
                      (504,295
                      )
                      
                      $
                      (231,540
                      )
                      
                      $
                      142,302Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
                      
                      
                      124,227
                      
                      
                      
                      -
                      
                      
                      
                      150,178Stock
      compensation expense
                      
                      
                      45,800
                      
                      
                      
                      87,500
                      
                      
                      
                      -Amortization
      of deferred loan costs
                      
                      
                      20,290
                      
                      
                      
                      -
                      
                      
                      
                      -Amortization
      of identifiable intangible assets
                      
                      
                      131,265
                      
                      
                      
                      -
                      
                      
                      
                      -Amortization
      of beneficial conversion feature
                      
                      
                      15,269
                      
                      
                      
                      -
                      
                      
                      
                      -Gain
      on extinguishment of debt
                      
                      
                      (25,092
                      )
                      
                      
                      -
                      
                      
                      
                      -Changes
      in assets and liabilities:Decrease
      (increase) in accounts receivable
                      
                      
                      (527,761
                      )
                      
                      
                      107
                      
                      
                      
                      (110,680
                      )Decrease
      (increase) in costs incurred related to deferred revenue
                      
                      
                      (493,244
                      )
                      
                      
                      -
                      
                      
                      
                      244,972Decrease
      (increase) in due from Sellers
                      
                      
                      284,126
                      
                      
                      
                      -
                      
                      
                      
                      -Decrease
      (increase) in prepaid expenses and other current assets
                      
                      
                      (23,009
                      )
                      
                      
                      6,500
                      
                      
                      
                      -Decrease
      (increase) in other assets
                      
                      
                      (12,059
                      )
                      
                      
                      -
                      
                      
                      
                      -Increase
      (decrease) in accounts payable and accrued expenses
                      
                      
                      268,827
                      
                      
                      
                      32,674
                      
                      
                      
                      179,311Increase
      (decrease) in income taxes payable
                      
                      
                      4,300
                      
                      
                      
                      -
                      
                      
                      
                      6,200Increase
      (decrease) in deferred revenue
                      
                      
                      406,309
                      
                      
                      
                      -
                      
                      
                      
                      (418,884
                      )Net
      cash provided by (used in) operating activities
                      
                      
                      (285,047
                      )
                      
                      
                      (104,759
                      )
                      
                      
                      193,399Cash
      flows from investing activities:Acquisition
      of property and equipment
                      
                      
                      (250,560
                      )
                      
                      
                      -
                      
                      
                      
                      (117,555
                      )Net
      cash used in investing activities
                      
                      
                      (250,560
                      )
                      
                      
                      -
                      
                      
                      
                      (117,555
                      )Cash
      flows from financing activities:Proceeds
      from long-term debt
                      
                      
                      56,310
                      
                      
                      
                      -
                      
                      
                      
                      88,274Proceeds
      from line of credit
                      
                      
                      525,000
                      
                      
                      
                      -
                      
                      
                      
                      -Payment
      of capital leases
                      
                      
                      (27,580
                      )
                      
                      
                      -
                      
                      
                      
                      (97,932
                      )Proceeds
      from exercise of stock options
                      
                      
                      37,500
                      
                      
                      
                      -
                      
                      
                      
                      -Proceeds
      from sale of preferred stock
                      
                      
                      192,500
                      
                      
                      
                      -
                      
                      
                      
                      -Payment
      of long-term debt
                      
                      
                      (300,000
                      )
                      
                      
                      -
                      
                      
                      
                      (29,709
                      )Purchase
      of treasury stock
                      
                      
                      -
                      
                      
                      
                      (62,500
                      )
                      
                      
                      -Net
      cash provided by (used in) financing activities
                      
                      
                      483,730
                      
                      
                      
                      (62,500
                      )
                      
                      
                      (39,367
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      (51,877
                      )
                      
                      
                      (167,259
                      )
                      
                      
                      36,477Cash
      and cash equivalents, beginning of period
                      
                      
                      101,361
                      
                      
                      
                      1,613,173
                      
                      
                      
                      2,175Cash
      and cash equivalents, end of period
                      
                      $
                      49,484
                      
                      
                      $
                      1,445,914
                      
                      
                      $
                      38,652Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
                      
                      $
                      128,601
                      
                      
                      $
                      -
                      
                      
                      $
                      39,133Taxes
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Non
      cash financing activities:Issuance
      of preferred stock for exchange of convertible debentures
                      
                      $
                      1,525,000
                      
                      
                      $
                      -
                      
                      
                      $
                      -Preferred
      stock dividend
                      
                      $
                      88,474
                      
                      
                      $
                      -
                      
                      
                      $
                      -Property
      acquired under capital leases
                      
                      $
                      327,257
                      
                      
                      $
                      -
                      
                      
                      $
                      -




See Notes
to Condensed Consolidated Financial Statements.


Page 5 of
20




Banyan
Rail Services Inc. and Subsidiary


Consolidated
Statements of Stockholders’ Equity


Periods
Ended December 31, 2009 and June 30, 2010




Common Stock
                      
                      
                      Preferred Stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      Treasury StockShares
                        Issued
                      
                      
                      Amount
                      
                      
                      Shares
                        Issued
                      
                      
                      Amount
                      
                      
                      Additional
                        Paid in Capital
                      
                      
                      Accumulated
                        Deficit
                      
                      
                      Subscription
                        Receivable
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      TotalStockholders’
      equity January 1, 2009 (restated for
                        the
      1 for 10 reverse stock split)
                      
                      
                      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
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      18,725
                      
                      
                      
                      187
                      
                      
                      
                      1,137,436
                      
                      
                      
                      -
                      
                      
                      
                      (125,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,012,623Issuance
      of stock options
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      45,800
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      45,800Exercise
      of stock options
                      
                      
                      25,000
                      
                      
                      
                      250
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      37,250
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      37,500Net
      loss for the six months ended June 30, 1010
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (504,295
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (504,295
                      )Preferred
      stock dividend
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (88,474
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (88,474
                      )Rounding
                      
                      
                      653
                      
                      
                      
                      6
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Stockholders’
      equity June 30, 2010
                      
                      
                      3,046,067
                      
                      
                      $
                      30,460
                      
                      
                      
                      18,725
                      
                      
                      $
                      187
                      
                      
                      $
                      93,017,942
                      
                      
                      $
                      (88,385,645
                      )
                      
                      $
                      (125,000
                      )
                      
                      
                      28,276
                      
                      
                      $
                      (70,689
                      )
                      
                      $
                      4,467,255





See Notes
to Condensed Consolidated Financial Statements.


Page 6 of
20





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.





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 December 31, 2009
financial statements to conform to the classifications used in
2010.





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 six-month periods ended June 30, 2010
are not necessarily indicative of the results to be expected for the full 2010
year.


Page 7 of
20




Note
3.  Summary of Significant Accounting Policies





Revenue
Recognition


The
Company utilizes the completed contract method of accounting for revenue
recognition. The Company recognizes revenue for the pick-up and disposal of used
railroad ties upon the completion of the scope of work required under its
contracts. 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 related to the services for which contracts have
not been completed have been recorded as deferred revenue. Direct costs,
including payroll, outside labor and trucking expense that are related to the
pick-up and disposal of used railroad ties as well as certain indirect costs,
are deferred until the related revenue is recognized.





The
Company also receives revenue from the processing of railroad ties into saleable
biomass fuel and the sales of the railroad ties to landscapers. 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.





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.


Page 8 of
20




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.





Note
4.  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 $24,726 and $33,821 for the three and six months
ended June 30, 2010. There were no payments in the comparable periods of
2009.





At June
30, 2010, the total future minimum rental commitments under all the above
operating leases are as follows:





Fiscal
      year ending December 31,2010
                  
                  $
                  57,2532011
                  
                  
                  114,5052012
                  
                  
                  114,5052013
                  
                  
                  57,202Net
      minimum lease payments
                  
                  
                  343,465Less
      amount representing interest
                  
                  
                  43,787Present
      value of net minimum lease payments
                  
                  
                  299,677Amount
      representing current portion
                  
                  
                  (90,656
                  )Capital
      leases payable, less current portion
                  
                  $
                  209,021





Note
5. 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
convertible preferred stock were issued. Similar to the debentures, holders of
the convertible preferred stock are entitled to an annual cash dividend of 10%
payable semi-annually, and each share of preferred stock is convertible into 50
shares of common stock. The holders of the preferred stock are not entitled to
redeem their shares for cash. 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.





In
addition, the Company issued 2,725 and 750 shares of convertible preferred stock
in February 2010 and June 2010, respectively. The Company has determined that
these issuances also include beneficial conversion features and discounts
valued at $272,500 and $75,000 respectively have been accounted for as dividends
for the quarters ended March 31, 2010 and June 30, 2010, respectively. The
proceeds were used for working capital purposes.





Note
6. Earnings per Share





The
Company excluded from the diluted earnings per share calculation 322,500 shares
related to stock options and 936,250 shares issuable upon conversion of
convertible preferred stock that were outstanding at June 30, 2010, as their
inclusion would be anti-dilutive.


Page 9 of
20





Note
7. Stockholders’ Equity





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.




Page 10
of 20




Note
8.  Stock-Based Compensation





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





Weighted Average
                  
                  
                  Weighted Average
                  
                  Weighted AverageNumber
                  
                  
                  Exercise Price
                  
                  
                  Fair
      Value at
                  
                  Remaining
                  
                  Intrinsicof Shares
                  
                  
                  per Share
                  
                  
                  Grant
      Date
                  
                  Contractual Life
                  
                  ValueBalance
      January 1, 2009
                  
                  
                  212,500
                  
                  
                  
                  2.50
                  
                  
                  
                  
                  2.5
      years
                  
                  $
                  160,000Options
      granted
                  
                  
                  87,500
                  
                  
                  
                  3.50
                  
                  
                  $
                  87,500
                  
                  4.1
      years
                  
                  $
                  -Options
      exercised
                  
                  
                  (75,000
                  )
                  
                  
                  1.50
                  
                  
                  
                  
                  
                  
                  
                  $
                  (112,500
                  )Balance
      December 31, 2009
                  
                  
                  225,000
                  
                  
                  
                  3.20
                  
                  
                  
                  
                  
                  
                  
                  $
                  47,500Options
      granted
                  
                  
                  122,500
                  
                  
                  
                  2.79
                  
                  
                  $
                  103,750
                  
                  4.8
      years
                  
                  $
                  148,225Options
      exercised
                  
                  
                  (25,000
                  )
                  
                  
                  1.50
                  
                  
                  
                  
                  
                  
                  
                  $
                  (62,500
                  )Balance,
      June 30, 2010
                  
                  
                  322,500
                  
                  
                  $
                  3.16
                  
                  
                  
                  
                  
                  3.1
      years
                  
                  $
                  270,250





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





The fair
values of stock options are estimated using the Black-Scholes method, which
takes into account variables such as estimated volatility, expected holding
period, dividend yield, and the risk free interest rate. The risk free interest
rate is the five year treasury rate at the date of grant. The expected life is
based on the contractual life of the options at the date of grant. With a change
in management in 2008, it was determined that the Company would seek
acquisitions in railroad related businesses.  Accordingly, the 2010
and 2009 expected volatility rate was estimated using the average volatility
rates of seven public companies in the railroad industry. Currently, the Company
has assumed no forfeiture rate. The assumptions used in the option-pricing
models during 2010 and 2009 were as follows:





2010
                    
                    
                    2009Risk
      free interest rate
                    
                    
                    2.13-2.37
                    %
                    
                    
                    2.55
                    %Expected
      life (years)
                    
                    
                    5
                    
                    
                    
                    5Expected
      volatility
                    
                    
                    29
                    %
                    
                    
                    27
                    %Dividend
      yield
                    
                    
                    0
                    
                    
                    
                    0





Note
9. Major Customers




For the
three and six months ended June 30, 2010, the Company earned 82% and 76% of its
revenues under a contract with one major customer (88% of outstanding accounts
receivable - trade) and 14% and 18% of its revenues under a contract with
another major customer (3% of outstanding accounts receivable - trade). For
the three and six months ended June 30, 2009, the Company earned 78% and 74% of
its revenues under a contract with one major customer.




Page 11
of 20





Note
10. 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 six-month
periods ended June 30, 2010 was $104,000 and $208,000,
respectively.





The
Company’s officers and directors own a total of 10,375 shares of the convertible
preferred stock outstanding as of June 30, 2010.





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


Page 12
of 20





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 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, 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.




Page 13
of 20


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 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




Changes
to and the Election of our Board of Directors




The
Company held its annual meeting of stockholders on July 1, 2010 in Boca Raton,
Florida. The stockholders elected Paul S. Dennis, Gary O. Marino, Bennett Marks,
and Donald D. Redfearn to the Company’s board of directors to hold office until
the 2011 annual meeting of stockholders or until their respective successors are
elected and qualified.




Exchange
of Debentures for Preferred Stock and Issuance of Additional Preferred
Stock




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





On
February 1, 2010, all of the holders of the debentures exchanged their
debentures for 15,250 shares of newly authorized Series A Preferred Stock.
Similar to the debentures, the preferred stock pays cash dividends at the rate
of 10%, payable semi-annually, and each preferred share is convertible at the
holder’s option into shares of common stock of Banyan at a conversion price of
$2.00 per share, subject to customary adjustments for any future stock
dividends, stock splits and certain reorganizations and recapitalizations. Also,
we agreed that if we conduct a registered offering of securities, we will
register the shares of common stock underlying the preferred stock at the
request of the holders of these shares. There is no requirement for the Company
to redeem the preferred stock at any time. In addition, in February and June
2010 we sold 2,750 and 750 shares of convertible preferred stock respectively,
resulting in proceeds of $272,500 and $75,000, respectively, which was used for
working capital purposes.




Reverse
Stock Split




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




Completion
of Shreveport Tie Grinding Facility




In
February 2010, Wood Energy completed the construction of a railroad tie grinding
facility in Shreveport, Louisiana. Wood Energy is now grinding a substantial
portion of its reclaimed rail ties at the Shreveport facility and continues to
outsource its remaining grinding requirements. We provide the chipped wood
product to a customer as a source of biomass fuel for its plant. The new tie
grinding facility increases Wood Energy’s ability to improve its operating
margin for this business as all of the grinding was previously
outsourced.


Page 14
of 20





In
February 2010, Wood Energy entered into a scrap tie disposal agreement with
another Class I rail carrier. The agreement sets forth the terms for the
customer’s delivery of its reclaimed railroad ties to the Shreveport grinding
facility. It is expected that deliveries will begin in the third quarter of
2010.





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 six months
ended June 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.





Consolidated
Results of Operations — Banyan and Subsidiary




We
acquired Wood Energy effective September 4, 2009 and our operating results
discussed below include the consolidated results of operations of Banyan and
Wood Energy for the three and six months ended June 30, 2010. Prior to acquiring
Wood Energy, Banyan was a shell company without significant operations or
sources of revenues other than its investments, as reflected in the results of
operations of Banyan for the three months and six months ended June 30, 2009.
The “predecessor” results of operations for the three and six months ended June
30, 2009 include only the results of Wood Energy.





Revenues




Revenues
include the pickup and disposal of scrap railroad ties for major Class I
railroads, the sale of ties into the landscaper market and both ground and whole
ties into the bio mass fuel markets.





The
revenue for the three and six months ended June 30, 2010 was $1,365,680 and
$2,622,238, respectively, compared to revenue of $0 for the three and six months
ended June 30, 2009. In 2009, Banyan was a shell company and had no revenues
other than interest earned on its cash balances. The revenue recorded in 2010
consists of the revenue generated by Banyan’s subsidiary, Wood Energy (the
“predecessor”), which was acquired on September 4, 2009. For the three and six
months ended June 30, 2009, the predecessor’s revenue was $1,040,086 and
$2,619,928, or 31.3% and 0.1% less than the 2010 revenue for the three and six
months ended June 30, 2010.





Revenues
increased for the three months ended June 30, 2010 above the comparable 2009
period primarily due to: (i) the timing of completion of various tie pickup
contract projects. Contract projects completed in the three months ended June
30, 2010 were $402,000 greater than the comparable period in 2009; (ii) the
initiation of biomass fuel revenue from the grinding plant began in February
2010. Revenues from the sales of biomass fuel were $186,000 for the three months
ended June 30, 2010 vs. none for the comparable period of 2009; and partially
offset by a $350,000 reduction in sales of whole ties.




Page 15
of 20


Gross
margin




The gross
margin was 7.3% and 20.1% in the three and six months ended June 30, 2010
compared to 0% in the 2009 periods, as there were no operations for Banyan in
2009. The gross margin for the predecessor for the three and six months ended
June 30, 2009 was 13.8% and 18.8%.





The
decrease in the gross margins for the three months ended June 30, 2010 compared
to the comparable 2009 period is due primarily to an increase of 15% in the tie
pickup sales as a percentage of total revenues (which have a lower margin than
the other product lines); inefficiencies in the tie pickup process caused by
customer work limitations negatively impacting our labor and project equipment
efficiency; and the relatively reduced profitability  of tie pickup
projects that were staffed with contract labor.





Also our
gross margin for the three months ended June 30, 2010 was negatively impacted by
(i) customer shutdowns limiting our delivery of the biomass fuel and (ii)
grinding plant efficiency improvements which interrupted production, while we
incurred the cost of the plant overhead.





General
and administrative expenses




General
and administrative expenses include: (i) Wood Energy costs such as compensation,
amortization of identifiable intangible assets and insurance expenses and (ii)
Banyan professional fees, stock compensation costs and other costs related to
being a public company.





This
table summarizes the general and administrative expenses for the three and six
months ended June 30:





General
      and administrative costs
                    
                    Three
      Months Ended June 30
                    
                    
                    Six
      Months Ended June 30Predecessor
                    
                    
                    
                    
                    
                    
                    
                    
                    Predecessor2010
                    
                    
                    2009
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    2009Professional
      fees and other public company costs
                    
                    $
                    130,425
                    
                    
                    $
                    60,645
                    
                    
                    $
                    1,686
                    
                    
                    $
                    309,987
                    
                    
                    $
                    103,656
                    
                    
                    $
                    5,177Amortization
      of intangible assets
                    
                    
                    65,632
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    131,265
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      costs
                    
                    
                    234,538
                    
                    
                    
                    131,722
                    
                    
                    
                    100,417
                    
                    
                    
                    450,674
                    
                    
                    
                    137,354
                    
                    
                    
                    168,046Consolidated
      general and administrative
                    
                    $
                    430,595
                    
                    
                    $
                    192,367
                    
                    
                    $
                    102,103
                    
                    
                    $
                    891,926
                    
                    
                    $
                    241,010
                    
                    
                    $
                    173,223





For the
three and six months ended June 30, 2010 costs increased approximately $136,000
and $478,000 or 46% and 115% respectively compared to the three and six months
ended June 30, 2009 of the combined Company and predecessor expenses. These
increases are primarily due to: (i) an increase of approximately $83,000 and
$201,000 in professional fees and other costs related to being a public company
incurred by Banyan for the three and six months ended June 30, 2010 over the
comparable 2009 periods (the increase in professional fees for the six months
was sharply higher due to non-recurring audit and accounting fees in conjunction
with its work performed to incorporate its new subsidiary into the public
filings); (ii) the amortization of identifiable intangible assets pertaining to
the revaluation of assets upon the purchase of Wood Energy in September, 2009;
and (iii) an increase of approximately $51,000 and $85,000 in compensation, rent
and office services incurred for the three and six months ended June 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.





Interest
expense




Net
interest expense for the three and six months ended June 30, 2010 was $70,677
and $159,635, compared to net interest expense of the combined Company and
Predecessor for the 2009 comparable periods of $22,566 and $29,663 for the three
and six months ended June 30, 2009. The increase in costs is due primarily to:
interest expense related to the senior debt facilities incurred in connection
with the acquisition of Wood Energy; interest expense on the credit line to
support Wood Energy’s working capital requirements; and interest expense on
capitalized leases for new equipment for the grinding plant and for increased
tie pickup volume.


Page 16
of 20




Financial
Condition and Liquidity




Cash and
cash equivalents consist of cash and short-term investments. Our cash and cash
equivalents balance at June 30, 2010 was $49,484, as compared to $101,361 of
cash and cash equivalents at December 31, 2009.





The
Company utilizes the completed contract method of accounting for revenue
recognition. The Company recognizes revenue for the pick-up and disposal of used
railroad ties upon the completion of the scope of work required for each project
within the contract. 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
included in our balance sheet as deferred revenue. Upon the completion of the
second phase the project and we invoice the remaining 50% and recognize that
project’s revenue. The first phase is typically more cost intensive then the
second phase.  All 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 June 30, 2010, were $558,234 for the completion of phase one of
these projects and we will invoice another $558,234 upon contract completion
(defined as the ties are delivered to our grinding plant for further
processing). The costs incurred related to both phases of the projects are
$808,052.  We expect the projects outstanding as of the balance sheet
date 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.





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 June 30, 2010, there was $2,550,000 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 $1,000,000 and
$1,000,000, respectively. As of June 30, 2010, $200,000 and $605,000 were
available under the working capital and capital expenditure lines, respectively.
At this time, we have no material commitments for capital
expenditures.





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 June
30th
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 June
30, 2010, we had a net working capital deficit of $1,328,802 and incurred
negative cash flows from operating activities for the six months ended June 30,
2010 of $285,047. Although we anticipate that cash flow will improve in the
second six 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.




Page 17
of 20


After our
acquisition of Wood Energy, we adopted a plan designed to operate at a profit
and generate positive cash flows from operations into the foreseeable future.
Also, as mentioned above, we have availability under our credit facilities to
help finance our cash needs should the need arise. Our working capital line of
credit matures in September 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, in February and June 2010 we sold 2,750 and 750
shares of convertible preferred stock respectively, resulting in proceeds of
$272,500 and $75,000, 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 561-443-5300.




Item
      4(T).
              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 June
30, 2010. Further, except that we have instituted new controls over the internal
control systems of Wood Energy, such as (i) adding a full time CFO and
Controller at Banyan, and an assistant to the president of Wood Energy, (ii)
increasing the oversight provided by Banyan’s executives over Wood Energy’s
operations and financial activities, and (iii) procedures to more accurately
identify direct costs incurred for each of Wood Energy’s tie pick up and
disposal contracts, there have been no changes in our internal control over
financial reporting during the quarter ended June 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)).
  Page 18
of 20
 
 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
  In order
to raise additional capital for our acquisition of Wood Energy, we conducted a
private placement of Series A Convertible Debentures. Through this private
placement, we issued debentures in the aggregate principal amount of $1,525,000
on September 4, 2009.
 
 Effective
January 1, 2010, all of the holders of the debentures exchanged their debentures
for 15,250 shares of newly authorized Series A Preferred Stock. Similar to the
debentures, the preferred stock pays cash dividends at the rate of 10%, payable
semi-annually, and each preferred share is convertible at the holder’s option
into shares of common stock of Banyan at a conversion price of $2.00 per share,
subject to customary adjustments for any future stock dividends, stock splits
and certain reorganizations and recapitalizations. Also, we agreed that if we
conduct a registered offering of securities, we will register the shares of
common stock underlying the preferred stock at the request of the holders of
these shares. There is no requirement for Banyan to redeem the preferred stock
at any time.
 
 In
February and June 2010 we sold, respectively, 2,725 and 750 shares of Series A
preferred stock resulting in proceeds of $272,500 and $75,000, respectively,
which was used for working capital purposes. The proceeds from the sale of
preferred stock were used for working capital purposes. The issuance of the
preferred shares to the debenture holders and the private placement of
additional 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.
 
 On June
1, 2009 The Company granted non-qualified stock options to purchase 87,500
shares of the Company’s common stock for $3.50 per share to the Company’s
directors and officers in compensation for their service to the Company. The
options were fully vested on the date of grant and expire on June 1, 2014. 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 and related rule 506 of Regulation D.
 
 Item
      3.
              Defaults
      Upon Senior Securities
 
 Not
applicable.
  Item
      5.
              Other
      Information
 
 For
information regarding significant events of the second quarter, please turn to
“Recent Events” on page 14.
  Page 19
of 20
  Item
      6.
              Exhibits
  10.1
              Amendment
      to Loan and Security Agreement between The Wood Energy Group, Inc. and
      Fifth Third Bank dated May 21, 2010
 
 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
 
 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:
      August 16, 2010
              /s/ Larry FormanLarry
      Forman,Vice
      President and Chief Financial Officer(Principal
      Financial and Accounting
Officer)
  Page 20
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