UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
JULY 31, 2011
[ ] TRANSITION
REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
002-96666
(Commission File Number)
CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
|
51-0102492
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification Number)
|
incorporation or organization)
|
|
4 Morris Street
Port Jefferson Station, New York
11776
United States of America
(Address of principal
executive offices)
(631) 234-0140
(Registrant's telephone number,
including area code)
N/A
(Former name, address and former fiscal
year, if changed since last report)
Indicate by check mark whether the issuer (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
[ ] No [X]
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 check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ]
|
Smaller reporting company [X]
|
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
No [X]
State the number of shares outstanding of each of the Issuers
classes of common equity, as of the latest practicable date:
Common Stock, $.01 par value per share: 4,326,929 outstanding at
October 15, 2012.
EXPLANATORY NOTE
The purpose of this Quarterly Report on Form 10-Q for the
period ended July 31, 2011 (the 10-Q), is to provide financial statements of
Canal Capital Corporation (the Company) that have been reviewed by the
Companys independent public accounting firm that were not provided by the
Company in its original filing of the 10-Q on September 12, 2011. Where
indicated, the financial data presented in the 10-Q is as at July 31, 2011,
however, the other disclosures have been updated to reflect the Companys
operations as at the date of this filing.
2
CANAL CAPITAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
|
|
|
PAGE
|
|
|
ITEM 1.
|
INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
4
|
|
|
|
ITEM 2.
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
23
|
|
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
|
31
|
|
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
32
|
|
|
|
PART II
|
OTHER INFORMATION
|
|
|
|
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
33
|
|
|
|
ITEM 1A.
|
RISK FACTORS
|
34
|
|
|
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
|
34
|
|
|
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
34
|
|
|
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
34
|
|
|
|
ITEM 5.
|
OTHER INFORMATION
|
34
|
|
|
|
ITEM 6.
|
EXHIBITS
|
34
|
|
|
|
SIGNATURES
|
|
35
|
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
|
|
|
|
Consolidated Balance Sheets (UNAUDITED) July 31, 2011
and October 31, 2010
|
5
|
|
|
Consolidated Statements of Operations and Comprehensive
Income (Loss) (UNAUDITED) for the Nine and Three Month Periods ended July
31, 2011 and 2010
|
7
|
|
|
Consolidated Statements of Cash Flows (UNAUDITED) for the
Nine Month Periods ended July 31, 2011 and 2010
|
11
|
|
|
Notes to Unaudited Consolidated Financial
Statements
|
13
|
4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
JULY 31, 2011 (UNAUDITED) AND OCTOBER 31, 2010
|
|
|
JULY 31,
|
|
|
OCT. 31,
|
|
|
|
2011
|
|
|
2010
|
|
ASSETS:
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
$
|
78,472
|
|
$
|
510,361
|
|
RESTRICTED CASH TRANSIT INSURANCE
|
|
40,700
|
|
|
26,000
|
|
ACCOUNTS RECEIVABLE
|
|
96,784
|
|
|
163,879
|
|
STOCKYARDS INVENTORY
|
|
1,260
|
|
|
14,608
|
|
PREPAID EXPENSES
|
|
29,642
|
|
|
12,461
|
|
TOTAL CURRENT ASSETS
|
|
246,858
|
|
|
727,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
PROPERTY
ON OPERATING LEASES, NET
OF
ACCUMULATED
DEPRECIATION OF
$489,047
AND
$472,399 AT JULY 31, 2011
AND
OCTOBER
31, 2010, RESPECTIVELY
|
|
1,673,557
|
|
|
1,676,407
|
|
|
|
|
|
|
|
|
PROPERTY
USED IN STOCKYARD OPERATIONS, NET
OF
ACCUMULATED
DEPRECIATION OF $207,157
AND
$191,857
AT JULY 31, 2011 AND
OCTOBER
31,
2010, RESPECTIVELY
|
|
1,056,282
|
|
|
1,034,672
|
|
|
|
|
|
|
|
|
PROPERTY HELD FOR DEVELOPMENT OR RESALE
|
|
52,250
|
|
|
52,250
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
RESTRICTED CASH LETTER OF
CREDIT
|
|
140,000
|
|
|
140,000
|
|
ART INVENTORY
|
|
100,000
|
|
|
100,000
|
|
|
|
240,000
|
|
|
240,000
|
|
|
$
|
3,268,947
|
|
$
|
3,730,638
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
JULY 31, 2011 (UNAUDITED) AND OCTOBER 31, 2010
|
|
|
JULY 31,
|
|
|
OCT. 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
|
$
|
99,091
|
|
$
|
156,461
|
|
LINE OF CREDIT ORDER BUYING
|
|
0
|
|
|
154,366
|
|
TRANSIT INSURANCE
|
|
40,700
|
|
|
26,000
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
139,791
|
|
|
336,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
LONG-TERM DEBT, RELATED PARTY
|
|
847,000
|
|
|
847,000
|
|
LONG-TERM PENSION LIABILITY
|
|
714,830
|
|
|
869,676
|
|
SALARIES AND INTEREST PAYABLE
OFFICERS
|
|
344,025
|
|
|
175,000
|
|
REAL ESTATE TAXES PAYABLE
|
|
55,182
|
|
|
44,543
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT
LIABILITIES
|
|
1,961,037
|
|
|
1,936,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK, $0.01 PAR
VALUE:
10,000,000
SHARES AUTHORIZED;
9,102,655
SHARES
ISSUED AND OUTSTANDING AT JULY
31,
2011
AND OCTOBER 31, 2010, RESPECTIVELY
AND
AGGREGATE
LIQUIDATION PREFERENCE OF $10
PER
SHARE
FOR $ 91,026,550 AT JULY 31,
2011
AND
OCTOBER 31, 2010, RESPECTIVELY
|
|
91,027
|
|
|
91,027
|
|
|
|
|
|
|
|
|
COMMON STOCK, $0.01 PAR
VALUE:
10,000,000
SHARES AUTHORIZED;
5,313,794
SHARES
ISSUED AND 4,326,929 SHARES
OUT-
STANDING
AT JULY 31, 2011 AND OCTOBER
31,
2010,
RESPECTIVELY
|
|
53,138
|
|
|
53,138
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
25,526,721
|
|
|
25,526,721
|
|
|
|
|
|
|
|
|
ACCUMULATED DEFICIT
|
|
(11,685,849
|
)
|
|
(11,315,376
|
)
|
|
|
|
|
|
|
|
986,865 SHARES OF COMMON STOCK
|
|
|
|
|
|
|
HELD IN TREASURY, AT COST
|
|
(11,003,545
|
)
|
|
(11,003,545
|
)
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
PENSION
VALUATION RESERVE
|
|
(1,813,373
|
)
|
|
(1,894,373
|
)
|
|
|
|
|
|
|
|
|
|
1,168,119
|
|
|
1,457,592
|
|
|
|
|
|
|
|
|
|
$
|
3,268,947
|
|
$
|
3,730,638
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
AND COMPREHENSIVE INCOME (LOSS)
|
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
|
(UNAUDITED)
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
REAL ESTATE OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE REVENUES:
|
|
|
|
|
|
|
SALE OF REAL ESTATE
|
|
0
|
|
|
0
|
|
OUTSIDE REAL ESTATE RENT
|
|
202,732
|
|
|
207,084
|
|
EXCHANGE BUILDING RENTAL INCOME
|
|
0
|
|
|
9,693
|
|
|
|
202,732
|
|
|
216,777
|
|
|
|
|
|
|
|
|
REAL ESTATE EXPENSES:
|
|
|
|
|
|
|
COST OF REAL ESTATE SOLD
|
|
0
|
|
|
0
|
|
LABOR, OPERATING AND MAINTENANCE
|
|
7,034
|
|
|
19,343
|
|
DEPRECIATION AND AMORTIZATION
|
|
16,650
|
|
|
16,650
|
|
TAXES OTHER THAN INCOME TAXES
|
|
11,250
|
|
|
16,550
|
|
GENERAL AND ADMINISTRATIVE
|
|
7,650
|
|
|
16,873
|
|
|
|
42,584
|
|
|
69,416
|
|
|
|
|
|
|
|
|
INCOME FROM REAL ESTATE OPERATIONS
|
|
160,148
|
|
|
147,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD REVENUES:
|
|
|
|
|
|
|
YARD HANDLING AND AUCTION
|
$
|
1,255,424
|
|
$
|
1,353,303
|
|
FEED AND BEDDING INCOME
|
|
83,224
|
|
|
79,836
|
|
RENTAL & OTHER INCOME
|
|
92,629
|
|
|
214,369
|
|
|
|
1,431,277
|
|
|
1,647,508
|
|
|
|
|
|
|
|
|
STOCKYARD EXPENSES:
|
|
|
|
|
|
|
LABOR AND RELATED COSTS
|
|
562,070
|
|
|
610,017
|
|
OTHER OPERATING AND MAINTENANCE
|
|
332,280
|
|
|
386,417
|
|
FEED AND BEDDING EXPENSE
|
|
66,311
|
|
|
66,125
|
|
DEPRECIATION AND AMORTIZATION
|
|
15,300
|
|
|
10,103
|
|
TAXES OTHER THAN INCOME TAXES
|
|
56,909
|
|
|
116,272
|
|
GENERAL AND ADMINISTRATIVE
|
|
246,315
|
|
|
244,123
|
|
|
|
1,279,185
|
|
|
1,433,057
|
|
|
|
|
|
|
|
|
INCOME FROM STOCKYARD OPERATIONS
|
|
152,092
|
|
|
214,451
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSE
|
|
(619,510
|
)
|
|
(620,896
|
)
|
|
|
|
|
|
|
|
(LOSS) FROM OPERATIONS
|
|
(307,270
|
)
|
|
(259,084
|
)
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
AND COMPREHENSIVE INCOME (LOSS)
|
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
|
Continued
|
|
|
2011
|
|
|
2010
|
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
INTEREST & OTHER
INCOME
|
|
322
|
|
|
407
|
|
INTEREST EXPENSE
|
|
(63,525
|
)
|
|
(88,179
|
)
|
ART SALES AND
OPERATIONS
|
|
0
|
|
|
0
|
|
|
|
(63,203
|
)
|
|
(87,772
|
)
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES
|
|
(370,473
|
)
|
|
(346,856
|
)
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET (LOSS)
|
|
(370,473
|
)
|
|
(346,856
|
)
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
MINIMUM PENSION LIABILITY ADJUSTMENT
|
|
81,000
|
|
|
81,000
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS)
|
$
|
(289,473
|
)
|
$
|
(265,856
|
)
|
|
|
|
|
|
|
|
NET (LOSS) PER COMMON SHARE
BASIC AND DILUTED
|
|
$ (0.09
|
)
|
|
$ (0.08
|
)
|
|
|
|
|
|
|
|
AVERAGE SHARES OUTSTANDING - BASIC
AND DILUTED
|
|
4,326,929
|
|
|
4,326,929
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
8
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
AND COMPREHENSIVE INCOME (LOSS)
|
FOR THE THREE MONTHS ENDED JULY 31, 2011 AND 2010
|
(UNAUDITED)
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
REAL ESTATE OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE REVENUES:
|
|
|
|
|
|
|
SALE OF REAL
ESTATE
|
|
0
|
|
|
0
|
|
OUTSIDE REAL ESTATE RENT
|
|
66,244
|
|
|
67,270
|
|
EXCHANGE BUILDING
RENTAL INCOME
|
|
0
|
|
|
2,414
|
|
|
|
66,244
|
|
|
69,684
|
|
|
|
|
|
|
|
|
REAL ESTATE EXPENSES:
|
|
|
|
|
|
|
COST OF REAL
ESTATE SOLD
|
|
0
|
|
|
0
|
|
LABOR, OPERATING AND MAINTENANCE
|
|
2,500
|
|
|
5,765
|
|
DEPRECIATION AND
AMORTIZATION
|
|
5,550
|
|
|
5,550
|
|
TAXES OTHER THAN INCOME TAXES
|
|
3,750
|
|
|
5,550
|
|
GENERAL AND
ADMINISTRATIVE
|
|
2,550
|
|
|
7,257
|
|
|
|
14,350
|
|
|
24,122
|
|
|
|
|
|
|
|
|
INCOME FROM REAL ESTATE OPERATIONS
|
|
51,894
|
|
|
45,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD REVENUES:
|
|
|
|
|
|
|
YARD HANDLING AND AUCTION
|
$
|
216,003
|
|
$
|
277,142
|
|
FEED AND BEDDING
INCOME
|
|
16,161
|
|
|
21,817
|
|
RENTAL & OTHER INCOME
|
|
27,471
|
|
|
34,028
|
|
|
|
259,635
|
|
|
332,987
|
|
|
|
|
|
|
|
|
STOCKYARD EXPENSES:
|
|
|
|
|
|
|
LABOR AND RELATED COSTS
|
|
150,917
|
|
|
145,810
|
|
OTHER OPERATING
AND MAINTENANCE
|
|
92,598
|
|
|
111,536
|
|
FEED AND BEDDING EXPENSE
|
|
16,197
|
|
|
15,826
|
|
DEPRECIATION AND
AMORTIZATION
|
|
5,100
|
|
|
3,368
|
|
TAXES OTHER THAN INCOME TAXES
|
|
16,513
|
|
|
35,886
|
|
GENERAL AND
ADMINISTRATIVE
|
|
45,131
|
|
|
54,641
|
|
|
|
326,456
|
|
|
367,067
|
|
|
|
|
|
|
|
|
(LOSS) FROM STOCKYARD OPERATIONS
|
|
(66,821
|
)
|
|
(34,080
|
)
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSE
|
|
(205,483
|
)
|
|
(208,042
|
)
|
|
|
|
|
|
|
|
(LOSS) FROM OPERATIONS
|
|
(220,410
|
)
|
|
(196,560
|
)
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
9
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
AND COMPREHENSIVE INCOME (LOSS)
|
FOR THE THREE MONTHS ENDED JULY 31, 2011 AND 2010
|
Continued
|
|
|
2011
|
|
|
2010
|
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
INTEREST & OTHER
INCOME
|
|
53
|
|
|
177
|
|
INTEREST EXPENSE
|
|
(21,175
|
)
|
|
(33,300
|
)
|
ART SALES AND
OPERATIONS
|
|
0
|
|
|
0
|
|
|
|
(21,122
|
)
|
|
(33,123
|
)
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES
|
|
(241,532
|
)
|
|
(229,683
|
)
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET (LOSS)
|
|
(241,532
|
)
|
|
(229,683
|
)
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
MINIMUM PENSION
LIABILITY ADJUSTMENT
|
|
27,000
|
|
|
27,000
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS)
|
$
|
(214,532
|
)
|
$
|
(202,683
|
)
|
|
|
|
|
|
|
|
NET (LOSS) PER COMMON SHARE
BASIC AND DILUTED
|
|
$ (0.06
|
)
|
|
$ (0.05
|
)
|
|
|
|
|
|
|
|
AVERAGE SHARES OUTSTANDING - BASIC
AND DILUTED
|
|
4,326,929
|
|
|
4,326,929
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
10
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
|
(UNAUDITED)
|
|
|
JULY
2011
|
|
|
JULY
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
NET (LOSS)
|
$
|
(370,473
|
)
|
$
|
(346,856
|
)
|
|
|
|
|
|
|
|
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH
(USED IN)
PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
DEPRECIATION AND
AMORTIZATION
|
|
31,950
|
|
|
26,753
|
|
GAIN ON
SALES OF REAL ESTATE
|
|
0
|
|
|
0
|
|
MINIMUM PENSION LIABILITY
ADJUSTMENT
|
|
81,000
|
|
|
81,000
|
|
|
|
|
|
|
|
|
DECREASE (INCREASE) IN ASSETS
|
|
|
|
|
|
|
ACCOUNTS
RECEIVABLE
|
|
67,095
|
|
|
(164,470
|
)
|
STOCKYARDS INVENTORY
|
|
13,348
|
|
|
11,729
|
|
PREPAID
EXPENSES
|
|
(17,181
|
)
|
|
(44,974
|
)
|
RESTRICTED CASH LETTER
OF CREDIT
|
|
0
|
|
|
(10,000
|
)
|
RESTRICTED CASH TRANSIT INSURANCE
|
|
(14,700
|
)
|
|
(6,535
|
)
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN LIABILITIES:
|
|
|
|
|
|
|
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
|
|
(57,370
|
)
|
|
(72,345
|
)
|
LINE OF
CREDIT ORDER BUYING
|
|
(154,366
|
)
|
|
106,000
|
|
PENSION PLAN PAYABLE
|
|
(154,846
|
)
|
|
(14,540
|
)
|
SALARIES
AND INTEREST PAYABLE - OFFICERS
|
|
169,025
|
|
|
337,875
|
|
REAL ESTATE TAXES PAYABLE
|
|
10,639
|
|
|
(27,391
|
)
|
TRANSIT
INSURANCE
|
|
14,700
|
|
|
6,535
|
|
TOTAL ADJUSTMENTS
|
|
(10,706
|
)
|
|
229,637
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
|
|
(381,179
|
)
|
|
(117,219
|
)
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
11
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
|
Continued
|
|
|
JULY
2011
|
|
|
JULY
2010
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCEEDS FROM SALES OF
REAL ESTATE
|
|
0
|
|
|
0
|
|
COSTS RELATING TO SALES OF REAL ESTATE
|
|
0
|
|
|
0
|
|
CAPITAL EXPENDITURES
|
|
(50,710
|
)
|
|
(375,000
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY INVESTING ACTIVITIES
|
|
(50,710
|
)
|
|
(375,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY (USED) IN FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCEEDS
FROM LONG-TERM DEBT OBLIGATION
|
|
0
|
|
|
340,000
|
|
REPAYMENT OF LONG-TERM
DEBT OBLIGATION
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED) IN FINANCING
ACTIVITIES
|
|
0
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
(431,889
|
)
|
|
(152,219
|
)
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR
|
|
510,361
|
|
|
154,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
78,472
|
|
$
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JULY 31,
|
|
|
|
2011
|
|
|
2010
|
|
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID DURING THE YEAR FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
|
$
|
63,525
|
|
$
|
88,179
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
$
|
0
|
|
$
|
0
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
12
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Canal Capital Corporation ("Canal"),
incorporated in the state of Delaware in 1964, commenced business operations
through a predecessor in 1936.
Going Concern - While the Company is
currently operating as a going concern, certain significant factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company has suffered recurring losses from operations and is obligated to
continue making substantial annual contributions to its defined benefit pension
plan. The financial statements do not include any adjustments that might result
from the resolution of these uncertainties. Additionally, the accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Canals cash flow position has been under
significant strain under the past several years. Canal continues to closely
monitor and reduce where possible its operating expenses and plans to continue
its program to develop or sell the property it holds for development or resale
as well as to reduce the level of its antiquities art inventories to enhance
current cash flows. Management is unsure if its income from operations combined
with its cost cutting program and planned reduction of its antiquities art
inventory will enable it to finance its future business activities. There can be
no assurance that Canal will be able to effectuate its planned antiquities art
inventory reductions or that its income from operations combined with its cost
cutting program in itself will be sufficient to fund operating cash
requirements. Canal may, as it has in the past, be forced to sell incoming
producing assets to raise needed cash, thereby, further adversely impacting
future revenues. As of the date of this report Canal had previously sold its
Sioux Falls, South Dakota property (formerly used in stockyard operations); two
of its three remaining rental properties and its stockyard operations (30 acres
of land and the improvements thereon) located in St. Joseph, Missouri.
13
Canal is engaged in two distinct businesses
- real estate and stockyard operations.
Real Estate Operations - Canal's real estate
properties are located in Sioux City, Iowa, South St Paul, Minnesota, St Joseph,
Missouri and Omaha, Nebraska. The properties consist, for the most part of land
and structures leased to third parties (rail car repair shops, lumber yards and
various other commercial and retail businesses) as well as vacant land available
for development or resale. Its principal real estate operating revenues are
derived from lease income from land and structures leased to various commercial
and retail enterprises, and proceeds from the sale of real estate
properties.
Stockyard Operations - Canal currently
operates one central public stockyard located in St. Joseph, Missouri. Canal
closed the stockyard it operated in Sioux Falls, South Dakota in December 2009
(collectively the Stockyards).
Sioux Falls Stockyard Closure - In December
2009, after extensive efforts to reorganize and return this stockyard to
profitability, Canal ceased all stockyard operations at its Sioux Falls, South
Dakota location. In September 2010, we sold the entire Sioux Falls, South Dakota
property (approximately 35 acres of land and improvements) for $2.0 million,
which generated a gain of $1.2 million.
Public stockyards act much like a
securities exchange, providing markets for all categories of livestock and
fulfilling the economic functions of assembly, grading, and price discovery. The
livestock handled by the Companys stockyards include cattle, hogs, and sheep.
Cattle and hogs may come through the stockyard facilities at two different
stages, either as feeder livestock or slaughter livestock. The Companys
stockyards provide all services and facilities required to operate an
independent market for the sale of livestock, including veterinary services
facilities, auction arenas, auctioneers, weigh masters and scales, feed and
bedding, and security personnel. In addition, the stockyards provide other
services including pure bred and other specialty sales for producer
organizations. The Company promotes its stockyard business through public
relations efforts, advertising, and personal solicitation of producers.
14
2. RESTATEMENT AND RECLASSIFICATIONS
The Company has restated its previously
issued Consolidated Financial Statements to correct the recording of the gain on
sale of property and other errors. The Company has also reclassified its
recording of past preferred stock dividends as an adjustment to accumulated
deficit.
The following tables summarize the corrections on each of the
affected financial statement line items for each period presented:
|
|
As Previously
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Adjusted
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
ACCOUNTS RECEIVABLE
|
$
|
71,784
|
|
$
|
25,000
|
|
$
|
96,784
|
|
PROPERTY ON OPERATING LEASES
|
|
1,388,557
|
|
|
285,000
|
|
|
1,673,557
|
|
PROPERTY USED IN STKY. OPER.
|
|
554,282
|
|
|
502,000
|
|
|
1,056,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PAYABLE & ACCR. EXP.
|
|
73,886
|
|
|
25,205
|
|
|
99,091
|
|
ACCRUED PROFESSIONAL FEES
|
|
37,205
|
|
|
(37,205
|
)
|
|
0
|
|
PREFERRED STOCK DIV. PAYABLE
|
|
223,550
|
|
|
(223,550
|
)
|
|
0
|
|
INCOME TAXES PAYABLE
|
|
10,000
|
|
|
(10,000
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
28,322,341
|
|
|
(2,795,620
|
)
|
|
25,526,721
|
|
ACCUMULATED DEFICIT
|
|
(15,539,019
|
)
|
|
3,853,170
|
|
|
(11,685,849
|
)
|
15
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Earnings (Loss) Per Share -- Basic
earnings (loss) per share is computed by dividing the net income (loss)
applicable to common shares by the weighted average of common shares outstanding
during the period. Diluted earnings (loss) per share adjusts basic earnings
(loss) per share for the effects of convertible securities, stock options and
other potentially dilutive financial instruments, only in the period in which
such effect is dilutive. There were no dilutive securities in any of the periods
presented herein. The shares issuable upon the exercise of stock options are
excluded from the calculation of net income (loss) per share as their effect
would be antidilutive.
B) Recent Accounting Pronouncements - In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements
(ASU 2010-06"). ASU 2010-06 requires reporting entities to provide information
about movements of assets among Levels 1 and 2 of the three-tier fair value
hierarchy established by ASC 820. The guidance is effective for any fiscal year
that begins after December 15, 2010 and should be used for quarterly and annual
filings. We do not believe that adoption of ASU 2010-06 will have a significant
impact on our financial position, results of operations or cash flows.
In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04").
This update amends ASC Topic 820, Fair Value Measurement and Disclosure. ASU
2011-04 clarifies the application of certain existing fair value measurement
guidance and expands the disclosures for fair value measurements that are
estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is
effective for annual and interim reporting periods beginning on or after
December 15, 2011. The new guidance is to be adopted prospectively and early
adoption is not permitted. We do not believe that adoption of ASU 2011-04 will
have a significant impact on our financial position, results of operations or
cash flows.
On June 16, 2011, the FASB issued ASU
2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive
Income (ASU 2011-05"). This update amends ASC Topic 220, Comprehensive
Income to provide that total comprehensive income will be reported in one
continuous statement or two separate but consecutive statements of financial
performance. Presentation of total comprehensive income in the statement of
stockholders equity or the footnotes will no longer be allowed. The calculation
of net income and basic and diluted net income per share will not be affected.
ASU 2011-05 is effective for fiscal years, and interim periods within those
years, beginning on or after December 15, 2011. Retrospective adoption is
required and early adoption is permitted. We do not believe that adoption of ASU
2011-05 will have a significant impact on our financial position, results of
operations or cash flows.
16
4. INTERIM FINANCIAL STATEMENTS
The interim consolidated financial
statements included herein have been prepared by Management, in accordance with
accounting principles generally accepted in the United States, and in the
opinion of Management, contain all adjustments necessary to present fairly its
financial position as of July 31, 2011 and the results of its operations and its
cash flows for the nine month period ended July 31, 2011. All of the above
referenced adjustments were of a normal recurring nature. Certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted. These financial statements should be read in conjunction with the
consolidated financial statements for the two years ended October 31, 2010 and
the notes thereto which are contained in Canals 2010 Annual Report on Form
10-K. The results of operations for the period presented is not necessarily
indicative of the results to be expected for the remainder of fiscal 2011.
5. STOCK OPTION PLAN
Under Canal's 1984 Employee and 1985
Directors Stock Option Plans, $550,000 and 264,000 shares, respectively, of
Canal's common stock have been reserved for option grants. The purchase price of
shares subject to each option granted, under the Employee and Directors Plans,
will not be less than 85% and 100%, respectively, of their fair market value at
the date of grant. Options granted under both plans are exercisable for 10 years
from the date of grant, but no option will be exercisable earlier than one year
from the date of grant. Under the Employee Plan, stock appreciation rights may
be granted in connection with stock options, either at the time of grant of the
options or at any time thereafter. No stock appreciation rights have been
granted under this plan. There were no exercisable options outstanding under
either of these plans at July 31, 2011 or 2010.
6. RESTRICTED CASH
Letter of Credit - This is a $140,000
deposit with Mercantile Bank to secure bonds required by the Packers and
Stockyards Administration in relation to the St. Joseph Stockyards clearing
operation. This deposit is maintained in an interest bearing account.
Transit Insurance - Transit
insurance covers livestock for the period that they are physically at the
stockyards and under the care of stockyard personnel. This self insurance
program is funded by a per head charge on all livestock received at the
stockyard. The restricted cash - transit insurance balances of approximately
$41,000 and $26,000 at July 31, 2011 and October 31, 2010, respectively,
represents the excess of per head fees charged over actual payments made for
livestock that was injured or died while at the stockyards.
17
7. RELATED PARTY DEBT
The Companys mortgage notes (originally
issued in 1998) are due May 15, 2015 and are held entirely by the Companys
Chief Executive Officer. These notes carry interest at the rate of ten percent
per annum. These notes, among other things, prohibit Canal from becoming an
investment company as defined by the Investment Company Act of 1940; require
Canal to maintain minimum net worth; restricts Canals ability to pay cash
dividends or repurchase stock and require principal prepayments to be made only
out of the proceeds from the sale of certain assets. As of July 31, 2011, the
balance due under these notes was 847,000, all of which is classified as
long-term debt-related party. Canal has incurred interest expense on these notes
of approximately $64,000 and $88,000 for the nine month periods ended July 31,
2011 and 2010, respectively.
At July 31, 2011, substantially all of
Canal's real properties, the stock of certain subsidiaries, the investments and
a substantial portion of its art inventories are pledged as collateral for the
following obligations:
|
|
July 31,
|
|
|
October 31,
|
|
($ 000's Omitted)
|
|
2011
|
|
|
2010
|
|
Variable rate mortgage notes due
May 15, 2015 - related party
|
$
|
847
|
|
$
|
847
|
|
Less -- current maturities
|
|
0
|
|
|
0
|
|
Long-term debt
|
$
|
847
|
|
$
|
847
|
|
The Company has a line of credit with HNB
Bank in the amount of $250,000. This credit line is used in the Companys Saint
Joseph stockyard order buying operation. The outstanding balances on this line
of credit are secured by either the livestock purchased on order or the
associated receivable for the livestock that has been delivered to the
purchaser.
The outstanding balances on this credit line
were $0 and $154,000 at July 31, 2011 and October 31, 2010, respectively.
8. ART INVENTORY
Antiquities art valued at $100,000
represented 100% of total art inventory at both July 31, 2011 and October 31,
2010. The Company records a valuation allowance against the current portion of
its inventory to reduce it to its estimated net realizable value based on the
history of losses sustained on inventory items sold in the current and previous
years. As of July 31, 2011 the valuation allowance is approximately
$396,000.
18
9. INCOME TAXES
At July 31, 2011, the Company has net
operating loss carry forwards of approximately $12,200,000 that expire through
2030. For financial statement purposes, a valuation allowance has been provided
to offset the net deferred tax assets due to the cumulative net operating losses
incurred during recent years. The valuation allowance will be reduced when and
if, in the opinion of management, significant positive evidence exists which
indicates that it is more likely than not that the Company will be able to
realize its deferred tax assets.
10. LEASE COMMITMENTS
Canals corporate headquarters are now
located in the personal residence of its Chief Financial Officer.
There are no operating leases that have
initial or remaining non-cancellable terms in excess of one year as of July 31,
2011. Accordingly, Canal has no future minimum payments due over the next five
years.
11. MINIMUM FUTURE RENTALS ON OPERATING LEASES
Minimum future rentals consist primarily of
rental income from leased land and structures, Exchange Building rents
(commercial office space) and other rental activities, all of which are
accounted for as operating leases. The estimated minimum future rentals on
operating leases are $270,000, $210,000, $110,000, $110,000 and $110,000 for
fiscal years 2011, 2012, 2013, 2014 and 2015, respectively.
12. PROPERTY USED IN STOCKYARD OPERATIONS
A schedule of the Companys property used in
stockyard operations at July 31, 2011 is as follows (000's omitted):
|
|
|
|
|
|
Current Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Retirements)
|
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
|
Additions
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
Bldgs. &
|
|
|
|
|
|
Bldgs. &
|
|
|
Accum.
|
|
|
Value
|
|
Description (1)
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Depr.
|
|
|
07/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 acres of land in St.
Joseph, MO Acquired in 1942
|
|
$
|
902
|
|
$
|
325
|
|
$
|
0
|
|
$
|
35
|
|
$
|
(206
|
)
|
$
|
1,056
|
|
Substantially all of Canals real
property is pledged as collateral for its related party debt obligations.
19
13. PROPERTY ON OPERATING LEASES
A schedule of the Companys property on
operating leases at July 31, 2011 is as follows (000's omitted):
|
|
|
|
|
Current Year
|
|
|
|
|
|
|
|
|
|
|
|
|
(Retirements
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
|
Additions
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Bldgs. &
|
|
|
|
|
|
Bldgs. &
|
|
|
Accum.
|
|
|
Value
|
|
Description (1)
|
|
Land
|
|
|
Imprvmts.
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Depr.
|
|
|
07/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York office Leasehold assets
|
$
|
0
|
|
$
|
8
|
|
$
|
0
|
|
$
|
0
|
|
$
|
(8
|
)
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 acres of land in Omaha, NE Acquired in
1976
|
|
1,150
|
|
|
21
|
|
|
0
|
|
|
14
|
|
|
(19
|
)
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 acres of land in S. St. Paul, MN Acquired
in 1937
|
|
10
|
|
|
485
|
|
|
0
|
|
|
0
|
|
|
(462
|
)
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 acres of land in Sioux City, IA Acquired
in 1937
|
|
475
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
475
|
|
|
$
|
1,635
|
|
$
|
514
|
|
$
|
0
|
|
$
|
14
|
|
$
|
(489
|
)
|
$
|
1,674
|
|
Substantially all of Canals real property is pledged as
collateral for its related party debt obligations.
14. PROPERTY HELD FOR DEVELOPMENT OR RESALE
A schedule of the Companys property held
for development or resale at July 31, 2011 is as follows (000's omitted):
Description
|
|
Land
|
|
|
|
|
|
02 acres of land Sioux City, IA
|
$
|
52
|
|
Substantially all of Canals real
property is pledged as collateral for its related party debt obligations.
20
15. PENSION VALUATION RESERVE
The Pension Valuation Reserve represents the
excess of additional minimum pension liability required under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 87 amended by SFAS 158
over the unrecognized prior service costs of former stockyard employees. Such
excess arose due to the decline in the market value of pension assets available
for pension benefits of former employees, which benefits were frozen at the time
the stockyard operations were sold in 1989. The additional minimum pension
liability will be expensed as actuarial computations of annual pension cost
recognize the deficiency that exists.
The components of net periodic benefit cost
are as follows:
|
|
Nine Months Ended
|
|
|
|
7/31/11
|
|
|
7/31/10
|
|
|
|
|
|
|
|
|
Service cost
|
|
6,000
|
|
|
6,000
|
|
Interest cost
|
|
78,000
|
|
|
78,000
|
|
Expected return on plan assets
|
|
(84,000
|
)
|
|
(84,000
|
)
|
Amortization of prior service cost
|
|
0
|
|
|
0
|
|
Recognized net actuarial loss
|
|
90,000
|
|
|
90,000
|
|
Net periodic benefit cost
|
|
90,000
|
|
|
90,000
|
|
For the nine months ended July 31, 2011,
amounts have been estimated, actual amounts will be based on the discount rate
and assets available at year end.
The Companys required contribution to its
pension plan for fiscal 2011 is approximately $172,000. A contribution of
$155,000 has been made to date and the Company expects to make the full required
contribution before the end of the fiscal year.
16. 401(k) PLAN
The Company has a defined contribution
401(k) plan covering substantially all of its full time stockyard employees. The
plan provides for employee contributions and 401(k) matching contributions of up
to 2 ½% of the employees annual salary by the Company. The Company made 401(k)
matching contributions of approximately $8,000 for each of the nine month
periods ended July 31, 2011 and 2010.
21
17. LEGAL PROCEEDINGS
From time to time, we may become involved in
various lawsuits and legal proceedings which arise in the ordinary course of
business. However, litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to time that may
harm our business.
Environmental Protection Agency
In 1989, the Company sold its 48 acre
Portland, Oregon stockyard to Oregon Waste Systems, Inc. On September 29, 2003,
the United States Environmental Agency (EPA) placed a 4.2 acre portion of that
property on the National Priorities List pursuant to the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA), commonly known
as the Superfund Act. In a letter from the EPA dated June 27, 2005 the Company,
along with approximately 13 other parties, including the current owner and
operator of the site, was notified that it might be liable to perform or pay for
the remediation of environmental contamination found on and around the site.
Since the receipt of the letter, the Company
has been in periodic communications with the other parties who received a
similar letter with respect to what action, collectively or individually, should
be taken in response to the EPA assertion of liability. The Company believes
that the remediation of contamination of the site is properly the responsibility
of other parties that have occupied and used it for waste recycling purposes
since 1961, although under CERCLA the EPA is able to assert joint and several
liability against all parties who ever owned or operated the site or generated
or transported wastes to it. The EPA investigation is in its preliminary stages
and the Company intends to vigorously defend any liability for remediation. At
July 31, 2011, the liability for remediation, if any, was not estimatable and
therefore no accrual has been recorded in the financial statements.
We are currently not aware of any other
legal proceedings or claims that we believe will have a material adverse affect
on our business, financial condition or operating results.
22
18. RELATED PARTY TRANSACTIONS
At July 31, 2011, all of Canals Long-Term
Debt is held by the companys Chief Executive Officer. These notes which pay
interest at a rate of 10% per annum and come due May 15, 2015. Canal has
incurred interest expense on these notes of approximately $64,000 and $88,000
for the nine month periods ended July 31, 2011 and 2010, respectively. At
various times during period the holder of these notes agrees to defer interest
payments. This deferred interest liability accrues additional interest at a rate
of 10% per annum, while outstanding and is repaid as funds become available. As
of July 31, 2011, the balance due under these notes was $847,000 all of which is
classified as long-term debt related party.
19. SUBSEQUENT EVENTS
In April 2012, Canal sold 6 acres of land
and the improvements thereon located in Sioux City, Iowa to the companys Chief
Executive Officer, Michael E. Schultz for $852,000 generating a gain of
$346,000.
In July 2012, Canal sold one acre of land
and the improvements thereon located in South St. Paul, Minnesota for $839,000
generating a gain of $791,000.
In August 2012, Canal sold its stockyard
operation (30 acres of land and the improvements thereon) located in St. Joseph,
Missouri for $500,000 generating a loss of $577,000.
23
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following managements discussion and analysis should be
read in conjunction with our financial statements and the notes thereto and the
other financial information appearing elsewhere in this report. In addition to
historical information, the following discussion contains certain
forward-looking information. See Special Note Regarding Forward Looking
Statements below for certain information concerning those forward looking
statements. Our financial statements are prepared in U.S. dollars and in
accordance with U.S. GAAP.
Special Note Regarding Our Financial Statements and
Forward-looking Statements
In addition to historical information, this
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. We use words such as believe, expect,
anticipate, project, target, plan, optimistic, intend, aim, will
or similar expressions which are intended to identify forward-looking
statements. Such statements include, among others, any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; and any
statements regarding future economic conditions or performance, as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, as well as
assumptions, which, if they were to ever materialize or prove incorrect, could
cause the results of the Company to differ materially from those expressed or
implied by such forward-looking statements. Additional disclosures regarding
factors that could cause our results and performance to differ from results or
anticipated performance are discussed in Item 1A, Risk Factors included
herein.
Because the factors discussed in
this report could cause actual results or outcomes to differ materially from
those expressed in any forward-looking statement made by us or on our behalf,
you should not place undue reliance on any such forward-looking statement.
Further, any forward-looking statement speaks only as of the date on which it is
made, and we undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events, except
as required by law. New factors emerge from time to time, and it is not possible
for us to predict which will arrive. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statement.
Use of Terms
Except as otherwise indicated by the
context, all references in this report to:
-
Canal Capital, the Company, we, us, and our, are to Canal Capital
Corporation and its subsidiaries, Omaha Livestock Market, Inc., Sioux Falls
Stockyards Company and Canal Arts Corporation;
-
SEC are to the United States Securities and Exchange Commission;
-
Securities Act are to the Securities Act of 1933, as amended;
-
Exchange Act are to the Securities Exchange Act of 1934, as amended; and
-
U.S. dollar, USD, US$ and $ are to the legal currency of the United
States.
24
Canal Capital Corporations fiscal year ends on October 31, of
each calendar year. Each reference to a fiscal quarter refers to a three-month
period ending on either, January 31, April 30 and July 31, of the calendar year
indicated, and each reference to a fiscal year refers to the fiscal year ended
October 31 of the calendar year indicated.
Overview of the Companys Business
Canal Capital Corporation engages in real estate and stockyard
operations in the Midwest section of the United States. Canal, along with its
wholly owned subsidiaries, Omaha Livestock Market, Inc. and Sioux Falls
Stockyards Company is involved in the management and sale of its real estate
properties and, until August 2012, in the operation of central public
stockyards. Canal also sells antiquities through independent art dealers and at
public art auctions through its wholly owned subsidiary Canal Arts
Corporation.
At July 31, 2011, Canal's real estate properties were located
in Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri and Omaha,
Nebraska. The properties consisted, for the most part, of land and structures
leased to third parties (rail car repair shops, lumber yards and various other
commercial and retail businesses) as well as vacant land available for
development or resale. Canal owned approximately 37 acres of undeveloped land in
Sioux City, Iowa and it operated a central public stockyard located in St.
Joseph, Missouri. Canals stockyard provided various services and facilities
required to operate an independent market for the sale of livestock including
veterinary facilities, auction arenas, auctioneers, weight masters and scales,
feed and bedding facilities and security personnel. Canal also offered other
services, such as pure bred and other specialty sales for producer
organizations.
Recent Developments
Due to cash flow constraints, the
Company has entered a program of closely monitoring and reducing where possible
its operating expenses. As part of that program, the Company has sold most of
its property and has reduced the level of its art inventories to enhance cash
flows. In September 2010, Canal sold approximately 35 acres of land and the
improvements thereon located in Sioux Falls, South Dakota (formerly used in
stockyard operations) for $2,000,000, generating a gain of $1,242,000. In April
2012, Canal sold 6 acres of land and the improvements thereon located in Sioux
City, Iowa to the companys Chief Executive Officer, Michael E. Schultz for
$852,000, generating a gain of $346,000. In July 2012, Canal sold one acre of
land and the improvements thereon located in South St. Paul, Minnesota for
$839,000, generating a gain of $791,000. In August 2012, Canal sold its
stockyard operation (30 acres of land and the improvements thereon) located in
St. Joseph, Missouri for $500,000, generating a loss of $577,000. The Companys
only remaining real estate property is a rental property located in Omaha,
Nebraska.
As a result of past financial
constraints, the Companys financial statements for the fiscal years ended
October 31, 2011, 2010 and 2009, and for the interim fiscal quarters have not
been audited or reviewed by an independent auditor. In February 2012, the
Company received notice from the SEC of its obligation to file audited and
reviewed financial statements with its periodic reports and this is another in a
series of corrective filings which the Company expects to file in order to
comply with the SECs request. The Company expects to be fully compliant on or
about March 31, 2013.
Management is unsure if its
income from operations combined with its cost-cutting program and planned
reduction of its antiquities art inventory will enable it to finance its future
business activities or fund operating cash requirements. In the interim,
management is undertaking efforts to identify appropriate business opportunities
for the Company. If for some reason management is not able to identify an
appropriate business opportunity within a reasonable period of time, it may not
have sufficient resources to continue meeting its reporting obligations with the
Securities and Exchange Commission or other obligations which arise from its
minimal operations. This in turn would severely diminish the attractiveness of
the Company to another operating company and the Companys ability to consummate
a business combination.
25
Plan of Operations
We are undertaking efforts to identify
appropriate business opportunities for our Company. If for some reason the
Company is not able to identify an acceptable business opportunity within a
reasonable period of time, it may not have sufficient resources to continue
meeting its reporting obligations with the Securities and Exchange Commission or
other obligations which arise from its minimal operations. This in turn would
severely diminish the ability of the Company to explore alternative business
opportunities.
Even if we are able to identify business
opportunities that our Board deems appropriate, we cannot assure you that such a
strategy will provide you with a positive return on your investment, and may in
fact result in a substantial decrease in the value of your stock. In addition,
if the Board identifies a business opportunity that it deems appropriate, there
is no guarantee that the Company could raise the additional capital or get the
needed financing to pursue the business opportunity. These factors will
substantially increase the uncertainty, and thus the risk, of investing in our
shares.
Results of Operations
The following tables set forth certain items
in our statement of operations for the periods indicated:
|
|
Nine Months Ended July 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
Real Estate Revenue
|
$
|
203
|
|
$
|
217
|
|
Stockyard Revenue
|
|
1,431
|
|
|
1,648
|
|
Total
Revenue
|
|
1,634
|
|
|
1,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Expenses
|
|
43
|
|
|
70
|
|
Stockyard Expenses
|
|
1,279
|
|
|
1,433
|
|
General and Administrative Expenses
|
|
619
|
|
|
621
|
|
Total Costs and
Expenses
|
|
1,941
|
|
|
2,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Operations
|
|
(307
|
)
|
|
(259
|
)
|
Other Income
|
|
0
|
|
|
0
|
|
Interest Expense
|
|
(63
|
)
|
|
(88
|
)
|
Other Expenses
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
$
|
(370
|
)
|
$
|
(347
|
)
|
26
Revenues
Canal's revenues from continuing
operations consist of revenues from its real estate and stockyard operations.
Revenues for the nine month period ended July 31, 2011 decreased by $231,000 to
$1,634,000 as compared with $1,865,000 for the same period in fiscal 2010. The
fiscal 2011 decrease in revenues is due primarily to the closure of the Sioux
Falls stockyard operation in the fourth quarter of fiscal 2009.
Revenues for the three month
period ended July 31, 2011 decreased by $73,000 to $260,000 as compared with
$333,000 for the same period in fiscal 2010. The fiscal 2011 decrease in
revenues is due primarily to the closure of the Sioux Falls stockyard operation
in the fourth quarter of fiscal 2009.
Real Estate Revenues: Real estate
revenues for the nine months ended July 31, 2011 of $203,000 accounted for 12.4%
of the fiscal 2011 revenues as compared to real estate revenues of $217,000 or
11.6% for the same period in fiscal 2010. Real estate revenues are comprised of
sale of real estate (0.0% and 0.0%), rentals and other lease income from the
rental of vacant land and certain structures (100.0% and 93.3%) and rental
income from commercial office space in its Exchange Building (0.0% and 6.7%) for
the nine months ended July 31, 2011 and 2010, respectively. The percentage
variations in the year to year comparisons are due primarily to the elimination
of rental income from the Sioux Falls, South Dakota exchange building which was
closed in September 2010.
Real
estate revenues for the three months ended July 31, 2011 of $66,000 accounted
for 20.3% of the fiscal 2011 revenues as compared to real estate revenues of
$70,000 or 17.3% for the same period in fiscal 2010. Real estate revenues are
comprised of sale of real estate (0.0% and 0.0%), rentals and other lease income
from the rental of vacant land and certain structures (100.0% and 96.5%) and
rental income from commercial office space in its Exchange Building (0.0% and
3.5%) for the three months ended July 31, 2011 and 2010, respectively. The
percentage variations in the year to year comparisons are due primarily to the
elimination of rental income from the Sioux Falls, South Dakota exchange
building which was closed in September 2010.
Stockyard Revenues: Stockyard
revenues for the nine months ended July 31, 2011 of $1,431,000 accounted for
87.6% of the fiscal 2011 revenues as compared to stockyard revenues of
$1,648,000 or 88.4% for the same period in fiscal 2010. The 2011 decrease in
stockyard revenues was due primarily to the closing of the Sioux Falls stockyard
operations in the fourth quarter of fiscal 2009. Stockyard revenues are
comprised of yard handling and auction (87.7% and 82.1%), feed and bedding
income (5.8% and 4.8%) and rental and other income (6.5% and 13.1%) for the nine
month periods ended July 31, 2011 and 2010, respectively. The 2011 percentage
variations in the year to year comparisons are due primarily to the closing of
the Sioux Falls stockyard operations as discussed above.
Stockyard
revenues for the three months ended July 31, 2011 of $260,000 accounted for
79.7% of the fiscal 2011 revenues as compared to stockyard revenues of $333,000
or 82.7% for the same period in fiscal 2010. The 2011 decrease in stockyard
revenues was due primarily to the closing of the Sioux Falls stockyard
operations in the fourth quarter of fiscal 2009. Stockyard revenues are
comprised of yard handling and auction (83.2% and 83.2%), feed and bedding
income (6.2% and 6.6%) and rental and other income (10.6% and 10.2%) for the
three month periods ended July 31, 2011 and 2010, respectively. The 2011
percentage variations in the year to year comparisons are due primarily to the
closing of the Sioux Falls stockyard operations as discussed above.
27
Art Revenues: Canal had no art
sales in the nine month periods ended July 31, 2011 or 2010. Art revenues, if
any, are comprised of the proceeds from the sale of antiquities art. Canal had
no art expenses for the nine month periods ended July 31, 2011 and 2010,
respectively. Art expenses are comprised of the cost of inventory sold and
selling, general and administrative expenses. It is the Companys policy to use
the adjusted carrying value for sales, thereby reducing the valuation reserve
proportionately as the inventory is sold.
Canal
had no art sales in the three month periods ended July 31, 2011 or 2010. Art
revenues, if any, are comprised of the proceeds from the sale of antiquities
art. Canal had no art expenses for the three month periods ended July 31, 2011
and 2010, respectively. Art expenses are comprised of the cost of inventory sold
and selling, general and administrative expenses. It is the Companys policy to
use the adjusted carrying value for sales, thereby reducing the valuation
reserve proportionately as the inventory is sold.
Expenses
Real Estate Expenses: Real estate
expenses for the nine months ended July 31, 2011 of $43,000 decreased by $27,000
(38.7%) from real estate expenses of $70,000 for the same period in fiscal 2010.
The decrease in real estate expenses is consistent with the 2011 decrease in
real estate revenues. Real estate expenses are comprised of the cost of real
estate sold (0.0% and 0.0%), labor, operating and maintenance (16.5% and 27.9%),
depreciation and amortization (39.1% and 24.0%), taxes other than income taxes
(26.4% and 23.8%) and general and administrative expenses (18.0% and 24.3%) for
the nine months ended July 31, 2011 and 2010, respectively. The percentage
variations in the year to year comparisons are consistent with the decrease in
real estate revenues discussed above.
Real
estate expenses for the three months ended July 31, 2011 of $14,000 decreased by
$10,000 (40.5%) from real estate expenses of $24,000 for the same period in
fiscal 2010. The decrease in real estate expenses is consistent with the 2011
decrease in real estate revenues. Real estate expenses are comprised of the cost
of real estate sold (0.0% and 0.0%), labor, operating and maintenance (17.4% and
23.9%), depreciation and amortization (38.7% and 23.0%), taxes other than income
taxes (26.1% and 23.0%) and general and administrative expenses (17.8% and
30.1%) for the three months ended July 31, 2011 and 2010, respectively. The
percentage variations in the year to year comparisons are consistent with the
decrease in real estate revenues discussed above.
Stockyard Expenses: Stockyard
expenses for the nine months ended July 31, 2011 of $1,279,000 decreased by
$154,000 (10.7%) from stockyard expenses of $1,433,000 for the same period in
fiscal 2010. The decrease in stockyard expenses is consistent with the 2011
decrease in stockyard revenues. Stockyard expenses are comprised of labor and
related costs (43.9% and 42.6%), other operating and maintenance (26.0% and
27.0%), feed and bedding expense (5.2% and 4.6%), depreciation and amortization
(1.2% and 0.7%), taxes other than income taxes (4.4% and 8.1%) and general and
administrative expense (19.3% and 17.0%) for the nine month periods ended July
31, 2011 and 2010, respectively. There were no significant percentage variations
in the year to year comparisons.
Stockyard
expenses for the three months ended July 31, 2011 of $326,000 decreased by
$41,000 (11.1%) from stockyard expenses of $367,000 for the same period in
fiscal 2010. The decrease in stockyard expenses is consistent with the 2011
decrease in stockyard revenues. Stockyard expenses are comprised of labor and
related costs (46.2% and 39.7%), other operating and maintenance (28.4% and
30.4%), feed and bedding expense (5.0% and 4.3%), depreciation and amortization
(1.6% and 0.9%), taxes other than income taxes (5.1% and 9.8%) and general and
administrative expense (13.7% and 14.9%) for the three month periods ended July
31, 2011 and 2010, respectively. There were no significant percentage variations
in the year to year comparisons.
28
General and Administrative
General and administrative
expenses for the nine months ended July 31, 2011 of $620,000 decreased by $1,000
(0.2%) as compared to $621,000 for the same period in fiscal 2010. The major
components of general and administrative expenses are officers salaries (57.4%
and 56.6%), pension expense (13.1% and 12.9%), insurance expense (6.7% and
6.6%), office salaries (11.4% and 11.2%), travel expense (2.2% and 2.8%) and
professional fees (1.7% and 2.9%) for the nine month periods ended July 31, 2011
and 2010, respectively. There were no significant percentage variations in the
year to year comparisons.
General and administrative
expenses for the three months ended July 31, 2011 of $205,000 decreased by
$3,000 (1.2%) as compared to $208,000 for the same period in fiscal 2010. The
major components of general and administrative expenses are officers salaries
(58.4% and 56.5%), pension expense (13.3% and 12.9%), insurance expense (6.8%
and 6.6%), office salaries (11.6% and 11.2%), travel expense (2.2% and 2.9%) and
professional fees (1.5% and 2.9%) for the three month periods ended July 31,
2011 and 2010, respectively. There were no significant percentage variations in
the year to year comparisons.
Interest Expense
Interest expense for the nine
months ended July 31, 2011 of $64,000 decreased by $24,000 (28.0%) from $88,000
for the same period in fiscal 2010. The 2011 decrease is due primarily to
Canals $485,000 partial repayment of its long-term debt in fiscal 2010. The
principal balance outstanding at July 31, 2011 of $847,000 is classified as
long-term debt-related party.
Interest expense for the three
months ended July 31, 2011 of $21,000 decreased by $12,000 (36.4%) from $33,000
for the same period in fiscal 2010. The 2011 decrease is due primarily to
Canals $485,000 partial repayment of its long-term debt in fiscal 2010. The
principal balance outstanding at July 31, 2011 of $847,000 is classified as
long-term debt-related party.
Net (Loss) Income
Canal recognized a net loss of
approximately $370,000 in the nine month period ended July 31, 2011 as compared
to a net loss of approximately $347,000 for the same period in fiscal 2010.
There were no sales of real estate in the first nine months of either fiscal
2011 or 2010.
Canal recognized a net loss of
approximately $242,000 in the three month period ended July 31, 2011 as compared
to a net loss of approximately $230,000 for the same period in fiscal 2010.
There were no sales of real estate in the three month periods ended July 31, of
either fiscal 2011 or 2010.
29
Liquidity and Capital Resources
Cash and cash equivalents
decreased approximately $432,000, from $510,000 at October 31, 2010, to $78,000
at July 31, 2011. At July 31, 2011 the Companys current assets exceeded current
liabilities by approximately $107,000, as compared to October 31, 2010 when the
Companys current assets exceeded current liabilities by approximately
$400,000.
Net cash used in operating
activities for the nine months ended July 31, 2011 were $381,000, as compared to
$117,000 for the same period in fiscal 2010, for a net increase of $264,000.
This increase in cash used during the nine months ended July 31, 2011 was not
significant. During fiscal 2011 the Company invested $51,000 in capital
expenditures. Additionally, the Company made payments of interest on the
long-term debt discussed at Obligations under Material Contracts below.
While the Company is currently
operating as a going concern, certain significant factors raise substantial
doubt about the Company's ability to continue as a going concern. The Company
has suffered recurring losses from operations and is obligated to continue
making substantial annual contributions to its defined benefit pension plan. The
financial statements do not include any adjustments that might result from the
resolution of these uncertainties. Additionally, the accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
As discussed above, Canals cash
flow position has been under significant strain for the past several years.
Canal continues to closely monitor and reduce where possible its operating
expenses and plans to continue its program to develop or sell the property it
holds for development or resale as well as to reduce the level of its art
inventories to enhance current cash flows. Management is unsure if its income
from operations combined with its cost-cutting program and planned reduction of
its antiquities art inventory will enable it to finance its current business
activities. There can be no assurance that Canal will be able to effectuate its
planned antiquities art inventory reductions or that its income from operations
combined with its cost cutting program in itself will be sufficient to fund
operating cash requirements. Canal may, as it has in the past, be forced to sell
income producing assets to raise needed cash, thereby, further adversely
impacting future revenues. As of the date of this report Canal has sold its
Sioux Falls, South Dakota property (formerly used in stockyard operations); two
of its three remaining rental properties and its stockyard operations (30 acres
of land and the improvements thereon) located in St. Joseph, Missouri.
Obligations under Material Contracts
At July 31, 2011, all of the
Companys Long-Term Debt is held by the companys Chief Executive Officer. These
notes pay interest at a rate of 10% per annum and come due May 15, 2015. At
various times during fiscal 2011 the holder of these notes agreed to defer
interest payments. This deferred interest liability accrued additional interest
at a rate of 10% per annum, while outstanding, and is repaid as funds became
available. Canal has incurred interest expense on these notes of $64,000 and
$88,000 for the nine months ended July 31, 2011 and 2010, respectively. These notes, among
other things, prohibit Canal from becoming an investment company as defined by
the Investment Company Act of 1940, restrict Canals ability to pay cash
dividends or repurchase stock, and require principal prepayments to be made only
out of the proceeds from the sale of certain assets. As of July 31, 2011, the
balance due under these notes was $847,000 all of which was classified as
long-term debt due to related party. As of the filing of this report, the
balance due under these notes was $400,000.
30
We are currently not party to any
other material agreements, other than employment agreements, that impose any
payment obligation, whether in cash or securities, on the Company now or in the
future.
Recent Accounting Pronouncements
In January 2010, the FASB issued
ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving
Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 requires
reporting entities to provide information about movements of assets among Levels
1 and 2 of the three-tier fair value hierarchy established by ASC 820. The
guidance is effective for any fiscal year that begins after December 15, 2010
and should be used for quarterly and annual filings. We are currently evaluating
the impact on our financial statements of adopting the amendments in ASU 2010-06
and cannot estimate the impact of adoption at this time.
In May 2011, the FASB issued ASU
2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" (ASU
2011-04). This update amends ASC Topic 820, Fair Value Measurement and
Disclosure. ASU 2011-04 clarifies the application of certain existing fair
value measurement guidance and expands the disclosures for fair value
measurements that are estimated using significant unobservable (Level 3) inputs.
ASU 2011-04 is effective for annual and interim reporting periods beginning on
or after December 15, 2011, which means that it will be effective for our fiscal
quarter beginning January 1, 2012. The new guidance is to be adopted
prospectively and early adoption is not permitted. We do not believe that
adoption of ASU 2011-04 will have a significant impact on our financial
position, results of operations or cash flows.
On June 16, 2011, the FASB issued
ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income (ASU 2011-05). This update amends ASC Topic 220,
Comprehensive Income to provide that total comprehensive income will be
reported in one continuous statement or two separate but consecutive statements
of financial performance. Presentation of total comprehensive income in the
statement of stockholders' equity or the footnotes will no longer be allowed.
The calculation of net income and basic and diluted net income per share will
not be affected. ASU 2011-005 is effective for fiscal years, and interim periods
within those years, beginning on or after December 15, 2011, which means that it
will be effective for our fiscal year beginning July 1, 2012. Retrospective
adoption is required and early adoption is permitted. We do not believe that
adoption of ASU 2011-05 will have a significant impact on our financial
position, results of operations or cash flows.
31
Critical Accounting Policies and Estimates
Our consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States. These generally accepted accounting principles
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
net sales and expenses during the reporting period. We continually evaluate our
estimates, including those related to revenue recognition, bad debts, income
taxes, fixed assets, restructuring, contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the facts and circumstances. Actual results may
differ from these estimates under different assumptions or conditions.
Management believes the following
critical accounting policies impact our most difficult, subjective and complex
judgments used in the preparation of our consolidated financial statements,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. For a further discussion of these and other accounting
policies, please see Note 2 of the Notes to Consolidated Financial Statements
included elsewhere in this Annual Report.
Long-Lived
Assets
-- The Company reviews the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company considers historical performance
and future estimated results in its evaluation of potential impairment and then
compares the carrying amount of the assets to the estimated future cash flows
expected to result from the use of the asset. The measurement of the loss, if
any, will be calculated as the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
Seasonality
Our operations and operating cash
flows were subject to seasonal variations. Stockyard operations were seasonal,
with greater volume generally experienced during the first and second quarters
of each fiscal year during which periods livestock is generally brought to
market. As of the date of this report, the Company is no longer in the stockyard
business and therefore its operations and operating cash flows are no longer
subject to seasonal variations.
Off-Balance Sheet Arrangements
For the nine months ended July
31, 2011, we did not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not Applicable
32
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are
designed to ensure that information that would be required to be disclosed in
Exchange Act Reports is recorded, processed, summarized and reported within the
time period specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including to our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
As required by Rule 13a-15 under
the Exchange Act, our management, including our Chief Executive Officer, Mr.
Michael E. Schultz, and Chief Financial Officer, Mr. Reginald Schauder,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of July 31, 2011. Based upon, and as of the date of
this evaluation, Messrs. Schultz and Schauder determined that because of the
material weaknesses described below, our disclosure controls and procedures were
not effective.
Our management concluded that our
internal control over financial reporting was not effective, as of October 31,
2009 through the period covered by this report, as we had limited accounting
personnel and funds available for continuous legal and accounting advice as it
pertained to our filing requirements with the SEC. Furthermore, since its annual
report for the fiscal year ended October 31, 2008, the Company submitted its
annual and quarterly financial statements in filings to the SEC without the
benefit of the audit, and review, as applicable by an independent public
accounting firm. Additionally, in our annual and quarterly reports on Forms 10-K
and 10-Q for our fiscal years 2009, 2010 and 2011 there was a lack of adequate
controls over the recording of gains on sales of properties and other
transactions that constituted a material weakness in internal control over
financial reporting.
In an effort to remediate this
material weakness, our management has appointed qualified personnel and has
engaged the Companys auditors to conduct reviews and audits, as applicable, of
its financial statements for the non-compliant periods. The Company expects that
the filing of this quarterly report on Form 10-Q for the nine months ended July
31, 2011 and 2010 will be a further step in curing this deficiency with the SEC.
Our management does not believe that this material weakness had a material
effect on our financial condition or results of operations or caused our
financial statements as of and for the nine months ended July 31, 2011 and 2010,
included in this report to contain a material misstatement.
Changes in Internal Control over Financial Reporting
There were no changes in our
internal controls over financial reporting during the nine month period ended
July 31, 2011 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
33
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we may become
involved in various lawsuits and legal proceedings which arise in the ordinary
course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that
may harm our business.
Environmental Protection Agency
In 1989, the Company sold its 48
acre Portland, Oregon stockyard to Oregon Waste Systems, Inc. On September 29,
2003, the United States Environmental Agency (EPA) placed a 4.2 acre portion of
that property on the National Priorities List pursuant to the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA), commonly known
as the Superfund Act. In a letter from the EPA dated June 27, 2005 the Company,
along with approximately 13 other parties, including the current owner and
operator of the site, was notified that it might be liable to perform or pay for
the remediation of environmental contamination found on and around the site.
Since the receipt of the letter,
the Company has been in periodic communications with the other parties who
received a similar letter with respect to what action, collectively or
individually, should be taken in response to the EPA assertion of liability. The
Company believes that the remediation of contamination of the site is properly
the responsibility of other parties that have occupied and used it for waste
recycling purposes since 1961, although under CERCLA the EPA is able to assert
joint and several liability against all parties who ever owned or operated the
site or generated or transported wastes to it. The EPA investigation is in its
preliminary stages and the Company intends to vigorously defend any liability
for remediation. At July 31, 2011, the liability for remediation, if any, was
not estimatable and therefore no accrual has been recorded in the financial
statements.
We are currently not aware of any
other legal proceedings or claims that we believe will have a material adverse
affect on our business, financial condition or operating results.
34
ITEM 1A. RISK FACTORS
Not applicable
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
We have no information to disclose that was required to be
disclosed in a report on Form 8-K during the nine month period ended July 31,
2011, but was not reported.
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report or
incorporated by reference:
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
Dated: October 30, 2012
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CANAL CAPITAL CORPORATION
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By:
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/S/ Michael E. Schultz
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Michael E. Schultz
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President and Chief
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Executive Officer
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(Principal Executive Officer)
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By:
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/S/ Reginald Schauder
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Reginald Schauder
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Vice President-Finance,
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Secretary and Treasurer
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(Principal Financial and
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Accounting Officer)
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36
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