[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.
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).
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.
Indicate by check mark whether the Registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
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 March 15, 2012.
As a result of financial constraints, the Companys financial
statements for the fiscal years ended October 31, 2011, 2010 and 2009, and for
the interim fiscal quarters had not been previously 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 the nine reports outlined above were appropriately amended
and filed with the SEC on October 30, 2012. This report is the first of the
final three filings which the Company expects to file in order to become fully
compliant with its reporting requirements with SEC. The Company expects to be
fully compliant on or before January 31, 2013.
Where indicated, the financial data presented in the 10-Q is as
of January 31, 2012, however, the other disclosures have been updated to reflect
the Companys operations as at the date of this filing.
PART I
FINANCIAL INFORMATION
ITEM
1.
|
FINANCIAL
STATEMENTS
|
Consolidated Balance Sheets (Unaudited)
January 31, 2012 and October 31, 2011
|
5
|
Consolidated Statements of Operations and Comprehensive
Income (Loss) (Unaudited) for the Three Month Periods ended January 31,
2012 and 2011
|
7
|
Consolidated Statements of Cash Flows
(Unaudited) for the Three Month Periods ended January 31, 2012 and 2011
|
9
|
Notes to (Unaudited) Consolidated Financial Statements
|
11
|
4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
JANUARY 31, 2012 (UNAUDITED) AND OCTOBER 31, 2011
|
|
JANUARY 31,
|
|
|
OCTOBER 31,
|
|
|
|
2012
|
|
|
2011
|
|
ASSETS:
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS
|
$
|
63,050
|
|
$
|
35,514
|
|
RESTRICTED
CASH TRANSIT INSURANCE
|
|
60,503
|
|
|
35,484
|
|
ACCOUNTS
RECEIVABLE
|
|
73,087
|
|
|
120,300
|
|
STOCKYARDS
INVENTORY
|
|
6,885
|
|
|
20,749
|
|
PREPAID
EXPENSES
|
|
35,360
|
|
|
13,948
|
|
TOTAL CURRENT ASSETS
|
|
238,885
|
|
|
225,995
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
PROPERTY
ON OPERATING LEASES, NET OF ACCUMULATED DEPRECIATION OF $500,149 AND
$494,599 AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY
|
|
1,662,458
|
|
|
1,668,008
|
|
|
|
|
|
|
|
|
PROPERTY
USED IN STOCKYARD OPERATIONS, NET OF ACCUMULATED DEPRECIATION OF $217,057
AND $212,257 AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY
|
|
1,067,467
|
|
|
1,072,267
|
|
|
|
|
|
|
|
|
PROPERTY
HELD FOR DEVELOPMENT OR RESALE
|
|
52,250
|
|
|
52,250
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
RESTRICTED
CASH LETTER OF CREDIT
|
|
140,000
|
|
|
140,000
|
|
ART
INVENTORY
|
|
10,000
|
|
|
10,000
|
|
|
|
150,000
|
|
|
150,000
|
|
|
$
|
3,171,060
|
|
$
|
3,168,520
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
JANUARY 31, 2012 (UNAUDITED) AND OCTOBER 31, 2011
|
|
JANUARY 31,
|
|
|
OCTOBER 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
LIABILITIES &
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
$
|
134,561
|
|
$
|
160,370
|
|
LINE
OF CREDIT ORDER BUYING
|
|
0
|
|
|
106,395
|
|
TRANSIT
INSURANCE
|
|
60,503
|
|
|
35,484
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
195,064
|
|
|
302,249
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
LONG-TERM
DEBT, RELATED PARTY
|
|
847,000
|
|
|
847,000
|
|
LONG-TERM
PENSION LIABILITY
|
|
784,637
|
|
|
812,820
|
|
SALARIES
AND INTEREST PAYABLE OFFICERS
|
|
573,375
|
|
|
458,700
|
|
REAL
ESTATE TAXES PAYABLE
|
|
47,117
|
|
|
56,200
|
|
|
|
|
|
|
|
|
TOTAL
NON-CURRENT LIABILITIES
|
|
2,252,129
|
|
|
2,174,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK, $0.01 PAR
VALUE: 10,000,000 SHARES AUTHORIZED; 9,102,655 SHARES ISSUED AND
OUTSTANDING AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY AND
AGGREGATE LIQUIDATION PREFERENCE OF $10 PER SHARE FOR $ 91,026,550 AT
JANUARY 31, 2012 AND OCTOBER 31, 2011, 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 JANUARY 31, 2012 AND OCTOBER 31, 2011,
RESPECTIVELY
|
|
53,138
|
|
|
53,138
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
25,526,721
|
|
|
25,526,721
|
|
|
|
|
|
|
|
|
ACCUMULATED DEFICIT
|
|
(12,051,348
|
)
|
|
(12,056,664
|
)
|
|
|
|
|
|
|
|
986,865 SHARES OF COMMON
STOCK HELD IN TREASURY, AT COST
|
|
(11,003,545
|
)
|
|
(11,003,545
|
)
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME:
PENSION VALUATION RESERVE
|
|
(1,892,126
|
)
|
|
(1,919,126
|
)
|
|
|
|
|
|
|
|
|
|
723,867
|
|
|
691,551
|
|
|
|
|
|
|
|
|
|
$
|
3,171,060
|
|
$
|
3,168,520
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE
MONTHS ENDED JANUARY 31, 2012 AND 2011
(UNAUDITED)
|
|
2012
|
|
|
2011
|
|
REAL ESTATE OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE REVENUES:
|
|
|
|
|
|
|
SALE
OF REAL ESTATE
|
|
0
|
|
|
0
|
|
OUTSIDE REAL ESTATE RENT
|
|
65,444
|
|
|
65,444
|
|
EXCHANGE BUILDING RENTAL INCOME
|
|
4,800
|
|
|
4,800
|
|
|
|
70,244
|
|
|
70,244
|
|
|
|
|
|
|
|
|
REAL ESTATE EXPENSES:
|
|
|
|
|
|
|
COST
OF REAL ESTATE SOLD
|
|
0
|
|
|
0
|
|
LABOR, OPERATING AND MAINTENANCE
|
|
2,539
|
|
|
2,330
|
|
DEPRECIATION AND AMORTIZATION
|
|
5,550
|
|
|
5,550
|
|
TAXES OTHER THAN INCOME TAXES
|
|
3,750
|
|
|
3,750
|
|
GENERAL AND ADMINISTRATIVE
|
|
2,550
|
|
|
2,550
|
|
|
|
14,389
|
|
|
14,180
|
|
|
|
|
|
|
|
|
INCOME FROM REAL ESTATE
OPERATIONS
|
|
55,855
|
|
|
56,064
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE
EXPENSE
|
|
(207,721
|
)
|
|
(205,860
|
)
|
|
|
|
|
|
|
|
(LOSS) FROM CONTINUING
OPERATIONS
|
|
(151,866
|
)
|
|
(149,796
|
)
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
& OTHER INCOME
|
|
120
|
|
|
217
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
(21,175
|
)
|
|
(21,175
|
)
|
|
|
|
|
|
|
|
ART SALES
AND OPERATIONS
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
(21,055
|
)
|
|
(20,958
|
)
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE
PROVISION FOR INCOME TAXES
|
|
(172,921
|
)
|
|
(170,754
|
)
|
PROVISION FOR INCOME TAXES
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET (LOSS) FROM CONTINUING OPERATIONS
|
|
(172,921
|
)
|
|
(170,754
|
)
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE
MONTHS ENDED JANUARY 31, 2012 AND 2011
Continued ...
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
DISCONTINUED STOCKYARD
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD REVENUES:
|
|
|
|
|
|
|
YARD
HANDLING AND AUCTION
|
$
|
614,465
|
|
$
|
506,073
|
|
FEED AND BEDDING INCOME
|
|
43,287
|
|
|
39,898
|
|
RENTAL & OTHER INCOME
|
|
31,818
|
|
|
32,846
|
|
|
|
689,570
|
|
|
578,817
|
|
|
|
|
|
|
|
|
STOCKYARD EXPENSES:
|
|
|
|
|
|
|
LABOR AND RELATED COSTS
|
|
218,783
|
|
|
205,645
|
|
OTHER OPERATING AND MAINTENANCE
|
|
119,218
|
|
|
107,166
|
|
FEED
AND BEDDING EXPENSE
|
|
37,877
|
|
|
28,806
|
|
DEPRECIATION AND AMORTIZATION
|
|
4,800
|
|
|
5,100
|
|
TAXES OTHER THAN INCOME TAXES
|
|
21,148
|
|
|
20,215
|
|
GENERAL AND ADMINISTRATIVE
|
|
109,507
|
|
|
103,601
|
|
|
|
511,333
|
|
|
470,533
|
|
|
|
|
|
|
|
|
INCOME FROM DISCONTINUED STKY OPERATIONS
|
|
178,237
|
|
|
108,284
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
5,316
|
|
|
(62,470
|
)
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINIMUM PENSION LIABILITY
ADJUSTMENT
|
|
27,000
|
|
|
27,000
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
$
|
32,316
|
|
$
|
(35,470
|
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
WEIGHTED 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 CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2012 AND
2011
(UNAUDITED)
|
|
2012
|
|
|
2011
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
NET (LOSS)
|
$
|
5,316
|
|
$
|
(62,470
|
)
|
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION
|
|
10,350
|
|
|
10,650
|
|
GAIN ON SALES OF REAL ESTATE
|
|
0
|
|
|
0
|
|
MINIMUM
PENSION LIABILITY ADJUSTMENT
|
|
27,000
|
|
|
27,000
|
|
|
|
|
|
|
|
|
DECREASE (INCREASE) IN OPERATING ASSETS
|
|
|
|
|
|
|
ACCOUNTS RECEIVABLE
|
|
47,213
|
|
|
92,721
|
|
STOCKYARDS
INVENTORY
|
|
13,864
|
|
|
9,564
|
|
PREPAID EXPENSES
|
|
(21,412
|
)
|
|
(16,716
|
)
|
RESTRICTED
CASH LETTER OF CREDIT
|
|
0
|
|
|
0
|
|
RESTRICTED CASH TRANSIT INSURANCE
|
|
(25,019
|
)
|
|
(18,926
|
)
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN
OPERATING LIABILITIES:
|
|
|
|
|
|
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
|
(25,809
|
)
|
|
(48,167
|
)
|
LINE OF CREDIT ORDER BUYING
|
|
(106,395
|
)
|
|
(65,000
|
)
|
PENSION
PLAN PAYABLE
|
|
(28,183
|
)
|
|
(146,470
|
)
|
SALARIES AND INTEREST PAYABLE - OFFICERS
|
|
114,675
|
|
|
(60,325
|
)
|
REAL ESTATE
TAXES PAYABLE
|
|
(9,083
|
)
|
|
(8,861
|
)
|
TRANSIT INSURANCE
|
|
25,019
|
|
|
18,926
|
|
TOTAL ADJUSTMENTS
|
|
22,220
|
|
|
(205,604
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
|
|
27,536
|
|
|
(268,074
|
)
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
9
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2012 AND
2011
Continued ...
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCEEDS
FROM SALES OF REAL ESTATE
|
|
0
|
|
|
0
|
|
COSTS RELATING TO SALES
OF REAL ESTATE
|
|
0
|
|
|
0
|
|
CAPITAL
EXPENDITURES
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY
INVESTING ACTIVITIES
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY (USED)
IN FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCEEDS FROM LONG-TERM DEBT OBLIGATION
|
|
0
|
|
|
0
|
|
REPAYMENT
OF LONG-TERM DEBT OBLIGATION
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED) IN FINANCING
ACTIVITIES
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
27,536
|
|
|
(268,074
|
)
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR
|
|
35,514
|
|
|
510,361
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
63,050
|
|
$
|
242,287
|
|
|
|
|
|
|
|
|
|
|
JANUARY 31,
|
|
|
|
2012
|
|
|
2011
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID DURING THE YEAR FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
|
$
|
21,175
|
|
$
|
21,175
|
|
INCOME
TAXES
|
$
|
0
|
|
$
|
0
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
10
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
|
Canal Capital Corporation, 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
Companys 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.
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. As of the date of this
report, the Company has sold its Sioux Falls, South Dakota property (formerly
used in stockyard operations), two of its three remaining rental properties and
its stockyard operations, including the 30 acres of land and the improvements
thereon located in St. Joseph, Missouri. The Companys only remaining real
estate property is a rental property located in Omaha, Nebraska. 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,
the Company is undertaking efforts to identify alternative business
opportunities for the Company. If for some reason the Company is not able to
identify an acceptable alternative 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.
11
Canal was engaged in two distinct businesses - real estate and
stockyard operations. As discussed above, as of the date of this report, Canal
is no longer in the stockyards business.
Real Estate Operations - Canals 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 At January 31, 2012 Canal operated one
central public stockyard located in St. Joseph, Missouri. In August 2012, Canal
sold its St. Joseph, Missouri stockyard operation (including approximately 30
acres of land and improvements) for $500,000 generating a loss of $577,000.
Canal repaid $164,000 of its outstanding mortgage notes from the proceeds of
this sale.
2.
|
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 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.
12
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.
3.
|
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
January 31, 2012 and the results of its operations and its cash flows for the
three month period ended January 31, 2012. 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, 2011 and the notes
thereto which are contained in Canals 2011 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 2012.
Under Canals 1984 Employee and 1985 Directors Stock Option
Plans, 550,000 and 264,000 shares, respectively, of Canals 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 January 31, 2012.
13
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 January 31, 2012, 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 $21,000 and $21,000 for
the three month periods ended January 31, 2012 and 2011, respectively. Accrued
interest of $105,875 and $84,700 is included in salaries and interest
payable-officers at January 31, 2012 and October 31, 2011, respectively.
At January 31, 2012, substantially all of Canals real
properties, the stock of certain subsidiaries, the investments and a substantial
portion of its art inventories are pledged as collateral for the following
obligations:
|
|
Jan. 31,
|
|
|
October 31,
|
|
($ 000s Omitted)
|
|
2012
|
|
|
2011
|
|
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 approximately
$0 and $106,000 at January 31, 2012 and October 31, 2011, respectively.
14
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 $61,000 and $35,000 at January 31, 2012 and
October 31, 2011, respectively, represents the excess of per head fees charged
over actual payments made for livestock that was injured or died while at the
stockyards.
Antiquities art valued at $10,000 represented 100% of total art
inventory at both January 31, 2012 and October 31, 2011. 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 January 31, 2012
the valuation allowance is approximately $466,000.
At January 31, 2012, the Company has net operating loss carry
forwards of approximately $8,872,000 that expire through 2029. 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.
15
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 January 31, 2012. Accordingly,
Canal has no future minimum payments due over the next five years.
10.
|
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 $210,000, $110,000,
$110,000, $110,000 and $110,000 for fiscal years 2012, 2013, 2014, 2015 and
2016, respectively.
11.
|
PROPERTY USED IN STOCKYARD
OPERATIONS
|
A schedule of the Companys property used in stockyard
operations at January 31, 2012 is as follows (000s omitted):
|
|
|
|
|
|
|
|
Current Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Retirements)
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
|
Additions
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Bldgs. &
|
|
|
|
|
|
Bldgs. &
|
|
|
Accum.
|
|
|
Value
|
|
Description (1)
|
|
Land
|
|
|
Imprvmts.
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Depr.
|
|
|
01/31/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 acres of land in St.
Joseph, MO Acquired in 1942
|
$
|
902
|
|
$
|
383
|
|
$
|
0
|
|
$
|
0
|
|
$
|
(218
|
)
|
$
|
1,067
|
|
Substantially all of Canals real property is pledged as
collateral for its related party debt obligations.
16
12.
|
PROPERTY ON OPERATING LEASES
|
A schedule of the Companys property on operating leases at
January 31, 2012 is as follows (000s omitted):
|
|
|
|
|
Current Year
|
|
|
|
|
|
|
|
|
|
|
|
|
(Retirements
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
|
Additions
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Bldgs. &
|
|
|
|
|
|
Bldgs. &
|
|
|
Accum.
|
|
|
Value
|
|
Description (1)
|
|
Land
|
|
|
Imprvmts.
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Depr.
|
|
|
01/31/12
|
|
New York office Leasehold
assets
|
$
|
0
|
|
$
|
8
|
|
$
|
0
|
|
$
|
0
|
|
$
|
(8
|
)
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 acres of land in Omaha, NE
Acquired in 1976
|
|
1,150
|
|
|
35
|
|
|
0
|
|
|
0
|
|
|
(20
|
)
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 acres of land in S. St.
Paul, MN Acquired in 1937
|
|
10
|
|
|
485
|
|
|
0
|
|
|
0
|
|
|
(473
|
)
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 acres of land in Sioux
City, IA Acquired in 1937
|
|
475
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
475
|
|
|
$
|
1,635
|
|
$
|
528
|
|
$
|
0
|
|
$
|
0
|
|
$
|
(501
|
)
|
$
|
1,662
|
|
Substantially all of Canals real property is pledged as
collateral for its related party debt obligations.
13.
|
PROPERTY HELD FOR DEVELOPMENT OR
RESALE
|
A schedule of the Companys property held for development or
resale at January 31, 2012 is as follows (000s 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.
17
14.
|
PENSION VALUATION RESERVE
|
The Pension Valuation Reserve represents the excess of
additional minimum pension liability required under the provisions of ASC 715
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:
|
|
Three Months Ended
|
|
|
|
1/31/12
|
|
|
1/31/11
|
|
|
|
|
|
|
|
|
Service cost
|
|
2,000
|
|
|
2,000
|
|
Interest cost
|
|
26,000
|
|
|
26,000
|
|
Expected return on plan
assets
|
|
(28,000
|
)
|
|
(28,000
|
)
|
Amortization of prior service cost
|
|
0
|
|
|
0
|
|
Recognized net actuarial loss
|
|
30,000
|
|
|
30,000
|
|
Net periodic benefit cost
|
|
30,000
|
|
|
30,000
|
|
For the three months ended January 31, 2012, 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 2012 is approximately $182,000. A $28,000 contribution has been made to
date and the Company expects to make the full required contribution before the
end of the fiscal year.
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 $3,000 for each of the three month periods ended
January 31, 2012 and 2011.
18
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 Contingency
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 January 31, 2012, the liability for remediation, if any, was not estimable 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.
19
17.
|
RELATED PARTY TRANSACTIONS
|
At January 31, 2012, all of Canal’s Long-Term Debt is held by the company’s Chief Executive Officer. The notes pay interest at a rate of 10% per annum and come due May 15, 2015. Canal has incurred interest expense on these notes of
$21,000 and $21,000 for the three month periods ended January 31, 2012 and 2011, 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 January 31, 2012, the balance due under these notes was $847,000 all of which is classified as long-term debt related party. Accrued interest
of $105,875 and $84,700 is included in salaries and interest payable-officers at January 31, 2012 and October 31, 2011, respectively.
In April 2012, Canal sold 6 acres of land and the improvements thereon located in Sioux City, Iowa to the company’s Chief Executive Officer, Michael E. Schultz for $852,000 generating a gain of $346,000. Canal repaid $283,000 of
its outstanding mortgage notes from the proceeds of this sale.
In July 2012, Canal sold one acre of land and the improvements thereon located in South St. Paul, Minnesota, to an unrelated third party, 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, to an unrelated third party, for $500,000 generating a loss of $577,000. Canal repaid $164,000 of its
outstanding mortgage notes from the proceeds of this sale.
20
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.
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.
21
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 January 31, 2012, Canals 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 an Exchange
Building (commercial office space), 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 2 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 the foregoing financial constraints, the
Companys financial statements for the fiscal years ended October 31, 2011, 2010
and 2009, and for the interim fiscal quarters had not been previously 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 the nine reports outlined above were
appropriately amended and filed with the SEC on October 30, 2012. This report is
another in the series of corrective filings which the Company expects to file in
order to become fully compliant with its reporting requirements with SEC. The
Company expects to be fully compliant on or before January 31, 2013.
Management is unsure if its income from operations, combined
with its cost-cutting program, planned reduction of its antiquities art
inventory and sales of properties 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 Companys ability to explore alternative
business opportunities in the future.
22
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 in the
future.
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:
|
|
Three Months Ended
January 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
Real Estate Revenue
|
$
|
70
|
|
$
|
70
|
|
Stockyard Revenue
|
|
690
|
|
|
579
|
|
Total Revenue
|
|
760
|
|
|
649
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
Real Estate Expenses
|
|
15
|
|
|
14
|
|
Stockyard Expenses
|
|
511
|
|
|
470
|
|
General and Administrative Expenses
|
|
208
|
|
|
206
|
|
Total Costs and Expenses
|
|
734
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
26
|
|
|
(41
|
)
|
Other Income
|
|
0
|
|
|
0
|
|
Interest Expense
|
|
(21
|
)
|
|
(21
|
)
|
Other Expenses
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
5
|
|
$
|
(62
|
)
|
23
Revenues
Canals revenues from operations consist of revenues from its
real estate and stockyard operations. Revenues for the first three months of
fiscal 2012 increased by $111,000 to $760,000 as compared with 2011 revenues of
$649,000. The fiscal 2012 increase in revenues was due primarily to an increase
in the volume of livestock handled at the St. Joseph stockyards during the first
quarter of fiscal 2012.
Real Estate Revenues: Real estate revenues for the three months
ended January 31, 2012 of $70,000 accounted for 9.2% of the fiscal 2012 revenues
as compared to real estate revenues of $70,000 or 10.0% for the same period in
fiscal 2011. For the three months ended January 31, 2012 and 2011, respectively,
real estate revenues were comprised of rentals and other lease income from the
rental of vacant land and certain structures. There were no significant
percentage variations in the year to year comparisons.
Stockyard Revenues: Stockyard revenues for the three months
ended January 31, 2012 of $690,000 accounted for 90.8% of the fiscal 2012
revenues as compared to stockyard revenues of $579,000 or 89.2% for the same
period in fiscal 2011. The 2012 increase in stockyard revenues was due primarily
to an increase in the volume of livestock handled at the St. Joseph stockyards
during the first quarter of fiscal 2012. Stockyard revenues were comprised of
yard handling and auction (89.1% and 87.4%), feed and bedding income (6.3% and
6.9%) and rental and other income (4.4% and 5.7%) for the three month periods
ended January 31, 2012 and 2011, respectively. There were no significant
percentage variations in the year to year comparisons.
Art Revenues: Canal had no art sales in the first three months
of fiscal 2012 or fiscal 2011. Art revenues, if any, were comprised of the
proceeds from the sale of antiquities art. There were no art expenses for the
three month periods ended January 31, 2012 and 2011, respectively. Art expenses
if any, were 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 of $15,000 for the
three months ended January 31, 2012 were virtually unchanged from real estate
expenses of $14,000 for the same period in fiscal 2011. For the three months
ended January 31, 2012 and 2011, respectively, real estate expenses were
comprised of the labor, operating and maintenance (17.6% and 16.4%),
depreciation and amortization (38.6% and 39.1%), taxes other than income taxes
(26.1% and 26.5%) and general and administrative expenses (17.7% and 18.0%) .
There were no significant percentage variations in the year to year comparisons.
Stockyard Expenses: Stockyard expenses for the three months
ended January 31, 2012 of $511,000 increased by $41,000 (8.7%) from stockyard
expenses of $470,000 for the same period in fiscal 2011. The increase in
stockyard expenses was consistent with the 2012 increase in stockyard revenues.
Stockyard expenses were comprised of labor and related costs (42.8% and 43.7%),
other operating and maintenance (23.3% and 22.8%), feed and bedding expense
(7.4% and 6.1%), depreciation and amortization (0.9% and 1.1%), taxes other than
income taxes (4.1% and 4.3%) and general and administrative expense (21.5% and
22.0%) for the three month periods ended January 31, 2012 and 2011,
respectively. There were no significant percentage variations in the year to
year comparisons.
24
General and Administrative
General and administrative expenses for the three months ended
January 31, 2012 of $208,000 increased by $2,000 (0.9%) as compared to $206,000
for the same period in fiscal 2011. The major components of general and
administrative expenses were officers salaries (58.5% and 57.6%), pension
expense (13.0% and 13.1%), insurance expense (7.4% and 6.7%), administrative
salaries (11.3% and 11.4%), travel expense (1.8% and 1.7%) and professional fees
(2.6% and 1.5%) for the three month periods ended January 31, 2012 and 2011,
respectively. There were no significant percentage variations in the year to
year comparisons.
Interest Expense
Interest expense for the three months ended January 31, 2012 of
$21,000 was unchanged from $21,000 for the same period in fiscal 2011. The
principal balance outstanding at January 31, 2012 of $847,000 was classified as
long-term debt-related party.
Net (Loss) Income
Canal recognized net income of approximately $5,000 in the
first three months of fiscal 2012 as compared to a net loss of $62,000 for the
same period in fiscal 2012. The fiscal 2012 improvement was due primarily to an
increase in the volume of livestock handled at the St. Joseph stockyards during
the first quarter of fiscal 2012.
Liquidity and Capital Resources
Cash and cash equivalents increased $27,000, from $36,000 at
October 31, 2011, to $63,000 at January 31, 2012. At January 31, 2012 the
Companys current assets exceeded current liabilities by approximately $44,000
as compared to October 31, 2011 when the Companys current liabilities exceeded
current assets by approximately $76,000.
Net cash provided by operating activities for the three
months ended January 31, 2012 were $28,000, as compared to net cash used in
operating activities of $268,000 for the same period in fiscal 2011, for a net
cash increase of $296,000. This increase in cash provided by operations during
the first fiscal quarter of 2012 was mainly due to the increase in outstanding
liabilities in the first quarter of fiscal 2012. The Company did not engage in
any financing and investment activities, except with respect to its payment 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 Companys 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.
25
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. The Companys only remaining real
estate property is a rental property located in Omaha, Nebraska.
Obligations under Material Contracts
At January 31, 2012, all of the Companys Long-Term Debt was
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
2012 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 $21,000 and $21,000 for the fiscal quarters
ended January 31, 2012 and 2011, 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 January 31, 2012, the balance
due under these notes was $847,000 all of which was classified as long-term debt
due to related party. Accrued interest of $105,875 and $84,700 is included in
salaries and interest payable-officers at January 31, 2012 and October 31, 2011,
respectively. As of the filing of this report, the balance due under these notes
was $400,000.
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 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.
26
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.
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 quarter ended January 31, 2012, we did not have any
off-balance sheet arrangements.
27
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
Not Applicable
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 January
31, 2012. 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. Accordingly, the nine reports outlined
above were appropriately amended and filed with the SEC on October 30, 2012. The
Company expects that the filing of this quarterly report on Form 10-Q for the
three months ended January 31, 2012 and 2011 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 three months
ended January 31, 2012 and 2011, 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 first fiscal quarter ended January 31, 2012 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
28