UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 2012
[ ] 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
September 15, 2012.
EXPLANATORY NOTE
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 third 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 July 31, 2012, 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, 2012 and October 31, 2011
|
5
|
|
|
Consolidated Statements of Operations and
Comprehensive Income (Loss) (UNAUDITED) for the Nine and Three Month
Periods ended July 31, 2012 and 2011
|
7
|
|
|
Consolidated Statements of Cash Flows
(UNAUDITED) for the Nine Month Periods ended July 31, 2012 and 2011
|
11
|
|
|
Notes to Unaudited Consolidated Financial
Statements
|
13
|
4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
JULY 31, 2012 (UNAUDITED) AND OCTOBER 31, 2011
|
|
|
JULY 31,
|
|
|
OCT. 31,
|
|
|
|
2012
|
|
|
2011
|
|
ASSETS:
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
$
|
195,193
|
|
$
|
35,514
|
|
RESTRICTED CASH TRANSIT INSURANCE
|
|
37,689
|
|
|
35,484
|
|
ACCOUNTS RECEIVABLE
|
|
131,160
|
|
|
120,300
|
|
STOCKYARDS INVENTORY
|
|
1,650
|
|
|
20,749
|
|
PREPAID EXPENSES
|
|
25,257
|
|
|
13,948
|
|
TOTAL CURRENT ASSETS
|
|
390,949
|
|
|
225,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
PROPERTY ON OPERATING LEASES, NET OF ACCUMULATED DEPRECIATION
OF $28,584 AND $494,599 AT JULY 31, 2012 AND OCTOBER 31,
2011,
RESPECTIVELY
|
|
1,163,891
|
|
|
1,668,008
|
|
|
|
|
|
|
|
|
PROPERTY
USED IN STOCKYARD OPERATIONS, NET OF
ACCUMULATED
DEPRECIATION
OF $226,657 AND $212,257 AT JULY 31, 2012 AND
OCTOBER 31, 2011, RESPECTIVELY
|
|
1,057,867
|
|
|
1,072,267
|
|
|
|
|
|
|
|
|
PROPERTY HELD FOR DEVELOPMENT OR RESALE
|
|
52,250
|
|
|
52,250
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
RESTRICTED CASH LETTER OF CREDIT
|
|
155,000
|
|
|
140,000
|
|
ART INVENTORY
|
|
10,000
|
|
|
10,000
|
|
|
|
165,000
|
|
|
150,000
|
|
|
$
|
2,829,957
|
|
$
|
3,168,520
|
|
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
JULY 31, 2012 (UNAUDITED) AND OCTOBER 31, 2011
|
|
|
JULY 31,
|
|
|
OCT. 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
$
|
23,459
|
|
$
|
160,370
|
|
LINE OF CREDIT ORDER BUYING
|
|
74,000
|
|
|
106,395
|
|
TRANSIT INSURANCE
|
|
37,689
|
|
|
35,484
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
135,148
|
|
|
302,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
LONG-TERM DEBT, RELATED PARTY
|
|
564,000
|
|
|
847,000
|
|
LONG-TERM PENSION LIABILITY
|
|
630,761
|
|
|
812,820
|
|
SALARIES AND INTEREST PAYABLE OFFICERS
|
|
41,233
|
|
|
458,700
|
|
REAL ESTATE TAXES PAYABLE
|
|
66,617
|
|
|
56,200
|
|
|
|
|
|
|
|
|
TOTAL
NON-CURRENT LIABILITIES
|
|
1,302,611
|
|
|
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 JULY
31,
2012
AND OCTOBER 31, 2011, RESPECTIVELY
AND
AGGREGATE
LIQUIDATION PREFERENCE OF $10
PER
SHARE
FOR $ 91,026,550 AT JULY 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 JULY 31, 2012 AND OCTOBER
31,
2011,
RESPECTIVELY
|
|
53,138
|
|
|
53,138
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
25,526,721
|
|
|
25,526,721
|
|
|
|
|
|
|
|
|
ACCUMULATED DEFICIT
|
|
(11,437,017
|
)
|
|
(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
|
|
(1,838,126
|
)
|
|
(1,919,126
|
)
|
|
|
|
|
|
|
|
|
|
1,392,198
|
|
|
691,551
|
|
|
|
|
|
|
|
|
|
$
|
2,829,957
|
|
$
|
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 NINE MONTHS ENDED JULY 31, 2012 AND 2011
|
(UNAUDITED)
|
|
|
2012
|
|
|
2011
|
|
REAL ESTATE OPERATIONS:
|
|
|
|
|
|
|
REAL ESTATE REVENUES:
|
|
|
|
|
|
|
SALE OF REAL ESTATE
|
|
1,690,600
|
|
|
0
|
|
OUTSIDE REAL
ESTATE RENT
|
|
178,306
|
|
|
202,732
|
|
|
|
1,868,906
|
|
|
202,732
|
|
REAL ESTATE EXPENSES:
|
|
|
|
|
|
|
COST OF REAL ESTATE SOLD
|
|
553,250
|
|
|
0
|
|
LABOR, OPERATING
AND MAINTENANCE
|
|
7,837
|
|
|
7,034
|
|
DEPRECIATION AND AMORTIZATION
|
|
14,950
|
|
|
16,650
|
|
TAXES OTHER THAN
INCOME TAXES
|
|
11,250
|
|
|
11,250
|
|
GENERAL AND ADMINISTRATIVE
|
|
7,650
|
|
|
7,650
|
|
|
|
594,937
|
|
|
42,584
|
|
INCOME FROM REAL ESTATE OPERATIONS
|
|
1,273,969
|
|
|
160,148
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSE
|
|
(793,053
|
)
|
|
(619,510
|
)
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
480,916
|
|
|
(459,362
|
)
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
INTEREST & OTHER INCOME
|
|
6,344
|
|
|
322
|
|
INTEREST EXPENSE
|
|
(64,354
|
)
|
|
(63,525
|
)
|
ART SALES AND OPERATIONS
|
|
0
|
|
|
0
|
|
|
|
(58,010
|
)
|
|
(63,203
|
)
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES
|
|
422,906
|
|
|
(522,565
|
)
|
PROVISION FOR INCOME TAXES
|
|
0
|
|
|
0
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
422,906
|
|
|
(522,565
|
)
|
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, 2012 AND 2011
|
Continued
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
DISCONTINUED STOCKYARD OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD REVENUES:
|
|
|
|
|
|
|
YARD HANDLING AND
AUCTION
|
$
|
1,354,929
|
|
$
|
1,255,424
|
|
FEED AND BEDDING INCOME
|
|
93,051
|
|
|
83,224
|
|
RENTAL & OTHER
INCOME
|
|
131,179
|
|
|
92,629
|
|
|
|
1,579,159
|
|
|
1,431,277
|
|
|
|
|
|
|
|
|
STOCKYARD EXPENSES:
|
|
|
|
|
|
|
LABOR AND RELATED
COSTS
|
|
592,310
|
|
|
562,070
|
|
OTHER OPERATING AND MAINTENANCE
|
|
371,629
|
|
|
332,280
|
|
FEED AND BEDDING
EXPENSE
|
|
81,885
|
|
|
66,311
|
|
DEPRECIATION AND AMORTIZATION
|
|
14,400
|
|
|
15,300
|
|
TAXES OTHER THAN
INCOME TAXES
|
|
57,126
|
|
|
56,909
|
|
GENERAL AND ADMINISTRATIVE
|
|
265,068
|
|
|
246,315
|
|
|
|
1,382,418
|
|
|
1,279,185
|
|
|
|
|
|
|
|
|
INCOME FROM DISCONTINUED STKY OPERATIONS
|
|
196,741
|
|
|
152,092
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
619,647
|
|
|
(370,473
|
)
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINIMUM PENSION LIABILITY ADJUSTMENT
|
|
81,000
|
|
|
81,000
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
$
|
700,647
|
|
$
|
(289,473
|
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED
|
$
|
0.14
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
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 OPERATIONS
|
AND COMPREHENSIVE INCOME (LOSS)
|
FOR THE THREE MONTHS ENDED JULY 31, 2012 AND 2011
|
(UNAUDITED)
|
|
|
2012
|
|
|
2011
|
|
REAL ESTATE OPERATIONS:
|
|
|
|
|
|
|
REAL ESTATE REVENUES:
|
|
|
|
|
|
|
SALE OF REAL ESTATE
|
|
838,600
|
|
|
0
|
|
OUTSIDE REAL
ESTATE RENT
|
|
45,261
|
|
|
66,244
|
|
|
|
883,861
|
|
|
66,244
|
|
REAL ESTATE EXPENSES:
|
|
|
|
|
|
|
COST OF REAL ESTATE SOLD
|
|
47,429
|
|
|
0
|
|
LABOR, OPERATING
AND MAINTENANCE
|
|
3,009
|
|
|
2,500
|
|
DEPRECIATION AND AMORTIZATION
|
|
3,850
|
|
|
5,550
|
|
TAXES OTHER THAN
INCOME TAXES
|
|
3,750
|
|
|
3,750
|
|
GENERAL AND ADMINISTRATIVE
|
|
2,550
|
|
|
2,550
|
|
|
|
60,588
|
|
|
14,350
|
|
INCOME FROM REAL ESTATE OPERATIONS
|
|
823,273
|
|
|
51,894
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSE
|
|
(305,079
|
)
|
|
(205,483
|
)
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
518,194
|
|
|
(153,589
|
)
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
INTEREST & OTHER INCOME
|
|
6,072
|
|
|
53
|
|
INTEREST EXPENSE
|
|
(19,725
|
)
|
|
(21,175
|
)
|
ART SALES AND OPERATIONS
|
|
0
|
|
|
0
|
|
|
|
(13,653
|
)
|
|
(21,122
|
)
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES
|
|
504,541
|
|
|
(174,711
|
)
|
PROVISION FOR INCOME TAXES
|
|
0
|
|
|
0
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
504,541
|
|
|
(174,711
|
)
|
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, 2012 AND 2011
|
Continued
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
DISCONTINUED STOCKYARD OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKYARD REVENUES:
|
|
|
|
|
|
|
YARD HANDLING AND
AUCTION
|
$
|
259,238
|
|
$
|
216,003
|
|
FEED AND BEDDING INCOME
|
|
23,264
|
|
|
16,161
|
|
RENTAL & OTHER
INCOME
|
|
48,416
|
|
|
27,471
|
|
|
|
330,918
|
|
|
259,635
|
|
|
|
|
|
|
|
|
STOCKYARD EXPENSES:
|
|
|
|
|
|
|
LABOR AND RELATED
COSTS
|
|
167,109
|
|
|
150,917
|
|
OTHER OPERATING AND MAINTENANCE
|
|
104,793
|
|
|
92,598
|
|
FEED AND BEDDING
EXPENSE
|
|
16,393
|
|
|
16,197
|
|
DEPRECIATION AND AMORTIZATION
|
|
4,800
|
|
|
5,100
|
|
TAXES OTHER THAN
INCOME TAXES
|
|
16,173
|
|
|
16,513
|
|
GENERAL AND ADMINISTRATIVE
|
|
55,657
|
|
|
45,131
|
|
|
|
364,925
|
|
|
326,456
|
|
|
|
|
|
|
|
|
INCOME FROM DISCONTINUED STKY OPERATIONS
|
|
(34,007
|
)
|
|
(66,821
|
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
470,534
|
|
|
(241,532
|
)
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINIMUM PENSION LIABILITY ADJUSTMENT
|
|
27,000
|
|
|
27,000
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
$
|
497,534
|
|
$
|
(214,532
|
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED
|
$
|
0.11
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
WEIGHTED 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, 2012 AND 2011
|
(UNAUDITED)
|
|
|
JULY
2012
|
|
|
JULY
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
619,647
|
|
$
|
(370,473
|
)
|
|
|
|
|
|
|
|
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION
|
|
29,350
|
|
|
31,950
|
|
GAIN ON SALES OF REAL
ESTATE
|
|
(1,137,350
|
)
|
|
0
|
|
MINIMUM
PENSION LIABILITY ADJUSTMENT
|
|
81,000
|
|
|
81,000
|
|
|
|
|
|
|
|
|
DECREASE (INCREASE) IN OPERATING ASSETS
|
|
|
|
|
|
|
ACCOUNTS RECEIVABLE
|
|
(10,860
|
)
|
|
67,095
|
|
STOCKYARDS INVENTORY
|
|
19,099
|
|
|
13,348
|
|
PREPAID EXPENSES
|
|
(11,309
|
)
|
|
(17,181
|
)
|
RESTRICTED CASH LETTER OF CREDIT
|
|
(15,000
|
)
|
|
0
|
|
RESTRICTED CASH TRANSIT
INSURANCE
|
|
(2,205
|
)
|
|
(14,700
|
)
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN OPERATING LIABILITIES:
|
|
|
|
|
|
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
|
(136,911
|
)
|
|
(57,736
|
)
|
LINE OF CREDIT ORDER
BUYING
|
|
(32,395
|
)
|
|
(154,000
|
)
|
PENSION
PLAN PAYABLE
|
|
(182,059
|
)
|
|
(154,846
|
)
|
SALARIES AND INTEREST
PAYABLE - OFFICERS
|
|
(417,467
|
)
|
|
169,025
|
|
REAL
ESTATE TAXES PAYABLE
|
|
10,417
|
|
|
10,639
|
|
TRANSIT INSURANCE
|
|
2,205
|
|
|
14,700
|
|
|
|
|
|
|
|
|
TOTAL ADJUSTMENTS
|
|
(1,803,485
|
)
|
|
(10,706
|
)
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
|
(1,183,838
|
)
|
|
(381,179
|
)
|
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, 2012 AND 2011
|
Continued
|
|
|
JULY
2012
|
|
|
JULY
2011
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCEEDS FROM SALES OF
REAL ESTATE
|
|
1,690,600
|
|
|
0
|
|
COSTS RELATING TO SALES OF REAL ESTATE
|
|
(64,083
|
)
|
|
0
|
|
CAPITAL EXPENDITURES
|
|
0
|
|
|
(50,710
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY INVESTING ACTIVITIES
|
|
1,626,517
|
|
|
(50,710
|
)
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY (USED) IN FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROCEEDS
FROM LONG-TERM DEBT OBLIGATION
|
|
0
|
|
|
0
|
|
REPAYMENT OF LONG-TERM
DEBT OBLIGATION
|
|
(283,000
|
)
|
|
0
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
|
(283,000
|
)
|
|
0
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
159,679
|
|
|
(431,889
|
)
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR
|
|
35,514
|
|
|
510,361
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
195,193
|
|
$
|
78,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JULY 31,
|
|
|
|
2012
|
|
|
2011
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID DURING THE YEAR FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
|
$
|
64,354
|
|
$
|
63,525
|
|
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,
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.
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.
13
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 At July
31, 2012 Canal's real estate properties are located in Sioux City, Iowa, St
Joseph, Missouri and Omaha, Nebraska. The properties consist, for the most part
of land and structures leased to third parties (a rail car repair shop) 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.
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. 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 for $839,000
generating a gain of $791,000.
Stockyard Operations At July
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.
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.
14
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 July 31, 2012 and the results of its
operations and its cash flows for the nine month period ended July 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.
15
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, 2012, the
balance due under these notes was 564,000, all of which is classified as
long-term debt-related party. Canal has incurred interest expense on these notes
of approximately $64,000 and $64,000 for the nine month periods ended July 31,
2012 and 2011, respectively. Accrued interest of $41,200 and $84,700 is included
in salaries and interest payable-officers at July 31, 2012 and October 31, 2011,
respectively.
At July 31, 2012, substantially
all of Canal's real properties, the stock of certain subsidiaries, the
investments and a substantial portion of its art inventories are pledged as
collateral for the following obligations:
|
|
July 31,
|
|
|
October 31,
|
|
($ 000's Omitted)
|
|
2012
|
|
|
2011
|
|
Variable rate mortgage notes due May 15,
2015 - related party
|
$
|
564
|
|
$
|
847
|
|
Less -- current maturities
|
|
0
|
|
|
0
|
|
Long-term debt
|
$
|
564
|
|
$
|
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 $74,000 and $106,000 at July 31, 2012 and October 31, 2011,
respectively.
16
Letter of Credit - This is a
$155,000 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
$38,000 and $35,000 at July 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.
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, 2012.
Antiquities art valued at $10,000
represented 100% of total art inventory at both July 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 July 31, 2012 the valuation allowance is approximately
$466,000.
17
At July 31, 2012, the Company has
net operating loss carry forwards of approximately $8,213,000 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.
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, 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 July 31, 2012 is as follows (000's
omitted):
|
|
|
|
|
|
|
|
Current Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Retirements)
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
|
Additions
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Bldgs. &
|
|
|
|
|
|
Bldgs. &
|
|
|
Accum.
|
|
|
Value
|
|
Description (1)
|
|
Land
|
|
|
Imprvmts.
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Depr.
|
|
|
07/31/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 acres of land in St. Joseph, MO Acquired
in 1942
|
$
|
902
|
|
$
|
384
|
|
$
|
0
|
|
$
|
0
|
|
$
|
(228
|
)
|
$
|
1,058
|
|
Substantially all of Canals real
property is pledged as collateral for its related party debt obligations.
18
12.
|
PROPERTY ON OPERATING LEASES
|
A schedule of the Companys
property on operating leases at July 31, 2012 is as follows (000's omitted):
|
|
|
|
|
Current Year
|
|
|
|
|
|
|
|
|
|
|
|
|
(Retirements
|
|
|
|
|
|
|
|
|
|
Historical
Cost
|
|
|
Additions
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Bldgs. &
|
|
|
|
|
|
Bldgs. &
|
|
|
Accum.
|
|
|
Value
|
|
Description (1)
|
|
Land
|
|
|
Imprvmts.
|
|
|
Land
|
|
|
Imprvmts.
|
|
|
Depr.
|
|
|
07/31/12
|
|
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
|
|
|
(21
|
)
|
|
1,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 acres of land in S. St. Paul, MN Acquired
in 1937
|
|
10
|
|
|
485
|
|
|
(10
|
)
|
|
(485
|
)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 acres of land in Sioux City, IA Acquired
in 1937
|
|
475
|
|
|
0
|
|
|
(475
|
)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,635
|
|
$
|
520
|
|
$
|
(485
|
)
|
$
|
(485
|
)
|
$
|
(21
|
)
|
$
|
1,164
|
|
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 July 31, 2012 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.
19
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:
|
|
Nine Months Ended
|
|
|
|
7/31/12
|
|
|
7/31/11
|
|
|
|
|
|
|
|
|
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, 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, all of which wad contributed to the
pension plan as of July 31,2012.
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, 2012 and 2011.
20
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 July 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.
21
17.
|
RELATED PARTY TRANSACTIONS
|
At July 31, 2012, all of Canals
Long-Term Debt was held by the companys 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 approximately $64,000 and $64,000
for the nine month periods ended July 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 July 31, 2012, the balance due under these notes was $564,000 all of which is
classified as long-term debt related party. Accrued interest of $41,200 and
$84,700 is included in salaries and interest payable-officers at April 30, 2012
and October 31, 2011, respectively.
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.
22
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.
23
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, 2012, Canal's real
estate properties were located in Sioux City, Iowa, St Joseph, Missouri and
Omaha, Nebraska. The properties consisted, for the most part, of land and
structures leased to third parties (a rail car repair facility) 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. Accordingly, 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.
24
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,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands)
|
|
Revenues:
|
|
|
|
|
|
|
Real Estate Revenue
|
$
|
1,869
|
|
$
|
203
|
|
Stockyard Revenue
|
|
1,579
|
|
|
1,431
|
|
Total Revenue
|
|
3,448
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Expenses
|
|
595
|
|
|
43
|
|
Stockyard Expenses
|
|
1,382
|
|
|
1,279
|
|
General and Administrative Expenses
|
|
793
|
|
|
619
|
|
Total Costs and Expenses
|
|
2,770
|
|
|
1,941
|
|
|
|
|
|
|
|
|
(Loss) Income from Operations
|
|
678
|
|
|
(307
|
)
|
Other Income
|
|
6
|
|
|
0
|
|
Interest Expense
|
|
(64
|
)
|
|
(63
|
)
|
Other Expenses
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
$
|
620
|
|
$
|
(370
|
)
|
25
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, 2012 increased by $1,814,000
to $3,448,000 as compared with $1,634,000 for the same period in fiscal 2011.
The fiscal 2012 increase in revenues was due primarily to the $1,691,000
increase in sale of real estate in the first nine months of fiscal 2012.
Revenues for the three month
period ended July 31, 2012 increased by $889,000 to $1,215,000 as compared with
$326,000 for the same period in fiscal 2011. The fiscal 2012 increase in
revenues was due primarily to the $839,000 increase in sale of real estate in
the third quarter of fiscal 2012.
Real Estate Revenues: Real estate
revenues for the nine months ended July 31, 2012 of $1,869,000 accounted for
54.2% of the fiscal 2012 revenues as compared to real estate revenues of
$203,000 or 12.4% for the same period in fiscal 2011. Real estate revenues were
comprised of sale of real estate (90.5% and 0.0%) and rentals and other lease
income from the rental of vacant land and certain structures (9.5% and 100.0%)
for the nine months ended July 31, 2012 and 2011, respectively. The percentage
variations in the year to year comparisons were due primarily to the sharp
increase in sale of real estate in the first nine months of fiscal 2012.
Real estate revenues for the
three months ended July 31, 2012 of $884,000 accounted for 72.8% of the fiscal
2012 revenues as compared to real estate revenues of $66,000 or 20.3% for the
same period in fiscal 2011. Real estate revenues were comprised of sale of real
estate (94.9% and 0.0%) and rentals and other lease income from the rental of
vacant land and certain structures (5.1% and 100.0%) for the three months ended
July 31, 2012 and 2011, respectively. The percentage variations in the year to
year comparisons were due primarily to the sharp increase in sale of real estate
in the third quarter of fiscal 2012.
Stockyard Revenues: Stockyard
revenues for the nine months ended July 31, 2012 of $1,579,000 accounted for
45.8% of the fiscal 2012 revenues as compared to stockyard revenues of
$1,431,000 or 87.6% 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 nine months of fiscal 2012.
Stockyard revenues were comprised of yard handling and auction (85.8% and
87.7%), feed and bedding income (5.9% and 5.8%) and rental and other income
(8.3% and 6.5%) for the nine month periods ended July 31, 2012 and 2011,
respectively. There were no significant percentage variations in the year to
year comparisons.
Stockyard revenues for the three
months ended July 31, 2012 of $331,000 accounted for 27.2% of the fiscal 2012
revenues as compared to stockyard revenues of $260,000 or 79.7% 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 third quarter of fiscal 2012. Stockyard revenues were comprised of
yard handling and auction (78.3% and 83.2%), feed and bedding income (7.0% and
6.2%) and rental and other income (14.7% and 10.6%) for the three month periods
ended July 31, 2012 and 2011, respectively. There were no significant percentage
variations in the year to year comparisons.
26
Art Revenues: Canal had no art
sales in the nine month periods ended July 31, 2012 or 2011. Art revenues, if
any, were comprised of the proceeds from the sale of antiquities art. Canal had
no art expenses for the nine month periods ended July 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.
Canal had no art sales in the
three month periods ended July 31, 2012 or 2011. Art revenues, if any, were
comprised of the proceeds from the sale of antiquities art. Canal had no art
expenses for the three month periods ended July 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 for the nine months ended July 31, 2012 of $595,000 increased by
$552,000 from real estate expenses of $43,000 for the same period in fiscal
2011. The increase in real estate expenses was consistent with the 2012 increase
in real estate revenues. Real estate expenses were comprised of the cost of real
estate sold (93.0% and 0.0%), labor, operating and maintenance (1.3% and 16.5%),
depreciation and amortization (2.5% and 39.1%), taxes other than income taxes
(1.9% and 26.4%) and general and administrative expenses (1.3% and 18.0%) for
the nine months ended July 31, 2012 and 2011, respectively. The percentage
variations in the year to year comparisons were due primarily to the sharp
increase in cost of real estate sold in the first nine months of fiscal
2012.
Real estate expenses for the
three months ended July 31, 2012 of $61,000 increased by $47,000 from real
estate expenses of $14,000 for the same period in fiscal 2011. The increase in
real estate expenses was consistent with the 2012 increase in real estate
revenues. Real estate expenses were comprised of the cost of real estate sold
(78.3% and 0.0%), labor, operating and maintenance (5.0% and 17.4%),
depreciation and amortization (6.4% and 38.7%), taxes other than income taxes
(6.2% and 26.1%) and general and administrative expenses (4.1% and 17.8%) for
the three months ended July 31, 2012 and 2011, respectively. The percentage
variations in the year to year comparisons were due primarily to the sharp
increase in cost of real estate sold in the third quarter of fiscal 2012.
Stockyard Expenses: Stockyard
expenses for the nine months ended July 31, 2012 of $1,382,000 increased by
$103,000 (8.1%) from stockyard expenses of $1,279,000 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 (42.9% and 43.9%), other operating and maintenance (26.9% and
26.0%), feed and bedding expense (5.9% and 5.2%), depreciation and amortization
(1.0% and 1.2%), taxes other than income taxes (4.1% and 4.4%) and general and
administrative expense (19.2% and 19.3%) for the nine month periods ended July
31, 2012 and 2011, respectively. There were no significant percentage variations
in the year to year comparisons.
Stockyard expenses for the three
months ended July 31, 2012 of $365,000 increased by $38,000 (11.8%) from
stockyard expenses of $326,000 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 (45.8%
and 46.2%), other operating and maintenance (28.7% and 28.4%), feed and bedding
expense (4.5% and 5.0%), depreciation and amortization (1.3% and 1.6%), taxes
other than income taxes (4.4% and 5.1%) and general and administrative expense
(15.3% and 13.7%) for the three month periods ended July 31, 2012 and 2011,
respectively. There were no significant percentage variations in the year to
year comparisons.
27
General and Administrative
General and administrative
expenses for the nine months ended July 31, 2012 of $793,000 increased by
$174,000 (28.0%) as compared to $619,000 for the same period in fiscal 2011. The
major components of general and administrative expenses were officers salaries
(46.0% and 57.4%), pension expense (10.2% and 13.1%), insurance expense (14.9%
and 6.7%), administrative salaries (9.0% and 11.4%), travel expense (3.0% and
2.2%) and professional fees (8.3% and 1.7%) for the nine month periods ended
July 31, 2012 and 2011, respectively. The significant percentage variations in
the year to year comparisons were due primarily to the sharp increases in both
insurance expense and professional fees in the first nine months of fiscal
2012.
General and administrative
expenses for the three months ended July 31, 2012 of $305,000 increased by
$100,000 (48.5%) as compared to $205,000 for the same period in fiscal 2011. The
major components of general and administrative expenses were officers salaries
(39.8% and 58.4%), pension expense (8.6% and 13.3%), insurance expense (18.3%
and 6.8%), administrative salaries (7.7% and 11.6%), travel expense (3.0% and
2.2%) and professional fees (14.0% and 1.5%) for the three month periods ended
July 31, 2012 and 2011, respectively. The significant percentage variations in
the year to year comparisons were due primarily to the sharp increases in both
insurance expense and professional fees in the third quarter of fiscal 2012.
Interest Expense
Interest expense for the nine
months ended July 31, 2012 of $64,000 was unchanged from the same period in
fiscal 2011. The principal balance outstanding at July 31, 2012 of $564,000 was
classified as long-term debt-related party.
Interest expense for the three
months ended July 31, 2012 of $20,000 decreased by $1,000 (6.8%) from $21,000
for the same period in fiscal 2011. The principal balance outstanding at July
31, 2012 of $564,000 was classified as long-term debt-related party.
Net (Loss) Income
Canal recognized net income of
approximately $620,000 in the nine month period ended July 31, 2012 as compared
to a net loss of approximately $370,000 for the same period in fiscal 2011.
Included in the 2012 results were sales of real estate of approximately
$1,169,000 which generated gains of approximately $1,137,000.
Canal recognized net income of
approximately $471,000 in the three month period ended July 31, 2012 as compared
to a net loss of approximately $242,000 for the same period in fiscal 2011.
Included in the 2012 results were sales of real estate of approximately $839,000
which generated gains of approximately $791,000.
28
Liquidity and Capital Resources
Cash and cash equivalents
increased approximately $159,000, from $36,000 at October 31, 2011, to $195,000
at July 31, 2012. At July 31, 2012 the Companys current assets exceeded current
liabilities by approximately $256,000, as compared to October 31, 2011 when the
Companys current liabilities exceeded current assets by approximately $76,000.
Net cash used in operating
activities for the nine months ended July 31, 2012 were $1,184,000, as compared
to $381,000 for the same period in fiscal 2011, for a net increase of $803,000.
During fiscal 2012 the Company repaid $283,000 of its outstanding mortgage notes
and reduced other liabilities by $756,000. 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. The
Companys only remaining real estate property is a rental property located in
Omaha, Nebraska.
Obligations under Material Contracts
At July 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 $64,000 in both
the nine month periods ended July 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 July 31, 2012, the balance
due under these notes was $564,000 all of which was classified as long-term debt
due to related party. Accrued interest of $41,200 and $84,700 is included in
salaries and interest payable-officers at April 30, 2012 and October 31, 2011,
respectively. As of the filing of this report, the balance due under these notes
was $400,000.
29
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.
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.
30
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,
2012, we did not have any off-balance sheet arrangements.
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
Not Applicable
31
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, 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 nine months ended July 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 nine
months ended July 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 nine month period ended
July 31, 2012 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
32
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 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 July 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.
33
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 our
first quarter ended January 31, 2012, but was not reported.
The following exhibits are filed as part of this report or
incorporated by reference:
*
Filed with this Form 10-Q for Canal Capital
Corporation. Pursuant to Rule 406T of Regulation S-T, the interactive data files
on Exhibit 101 hereto are deemed not filed or part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933,
as amended, or for purposes of Section 18 of the Securities Act of 1934, as
amended, and otherwise are not subject to liability under those sections.
34
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: November 28, 2012
|
CANAL CAPITAL CORPORATION
|
|
|
|
|
|
|
|
By:
|
/S/
Michael E. Schultz
|
|
|
Michael E. Schultz
|
|
|
President and Chief
|
|
|
Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
By:
|
/S/
Reginald Schauder
|
|
|
Reginald Schauder
|
|
|
Vice President-Finance,
|
|
|
Secretary and Treasurer
|
|
|
(Principal Financial and
|
|
|
Accounting Officer)
|
35
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