UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2014
¨ 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 111-E, 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 þNo ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No þ
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 þ No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,090,108 shares of common stock, $0.01 par value per share, as of May 1, 2014.
Table of Contents
| Page 2 of 18 |
Part I — Financial Information
Banyan Rail Services Inc. and Subsidiary
Condensed Consolidated Balance Sheets
| March 31, 2014 | December 31, 2013 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,804 | $ | 27,124 | ||||
| Prepaid insurance | 11,336 | 10,904 | ||||||
| Total current assets | 13,140 | 38,028 | ||||||
| Total assets | $ | 13,140 | $ | 38,028 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 58,484 | $ | 30,293 | ||||
| Accrued payroll | 35,985 | 33,311 | ||||||
| Accrued professional fees | 12,000 | 3,123 | ||||||
| Accrued interest | 4,375 | - | ||||||
| Accrued expenses | 1,575 | 1,623 | ||||||
| Demand loans - related party | 200,000 | 150,000 | ||||||
| Accrued dividends | 285,142 | 382,267 | ||||||
| Total liabilities | 597,561 | 600,617 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders' deficit | ||||||||
| Series A Preferred stock, $.01 par value. 20,000 shares authorized, issued, and outstanding | 200 | 200 | ||||||
| Series B Preferred stock, $.01 par value. 10,000 shares authorized, issued, and outstanding | 552,817 | 552,817 | ||||||
| Series C Preferred stock, $.01 par value. 20,000 shares authorized. 19,950 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively | 1,995,000 | 1,995,000 | ||||||
| Common stock, $0.01 par value. 7,500,000 shares authorized. 1,084,508 and 1,036,945 issued as of March 31, 2014 and December 31, 2013, respectively | 10,845 | 10,369 | ||||||
| Accrued common stock payable | - | 162,300 | ||||||
| Additional paid-in capital | 94,562,462 | 94,252,890 | ||||||
| Accumulated deficit | (97,635,056 | ) | (97,465,476 | ) | ||||
| Treasury stock, at cost, for 5,655 shares | (70,689 | ) | (70,689 | ) | ||||
| Total stockholders' deficit | (584,421 | ) | (562,589 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 13,140 | $ | 38,028 | ||||
See Notes to Condensed Consolidated Financial Statements
| Page 3 of 18 |
Banyan Rail Services Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
| Three months ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| General & administrative expenses | $ | 115,705 | $ | 176,083 | ||||
| Loss from operations | (115,705 | ) | (176,083 | ) | ||||
| Interest expense | (53,875 | ) | - | |||||
| Loss from continuing operations before income taxes and discontinued operations | (169,580 | ) | (176,083 | ) | ||||
| Loss from discontinued operations | - | (239,130 | ) | |||||
| Gain attributable to discontinued operations | - | 2,057,209 | ||||||
| Net (loss) income | $ | (169,580 | ) | $ | 1,641,996 | |||
| Dividends for the benefit of preferred stockholders: | ||||||||
| Preferred stock dividends | (124,875 | ) | (124,875 | ) | ||||
| Amortization of preferred stock beneficial conversion feature | - | (38,424 | ) | |||||
| Total dividends for the benefit of preferred stockholders | (124,875 | ) | (163,299 | ) | ||||
| Net (loss) income attributable to common stockholders | $ | (294,455 | ) | $ | 1,478,697 | |||
| Weighted average number of common shares outstanding: | ||||||||
| Basic and diluted | 1,072,572 | 743,764 | ||||||
| Net loss per common share from continuing operations, basic and diluted | $ | (0.16 | ) | $ | (0.24 | ) | ||
| Net income per common share from discontinued operations, basic and diluted | - | 2.44 | ||||||
| Net (loss) income per common share, basic and diluted | $ | (0.16 | ) | $ | 2.20 | |||
| Net (loss) income attributable to common shareholders per share | $ | (0.27 | ) | $ | 1.99 | |||
See Notes to Condensed Consolidated Financial Statements.
| Page 4 of 18 |
Banyan Rail Services Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three months ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (169,580 | ) | $ | 1,641,996 | |||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation | - | 918 | ||||||
| Stock compensation expense | 1,122 | 1,385 | ||||||
| Stock issuance in settlement of interest payable | 49,500 | - | ||||||
| Gain on discontinued operations | - | (2,057,209 | ) | |||||
| Changes in assets and liabilities, net of effects of discontinued operations: | ||||||||
| Decrease in accounts receivable | - | 22,478 | ||||||
| Increase in prepaid expenses and other current assets | (432 | ) | (1,102 | ) | ||||
| Increase in accounts payable and accrued expenses | 44,070 | 101,914 | ||||||
| Net cash used in operating activities | (75,320 | ) | (289,620 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds on demand loan - related party | 50,000 | 236,800 | ||||||
| Proceeds from line of credit | - | 55,031 | ||||||
| Net cash from financing activities | 50,000 | 291,831 | ||||||
| Net (decrease) increase in cash | (25,320 | ) | 2,211 | |||||
| Cash, beginning of period | 27,124 | 5,745 | ||||||
| Cash, end of period | $ | 1,804 | $ | 7,956 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Non cash financing activities: | ||||||||
| Preferred stock dividend in excess of payments | $ | 285,142 | $ | 229,642 | ||||
| Issuance of common shares in settlement of dividends payable | $ | 222,000 | $ | 378,895 | ||||
| Issuance of shares in settlement of loans and advances payable | $ | - | $ | 411,800 | ||||
| Issuance of shares in settlement of interest | $ | 211,800 | $ | - | ||||
See Notes to Condensed Consolidated Financial Statements.
| Page 5 of 18 |
Banyan Rail Services Inc. and Subsidiary
Consolidated Statements of Stockholders’ Deficit
Periods Ended March 31, 2014 and December 31, 2013
| Common Stock | Preferred Stock | Treasury Stock | ||||||||||||||||||||||||||||||||
| Shares Issued | Amount | Common Stock Payable | Shares Issued | Amount | Additional Paid in Capital | Accumulated Deficit | Shares | Amount | Total | |||||||||||||||||||||||||
| Stockholders’ equity December 31, 2012 | 696,128 | $ | 6,961 | $ | 0 | 49,950 | $ | 2,670,975 | $ | 93,149,957 | $ | (98,608,303 | ) | 5,655 | $ | (70,689 | ) | $ | (2,851,099 | ) | ||||||||||||||
| Amortization of beneficial conversion feature preferred stock - Series B | (122,958 | ) | 122,958 | - | ||||||||||||||||||||||||||||||
| Issuance of common stock | 340,817 | 3,408 | 1,474,287 | 1,477,695 | ||||||||||||||||||||||||||||||
| Common stock payable | 162,300 | 162,300 | ||||||||||||||||||||||||||||||||
| Stock compensation expense | 5,189 | 5,189 | ||||||||||||||||||||||||||||||||
| Net income for the year ended December 31, 2013 | 1,142,827 | 1,142,827 | ||||||||||||||||||||||||||||||||
| Preferred stock dividends | (499,501 | ) | (499,501 | ) | ||||||||||||||||||||||||||||||
| Stockholders’ (deficit) equity December 31, 2013 | 1,036,945 | $ | 10,369 | $ | 162,300 | 49,950 | 2,548,017 | $ | 94,252,890 | $ | (97,465,476 | ) | 5,655 | (70,689 | ) | $ | (562,589 | ) | ||||||||||||||||
| Issuance of common stock | 47,563 | 476 | (162,300 | ) | 433,325 | 271,501 | ||||||||||||||||||||||||||||
| Stock compensation expense | 1,122 | 1,122 | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2014 | (169,580 | ) | (169,580 | ) | ||||||||||||||||||||||||||||||
| Preferred stock dividends | (124,875 | ) | (124,875 | ) | ||||||||||||||||||||||||||||||
| Stockholders’ (deficit) equity March 31, 2014 | 1,084,508 | $ | 10,845 | $ | 0 | 49,950 | $ | 2,548,017 | $ | 94,562,462 | $ | (97,635,056 | ) | 5,655 | $ | (70,689 | ) | $ | (584,421 | ) | ||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
| Page 6 of 18 |
Notes to Condensed Consolidated Financial Statements
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. and purchased The Wood Energy Group, Inc. (“Wood Energy” or “Wood”). Wood Energy was engaged in the business of railroad tie reclamation and disposal.
On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, which was voluntarily converted into a Chapter 7 bankruptcy on February 5, 2013. The assets of Wood were liquidated by the Trustee of the Bankruptcy Court. The proceeds from the sale were used to satisfy a portion of secured claims, with the remainder if any, allocated to the unsecured claims.
The Company is actively seeking acquisitions of leading companies within the industrial, energy, transportation, technology and health care industries throughout North America.
See Note 11, Subsidiary Bankruptcy and Settlement Agreement, regarding a settlement of the corporate guarantee for certain debts.
Going Concern (See Note 5) The Company’s ability to continue on a going-concern basis is dependent upon, among other things, raising capital, implementation of the reorganization plan and finding an operating business to acquire, and other factors, many of which are beyond our control.
Note 2. Basis of Presentation
The accompanying consolidated financial statements give effect to all adjustments necessary to present fairly the financial position and results of operations and cash flows of the Company. All significant intercompany transactions and accounts have been eliminated in consolidation.
Certain reclassifications have been made to the 2013 financial statements to conform to the classifications used in 2014.
In September 2013, the Company effectuated a 1 for 5 reverse split of its common stock. Share and per share amounts have been adjusted retroactively to reflect the split.
Note 3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| Page 7 of 18 |
Cash
The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash. From time to time our cash deposits exceed federally insured limits.
Fair Value of Financial Instruments
Recorded financial instruments as of March 31, 2014 consist of cash, accounts payable and short-term obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.
Earnings Per Share
Basic earnings (loss) per share is computed based on the weighted average shares outstanding during the period. Diluted earnings (loss) 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.
ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Retained Earnings distributions
The Company’s preferred stockholders are entitled to receive payment before any of the common stockholders upon a liquidation of the Company and we cannot pay dividends on our common stock unless we first pay dividends required by our preferred stock.
Note 4. Recently Issued Accounting Pronouncements
In July 2013 the Financial Accounting Standards Board (“FASB”) issued ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). This guidance requires an entity to present unrecognized tax benefits as a decrease in a net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. The determination of whether a deferred tax asset is available is based on the unrecognized tax benefit and the deferred tax asset that exists at the reporting date and presumes disallowance of the tax position at the reporting date.
The guidance will eliminate the diversity in practice in the presentation of unrecognized tax benefits but will not alter the way in which entities assess deferred tax assets for realizability.
| Page 8 of 18 |
The amendments are effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The amendments should be applied prospectively to unrecognized tax benefits that exist at the effective date. Early adoption is permitted.
In February 2013, FASB issued ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income This guidance requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive income (AOCI). Companies also are required to present reclassifications by component when reporting changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not reclassified to net income in their entirety in the period (e.g., pension amounts that are capitalized in inventory), companies must cross-reference in a note to other required disclosures.
The amendments are effective for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. For nonpublic companies, the ASU is effective for fiscal years beginning after December 15, 2013, and interim and annual periods thereafter. The guidance should be applied prospectively.
Note 5. Liquidity and Going Concern
At March 31, 2014, the Company had a net working capital deficiency of $584,421 and sustained negative cash flows from operating activities of approximately $75,320 for the quarter ended March 31, 2014. The Company recognizes the need to raise additional funds in order to meet working capital requirements. We cannot be certain that we will be able to obtain financing on favorable terms or at all. If we are unable to raise needed capital, our growth and our ability to continue as a going concern will be curtailed. In addition, if we raise capital by selling additional shares of stock, the percentage ownership of current shareholders in Banyan will be diluted.
Note 6. Preferred Stock and Common Stock
Preferred stock dividends for Series A, B and C are accrued for the semi-annual period ended March 31, 2014 in the amount of $124,875. During 2012, due to the lack of cash flow, the Company offered to pay the accrued dividends in common stock in lieu of cash. Substantially all preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends.
As of March 31, 2014, Banyan Rail Holdings LLC (“Banyan Holdings”) owned 3,000, 10,000, 17,800 and 542,123 shares of Series A Preferred, Series B Preferred, Series C Preferred and Common stock, respectively. If converted Banyan Holdings would own 887,857 shares of common stock at March 31, 2014.
Note 7. Income Taxes
For the three months ended March 31, 2014 and 2013, the Company recorded an income tax provision of $0. The effective tax rate for the three months ended March 31, 2014 and 2013 was 0%. The tax rate differs from the statutory federal rate of 34% primarily due to valuation allowances recorded on the Company’s net operating loss carry forward generated during the period. The Company recorded an operating loss for the quarter, when excluding the one-time gain from discontinued operations, and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets, as we believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the future.
Note 8. Earnings (loss) per Share
The Company excluded from the diluted earnings per share calculation 533,097 shares issuable upon conversion of shares of convertible preferred stock that were outstanding at March 31, 2014 and 2013, respectively, as their inclusion would be anti-dilutive. In addition, the Company excluded 45,000 stock options as of March 31, 2014 as their inclusion would be anti-dilutive.
| Page 9 of 18 |
Note 9. 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:
| Weighted | Weighted | Weighted | ||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||
| Number | Exercise Price | Fair Value at | Remaining | Intrinsic | ||||||||||||||||
| of Shares | per Share | Grant Date | Contractual Life | Value | ||||||||||||||||
| Balance January 1, 2013 | 45,600 | 14.75 | 0.8 years | - | ||||||||||||||||
| Options granted | - | - | $ | 0 | - | - | ||||||||||||||
| Options exercised | - | - | - | - | ||||||||||||||||
| Options expired | (600 | ) | (0 | ) | - | - | ||||||||||||||
| Balance, January 1, 2014 | 45,000 | $ | 14.75 | 0.8 years | $ | - | ||||||||||||||
| Options granted | - | - | $ | 0 | - | - | ||||||||||||||
| Options exercised | - | - | - | - | ||||||||||||||||
| Options expired | - | - | - | - | ||||||||||||||||
| Balance, March 31, 2014 | 45,000 | $ | 14.75 | 0.8 years | $ | - | ||||||||||||||
Prior to June 30, 2010 the Company had not adopted a formal stock option plan. The number of options issued and the grant dates were determined at the discretion of the Company’s Board. Certain options vest at the date of grant and others vest over a one year period. The options are exercisable for periods not exceeding three to five years from the date of grant. On July 1, 2010 at its annual meeting of stockholders, the 2010 Stock Option and Award Plan was approved.
The fair values of stock options are estimated using the Black-Scholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk free interest rate. The risk free interest rate is the five year treasury rate at the date of grant. The expected life is based on the contractual life of the options at the date of grant.
Note 10. Related Party Transactions
On December 31, 2013, the Company entered into a demand promissory note with Banyan Holdings in the amount of $150,000 at an annual interest rate of 10%. The proceeds were used to fund working capital requirements. In connection with the demand promissory note, the Company issued 16,230 shares of common stock to Banyan Holdings on January 21, 2014 to induce Banyan Holdings to loan the Company working capital.
On February 14, 2014, the Company entered into a line of credit with Banyan Holdings in the amount of $200,000 at an annual interest rate of 10%. In addition the Company agreed to issue shares of stock as an incentive to enter into the note at a ratio of 110 shares for every $1,000 drawn on the line of credit. As of March 31, 2014, the Company had drawn $50,000 on the line of credit and issued 5,500 shares of common stock to Banyan Holdings. The proceeds were used to fund working capital requirements.
The Company’s directors and chief executive officer are currently not receiving cash compensation for their services, and no amounts have been recorded in the Company’s financial statements for the value of their services.
The Company’s board of directors and officers directly or beneficially own 37,950 shares of the Company’s preferred stock and 663,243 shares of common stock as of March 31, 2014 or 1,104,510 shares, if the preferred is converted and options are exercised.
| Page 10 of 18 |
Note 11. Subsidiary Bankruptcy and Settlement Agreement
On January 11, 2013, The Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, which was voluntarily converted into a Chapter 7 Bankruptcy on February 5, 2013.
The assets of Wood Energy were liquidated by the Trustee of the Bankruptcy Court. The proceeds for the sale were used to satisfy a portion of the secured claims, with the remainder if any, allocated to the unsecured claims.
As a result of Banyan’s guarantee of Wood Energy’s outstanding secured debt, at the time of its bankruptcy filing, to Fifth Third Bank (“FTB” or “Fifth Third”), FTB filed an action against Banyan in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida. The action was subsequently settled on September 26, 2013 when Banyan paid $200,000 to FTB which fully satisfied Banyan’s obligation and provided a full release for Banyan by FTB.
Note 12. Subsequent Events
On April 1, 2014, the Company drew $50,000 on its line of credit with Banyan Holdings. In conjunction with the draw, the Company issued 5,500 shares of common stock to Banyan Holdings on April 9, 2014. The loan proceeds received were used to fund working capital requirements.
On May 12, 2014, the Company drew $50,000 on its $200,000 line of credit with Banyan Holdings. In conjunction with the draw, the Company agreed to issue 5,500 shares of our common stock to Banyan Holdings. The loan proceeds received were used to fund working capital requirements.
| Page 11 of 18 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains information about us, some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current condition. You can identify forward-looking statements by the use of terms such as “believes,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties. These statements should be considered in conjunction with the discussion in Part I, the information set forth under Item 1A, “Risk Factors” and with the discussion of the business included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2013 Annual Report on Form 10-K. We have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:
| · | successfully raising capital to fund our operations; |
| · | successfully finding an operating entity to acquire; |
| · | complying with SEC regulations and filing requirements applicable to us as a public company; and |
| · | any of our other plans, objectives, expectations and intentions contained in this report that are not historical facts. |
You should not place undue reliance on our forward-looking statements, which reflect our analysis only as of the date of this report. The risks and uncertainties listed above and elsewhere in this report and other documents that we file with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10- Q, and any current reports on Form 8-K, must be carefully considered by any investor or potential investor in the Company.
In September 2009, we completed the acquisition of The Wood Energy Group, Inc. (“Wood Energy”), a Missouri corporation engaged in the business of railroad tie reclamation and disposal. Prior to acquiring Wood Energy, Banyan was a shell company without significant operations or sources of revenues other than its investments.
Wood Energy provided railroad tie pickup, reclamation and disposal services to the Class 1 railroads (defined by the American Association of Railroads as a railway company with annual operating revenue over $452.7 million as of 2012) and industrial customers. We operated primarily in the southern region of the United States of America. Our services included removing scrap railroad ties (ties), disposing of the ties by selling them to the landscape and relay tie markets or having the ties ground to create chipped wood for subsequent sale as fuel to the co-generation markets.
On January 11, 2013, Wood Energy filed a voluntary petition for reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court Southern District of Florida, which was voluntarily converted into a Chapter 7 Bankruptcy on February 5, 2013.
The assets of Wood Energy were liquidated by the Trustee of the Bankruptcy Court. The proceeds for the sale were used to satisfy a portion of the secured claims, with the remainder if any, allocated to the unsecured claims.
As a result of Banyan’s guarantee of Wood Energy’s outstanding secured debt, at the time of its bankruptcy filing, to Fifth Third Bank (“FTB” or “Fifth Third”), FTB filed an action against Banyan in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida. The action was subsequently settled on September 26, 2013 when Banyan paid $200,000 to FTB which fully satisfied Banyan’s obligation and provided a full release for Banyan by FTB.
Our History Prior to Acquiring Wood Energy
The Company was originally organized under the laws of the Commonwealth of Massachusetts in 1985, for the purpose of investing in mortgage loans. The Company was reorganized as a Delaware corporation in 1987. From 1989 to 1992 the Company experienced severe losses as a result of a decline in real estate values and the resulting defaults on the mortgages it held. In 1998, the Company changed its name to B.H.I.T. Inc., and again changed its name to Banyan Rail Services Inc. in 2010.
| Page 12 of 18 |
On January 24, 2007, a group of private investors purchased 41.7% of our outstanding shares held by our largest shareholder at the time. Because members of our new management team have experience with the railroad industry, we began investigating acquisitions of companies in the rail industry. In the spring of 2009, we entered negotiations with the owners of Wood Energy to acquire the company. As a result of the acquisition of Wood Energy, we were no longer a shell company. On January 4, 2010, we changed our name to Banyan Rail Services Inc. to reflect our new business. As a result of the bankruptcy and liquidation of Wood Energy, Banyan is now a shell Company seeking to acquire an operating entity.
Common Stock
On January 21, 2014, the Company issued 25,833 shares of common stock in settlement of $222,000 of cash dividends to its preferred shareholders for dividends in arrears as of December 31, 2013.
On January 21, 2014, the Company issued 16,230 shares of common stock to Banyan Rail Holdings, LLC (”Banyan Holdings”) in conjunction with a demand loan entered into on December 31, 2013 in the amount of $150,000. Our chairman is the President of Banyan Holdings. The fair market value of the shares at the date of grant was recorded as additional interest expense and common stock payable on the Company’s Consolidated Statement of Operations and Consolidated Balance Sheets, respectively, as of December 31, 2013. This issue satisfied the liability previously recorded at December 31, 2013.
On February 14, 2014, the Company agreed to issue 5,500 shares of common stock in connection with a $50,000 advance under its $200,000 line of credit agreement with Banyan Holdings. These shares were issued on February 26, 2014. The proceeds received were used to fund working capital requirements.
On April 1, 2014, the Company drew $50,000 on its $200,000 line of credit with Banyan Holdings. In conjunction with the draw, the Company issued 5,500 shares of common stock to Banyan Holdings on April 9, 2014. The loan proceeds received were used to fund working capital requirements.
On May 12, 2014, the Company drew $50,000 on its $200,000 line of credit with Banyan Holdings. In conjunction with the draw, the Company agreed to issue 5,500 shares of our common stock to Banyan Holdings. The loan proceeds received were used to fund working capital requirements.
Reverse Stock Split
In September 2013, the Company effectuated a 1-for-5 reverse stock split pursuant to which each stockholder received one share of common stock for every five 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.
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 three months ended March 31, 2014, there were no significant changes to the critical accounting policies.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| Page 13 of 18 |
Cash
The Company considers all cash, bank deposits and highly liquid investments with an original maturity of three months or less to be cash.
Fair Value of Financial Instruments
Recorded financial instruments at March 31, 2014 consist of cash, accounts payable and short-term obligations. The related fair values of these financial instruments approximated their carrying values due to either the short-term nature of these instruments or based on the interest rates currently available to the Company.
Earnings per Share
Basic earnings (loss) per share are computed based on weighted average shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares consist of the dilutive effect of stock options, and preferred stock common stock equivalents.
Discontinued Operations
The application of current accounting principles that govern the classification of our subsidiary as held-for-sale on our consolidated balance sheets, or the presentation of results of operations and gains on the sale or disposal of this subsidiary as discontinued, requires management to make certain significant judgments. In evaluating whether a subsidiary meets the criteria set forth, we make a determination as to the point in time that it is probable that disposal will be consummated. Therefore, based on our evaluation of our subsidiary in Chapter 7 Bankruptcy where we no longer have continuing involvement or cash flows, we have classified the subsidiary as discontinued operations. Certain prior year amounts have been reclassified to conform to the current year presentation.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Retained Earnings Distributions
The Company’s preferred stockholders are entitled to receive payment before any of the common stockholders upon a liquidation of the Company and we cannot pay dividends on our common stock unless we first pay dividends required by our preferred stock.
| Page 14 of 18 |
Results from Operations
The following table summarizes our results for the three months ended March 31, 2014 and 2013:
| Three months ended March 31, | Variance | |||||||||||||||
| 2014 | 2013 | $ | % | |||||||||||||
| General & administrative expenses | $ | 115,705 | $ | 176,083 | $ | (60,378 | ) | -34.3 | % | |||||||
| Loss from operations | (115,705 | ) | (176,083 | ) | 60,378 | -34.3 | % | |||||||||
| Interest expense | (53,875 | ) | - | (53,875 | ) | 100.0 | % | |||||||||
| Loss from continuing operations before income taxes and discontinued operations | (169,580 | ) | (176,083 | ) | 6,503 | -3.7 | % | |||||||||
| Loss from discontinued operations | - | (239,130 | ) | 239,130 | -100.0 | % | ||||||||||
| Gain attributable to discontinued operations | - | 2,057,209 | (2,057,209 | ) | -100.0 | % | ||||||||||
| Net (loss) income | $ | (169,580 | ) | $ | 1,641,996 | $ | (1,811,576 | ) | -110.3 | % | ||||||
General and administrative expenses
General and administrative expenses include: compensation, professional fees and costs related to being a public company.
For the three months ended March 31, 2014, costs decreased $60,378 or 34.3% compared to the three months ended March 31, 2013.
The overall decrease in general and administrative costs is primarily due to:
| · | A reduction in corporate staffing due to the bankruptcy of our only operating subsidiary Wood Energy of approximately $10,000. |
| · | A decrease in professional fees of approximately $61,000, due to the bankruptcy of our only operating subsidiary Wood Energy. |
| · | A decrease in postage of approximately $5,000 due to the Company’s status as shell company without operations. |
| · | Offset by an increase in insurance costs of approximately $4,000 due to the increased costs of insurance, and |
| · | An increase in travel costs related to the Company’s search for an operating subsidiary. |
Interest expense for the three months ended March 31, 2014 increased by $53,875 compared to the three months ended March 31, 2013. The increase is the result of financing the Company obtained from a related party to fund working capital requirements.
A valuation allowance offsets net deferred tax assets for which future realization is considered to be less likely than not. A valuation allowance is evaluated by considering all positive and negative evidence about whether the deferred tax assets will be realized. At the time of evaluation, the allowance can be either increased or reduced. A reduction could result in the complete elimination of the allowance, if positive evidence indicates that the value of the deferred tax assets is no longer impaired and the allowance is no longer required.
The Company recorded an operating loss for the quarter, when excluding the one-time gain from discontinued operations, and has a recent history of operating losses. After assessing the realization of the net deferred tax assets, we have recorded a valuation allowance of 100% of the value of the net deferred tax assets as we currently believe it more likely than not that the Company will not realize operating profits and taxable income so as to utilize all of the net operating losses in the near future.
| Page 15 of 18 |
Net loss attributable to common stockholders was $0.27 per share for the three months ended March 31, 2014 as compared to net income of $1.99 per share March 31, 2013. The change was primarily the result of a decrease in income associated with discontinued operations of $2.44, decreased costs associated with general and administrative costs of $0.08 and the decrease in amortization expense related to the preferred stock beneficial conversion feature of $0.10.
Financial Condition and Liquidity
Our cash balance at March 31, 2014 and 2013 was $1,804 and $27,124, respectively.
The following is a summary of our cash flow activity:
| Three months Ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| Net cash used in operating activities | $ | (75,320 | ) | $ | (289,620 | ) | ||
| Net cash from financing activities | $ | 50,000 | $ | 291,831 | ||||
Net cash used in operating activities
For the three months ended March 31, 2014, cash used by operating activities was $75,320. The primary use of cash was to fund the normal operating activities of the Company.
Net cash provided by financing activities
For the three months ended March 31, 2014, net cash provided by financing activities was $50,000. The primary source of cash was a $50,000 advance on a line of credit that the Company received from Banyan Holdings.
At March 31, 2014, the Company had a net working capital deficiency of $584,421 which was comparable to a net working capital deficiency of $562,589 at December 31, 2013. The Company recognizes that as a result of the lack of operations and cash flow that it will have to rely upon sales of stock or future capital contributions from investors to generate cash flow for the foreseeable future.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
How to Learn More about Banyan
We file annual, quarterly and current reports and other information with the SEC. Our SEC filings are available to the public on the internet at the SEC’s web site at SEC.gov. To learn more about Banyan you can also contact our Chairman, Gary O. Marino, at 561-997-7775.
Item 4. Controls and Procedures
Under the direction of our chief executive officer and chief financial officer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on this evaluation, our chief executive officer and chief financial officer each concluded that our disclosure controls and procedures were effective as of March 31, 2014. Further, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2014 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 16 of 18 |
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 21, 2014, the Company issued 25,833 shares of common stock in lieu of $222,000 of cash dividends to its preferred shareholders for dividends in arrears as of December 31, 2013.
On January 21, 2014, the Company issued 16,230 shares of common stock to Banyan Rail Holdings, LLC (”Banyan Holdings”) in conjunction with a demand loan entered into on December 31, 2013 in the amount of $150,000. Our chairman is the President of Banyan Holdings. The fair market value of the shares at the date of grant was recorded as additional interest expense and common stock payable on the Company’s Consolidated Statement of Operations and Consolidated Balance Sheets, respectively, as of December 31, 2013. This issue satisfied the liability previously recorded at December 31, 2013.
On February 14, 2014, the Company agreed to issue 5,500 shares of common stock in connection with a $50,000 advance under its $200,000 line of credit agreement with Banyan Holdings. These shares were issued on February 26, 2014. The proceeds received were used to fund working capital requirements.
On April 1, 2014, the Company drew $50,000 on its $200,000 line of credit with Banyan Holdings. In conjunction with the draw, the Company issued 5,500 shares of common stock to Banyan Holdings on April 9, 2014. The loan proceeds received were used to fund working capital requirements.
On May 12, 2014, the Company drew $50,000 on its $200,000 line of credit with Banyan Holdings. In conjunction with the draw, the Company agreed to issue 5,500 shares of our common stock to Banyan Holdings. The loan proceeds received were used to fund working capital requirements.
Item 3. Defaults Upon Senior Securities
Not applicable.
For information regarding significant events of the second quarter, please turn to “Recent Events” on page 13.
| 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 |
| 32.1 | Rule 13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Document | |
| 101.DEF | XBRL Definition Linkbase Document | |
| 101.LAB | XBRL Label Linkbase Document | |
| 101.PRE | XBRL Presentation Linkbase Document |
| Page 17 of 18 |
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: May 15, 2014 | /s/ Jon Ryan |
| Jon Ryan, | |
| President and Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
| Page 18 of 18 |
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of
Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Donald D. Redfearn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Banyan Rail Services Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2014
| /s/ Donald D. Redfearn | ||
| Donald D. Redfearn | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of
Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Jon Ryan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Banyan Rail Services Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 15, 2014 | /s/ Jon Ryan | |
| Jon Ryan | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
Certification Pursuant to 18. U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Banyan Rail Services Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2014 (the “Report”) filed with the Securities and Exchange Commission on the date hereof, I, Donald D. Redfearn, Chief Executive Officer of the Company, and I, Jon Ryan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Donald D. Redfearn | |
| Donald D. Redfearn | |
| Chief Executive Officer | |
| /s/ Jon Ryan | |
| Jon Ryan | |
| Chief Financial Officer | |
| May 15, 2014 |