10-Q/A 1 form10qa0410.htm FORM 10-Q/A Canal Capital Corporation: Form 10-Q/A - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2010

[_] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

002-96666
(Commission File Number)

CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 51-0102492
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)  

4 Morris Street
Port Jefferson Station, New York 11776
United States of America
(Address of principal executive offices)

(631) 234-0140
(Registrant's telephone number, including area code)

N/A
(Former name, address and former fiscal year, if changed since last report)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [_]       No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [_]        No [_]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [_]        No [X]

State the number of shares outstanding of each of the Issuers classes of common equity, as of the latest practicable date:

Common Stock, $.01 par value per share: 4,326,929 outstanding at October 15, 2012.


EXPLANATORY NOTE

The purpose of this Quarterly Report on Form 10-Q for the period ended April 30, 2010 (the “10-Q”), is to provide financial statements of Canal Capital Corporation (the “Company”) that have been reviewed by the Company’s independent public accounting firm that were not provided by the Company in its original filing of the 10-Q on June 15, 2010. Where indicated, the financial data presented in the 10-Q is as at April 30, 2010, however, the other disclosures have been updated to reflect the Company’s 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. MANAGEMENT’S 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) – April 30, 2010 and October 31, 2009

5

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)(Unaudited) for the Six and Three Month Periods ended April 30, 2010 and 2009

7

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Month Periods ended April 30, 2010 and 2009

11

 

 

Notes to Unaudited Consolidated Financial Statements

13

4



CANAL CAPITAL CORPORATION & SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
APRIL 30, 2010 (UNAUDITED) AND OCTOBER 31, 2009

 

  APRIL 30,     OCTOBER 31,  

 

  2010     2009  

ASSETS:

           

     CURRENT ASSETS:

           

     CASH AND CASH EQUIVALENTS

$  118,331   $  154,624  

     RESTRICTED CASH – TRANSIT INSURANCE

  50,240     30,690  

     ACCOUNTS RECEIVABLE

  292,642     106,425  

     STOCKYARDS INVENTORY

  22,428     16,586  

     PREPAID EXPENSES

  41,501     16,965  

          TOTAL CURRENT ASSETS

  525,142     325,290  

 

           

 

           

NON-CURRENT ASSETS:

           

     PROPERTY ON OPERATING LEASES, NET OF ACCUMULATED DEPRECIATION OF $461,299 AND $450,199 AT APRIL 30, 2010 AND OCTOBER 31, 2009, RESPECTIVELY

  1,687,507     1,358,607  

 

           

     PROPERTY USED IN STOCKYARD OPERATIONS, NET OF ACCUMULATED DEPRECIATION OF $185,121 AND $178,386 AT APRIL 30, 2010 AND OCTOBER 31, 2009, RESPECTIVELY

  981,587     988,322  

 

           

     PROPERTY HELD FOR DEVELOPMENT OR RESALE

  272,525     272,525  

 

           

OTHER ASSETS:

           

     RESTRICTED CASH – LETTER OF CREDIT

  140,000     130,000  

     ART INVENTORY

  100,000     100,000  

 

  240,000     230,000  

 

$  3,706,761   $  3,174,744  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

5



CANAL CAPITAL CORPORATION & SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
APRIL 30, 2010 (UNAUDITED) AND OCTOBER 31, 2009

 

  APRIL 30,     OCTOBER 31,  

 

  2010     2009  

 

           

LIABILITIES & STOCKHOLDERS' EQUITY:

           

 

           

CURRENT LIABILITIES:

           

     ACCOUNTS PAYABLE AND ACCRUED EXPENSES

$  111,519   $  181,274  

     LINE OF CREDIT – ORDER BUYING

  187,000     62,000  

     TRANSIT INSURANCE

  50,240     30,690  

 

           

          TOTAL CURRENT LIABILITIES

  348,759     273,964  

 

           

 

           

NON-CURRENT LIABILITIES:

           

     LONG-TERM DEBT, RELATED PARTY

  1,332,000     992,000  

     LONG-TERM PENSION LIABILITY

  796,672     796,672  

     SALARIES AND INTEREST PAYABLE – OFFICERS

  223,700     0  

     REAL ESTATE TAXES PAYABLE

  179,486     222,791  

 

           

          TOTAL NON-CURRENT LIABILITIES

  2,531,858     2,011,463  

 

           

 

           

COMMITMENTS AND CONTINGENCIES

           

 

           

STOCKHOLDERS' EQUITY:

           

 

           

     PREFERRED STOCK, $0.01 PAR VALUE: 10,000,000 SHARES AUTHORIZED; 9,102,655 SHARES ISSUED AND OUTSTANDING AT APRIL 30, 2010 AND OCTOBER 31, 2009, RESPECTIVELY AND AGGREGATE LIQUIDATION PREFERENCE OF $10 PER SHARE FOR $ 91,026,550 AT APRIL 30, 2010 AND OCTOBER 31, 2009, 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 APRIL 30, 2010 AND OCTOBER 31, 2009, RESPECTIVELY

  53,138     53,138  

 

           

     ADDITIONAL PAID-IN CAPITAL

  25,526,721     25,526,721  

 

           

     ACCUMULATED DEFICIT

  (11,979,212 )   (11,862,039 )

 

           

     986,865 SHARES OF COMMON STOCK HELD IN TREASURY, AT COST

  (11,003,545 )   (11,003,545 )

 

           

     COMPREHENSIVE INCOME:

           

          PENSION VALUATION RESERVE

  (1,861,985 )   (1,915,985 )

 

           

 

  826,144     889,317  

 

           

 

$  3,706,761   $  3,174,744  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

6



CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED APRIL 30, 2010 AND 2009
(UNAUDITED)

    2010     2009  
             
REAL ESTATE OPERATIONS:            
             
     REAL ESTATE REVENUES:            
          SALE OF REAL ESTATE   0     262,720  
          OUTSIDE REAL ESTATE RENT   139,814     193,044  
          EXCHANGE BUILDING RENTAL INCOME   7,279     15,387  
    147,093     471,151  
             
REAL ESTATE EXPENSES:            
          COST OF REAL ESTATE SOLD   0     69,069  
          LABOR, OPERATING AND MAINTENANCE   13,578     29,630  
          DEPRECIATION AND AMORTIZATION   11,100     11,100  
          TAXES OTHER THAN INCOME TAXES   11,000     12,300  
          GENERAL AND ADMINISTRATIVE   9,616     19,800  
    45,294     141,899  
             
INCOME FROM REAL ESTATE OPERATIONS   101,799     329,252  
             
             
STOCKYARD OPERATIONS:            
             
STOCKYARD REVENUES:            
          YARD HANDLING AND AUCTION $  1,076,161   $  1,479,436  
          FEED AND BEDDING INCOME   58,019     115,691  
          RENTAL & OTHER INCOME   180,341     89,675  
    1,314,521     1,684,802  
             
STOCKYARD EXPENSES:            
          LABOR AND RELATED COSTS   464,207     679,897  
          OTHER OPERATING AND MAINTENANCE   274,881     405,622  
          FEED AND BEDDING EXPENSE   50,299     92,148  
          DEPRECIATION AND AMORTIZATION   6,735     9,909  
          TAXES OTHER THAN INCOME TAXES   80,386     90,021  
          GENERAL AND ADMINISTRATIVE   189,482     223,412  
    1,065,990     1,501,009  
             
INCOME FROM STOCKYARD OPERATIONS   248,531     183,793  
             
             
             
GENERAL AND ADMINISTRATIVE EXPENSE   (412,854 )   (449,428 )
             
             
(LOSS) INCOME FROM OPERATIONS   (62,524 )   63,617  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

7



CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED APRIL 30, 2010 AND 2009
Continued ...

 

  2010     2009  

OTHER (EXPENSE) INCOME:

           

     INTEREST & OTHER INCOME

  230     7,779  

     INTEREST EXPENSE

  (54,879 )   (63,100 )

     ART SALES AND OPERATIONS

  0     (2,400 )

 

  (54,649 )   (57,721 )

 

           

(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES

  (117,173 )   5,896  

PROVISION FOR INCOME TAXES

  0     0  

NET (LOSS) INCOME

  (117,173 )   5,896  

 

           

OTHER COMPREHENSIVE (LOSS) INCOME:

           

     MINIMUM PENSION LIABILITY ADJUSTMENT

  54,000     60,000  

COMPREHENSIVE (LOSS) INCOME

$  (63,173 ) $  65,896  

 

           

NET (LOSS) INCOME PER COMMON SHARE BASIC AND DILUTED

$  (0.03 ) $  0.01  

 

           

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 APRIL 30, 2010 AND 2009
(UNAUDITED)

 

  2010     2009  

 

           

REAL ESTATE OPERATIONS:

           

 

           

REAL ESTATE REVENUES:

           

     SALE OF REAL ESTATE

  0     262,720  

     OUTSIDE REAL ESTATE RENT

  67,270     97,045  

     EXCHANGE BUILDING RENTAL INCOME

  3,593     7,674  

 

  70,863     367,439  

 

           

REAL ESTATE EXPENSES:

           

     COST OF REAL ESTATE SOLD

  0     69,069  

     LABOR, OPERATING AND MAINTENANCE

  7,122     14,464  

     DEPRECIATION AND AMORTIZATION

  5,550     5,550  

     TAXES OTHER THAN INCOME TAXES

  5,550     6,150  

     GENERAL AND ADMINISTRATIVE

  4,816     9,900  

 

  23,038     105,133  

 

           

INCOME FROM REAL ESTATE OPERATIONS

  47,825     262,306  

 

           

 

           

STOCKYARD OPERATIONS:

           

 

           

STOCKYARD REVENUES:

           

     YARD HANDLING AND AUCTION

$  581,738   $  763,564  

     FEED AND BEDDING INCOME

  30,319     57,657  

     RENTAL & OTHER INCOME

  44,083     49,066  

 

  656,140     870,287  

 

           

STOCKYARD EXPENSES:

           

     LABOR AND RELATED COSTS

  199,464     329,891  

     OTHER OPERATING AND MAINTENANCE

  134,824     221,753  

     FEED AND BEDDING EXPENSE

  25,450     49,271  

     DEPRECIATION AND AMORTIZATION

  3,367     4,955  

     TAXES OTHER THAN INCOME TAXES

  40,432     45,858  

     GENERAL AND ADMINISTRATIVE

  111,486     123,249  

 

  515,023     774,977  

 

           

INCOME FROM STOCKYARD OPERATIONS

  141,117     95,310  

 

           

 

           

 

           

GENERAL AND ADMINISTRATIVE EXPENSE

  (207,908 )   (224,745 )

 

           

 

           

(LOSS) INCOME FROM OPERATIONS

  (18,966 )   132,871  

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 APRIL 30, 2010 AND 2009
Continued ...

 

  2010     2009  

OTHER (EXPENSE) INCOME:

           

     INTEREST & OTHER INCOME

  104     7,602  

     INTEREST EXPENSE

  (30,049 )   (31,550 )

     ART SALES AND OPERATIONS

  0     (1,200 )

 

  (29,945 )   (25,148 )

 

           

(LOSS) INCOME BEFORE PROVISION FOR

           

     INCOME TAXES

  (48,911 )   107,723  

PROVISION FOR INCOME TAXES

  0     0  

NET (LOSS) INCOME

  (48,911 )   107,723  

 

           

OTHER COMPREHENSIVE (LOSS) INCOME:

           

     MINIMUM PENSION LIABILITY ADJUSTMENT

  27,000     30,000  

COMPREHENSIVE (LOSS) INCOME

$  (21,911 ) $  137,723  

 

           

NET (LOSS) INCOME PER COMMON SHARE BASIC AND DILUTED

$  (0.01 ) $  0.02  

 

           

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 SIX MONTHS ENDED APRIL 30, 2010 AND 2009
(UNAUDITED)

 

  2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES:

           

     NET (LOSS)

$  (117,173 ) $  5,896  

ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:

       

          DEPRECIATION AND AMORTIZATION

  17,835     21,009  

         GAIN ON SALES OF REAL ESTATE

  0     (193,651 )

         MINIMUM PENSION LIABILITY ADJUSTMENT

  54,000     60,000  

 

           

DECREASE (INCREASE) IN ASSETS

           

         ACCOUNTS RECEIVABLE

  (186,217 )   (94,721 )

         STOCKYARDS INVENTORY

  (5,842 )   2,239  

         PREPAID EXPENSES

  (24,536 )   (40,058 )

         RESTRICTED CASH – LETTER OF CREDIT

  (10,000 )   0  

         RESTRICTED CASH – TRANSIT INSURANCE

  (19,550 )   (39,694 )

 

           

INCREASE (DECREASE) IN LIABILITIES:

           

         ACCOUNTS PAYABLE AND ACCRUED EXPENSES

  (69,755 )   24,919  

         LINE OF CREDIT – ORDER BUYING

  125,000     0  

         PENSION PLAN PAYABLE

  0     (45,024 )

         SALARIES AND INTEREST PAYABLE - OFFICERS

  223,700     206,100  

         REAL ESTATE TAXES PAYABLE

  (43,305 )   30,633  

         TRANSIT INSURANCE

  19,550     0  

               TOTAL ADJUSTMENTS

  80,880     (68,248 )

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

  (36,293 )   (62,352 )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

11



CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2010 AND 2009
Continued ...

 

  2010     2009  

 

           

CASH FLOWS FROM INVESTING ACTIVITIES:

           

 

           

     PROCEEDS FROM SALES OF REAL ESTATE

  0     262,720  

     COSTS RELATING TO SALES OF REAL ESTATE

  0     (29,810 )

     CAPITAL EXPENDITURES

  (340,000 )   0  

 

           

NET CASH PROVIDED BY INVESTING ACTIVITIES

  (340,000 )   232,910  

 

           

 

           

 

           

CASH FLOWS PROVIDED BY (USED) IN FINANCING ACTIVITIES:

       

 

           

     PROCEEDS FROM LONG-TERM DEBT OBLIGATION

  340,000     0  

     REPAYMENT OF LONG-TERM DEBT OBLIGATION

  0     0  

 

           

NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES

  340,000     0  

 

           

 

           

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

  (36,293 )   170,558  

 

           

CASH AND CASH EQUIVALENTS AT BEGN OF YEAR

  154,624     21,115  

 

           

 

           

CASH AND CASH EQUIVALENTS AT END OF YEAR

$  118,331   $  191,673  

 

           

 

           

 

  APRIL 30,  

 

  2010     2009  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

       

 

           

CASH PAID DURING THE YEAR FOR:

           

 

           

     INTEREST

$  54,879   $  63,100  

     INCOME TAXES

$  0   $  0  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

12


CANAL CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Canal Capital Corporation ("Canal"), incorporated in the state of Delaware in 1964, commenced business operations through a predecessor in 1936.

Going Concern - While the Company is currently operating as a going concern, certain significant factors raise substantial doubt about the Company's ability to continue as a going concern. The Company has suffered recurring losses from operations and is obligated to continue making substantial annual contributions to its defined benefit pension plan. The financial statements do not include any adjustments that might result from the resolution of these uncertainties. Additionally, the accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Canal’s cash flow position has been under significant strain under the past several years. Canal continues to closely monitor and reduce where possible its operating expenses and plans to continue its program to develop or sell the property it holds for development or resale as well as to reduce the level of its antiquities art inventories to enhance current cash flows. Management is unsure if its income from operations combined with its cost cutting program and planned reduction of its antiquities art inventory will enable it to finance its future business activities. There can be no assurance that Canal will be able to effectuate its planned antiquities art inventory reductions or that its income from operations combined with its cost cutting program in itself will be sufficient to fund operating cash requirements. Canal may, as it has in the past, be forced to sell incoming producing assets to raise needed cash, thereby, further adversely impacting future revenues. As of the date of this report Canal had previously sold its Sioux Falls, South Dakota property (formerly used in stockyard operations); two of its three remaining rental properties and its stockyard operations (30 acres of land and the improvements thereon) located in St. Joseph, Missouri.

13


Canal is engaged in two distinct businesses - real estate and stockyard operations.

Real Estate Operations - Canal's real estate properties are located in Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri, Omaha, Nebraska and Sioux Falls, South Dakota. The properties consist, for the most part, of land and structures leased to third parties (rail car repair shops, lumber yards and various other commercial and retail businesses) as well as vacant land available for development or resale. Its principal real estate operating revenues are derived from lease income from land and structures leased to various commercial and retail enterprises, and proceeds from the sale of real estate properties.

Stockyard Operations - Canal currently operates one central public stockyard located in St. Joseph, Missouri. Canal closed the stockyard it operated in Sioux Falls, South Dakota in December 2009 (collectively the “Stockyards”).

Sioux Falls Stockyard Closure - In December 2009, after extensive efforts to reorganize and return this stockyard to profitability, Canal ceased all stockyard operations at its Sioux Falls, South Dakota location. Canal has listed this property for sale with a local real estate agency. The net value of this property was transferred to property held for development or resale as of October 31, 2009.

Public stockyards act much like a securities exchange, providing markets for all categories of livestock and fulfilling the economic functions of assembly, grading, and price discovery. The livestock handled by the Company’s stockyards include cattle, hogs, and sheep. Cattle and hogs may come through the stockyard facilities at two different stages, either as feeder livestock or slaughter livestock. The Company’s stockyards provide all services and facilities required to operate an independent market for the sale of livestock, including veterinary services facilities, auction arenas, auctioneers, weigh masters and scales, feed and bedding, and security personnel. In addition, the stockyards provide other services including pure bred and other specialty sales for producer organizations. The Company promotes its stockyard business through public relations efforts, advertising, and personal solicitation of producers.

14



2.

RESTATEMENT AND RECLASSIFICATIONS

The Company has restated its previously issued Consolidated Financial Statements to correct the recording of the gain on sale of property and other errors. The Company has also reclassified its recording of past preferred stock dividends as an adjustment to accumulated deficit.

The following tables summarize the corrections on each of the affected financial statement line items for each period presented:

    As Previously     Restatement        
    Reported     Adjusted     As Restated  
Consolidated Balance Sheet                  
                   
   ACCOUNTS RECEIVABLE $  258,919   $  33,723   $  292,642  
   PROPERTY ON OPERATING LEASES   1,402,507     285,000     1,687,507  
                   
   ACCOUNTS PAYABLE & ACCR. EXP.   341,201     (229,682 )   111,519  
   LINE OF CREDIT - ORDER BUYING   0     187,000     187,000  
   TRANSIT INSURANCE   0     50,240     50,240  
   ACCRUED PROFESSIONAL FEES   19,558     (19,558 )   0  
   PREFERRED STOCK DIV. PAYABLE   193,735     (193,735 )   0  
   INCOME TAXES PAYABLE   10,000     (10,000 )   0  
   REAL ESTATE TAXES PAYABLE   98,420     81,066     179,486  
   ADDITIONAL PAID-IN CAPITAL   28,322,341     (2,795,620 )   25,526,721  
   ACCUMULATED DEFICIT   (15,228,224 )   3,249,012     (11,979,212 )

Consd. Stmt. Of Operations

GENERAL & ADMIN. EXPENSE   419,854     (7,000 )   412,854  

15



3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) Earnings (Loss) Per Share -- Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common shares by the weighted average of common shares outstanding during the period. Diluted earnings (loss) per share adjusts basic earnings (loss) per share for the effects of convertible securities, stock options and other potentially dilutive financial instruments, only in the period in which such effect is dilutive. There were no dilutive securities in any of the periods presented herein. The shares issuable upon the exercise of stock options are excluded from the calculation of net income (loss) per share as their effect would be antidilutive.

B) Recent Accounting Pronouncements –- In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements” (“ASU 2010-06"). ASU 2010-06 requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820. The guidance is effective for any fiscal year that begins after December 15, 2010 and should be used for quarterly and annual filings. We do not believe that adoption of ASU 2010-06 will have a significant impact on our financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04"). This update amends ASC Topic 820, “Fair Value Measurement and Disclosure.” ASU 2011-04 clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is effective for annual and interim reporting periods beginning on or after December 15, 2011. The new guidance is to be adopted prospectively and early adoption is not permitted. We do not believe that adoption of ASU 2011-04 will have a significant impact on our financial position, results of operations or cash flows.

On June 16, 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05"). This update amends ASC Topic 220, “Comprehensive Income” to provide that total comprehensive income will be reported in one continuous statement or two separate but consecutive statements of financial performance. Presentation of total comprehensive income in the statement of stockholders’ equity or the footnotes will no longer be allowed. The calculation of net income and basic and diluted net income per share will not be affected. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011. Retrospective adoption is required and early adoption is permitted. We do not believe that adoption of ASU 2011-05 will have a significant impact on our financial position, results of operations or cash flows.

16



4.

INTERIM FINANCIAL STATEMENTS

The interim consolidated financial statements included herein have been prepared by Management, in accordance with accounting principles generally accepted in the United States, and in the opinion of Management, contain all adjustments necessary to present fairly its financial position as of April 30, 2010 and the results of its operations and its cash flows for the six month period ended April 30, 2010. 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, 2009 and the notes thereto which are contained in Canal’s 2009 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 2010.

5.

STOCK OPTION PLAN

Under Canal's 1984 Employee and 1985 Directors Stock Option Plans, $550,000 and 264,000 shares, respectively, of Canal's common stock have been reserved for option grants. The purchase price of shares subject to each option granted, under the Employee and Directors Plans, will not be less than 85% and 100%, respectively, of their fair market value at the date of grant. Options granted under both plans are exercisable for 10 years from the date of grant, but no option will be exercisable earlier than one year from the date of grant. Under the Employee Plan, stock appreciation rights may be granted in connection with stock options, either at the time of grant of the options or at any time thereafter. No stock appreciation rights have been granted under this plan. There were no exercisable options outstanding under either of these plans at April 30, 2010 or 2009.

6.

RESTRICTED CASH

Letter of Credit - This is a $140,000 deposit with Mercantile Bank to secure bonds required by the Packers and Stockyards Administration in relation to the St. Joseph Stockyards clearing operation. This deposit is maintained in an interest bearing account.

Transit Insurance - Transit insurance covers livestock for the period that they are physically at the stockyards and under the care of stockyard personnel. This self insurance program is funded by a per head charge on all livestock received at the stockyard. The restricted cash - transit insurance balances of approximately $50,000 and $31,000 at April 30, 2010 and October 31, 2009, respectively, represents the excess of per head fees charged over actual payments made for livestock that was injured or died while at the stockyards.

17



7.

RELATED PARTY DEBT

The Company’s mortgage notes (originally issued in 1998) are due May 15, 2015 and are held entirely by the Company’s 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 Canal’s 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 April 30, 2010, the balance due under these notes was $1,332,000, all of which is classified as long-term debt-related party. Canal has incurred interest expense on these notes of approximately $55,000 and $63,000 for the six month periods ended April 30, 2010 and 2009, respectively.

At April 30, 2010, 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:

    Apr. 31,     October 31,  
($ 000's Omitted)   2010     2009  
Variable rate mortgage notes due            
     May 15, 2015 - related party $  1,332   $  992  
Less -- current maturities   0     0  
Long-term debt $  1,332   $  992  

The Company has a line of credit with HNB Bank in the amount of $250,000. This credit line is used in the Company’s 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 $187,000 and $62,000 at April 30, 2010 and October 31, 2009, respectively.

8.

ART INVENTORY

Antiquities art valued at $100,000 represented 100% of total art inventory at both April 30, 2010 and October 31, 2009. 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 April 30, 2010 the valuation allowance is approximately $396,000.

18



9.

INCOME TAXES

At April 30, 2010, the Company has net operating loss carry forwards of approximately $11,500,000 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.

10.

LEASE COMMITMENTS

Canal’s 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 April 30, 2010. Accordingly, Canal has no future minimum payments due over the next five years.

11.

MINIMUM FUTURE RENTALS ON OPERATING LEASES

Minimum future rentals consist primarily of rental income from leased land and structures, Exchange Building rents (commercial office space) and other rental activities, all of which are accounted for as operating leases. The estimated minimum future rentals on operating leases are $275,000, $270,000, $210,000, $110,000 and $110,000 for fiscal years 2010, 2011, 2012, 2013 and 2014, respectively.

12.

PROPERTY USED IN STOCKYARD OPERATIONS

A schedule of the Company’s property used in stockyard operations at April 30, 2010 is as follows (000's omitted):

 

        Current Year              

 

        (Retirements)              

 

  Historical Cost     Additions           Carrying  

 

        Bldgs. &           Bldgs. &     Accum.     Value  

Description (1)

  Land     Imprvmts.     Land     Imprvmts.     Depr.     04/30/10  

 

                                   

30 acres of land in St. Joseph, MO Acquired in 1942

$  902   $  265   $  0   $  0   $  (185 ) $  982  

Substantially all of Canal’s real property is pledged as collateral for its related party debt obligations.

19



13.

PROPERTY ON OPERATING LEASES

A schedule of the Company’s property on operating leases at April 30, 2010 is as follows (000's omitted):

 

        Current Year              

 

        (Retirements              

 

  Historical Cost     Additions           Carrying  

 

        Bldgs. &           Bldgs. &     Accum.     Value  

Description (1)

  Land     Imprvmts.     Land     Imprvmts.     Depr.     04/30/10  

New York office Leasehold assets

$  0   $  8   $  0   $  0   $  (8 ) $  0  

 

                                   

9 acres of land in Omaha, NE Acquired in 1976

  1,150     21     0     0     (17 )   1,154  

 

                                   

3 acres of land in S. St. Paul, MN Acquired in 1937

  10     485     0     0     (437 )   58  

 

                                   

4 acres of land in Sioux City, IA Acquired in 1937

  135     0     340     0     0     475  

 

$ 1,295   $  514   $  340   $  0   $  (462 ) $  1,687  

Substantially all of Canal’s real property is pledged as collateral for its related party debt obligations.

14.

PROPERTY HELD FOR DEVELOPMENT OR RESALE

A schedule of the Company’s property held for development or resale at April 30, 2010 is as follows (000's omitted):

Description   Land  
       
02 acres of land Sioux City, IA $  53  
35 acres of land Sioux Falls, SD   220  
  $  273  

Substantially all of Canal’s real property is pledged as collateral for its related party debt obligations.

20



15.

PENSION VALUATION RESERVE

The Pension Valuation Reserve represents the excess of additional minimum pension liability required under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 87 amended by SFAS 158 over the unrecognized prior service costs of former stockyard employees. Such excess arose due to the decline in the market value of pension assets available for pension benefits of former employees, which benefits were frozen at the time the stockyard operations were sold in 1989. The additional minimum pension liability will be expensed as actuarial computations of annual pension cost recognize the deficiency that exists.

The components of net periodic benefit cost are as follows:

    Six Months     Ended  
    4/30/10     4/30/09  
             
Service cost   4,000     4,000  
Interest cost   52,000     52,000  
Expected return on plan assets   (56,000 )   (56,000 )
Amortization of prior service cost   0     0  
Recognized net actuarial loss   60,000     60,000  
Net periodic benefit cost   60,000     60,000  

For the six months ended April 30, 2010, amounts have been estimated, actual amounts will be based on the discount rate and assets available at year end.

The Company’s required contribution to its pension plan for fiscal 2010 is approximately $59,000. No contribution has been made to date. However, the Company expects to make the full required contribution before the end of the fiscal year.

16.

401(k) PLAN

The Company has a defined contribution 401(k) plan covering substantially all of its full time stockyard employees. The plan provides for employee contributions and 401(k) matching contributions of up to 2 ½% of the employee’s annual salary by the Company. The Company made 401(k) matching contributions of approximately $5,000 and $10,000 for each of the six month periods ended April 30, 2010 and 2009.

21



17.

LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Environmental Protection Agency

In 1989, the Company sold its 48 acre Portland, Oregon stockyard to Oregon Waste Systems, Inc. On September 29, 2003, the United States Environmental Agency (EPA) placed a 4.2 acre portion of that property on the National Priorities List pursuant to the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), commonly known as the Superfund Act. In a letter from the EPA dated June 27, 2005 the Company, along with approximately 13 other parties, including the current owner and operator of the site, was notified that it might be liable to perform or pay for the remediation of environmental contamination found on and around the site.

Since the receipt of the letter, the Company has been in periodic communications with the other parties who received a similar letter with respect to what action, collectively or individually, should be taken in response to the EPA assertion of liability. The Company believes that the remediation of contamination of the site is properly the responsibility of other parties that have occupied and used it for waste recycling purposes since 1961, although under CERCLA the EPA is able to assert joint and several liability against all parties who ever owned or operated the site or generated or transported wastes to it. The EPA investigation is in its preliminary stages and the Company intends to vigorously defend any liability for remediation. At April 30, 2010, the liability for remediation, if any, was not estimatable and therefore no accrual has been recorded in the financial statements.

We are currently not aware of any other legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

22



18.

RELATED PARTY TRANSACTIONS

At April 30, 2010, all of Canal’s Long-Term Debt is held by the company’s Chief Executive Officer. These notes which pay interest at a rate of 10% per annum and come due May 15, 2015. Canal has incurred interest expense on these notes of approximately $55,000 and $63,000 for the six month periods ended April 30, 2010 and 2009, 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 April 30, 2010, the balance due under these notes was $1,332,000 all of which is classified as long-term debt related party.

19.

SUBSEQUENT EVENTS

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 company’s Chief Executive Officer, Michael E. Schultz for $852,000 generating a gain of $346,000.

In July 2012, Canal sold one acre of land and the improvements thereon located in South St. Paul, Minnesota for $839,000 generating a gain of $791,000.

In August 2012, Canal sold its stockyard operation (30 acres of land and the improvements thereon) located in St. Joseph, Missouri for $500,000 generating a loss of $577,000.

23


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” below for certain information concerning those forward looking statements. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

Special Note Regarding Our Financial Statements and Forward-looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Additional disclosures regarding factors that could cause our results and performance to differ from results or anticipated performance are discussed in Item 1A, “Risk Factors” included herein.

Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time, and it is not possible for us to predict which will arrive. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

Use of Terms

Except as otherwise indicated by the context, all references in this report to:

  • “Canal Capital,” the “Company,” “we,” “us,” and “our,” are to Canal Capital Corporation and its subsidiaries, Omaha Livestock Market, Inc., Sioux Falls Stockyards Company and Canal Arts Corporation;

  • “SEC” are to the United States Securities and Exchange Commission;

  • “Securities Act” are to the Securities Act of 1933, as amended;

  • “Exchange Act” are to the Securities Exchange Act of 1934, as amended; and

  • “U.S. dollar,” “USD,” “US$” and “$” are to the legal currency of the United States.

24


Canal Capital Corporation’s 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 Company’s 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 April 30, 2010, Canal's real estate properties were located in Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri, Omaha, Nebraska and Sioux Falls, South Dakota. 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 37 acres of undeveloped land in Sioux City, Iowa and it operated a central public stockyard located in St. Joseph, Missouri. Canal’s 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 company’s 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 Company’s only remaining real estate property is a rental property located in Omaha, Nebraska.

As a result of past financial constraints, the Company’s financial statements for the fiscal years ended October 31, 2011, 2010 and 2009, and for the interim fiscal quarters have not been audited or reviewed by an independent auditor. In February 2012, the Company received notice from the SEC of its obligation to file audited and reviewed financial statements with its periodic reports and this is another in a series of corrective filings which the Company expects to file in order to comply with the SEC’s request. The Company expects to be fully compliant on or about March 31, 2013.

Management is unsure if its income from operations combined with its cost-cutting program and planned reduction of its antiquities art inventory will enable it to finance its future business activities or fund operating cash requirements. In the interim, management is undertaking efforts to identify appropriate business opportunities for the Company. If for some reason management is not able to identify an appropriate business opportunity within a reasonable period of time, it may not have sufficient resources to continue meeting its reporting obligations with the Securities and Exchange Commission or other obligations which arise from its minimal operations. This in turn would severely diminish the attractiveness of the Company to another operating company and the Company’s ability to consummate a business combination.

25


Plan of Operations

We are undertaking efforts to identify appropriate business opportunities for our Company. If for some reason the Company is not able to identify an acceptable business opportunity within a reasonable period of time, it may not have sufficient resources to continue meeting its reporting obligations with the Securities and Exchange Commission or other obligations which arise from its minimal operations. This in turn would severely diminish the ability of the Company to explore alternative business opportunities.

Even if we are able to identify business opportunities that our Board deems appropriate, we cannot assure you that such a strategy will provide you with a positive return on your investment, and may in fact result in a substantial decrease in the value of your stock. In addition, if the Board identifies a business opportunity that it deems appropriate, there is no guarantee that the Company could raise the additional capital or get the needed financing to pursue the business opportunity. These factors will substantially increase the uncertainty, and thus the risk, of investing in our shares.

Results of Operations

The following tables set forth certain items in our statement of operations for the periods indicated:

 

  Six Months Ended April 30,  

 

  2010     2009  

 

  (In Thousands)  

Revenues:

           

Real Estate Revenue

$  147   $  471  

Stockyard Revenue

  1,315     1,685  

       Total Revenue

  1,462     2,156  

 

           

 

           

Costs and Expenses:

           

 

           

Real Estate Expenses

  45     142  

Stockyard Expenses

  1,066     1,501  

General and Administrative Expenses

  413     449  

       Total Costs and Expenses

  1,524     2,092  

 

           

 

           

(Loss) Income from Operations

  (62 )   (64 )

Other Income

  0     7  

Interest Expense

  (55 )   (63 )

Other Expenses

  0     (2 )

 

           

Net (Loss) Income

$  (117 ) $  6  

26


Revenues

Canal's revenues from continuing operations consist of revenues from its real estate and stockyard operations. Revenues for the six month period ended April 30, 2010 decreased by $694,000 to $1,462,000 as compared with $2,156,000 for the same period in fiscal 2009. The fiscal 2010 decrease in revenues is due primarily to the closure of the Sioux Falls stockyard operation in the fourth quarter of fiscal 2009 combined with a decrease of approximately $263,000 in sale of real estate.

Revenues for the three month period ended April 30, 2010 decreased by $510,000 to $727,000 as compared with $1,237,000 for the same period in fiscal 2009. The fiscal 2010 decrease in revenues is due primarily to the closure of the Sioux Falls stockyard operation in the fourth quarter of fiscal 2009 combined with a decrease of approximately $263,000 in sale of real estate.

Real Estate Revenues: Real estate revenues for the six months ended April 30, 2010 of $147,000 accounted for 10.1% of the fiscal 2010 revenues as compared to real estate revenues of $471,000 or 21.9% for the same period in fiscal 2009. Real estate revenues are comprised of sale of real estate (0.0% and 55.8%), rentals and other lease income from the rental of vacant land and certain structures (95.1% and 41.0%) and rental income from commercial office space in its Exchange Building (4.9% and 3.2%) for the six months ended April 30, 2010 and 2009, respectively. The percentage variations in the year to year comparisons are due primarily to the significant decrease in the sale of real estate during the first six months of fiscal 2010.

Real estate revenues for the three months ended April 30, 2010 of $71,000 accounted for 9.7% of the fiscal 2010 revenues as compared to real estate revenues of $367,000 or 29.7% for the same period in fiscal 2009. Real estate revenues are comprised of sale of real estate (0.0% and 71.5%), rentals and other lease income from the rental of vacant land and certain structures (94.9% and 26.4%) and rental income from commercial office space in its Exchange Building (5.1% and 2.1%) for the three months ended April 30, 2010 and 2009, respectively. The percentage variations in the year to year comparisons are due primarily to the significant decrease in the sale of real estate during the fiscal 2010.

Stockyard Revenues: Stockyard revenues for the six months ended April 30, 2010 of $1,315,000 accounted for 89.9% of the fiscal 2010 revenues as compared to stockyard revenues of $1,685,000 or 78.1% for the same period in fiscal 2009. The 2010 decrease in stockyard revenues was due primarily to the closing of the Sioux Falls stockyard operations in the fourth quarter of fiscal 2009. Stockyard revenues are comprised of yard handling and auction (81.9% and 87.8%), feed and bedding income (4.4% and 6.9%) and rental and other income (13.7% and 5.3%) for the six month periods ended April 30, 2010 and 2009, respectively. The 2010 percentage variations in the year to year comparisons are due primarily to the closing of the Sioux Falls stockyard operations as discussed above.

Stockyard revenues for the three months ended April 30, 2010 of $656,000 accounted for 90.3% of the fiscal 2010 revenues as compared to stockyard revenues of $870,000 or 70.3% for the same period in fiscal 2009. The 2010 decrease in stockyard revenues was due primarily to the closing of the Sioux Falls stockyard operations in the fourth quarter of fiscal 2009. Stockyard revenues are comprised of yard handling and auction (88.7% and 87.7%), feed and bedding income (4.6% and 6.6%) and rental and other income (6.7% and 5.7%) for the three month periods ended April 30, 2010 and 2009, respectively. The 2010 percentage variations in the year to year comparisons are due primarily to the closing of the Sioux Falls stockyard operations as discussed above.

27


Art Revenues: Canal had no art sales in the six month periods ended April 30, 2010 or 2009. Art revenues, if any, are comprised of the proceeds from the sale of antiquities art. Art expenses were $0 and $2,400 for the six month periods ended April 30, 2010 and 2009, respectively. Art expenses are comprised of the cost of inventory sold and selling, general and administrative expenses. It is the Company’s 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 April 30, 2010 or 2009. Art revenues, if any, are comprised of the proceeds from the sale of antiquities art. Art expenses were $0 and $1,200 for the three month periods ended April 30, 2010 and 2009, respectively. Art expenses are comprised of the cost of inventory sold and selling, general and administrative expenses. It is the Company’s 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 six months ended April 30, 2010 of $45,000 decreased by $97,000 (68.1%) from real estate expenses of $142,000 for the same period in fiscal 2009. The decrease in real estate expenses is consistent with the 2010 decrease in real estate revenues. Real estate expenses are comprised of the cost of real estate sold (0.0% and 48.7%), labor, operating and maintenance (30.0% and 20.9%), depreciation and amortization (24.5% and 7.8%), taxes other than income taxes (24.3% and 8.7%) and general and administrative expenses (21.2% and 13.9%) for the six months ended April 30, 2010 and 2009, respectively. The percentage variations in the year to year comparisons are consistent with the decrease in real estate revenues discussed above.

Real estate expenses for the three months ended April 30, 2010 of $23,000 decreased by $82,000 (78.1%) from real estate expenses of $105,000 for the same period in fiscal 2009. The decrease in real estate expenses is consistent with the 2010 decrease in real estate revenues. Real estate expenses are comprised of the cost of real estate sold (0.0% and 65.7%), labor, operating and maintenance (30.9% and 13.8%), depreciation and amortization (24.1% and 5.3%), taxes other than income taxes (24.1% and 5.8%) and general and administrative expenses (20.9% and 9.4%) for the three months ended April 30, 2010 and 2009, respectively. The percentage variations in the year to year comparisons are consistent with the decrease in real estate revenues discussed above.

Stockyard Expenses: Stockyard expenses for the six months ended April 30, 2010 of $1,066,000 decreased by $435,000 (29.0%) from stockyard expenses of $1,501,000 for the same period in fiscal 2009. The decrease in stockyard expenses is consistent with the 2010 decrease in stockyard revenues. Stockyard expenses are comprised of labor and related costs (43.5% and 45.3%), other operating and maintenance (25.8% and 27.0%), feed and bedding expense (4.7% and 6.1%), depreciation and amortization (0.6% and 0.7%), taxes other than income taxes (7.5% and 6.0%) and general and administrative expense (17.9% and 14.9%) for the six month periods ended April 30, 2010 and 2009, respectively. There were no significant percentage variations in the year to year comparisons.

Stockyard expenses for the three months ended April 30, 2010 of $515,000 decreased by $260,000 (33.5%) from stockyard expenses of $775,000 for the same period in fiscal 2009. The decrease in stockyard expenses is consistent with the 2010 decrease in stockyard revenues. Stockyard expenses are comprised of labor and related costs (38.7% and 42.6%), other operating and maintenance (26.2% and 28.6%), feed and bedding expense (4.9% and 6.4%), depreciation and amortization (0.7% and 0.6%), taxes other than income taxes (7.9% and 5.9%) and general and administrative expense (21.6% and 15.9%) for the three month periods ended April 30, 2010 and 2009, respectively. There were no significant percentage variations in the year to year comparisons.

28


General and Administrative

General and administrative expenses for the six months ended April 30, 2010 of $413,000 decreased by $37,000 (6.6%) as compared to $450,000 for the same period in fiscal 2009. The major components of general and administrative expenses are officers salaries (56.4% and 52.7%), pension expense (12.9% and 13.4%), insurance expense (6.6% and 5.9%), office salaries (11.2% and 10.5%), travel expense (3.3% and 4.3%) and professional fees (2.9% and 3.2%) for the six month periods ended April 30, 2010 and 2009, respectively. There were no significant percentage variations in the year to year comparisons.

General and administrative expenses for the three months ended April 30, 2010 of $208,000 decreased by $17,000 (7.5%) as compared to $225,000 for the same period in fiscal 2009. The major components of general and administrative expenses are officers salaries (57.0% and 52.7%), pension expense (13.0% and 13.3%), insurance expense (6.6% and 5.9%), office salaries (11.3% and 10.5%), travel expense (2.4% and 4.5%) and professional fees (2.9% and 3.2%) for the three month periods ended April 30, 2010 and 2009, respectively. There were no significant percentage variations in the year to year comparisons.

Interest Expense

Interest expense for the six months ended April 30, 2010 of $55,000 decreased by $8,000 (13.0%) from $63,000 for the same period in fiscal 2009. The 2010 decrease is due primarily to Canal’s $300,000 partial repayment of its long-term debt in fiscal 2009. The principal balance outstanding at April 30, 2010 of $992,000 is classified as long-term debt-related party.

Interest expense for the three months ended April 30, 2010 of $30,000 decreased by $2,000 (4.8%) from $32,000 for the same period in fiscal 2009. The 2010 decrease is due primarily to Canal’s $300,000 partial repayment of its long-term debt in fiscal 2009. The principal balance outstanding at April 30, 2010 of $992,000 is classified as long-term debt-related party.

Net (Loss) Income

Canal recognized a net loss of approximately $117,000 in the six month period ended April 30, 2010 as compared to net income of approximately $6,000 for the same period in fiscal 2009. The income in fiscal 2009 was due primarily to the approximately $263,000 sale of real estate generating operating income of approximately $194,000.

Canal recognized a net loss of approximately $42,000 in the three month period ended April 30, 2010 as compared to net income of approximately $108,000 for the same period in fiscal 2009. The income in fiscal 2009 was due primarily to the approximately $263,000 sale of real estate generating operating income of approximately $194,000.

29


Liquidity and Capital Resources

Cash and cash equivalents decreased approximately $36,000, from $155,000 at October 31, 2009, to $118,000 at April 30, 2010. At April 30, 2010 the Company’s current assets exceeded current liabilities by approximately $176,000 which was an improvement, as compared to October 31, 2009 when the Company’s current assets exceeded current liabilities by approximately $51,000.

Net cash used in operating activities for the six months ended April 30, 2010 were $36,000, as compared to $62,000 for the same period in fiscal 2009, for a net decrease of $26,000. This decrease in cash used during the six months ended April 30, 2010 was not significant. During fiscal 2010 the Company invested $340,000 in capital expenditures and increased its long-tern debt by $340,000. 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, Canal’s cash flow position has been under significant strain for the past several years. Canal continues to closely monitor and reduce where possible its operating expenses and plans to continue its program to develop or sell the property it holds for development or resale as well as to reduce the level of its art inventories to enhance current cash flows. Management is unsure if its income from operations combined with its cost-cutting program and planned reduction of its antiquities art inventory will enable it to finance its current business activities. There can be no assurance that Canal will be able to effectuate its planned antiquities art inventory reductions or that its income from operations combined with its cost cutting program in itself will be sufficient to fund operating cash requirements. Canal may, as it has in the past, be forced to sell income producing assets to raise needed cash, thereby, further adversely impacting future revenues. As of the date of this report Canal has sold its Sioux Falls, South Dakota property (formerly used in stockyard operations); two of its three remaining rental properties’ and its stockyard operations (30 acres of land and the improvements thereon) located in St. Joseph, Missouri.

Obligations under Material Contracts

At April 30, 2010, all of the Company’s Long-Term Debt is held by the company’s 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 2009 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 $25,000 and $32,000 for the fiscal quarters ended April 30, 2010 and 2009, respectively. These notes, among other things, prohibit Canal from becoming an investment company as defined by the Investment Company Act of 1940, restrict Canal’s 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 April 30, 2010, the balance due under these notes was $1,332,000 all of which was classified as long-term debt due to related party. As of the filing of this report, the balance due under these notes was $400,000.

30


We are currently not party to any other material agreements, other than employment agreements, that impose any payment obligation, whether in cash or securities, on the Company now or in the future.

Recent Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820. The guidance is effective for any fiscal year that begins after December 15, 2010 and should be used for quarterly and annual filings. We are currently evaluating the impact on our financial statements of adopting the amendments in ASU 2010-06 and cannot estimate the impact of adoption at this time.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" (“ASU 2011-04”). This update amends ASC Topic 820, “Fair Value Measurement and Disclosure.” ASU 2011-04 clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is effective for annual and interim reporting periods beginning on or after December 15, 2011, which means that it will be effective for our fiscal quarter beginning January 1, 2012. The new guidance is to be adopted prospectively and early adoption is not permitted. We do not believe that adoption of ASU 2011-04 will have a significant impact on our financial position, results of operations or cash flows.

On June 16, 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). This update amends ASC Topic 220, “Comprehensive Income” to provide that total comprehensive income will be reported in one continuous statement or two separate but consecutive statements of financial performance. Presentation of total comprehensive income in the statement of stockholders' equity or the footnotes will no longer be allowed. The calculation of net income and basic and diluted net income per share will not be affected. ASU 2011-005 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011, which means that it will be effective for our fiscal year beginning July 1, 2012. Retrospective adoption is required and early adoption is permitted. We do not believe that adoption of ASU 2011-05 will have a significant impact on our financial position, results of operations or cash flows.

31


Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. We continually evaluate our estimates, including those related to revenue recognition, bad debts, income taxes, fixed assets, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies impact our most difficult, subjective and complex judgments used in the preparation of our consolidated financial statements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a further discussion of these and other accounting policies, please see Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Long-Lived Assets -- The Company reviews the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the assets to the estimated future cash flows expected to result from the use of the asset. The measurement of the loss, if any, will be calculated as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Seasonality

Our operations and operating cash flows were subject to seasonal variations. Stockyard operations were seasonal, with greater volume generally experienced during the first and second quarters of each fiscal year during which periods livestock is generally brought to market. As of the date of this report, the Company is no longer in the stockyard business and therefore its operations and operating cash flows are no longer subject to seasonal variations.

Off-Balance Sheet Arrangements

For the six months ended April 30, 2010, we did not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

32


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act Reports is recorded, processed, summarized and reported within the time period specified in the SEC’s 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 April 30, 2010. 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 Company’s auditors to conduct reviews and audits, as applicable, of its financial statements for the non-compliant periods. The Company expects that the filing of this quarterly report on Form 10-Q for the six months ended April 30, 2010 and 2009 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 six months ended April 30, 2010 and 2009,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 six month period ended April 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33


PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Environmental Protection Agency

In 1989, the Company sold its 48 acre Portland, Oregon stockyard to Oregon Waste Systems, Inc. On September 29, 2003, the United States Environmental Agency (EPA) placed a 4.2 acre portion of that property on the National Priorities List pursuant to the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), commonly known as the Superfund Act. In a letter from the EPA dated June 27, 2005 the Company, along with approximately 13 other parties, including the current owner and operator of the site, was notified that it might be liable to perform or pay for the remediation of environmental contamination found on and around the site.

Since the receipt of the letter, the Company has been in periodic communications with the other parties who received a similar letter with respect to what action, collectively or individually, should be taken in response to the EPA assertion of liability. The Company believes that the remediation of contamination of the site is properly the responsibility of other parties that have occupied and used it for waste recycling purposes since 1961, although under CERCLA the EPA is able to assert joint and several liability against all parties who ever owned or operated the site or generated or transported wastes to it. The EPA investigation is in its preliminary stages and the Company intends to vigorously defend any liability for remediation. At April 30, 2010, the liability for remediation, if any, was not estimatable and therefore no accrual has been recorded in the financial statements.

We are currently not aware of any other legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

34


ITEM 1A. RISK FACTORS

Not applicable

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

We have no information to disclose that was required to be disclosed in a report on Form 8-K during the six month period ended April 30, 2010, but was not reported.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report or incorporated by reference:

EXHIBIT No. Description
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certifications of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

35


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Dated: October 30, 2012

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)

36