SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2007
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 002-96666
CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0102492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
490 WHEELER ROAD SUITE 185 HAUPPAUGE, NY 11788
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (631) 234-0140
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes |X| No |_|
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |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
The aggregate market value of the voting stock held by non-affiliates of
the registrant at April 30, 2007, was approximately $170,000. The number of
shares of Common Stock, $.01 par value, outstanding at January 15, 2008 was
4,326,929.
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
2007 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page
----
ITEM 1. Business ......................................................... 1
ITEM 2 Properties ....................................................... 6
ITEM 3. Legal Proceedings ................................................ 7
ITEM 4. Submission of Matters to a Vote of Security Holders .............. 7
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters ............................................. 8
ITEM 6. Selected Consolidated Financial Data ............................. 9
ITEM 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition ................... 11
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk ..................................................... 24
ITEM 8. Financial Statements and Supplementary Data ...................... 25
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 25
ITEM 9A. Controls and Procedures .......................................... 25
ITEM 9B. Other Information ................................................ 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant ............... 26
ITEM 11. Executive Compensation ........................................... 27
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ................................. 29
ITEM 13. Certain Relationships and Related Transactions ................... 31
ITEM 14. Principal Accounting Fees and Services ........................... 31
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ..................................................... 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ................................. F-1
SIGNATURES. ................................................................ S-1
EXHIBITS... ................................................................ E-1
i
PART I
This Annual Report on Form 10-K includes "forward-looking statements". The
words "may," "will," "should," "continue," "future," "potential," "believe,"
"expect," "anticipate," "project," "plan," "intend," "seek," "estimate" and
similar expressions identify forward-looking statements. We caution you that any
forward-looking statements made by us are not guarantees of future performance
and that a variety of factors, including those discussed below, could cause our
actual results and experience to differ materially from the anticipated results
or other expectations expressed in our forward-looking statements. Please see
"Risk Factors" below for detailed information about the uncertainties and other
factors that may cause actual results to materially differ from the views stated
in such forward-looking statements. All forward-looking statements and risk
factors included in this Annual Report on Form 10-K are made as of the date
hereof, based on information available to us as of the date hereof, and we
assume no obligation to update any forward-looking statement or risk factors.
Canal Capital Corporation's fiscal year ends on October 31, of each
calendar year. Each reference to a fiscal year in this Annual Report on Form 10K
refers to the fiscal year ending October 31, of the calendar year indicated.
Unless the context requires otherwise, references to "we", "us", "our", "Canal
Capital Corporation" and the "company" refer to Canal Capital Corporation and
its subsidiaries.
Item 1. Business
Company Overview
The Registrant, Canal Capital Corporation ("Canal" or the "Company"),
incorporated in the state of Delaware in 1964, commenced business operations
through a predecessor in 1936.
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 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.
Its principal real estate operating revenues are derived from lease income from
land and structures leased to various commercial and retail enterprises, rental
income from its Exchange Building, and proceeds from the sale of real estate
properties. In addition to selling what was excess stockyard property, the
company entertains any offers to purchase, develop and restructure real estate
lots surrounding its existing operating lease properties, stockyard operating
properties and properties held for development or resale in order to enhance the
value of the existing properties and surrounding real estate. See "Real Estate
Operations".
1
Stockyard Operations - As a result of an August 1, 1999 asset purchase
agreement, Canal now operates two central public stockyards located in St.
Joseph, Missouri and Sioux Falls, South Dakota (collectively the "Stockyards").
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 Company's principal stockyard revenues are
derived from a per head charge ("yardage charge") imposed on all livestock
consigned for sale at the stockyards and the sale of feed and bedding. See
"Stockyard Operations".
Real Estate Operations
General - Canal is involved in the management, development or sale of its
real estate properties located in five Midwest states. Real estate operations,
resulted in operating income of $0.4 million, while contributing $0.6 million to
Canal's revenues for fiscal 2007. During fiscal 2007, Canal sold approximately 2
acres of land located in Sioux City, Iowa for $75,000 generating operating
income of $18,000.
As of October 31, 2007, there are approximately 18 acres of undeveloped
land owned by Canal located in four Midwest states (see ITEM 2) . Canal is
continuing the program, which it started several years ago, to develop or sell
this property. Additionally, Canal will continue to aggressively pursue
additional tenants for its Exchange Building and undeveloped properties in
fiscal 2008.
Risk - Real estate activities in general may involve various degrees of
risk, such as competition for tenants, general market conditions and interest
rates. Furthermore, there can be no assurance that Canal will be successful in
the development, lease or sale of its real estate properties.
Competition - Canal competes in the area of real estate development with
other regional developers, some of which are substantially larger and have
significantly greater financial resources than Canal. To a certain extent,
Canal's real estate revenues are dependent on the ability of the stockyard
operations and the various meat packers located adjacent to Canal's properties
to successfully compete in their respective businesses.
Stockyard Operations
General - Through an August 1, 1999 asset repurchase agreement, Canal now
operates two central public stockyards located in St. Joseph, Missouri and Sioux
Falls, South Dakota.
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
2
sale of livestock, including veterinary 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.
Actual marketing transactions at a stockyard are managed for livestock
producers by market agencies and independent commission sales people to which
the livestock are consigned for sale. These market agencies (some of which are
owned and operated by the Company) and independent sales people receive
commissions from the seller upon settlement of a transaction and the stockyard
receives a yardage fee on all livestock using the facility which is paid within
twenty-four hours of the sale. Yardage fees vary depending upon the type of
animal, the extent of services provided by the stockyard, and local competition.
Yardage revenues are not directly dependent upon market prices, but rather are a
function of the volume of livestock handled. In general, stockyard livestock
volume is dependent upon conditions affecting livestock production and upon the
market agencies and independent commission sales people which operate at the
stockyards. Stockyard operations are seasonal, with greater volume generally
experienced during the first and fourth quarters of each fiscal year, during
which periods livestock is generally brought to market.
Virtually all of the volume at Canal's Sioux Falls stockyards is handled
through market agencies and independent commission sales people, while the St.
Joseph stockyards has solicitation operations of its own which account for
approximately 50% of its livestock volume annually.
Canal intends to continue its soliciting efforts at its St. Joseph
stockyards in fiscal 2008. Further, Canal tries to balance its dependence on
market agencies and independent commission sales people in various ways,
including: developing solicitation operations of its own; direct public
relations; advertising and personal solicitation of producers on behalf of the
stockyards; providing additional services at the stockyards to attract sellers
and buyers; and providing incentives to market agencies and independent
commission sales people for increased business.
Stockyard operations resulted in operating income of approximately $0.1
million while contributing approximately $3.0 million to Canal's revenues for
fiscal 2007. The sharp decrease in operating income experienced in fiscal 2007
is due primarily to the loss of two independent commission firms at the Sioux
Falls, South Dakota stockyards at the end of fiscal 2006.
Risk - Stockyard activities face a variety of risks and uncertainties
related to the safeguarding of the national food supply which are beyond our
control. Public confidence in the government's efforts to safeguard the food
supply is essential for the success of our stockyard operations. An outbreak of
a disease such as bovine spongiform encephalopathy (BSE) better known as Mad Cow
Disease could have a devastating impact on stockyard operations. For the
company's part we strictly follow all USDA regulations to ensure to the extent
we can the safety of the food supply. Furthermore, stockyard
3
activities in general may involve various degrees of risk, such as competition
from other regional stockyards and sale barns, general market conditions and to
a lesser extent interest rates.
Competition - Canal competes in the area of public stockyards with other
regional public stockyards and sale barns, some of which are substantially
larger and have greater financial resources than Canal. To a certain extent,
Canal's stockyard revenues are dependent on the ability of the market agencies
and independent commission sales people at each of Canal's stockyard locations
to compete within the region.
Art Inventory Held for Sale
Canal is in the process of selling, in an orderly manner, its remaining
art inventory consisting of antiquities only as of October 31, 2007. This will
be accomplished primarily through direct sales, consignment arrangements with
various independent art dealers and through sale at public art auctions. Canal
established its art operations in the late 1980's by acquiring for resale a
significant inventory of antiquities primarily from the ancient Mediterranean
cultures coupled with the purchase of approximately fifty paintings by Jules
Olitski, a world renowned artist of contemporary paintings.
Canal sells its art primarily through three sources, direct sales,
consignment to independent art dealers and at public art auctions. In the case
of consignment sales through independent art dealers, Canal consigns its pieces
at specific prices. In the case of public art auctions, the Company primarily
consigns its art pieces to the two largest auction houses for their spring and
fall art auctions and Canal sets a minimum acceptable price on the pieces
consigned.
In fiscal 2007, Canal sold one piece of contemporary art for $59,000 which
sale generated a gross margin of $36,000 and after other selling and
administrative expenses of $19,000 resulted in a gain of $17,000. Additionally,
in September, 2007 Canal sold its remaining 12 pieces of contemporary art to a
group which included the Company's Chairman. The 12 pieces were sold for
$100,000 which was approximately $20,000 less than its carrying value (See note
24). The loss of approximately $20,000 has been shown as a distribution in
stockholders' equity for the year ended October 31, 2007. In fiscal 2007, Canal
recognized a $89,122 valuation allowance against its remaining art inventory to
reflect management's estimate of the inventories net realizable value at October
31, 2007. Antiquities and contemporary art represented 100% ($100,000) and 0%
($0) and 57% ($189,122) and 43% ($143,878) of total art inventory at October 31,
2007 and 2006, respectively.
Risk & Competition - Selling art in general involves various degrees of
risk. Canal's success in selling its art inventory is dependent at least in
part, on general economic conditions, including supply, demand, international
monetary conditions and inflation. Canal competes in the sale of its art
inventory with investment groups and other dealers, most of whom are
substantially larger and have greater financial resources and staff than Canal.
4
Employees - At October 31, 2007, Canal had approximately 75 employees.
Executive Officers - At October 31, 2007 Canal's Executive Officers were:
Held
Name Age Since Title
---- --- ----- -----
Asher B. Edelman 68 1991 Chairman of the Board
Michael E. Schultz 71 1991 President and Chief
Executive Officer
Reginald Schauder 58 1989 Vice President, Chief
Financial Officer,
Treasurer and Secretary
Risk Factors - In addition to other information in this Annual Report on
Form 10-K, the following risk factors should be carefully considered when
evaluating our Company and our business. Investing in our common stock involves
a high degree of risk, and you should be able to bear the complete loss of your
investment. The risk and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of the
following risk and uncertainties actually occur, our future operating results
and financial condition could be harmed and the market price of our common stock
could decline.
Risk Related to Our Business - The Company's risk and uncertainties
related to our financial condition and our business include a variety of factors
that are beyond our control. Such factors include, without limitation: overall
economic conditions; public confidence in the government's ability to safeguard
the food supply from infectious diseases; competition for tenants in the
agribusiness; the ability of the Company's tenants to compete in their
respective businesses; the effect of fluctuations in supply, demand,
international monetary conditions and inflation on the Company's art
inventories; securities risks associated with collections of antiquities and
art; and the effect of fluctuations in interest rates and inflation on the
Company's indebtedness.
5
ITEM 2. Properties
Canal's real estate properties located in five Midwest states are
primarily associated with its current and former stockyards operations. Each
property consists, for the most part, of land and structures leased to third
parties (meat packing facilities, rail car repair shops, lumber yards and
various other commercial and retail businesses) an Exchange Building (commercial
office space), as well as vacant land available for development or resale. In
addition to selling what was excess stockyard property, the company entertains
any offers to purchase, develop and restructure real estate lots surrounding its
existing operating lease properties, stockyard operating properties and
properties held for development or resale in order to enhance the value of the
existing properties and surrounding real estate. As landlord, Canal's management
responsibilities include leasing, billing, repairs and maintenance and
overseeing the day to day operations of its properties. Canal's properties at
October 31, 2007 include:
New York Headquarters - Canal leases approximately 1,000 square feet of
office space located in Hauppauge, New York, which lease expires May 31, 2010.
Leased Held for
Year Total Exchange Stkyds to Third Develop-
Location Acquired Site(2) Bldgs. Opertns(1) Parties ment (3)
-------- -------- ------- -------- ---------- -------- --------
St. Joseph, MO 1942 46 0 30 0 16
S. St. Paul, MN 1937 10 0 0 10 0
Sioux City, IA 1937 20 0 0 18 2
Omaha, NE 1976 9 0 0 9 0
Sioux Falls, SD 1937 31 1 30 0 0
---- ---- ---- ---- ----
Total 116 1 60 37 18
---- ---- ---- ---- ----
The following schedule shows the average occupancy rate and average rental rate
of Canal's Exchange Building located in Sioux Falls, South Dakota:
2007 2006
---------------------- -----------------------
Occupancy Average(4) Occupancy Average(4)
Location Rate Rental Rate Rate Rental Rate
-------- --------- ----------- --------- -----------
Sioux Falls, SD 90% $ 7.00 90% $ 7.00
NOTES
(1) Canal operates two central public stockyards.
(2) For information with respect to mortgages and pledges see Note 4.
(3) For information related to property held for development see Note 2(D).
(4) Per square foot.
6
ITEM 3. Legal Proceedings
Canal and its subsidiaries are from time to time involved in litigation
incidental to their normal business activities, none of which, in the
opinion of management, will have a material adverse effect on the
consolidated financial condition and operations of the Company.
Canal was not a party to any ongoing litigation at October 31, 2007.
The following situation did arise in fiscal 2005.
Environmental Protection Agency - Special Notice Letter for Remedial
Investigation, Portland, Oregon Property
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. This
investigation is in its preliminary stages and the Company intends to
vigorously defend any liability for remediation. At October 31, 2007,
the liability for remediation, if any, is not estimatable and therefore
no accrual has been recorded in the financial statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to our stockholders during the fourth quarter
of the fiscal year ended October 31, 2007.
7
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Market Information
Canal's stock is traded over-the-counter through the "pink sheets". The high and
low price ranges of Canal's common stock for the eight quarters ended October
31, 2007 as reported on the "pink sheets" were:
Fiscal 2007 Fiscal 2006
------------------- ------------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
January 31 ................. $ 0.10 -- $ 0.08 $ 0.15 -- $ 0.10
April 30 ................... $ 0.10 -- $ 0.08 $ 0.15 -- $ 0.10
July 31 .................... $ 0.08 -- $ 0.08 $ 0.10 -- $ 0.05
October 31 ................. $ 0.08 -- $ 0.04 $ 0.10 -- $ 0.05
Dividend Policy and Holders
There were no cash dividends paid during fiscal 2007 or 2006. Canal is
subject to restrictions on the payment of cash dividends under certain debt
agreements. As of January 15, 2008, Canal had approximately 1,500 holders of
record of its common stock, par value $.01 per share.
8
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE FOLLOWING SELECTED FINANCIAL DATA HAVE BEEN DERIVED FROM OUR
CONSOLIDATED FINANCIAL STATEMENTS THAT HAVE BEEN AUDITED BY TODMAN & CO., CPAs,
P.C., INDEPENDENT AUDITORS. THE INFORMATION SET FORTH BELOW IS NOT NECESSARILY
INDICATIVE OF THE RESULTS OF FUTURE OPERATIONS AND SHOULD BE READ IN CONJUNCTION
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS" INCLUDED IN ITEM 7 OF OUR ANNUAL REPORT ON FORM 10-K.
YEARS ENDED OCTOBER 31,
-----------------------
STATEMENT OF OPERATIONS DATA 2007 2006 2005 2004 2003
-----------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES FROM CONTINUING OPERATIONS $ 3,629(1) $ 4,404(2) $6,467(3) $ 4,199(4) $ 4,760(5)
NET (LOSS) INCOME ($948) ($322) $ 716 ($577) $ (537)
(LOSS) INCOME PER SHARE:
BASIC ($0.25) ($0.10) $ 0.15 ($0.15) ($0.16)
DILUTED ($0.25) ($0.10) $ 0.15 ($0.15) ($0.16)
CASH DIVIDENDS PAID $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,327 4,327 4,327 4,327 4,327
- DILUTED 4,327 4,327 4,327 4,327 4,327
OCTOBER 31,
-----------
2007 2006 2005 2004 2003
--------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
CURRENT ASSETS $1,849 $2,283 $ 648 $ 824 $ 477
PROPERTY ON OPERATING LEASES, NET 1,741 1,763 1,840 2,715 2,874
PROPERTY USED AS STOCKYARDS 1,080 1,100 1,121 1,142 1,136
MORTGAGE NOTE RECEIVABLE 0 0 1,750 0 0
ART INVENTORY NON-CURRENT 0 0 0 0 460
OTHER ASSETS 139 313 455 1,000 1,195
--------------------------------------------------
TOTAL ASSETS $4,809 $5,459 $5,814 $5,681 $6,142
--------------------------------------------------
CURRENT LIABILITIES $ 708 $ 606 $ 753 $ 925 $ 765
NON-CURRENT LIABILITIES 429 436 562 1,098 1,208
LONG-TERM DEBT 2,687 2,687 2,687 2,767 2,767
STOCKHOLDERS' EQUITY 985 1,730 1,812 891 1,402
--------------------------------------------------
TOTAL LIAB. & STOCKHOLDERS'EQUITY (6) $4,809 $5,459 $5,814 $5,681 $6,142
--------------------------------------------------
COMMON SHARES OUTSTANDING AT YEAR-END 4,327 4,327 4,327 4,327 4,327
9
ITEM 6. Selected Financial Data (continued..)
NOTES:
(1) The revenue decrease was due primarily to a $0.5 million decrease in sales
of real estate coupled with a $0.2 million decrease in revenues from
stockyard operations.
(2) The revenue decrease was due primarily to a $2.2 million decrease in sales
of real estate offset to a certain extent by the $0.2 million increase in
revenues from stockyard operations.
(3) The revenue increase was due primarily to a $2.5 million increase in sales
of real estate offset by a decrease in exchange building rent.
(4) The revenue decrease was due primarily to a $0.4 million decrease in
stockyard revenues coupled with a $0.2 million decrease in sales of real
estate.
(5) The revenue decrease was due primarily to a $0.4 million decrease in sales
of real estate coupled with $0.1 million decreases in both stockyard and
real estate operating revenues.
(6) For discussion of material uncertainties and commitments, see Notes 9 and
17 to the Consolidated Financial Statement.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the more detailed
business information and consolidated financial statements and related notes
that appear elsewhere in this report and in the documents that we incorporate by
reference into this report. This report may contain certain "forward-looking"
information within the meaning of the Private Securities Litigation Reform Act
of 1995. This information involves risks and uncertainties. Our actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk factors".
Company Overview
The Registrant, Canal Capital Corporation ("Canal" or the "Company"),
incorporated in the state of Delaware in 1964, commenced business operations
through a predecessor in 1936.
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 an
Exchange Building (commercial office space), land and structures leased to third
parties (meat packing facilities, 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, rental income from its Exchange Buildings, and proceeds
from the sale of real estate properties. In addition to selling what was excess
stockyard property, the company entertains any offers to purchase, develop and
restructure real estate lots surrounding its existing operating lease
properties, stockyard operating properties and properties held for development
or resale in order to enhance the value of the existing properties and
surrounding real estate. See "Real Estate Operations".
Stockyard Operations - As a result of an August 1, 1999 asset purchase
agreement, Canal now operates two central public stockyards located in St.
Joseph, Missouri and Sioux Falls, South Dakota (collectively the "Stockyards").
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 Company's principal stockyard revenues are
derived from a per head charge ("yardage charge") imposed on all livestock
consigned for sale at the stockyards and the sale of feed and bedding. See
"Stockyard Operations".
11
Real Estate Operations
General - Canal is involved in the management, development or sale of its
real estate properties located in five Midwest states. Real estate operations,
resulted in operating income of $0.4 million, while contributing $0.6 million to
Canal's revenues for fiscal 2007. During fiscal 2007, Canal sold approximately 2
acres of land located in Sioux City, Iowa for $75,000 generating operating
income of $18,000.
As of October 31, 2007, there are approximately 18 acres of undeveloped
land owned by Canal located in four Midwest states (see ITEM 2) . Canal is
continuing the program, which it started several years ago, to develop or sell
this property. Additionally, Canal will continue to aggressively pursue
additional tenants for its Exchange Building and undeveloped properties in
fiscal 2008.
Risk - Real estate activities in general may involve various degrees of
risk, such as competition for tenants, general market conditions and interest
rates. Furthermore, there can be no assurance that Canal will be successful in
the development, lease or sale of its real estate properties.
Competition - Canal competes in the area of real estate development with
other regional developers, some of which are substantially larger and have
significantly greater financial resources than Canal. To a certain extent,
Canal's real estate revenues are dependent on the ability of the stockyard
operations and the various meat packers located adjacent to Canal's properties
to successfully compete in their respective businesses.
Stockyard Operations
General - Through an August 1, 1999 asset repurchase agreement, Canal now
operates two central public stockyards located in St. Joseph, Missouri and Sioux
Falls, South Dakota.
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 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.
12
Actual marketing transactions at a stockyard are managed for livestock
producers by market agencies and independent commission sales people to which
the livestock are consigned for sale. These market agencies (some of which are
owned and operated by the Company) and independent sales people receive
commissions from the seller upon settlement of a transaction and the stockyard
receives a yardage fee on all livestock using the facility which is paid within
twenty-four hours of the sale. Yardage fees vary depending upon the type of
animal, the extent of services provided by the stockyard, and local competition.
Yardage revenues are not directly dependent upon market prices, but rather are a
function of the volume of livestock handled. In general, stockyard livestock
volume is dependent upon conditions affecting livestock production and upon the
market agencies and independent commission sales people which operate at the
stockyards. Stockyard operations are seasonal, with greater volume generally
experienced during the first and fourth quarters of each fiscal year, during
which periods livestock is generally brought to market.
Virtually all of the volume at Canal's Sioux Falls stockyards is handled
through market agencies and independent commission sales people, while the St.
Joseph stockyards has solicitation operations of its own which account for
approximately 50% of its livestock volume annually.
Canal intends to continue its soliciting efforts at its St. Joseph
stockyards in fiscal 2008. Further, Canal tries to balance its dependence on
market agencies and independent commission sales people in various ways,
including: developing solicitation operations of its own; direct public
relations; advertising and personal solicitation of producers on behalf of the
stockyards; providing additional services at the stockyards to attract sellers
and buyers; and providing incentives to market agencies and independent
commission sales people for increased business.
Stockyard operations resulted in operating income of approximately $0.1
million while contributing approximately $3.0 million to Canal's revenues for
fiscal 2007. The sharp decrease in operating income for 2007 is due primarily to
the loss of two independent commission firms at the Sioux Falls, South Dakota
stockyards at the end of fiscal 2006.
Risk - Stockyard activities face a variety of risks and uncertainties
related to the safeguarding of the national food supply which are beyond our
control. Public confidence in the government's efforts to safeguard the food
supply is essential for the success of our stockyard operations. An outbreak of
a disease such as bovine spongiform encephalopathy (BSE) better known as Mad Cow
Disease could have a devastating impact on stockyard operations. For the
company's part we strictly follow all USDA regulations to ensure to the extent
we can the safety of the food supply. Furthermore, stockyard activities in
general may involve various degrees of risk, such as competition from other
regional stockyards and sale barns, general market conditions and to a lesser
extent interest rates.
13
Competition - Canal competes in the area of public stockyards with other
regional public stockyards and sale barns, some of which are substantially
larger and have greater financial resources than Canal. To a certain extent,
Canal's stockyard revenues are dependent on the ability of the market agencies
and independent commission sales people at each of Canal's stockyard locations
to compete within the region.
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.
Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period covered. All real estate leases are accounted for as operating
leases. Revenues from real estate sales are recognized generally when title to
the property passes. Revenues from stockyard operations which consist primarily
of yardage fees (a standard per head charge for each animal sold through the
stockyards) and sale of feed and bedding are recognized at the time the service
is rendered or the feed and bedding are delivered.
Art Inventory Held for Sale -- The nature of art makes it difficult to
determine a replacement value. The most compelling evidence of a value in most
cases is an independent appraisal. Canal has had varying percentages of its art
inventory appraised by independent appraisers in previous years. For fiscal 2007
the net realizable value of Canals remaining art inventory has been estimated by
management based in part on the Company's history of art sales in the current
and previous years and in part on the results of the independent appraisals done
in previous years.
Properties and Related Depreciation -- Properties are stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the properties. Such lives are estimated from
35 to 40 years for buildings and from 5 to 20 years for improvements and
equipment.
14
Property held for Development or Resale -- Property held for development
or resale consist of approximately 18 acres located in the Midwest of
undeveloped land not currently utilized for corporate purposes nor included in
any of the present operating leases. The Company constantly evaluates proposals
received for the purchase, leasing or development of this asset. The land is
valued at cost which does not exceed the net realizable value.
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.
Results of Operations
The following tables set forth certain items in our statement of
operations for the periods indicated:
Fiscal Year Ended October 31,
-----------------------------
2007 2006 2005
---- ---- ----
(In Thousands)
Revenues:
Real Estate Revenue $ 598 $ 1,133 $ 3,391
Stockyard Revenue 3,031 3,271 3,076
------- ------- -------
Total Revenue 3,629 4,404 6,467
------- ------- -------
Costs and Expenses:
Real Estate Expenses 239 523 1,698
Stockyard Expenses 2,923 2,796 2,680
General and Administrative Expenses 1,114 1,195 1,152
------- ------- -------
Total Costs and Expenses 4,276 4,514 5,530
------- ------- -------
(Loss) Income from Operations (647) (110) 937
Other Income 143 96 98
Other Expenses (444) (308) (319)
------- ------- -------
Net (Loss) Income $ (948) $ (322) $ 716
======= ======= =======
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 (See
Note 1). 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.
15
Canal recognized a net loss of $0.9 million for 2007 as compared to the
2006 net loss of $0.3 million and the 2005 net income of $0.7 million. After
recognition of preferred stock dividend payments (paid in additional shares of
preferred stock for each of fiscal 2007, 2006 and 2005 of $105,000 in 2007,
$92,000 in 2006 and $81,000 in 2005, the results attributable to common
stockholders were a net loss of $1.1 million in 2007, a net loss of $0.4 million
in 2006 and net income of $0.6 million in 2005. Canal's 2007 net loss of $1.0
million was due primarily to the $0.3 million decrease in income from stockyard
operations, primarily as a result of the loss of two independent commission
firms at the Sioux Falls, South Dakota stockyard at the end of fiscal 2006,
coupled with, a $0.2 million decrease in operating income generated by the sale
of real estate and a $0.1 million increase to the valuation reserve on Canal's
remaining antiquities art inventory. Canal's 2006 net loss of $0.3 million is
due primarily to the $1.1 million decrease in the gain on sale of real estate.
Canal's revenues from continuing operations consist of revenues from its
real estate and stockyard operations. Revenues in 2007 decreased by $0.8 million
to $3.6 million as compared with 2006 revenues which had decreased by $2.1
million to $4.4 million as compared with 2005 revenues of $6.5 million. The
fiscal 2006 decrease in revenues is due primarily to the $2.2 million decrease
in sales of real estate offset to a certain extent by the $0.2 million increase
in revenues from stockyard operations. The fiscal 2007 decrease in revenues is
due primarily to the $0.5 million decrease in sales of real estate, coupled
with, a $0.3 million decrease in stockyard operations due primarily to the loss
of two independent commission firms at the Sioux Falls, South Dakota stockyards
as discussed above.
Contractual Obligations
The following table summarizes the Company's commitments as of October 31,
2007 to make future payments under its debt agreements and other contractual
obligations (in 000's):
More
Less Than 1 - 3 3 - 5 Than
Total 1 year Years Years 5 Yrs.
------ --------- ----- ----- ------
Pension Plan Liability (a) $ 415 $ 95 $ 232 $ 88 $ 0
Mortgage Notes Payable (b) 2,687 0 2,687 0 0
------ ------ ------ ------ ------
$3,102 $ 95 $2,919 $ 88 $ 0
------ ------ ------ ------ ------
(a) See Note 22 and Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(b) The mortgage notes are due May 15, 2009 and are held entirely by the
Company's Chief Executive Officer and members of his family. These
notes carry interest at 10% per annum and are collateralized by
substantially all of Canal's property, the stock of certain
subsidiaries and its art inventories.
16
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 2007 AND 2006
Real Estate Revenues
Real estate revenues for 2007 of $0.6 million accounted for 16.5% of the
2007 total revenues as compared to revenues of $1.1 million or 25.7% for 2006.
Real estate revenues are comprised of sale of real estate (12.5% and 51.2%),
rentals and other lease income from the rental of vacant land and certain
structures (82.3% and 45.9%), rental income from commercial office space in its
Exchange Buildings (5.2% and 2.9%), and other income (0.0% and 0.0%) for 2007
and 2006, respectively. The 2007 decrease is due primarily to the $0.5 million
decrease in sales of real estate. The other percentage variations in the year to
year comparisons are due primarily to the decrease in real estate sales for
fiscal 2007.
Real Estate Expenses
Real estate expenses for 2007 of $0.2 million decreased by $0.3 million
(56.8%) from $0.5 million in 2006. Real estate expenses are comprised of cost of
real estate sold (23.8% and 64.8%), labor, operating and maintenance (33.2% and
17.3%), depreciation and amortization (9.3% and 4.5%), taxes other than income
taxes (11.1% and 7.1%),loss on abandonment (4.7% and 0.0%), and general and
administrative expenses (17.9% and 6.3%) for 2007 and 2006, respectively. The
2007 decrease in the cost of real estate sold is due to the decrease in real
estate sales discussed above. The percentage variations in the year to year
comparisons of the other real estate operating expenses is also due to the sharp
decrease in cost of real estate sold in fiscal 2007.
Stockyard Revenues
Stockyard revenues for 2007 of $3.0 million accounted for 83.5% of the
2007 total revenues as compared to revenues of $3.3 million or 74.3% for 2006.
Stockyard revenues are comprised of yard handling and auction (88.5% and 90.2%),
feed and bedding income (6.0% and 4.5%), rental and other income (5.5% and 5.3%)
for 2007 and 2006, respectively. The 2007 increase in stockyard revenues as a
percent of total revenues is due to the $0.5 million decrease in sales of real
estate this year. There were no significant percentage variations in the year to
year comparisons.
Stockyard Expenses
Stockyard expenses for 2007 of $2.9 million increased by $0.1 million
(4.7%) from $2.8 million in 2006. Stockyard expenses are comprised of labor and
related costs (48.3% and 48.7%), operating and maintenance (27.3% and 28.5%),
feed and bedding expense (5.5% and 4.6%), depreciation and amortization (0.7%
and 0.8%), taxes other than income taxes (6.0% and 5.9%) and general and
administrative expenses (12.2% and 11.5%) for 2007 and 2006, respectively. The
2007 increase is due primarily to the severe weather conditions experienced
throughout the mid-west this past winter . There were no significant percentage
variations in the year to year comparisons.
17
General and Administrative
General and administrative expenses for 2007 of $1.1 million decreased by
$0.1 million (6.7%) from $1.2 million in 2006. The major components of general
and administrative expenses are officers salaries (42.9% and 41.4%),pension
expense (24.0% and 22.4%), insurance expense (5.8% and 9.0%), office salaries
(8.4% and 8.3%), travel expense (3.6% and 3.4%), rent expense (1.7% and 1.5%)
and legal fees (4.7% and 4.7%) for 2007 and 2006, respectively. There were no
significant percentage variations in the year to year comparisons.
Interest Expense
Interest expense for 2007 of $0.3 million was unchanged from $0.3 million
in 2006. Interest rates on Canal's variable rate mortgage notes averaged 10.00%
in 2007 and 2006. At October 31, 2007 the outstanding balance of these notes was
$2,687,000.
Interest and Other Income
Interest and other income of $126,000 for 2007 increased $30,000 (30.8%)
from $96,000 in fiscal 2006. Interest and other income is primarily comprised of
dividend and interest income. The 2007 increase is due primarily to a $35,000
refund of a New York City commercial rent tax assessed against the Company in
fiscal 2006. Included in the 2007 interest and other income is $72,000 of
interest income on the mortgage note receivable associated with the 2004 sale of
the St. Paul, Minnesota Exchange Building.
Income from Art Sales
In fiscal 2007, Canal recognized income from art sales of $17,000 as
compared to a loss of $7,000 for fiscal 2006. Art revenues are comprised of the
proceeds from the sale of antiquities and contemporary art. In fiscal 2007,
Canal sold its remaining 13 pieces of contemporary art, twelve of which were to
a related party (See note 24) generating gross proceeds of $159,000 as compared
to fiscal 2006 sales of two pieces of contemporary art generating gross proceeds
of $29,000. Art expenses are comprised of the cost of inventory sold and
selling, general and administrative expenses. In fiscal 2007, Canal incurred
cost of inventory sold of $144,000 (net of a valuation allowance of $406,000) as
well as selling, general and administrative expenses of $19,000 as compared to
fiscal 2006 cost of inventory sold of $19,000 (net of a valuation allowance of
$55,000) and selling, general and administrative expenses of $16,000.
Additionally, in fiscal 2007, Canal recognized a $89,122 valuation allowance
against its remaining art inventory to reflect management's estimate of the
inventories net realizable value at October 31, 2007. 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.
Other Expense
Other expense of $86,000 for 2007 increased $54,000 from $32,000 in fiscal
2006. In 2007 other expenses are primarily related to the loss incurred by the
Company on the sale of its joint venture investment.
18
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 2006 AND 2005
Real Estate Revenues
Real estate revenues for 2006 of $1.1 million accounted for 25.7% of the
2006 revenues as compared to revenues of $3.4 million or 52.4% for 2005. Real
estate revenues are comprised of sale of real estate (51.2% and 82.9%), rentals
and other lease income from the rental of vacant land and certain structures
(45.9% and 16.2%), rental income from commercial office space in its Exchange
Buildings (2.9% and 0.9%), and other income (0.0% and 0.0%) for 2006 and 2005,
respectively. The 2006 decrease is due primarily to the $2.2 million decrease in
sales of real estate. The other percentage variations in the year to year
comparisons are due primarily to the decrease in real estate sales for fiscal
2006.
Real Estate Expenses
Real estate expenses for 2006 of $0.5 million decreased by $1.2 million
(69.2%) from $1.7 million in 2005. Real estate expenses are comprised of cost of
real estate sold (64.8% and 88.1%), labor, operating and maintenance (17.3% and
4.8%), depreciation and amortization (4.5% and 1.3%), taxes other than income
taxes (7.1% and 4.2%), and general and administrative and other expenses (6.3%
and 1.6%) for 2006 and 2005, respectively. The 2006 decrease in the cost of real
estate sold is due to the decrease in real estate sales discussed above. The
percentage variations in the year to year comparisons of the other real estate
operating expenses is also due to the sharp decrease in cost of real estate sold
in fiscal 2006.
Stockyard Revenues
Stockyard revenues for 2006 of $3.3 million accounted for 74.3% of the
2006 revenues as compared to revenues of $3.1 million or 47.6% for 2005.
Stockyard revenues are comprised of yard handling and auction (90.2% and 91.0%),
feed and bedding income (4.5% and 4.9%), rental and other income (5.3% and 4.1%)
for 2006 and 2005, respectively. The 2006 increase in stockyard revenues as a
percent of total revenues is due to the $2.2 million decrease in sales of real
estate this year. There were no significant percentage variations in the year to
year comparisons.
Stockyard Expenses
Stockyard expenses for 2006 of $2.8 million increased by $0.1 million
(4.3%) from $2.7 million in 2005. Stockyard expenses are comprised of labor and
related costs (48.7% and 52.8%), operating and maintenance (28.5% and 25.1%),
feed and bedding expense (4.6% and 4.4%), depreciation and amortization (0.8%
and 0.8%), taxes other than income taxes (5.9% and 6.0%) and general and
administrative expenses (11.5% and 10.9%) for 2006 and 2005, respectively. The
2006 increase is due primarily to across the board increases consistent with the
revenue increase in fiscal 2006. There were no significant percentage variations
in the year to year comparisons.
19
General and Administrative
General and administrative expenses for 2006 of $1.2 million were
unchanged from 2005. The major components of general and administrative expenses
are officers salaries (41.4% and 40.7%),pension expense (22.4% and 21.2%),
insurance expense (9.0% and 10.1%), office salaries (8.3% and 8.6%), travel
expense (3.4% and 3.0%), rent expense (1.5% and 1.4%) and legal fees (4.7% and
5.5%) for 2006 and 2005, respectively. There were no significant percentage
variations in the year to year comparisons.
Interest Expense
Interest expense for 2006 of $0.3 million decreased slightly (3.1%) from
$0.3 million in 2005. The 2006 decrease is due primarily to a small reduction
($80,000) in the aggregate outstanding long-term debt toward the end of fiscal
2005. Interest rates on Canal's variable rate mortgage notes averaged 10.00% in
2006 and 2005. At October 31, 2006 the outstanding balance of these notes was
$2,687,000.
Interest and Other Income
Interest and other income of $96,000 for 2006 increased $12,000 (14.7%)
from $84,000 in fiscal 2005. Interest and other income is primarily comprised of
dividend and interest income. Included in the 2006 interest and other income is
$72,000 of interest income on the mortgage note receivable associated with the
2004 sale of the St. Paul, Minnesota Exchange Building.
Income from Art Sales
In fiscal 2006, Canal recognized a loss from art sales of $7,000 as
compared to income of $14,000 for fiscal 2005. The 2006 decrease reflects the
overall decrease in sales of art during 2006 as compared to 2005. Art revenues
are comprised of the proceeds from the sale of antiquities and contemporary art.
In fiscal 2006, Canal sold two pieces of contemporary art generating gross
proceeds of $29,000 as compared to fiscal 2005 sales of six pieces of
contemporary art generating gross proceeds of $92,000. Art expenses are
comprised of the cost of inventory sold and selling, general and administrative
expenses. In fiscal 2006, Canal incurred cost of inventory sold of $19,000 (net
of a valuation allowance of $55,000) as well as selling, general and
administrative expenses of $16,000 as compared to fiscal 2005 cost of inventory
sold of $61,000 (net of a valuation allowance of $171,000) and selling, general
and administrative expenses of $17,000. 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.
Other Expense
Other expense of $32,000 for 2006 decreased $7,000 (19.9%) from $39,000 in
fiscal 2005. Other expenses are primarily related to the administration of the
company's pension plans.
20
Related Party Transactions
Interest Expense Related Party - At October 31, 2007, all of Canal's
Long-Term Debt is held by the company's Chief Executive Officer and members of
his family. These notes pay interest at a rate of 10% per annum and come due May
15, 2009. Canal has incurred interest expense on these notes of $269,000,
$270,000 and $279,000 for the years ended October 31, 2007, 2006 and 2005,
respectively. At various times during fiscal 2007 certain holders of these notes
agreed to defer interest payments in the amount of $88,000. This deferred
interest liability accrued additional interest at a rate of 10% per annum, while
outstanding and was repaid as funds became available in the first quarter of
fiscal 2008. As of October 31, 2007, the balance due under these notes was
$2,687,000 all of which is classified as long-term debt related party.
In September, 2007 Canal sold its remaining 12 pieces of contemporary art
to a group which included the Company's Chairman. The 12 pieces were sold for
$100,000 which was approximately $20,000 less than its carrying value. The sale
was reviewed by the independent members of management with the Chairman
abstaining as he was part of the purchasing group. In considering the adequacy
of the offer, independent management, had to give significant weight to the
length of time (18 years) these pieces had been held for resale. In addition the
independent management considered the softness of the current art market;
general economic conditions; Canal's cash flow needs and financial condition;
and the future costs to Canal in continuing to maintain this inventory. After
giving due consideration to all of these factors, independent management,
determined that it was in Canal's best interest to sell its remaining
contemporary art inventory at the price offered. The loss of approximately
$20,000 has been shown as a distribution in stockholders' equity for the year
ended October 31, 2007.
Contractual Obligations
The following table summarizes the Company's commitments as of October 31,
2007 to make future payments under its debt agreements and other contractual
obligations (in 000's):
Less Than 1 - 3 3 - 5 Over
Total 1 year Years Years 5 Yrs.
------ --------- ------ ------ ------
Pension Plan Liability (a) $ 415 $ 95 $ 232 $ 88 $ 0
Mortgage Notes Payable (b) 2,687 0 2,687 0 0
------ ------ ------ ----- -----
$3,102 $ 95 $2,919 $ 88 $ 0
------ ------ ------ ----- -----
(a) See Note 22 and Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(b) The mortgage notes are due May 15, 2009 and are held entirely by the
Company's Chief Executive Officer and members of his family. These
notes carry interest at 10% per annum and are collateralized by
substantially all of Canal's property, the stock of certain
subsidiaries and its art inventories.
21
Liquidity and Capital Resources
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 (See
Note 1). 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.
The Company's variable rate mortgage notes (originally issued in 1998 and
amended several times since then) are due May 15, 2009 and are held entirely by
the Company's Chief Executive Officer and members of his family. 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; 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 October 31, 2007, the balance
due under these notes was $2,687,000, all of which is classified as long-term
debt-related party.
Cash and cash equivalents of $28,000 at October 31, 2007 decreased $10,000
or 26.7% from $38,000 at October 31, 2006. Net cash used by operations in fiscal
2007 was $0.4 million. Substantially all of the 2007 net proceeds from the sale
of real estate and art of $0.2 million was used in operations, to reduce current
liabilities and to meet the company's long-term pension liability.
At October 31, 2007 the Company's current assets exceeded current
liabilities by approximately $1.1 million which represented a decrease of $0.5
million over October 31, 2006 when current assets exceeded current liabilities
by approximately $1.6 million.
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 believes that 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, however, 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.
22
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly financial data for the
eight quarters ended October 31, 2007. This quarterly information is unaudited,
has been prepared on the same basis as the annual financial statements, and, in
our opinion, reflects all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the information for periods
presented.
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2007 2007 2007 2007 TOTAL
-------- --------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REAL ESTATE REVENUES $ 206 $ 131 $ 131 $ 130 $ 598
REAL ESTATE EXPENSES 101 43 42 53 239
------- ------- ------- ------- -------
OPERATING INCOME $ 105 $ 88 $ 89 $ 77 $ 359
------- ------- ------- ------- -------
STOCKYARD REVENUES $ 1,000 $ 849 $ 526 $ 656 $ 3,031
STOCKYARD EXPENSES 788 778 628 729 2,923
------- ------- ------- ------- -------
OPERATING INCOME $ 212 $ 71 $ (102) $ (73) $ 108
------- ------- ------- ------- -------
NET INCOME (LOSS) $ (8) $ (222) $ (336) $ (382) $ (948)
======= ======= ======= ======= =======
NET INCOME (LOSS)
PER COMMON SHARE:
BASIC & DILUTED $ (0.01) $ (0.06) $ (0.08) $ (0.10) $ (0.25)
======= ======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF SHARES:
BASIC & DILUTED 4,327 4,327 4,327 4,327 4,327
======= ======= ======= ======= =======
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2006 2006 2006 2006 TOTAL
-------- --------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REAL ESTATE REVENUES $ 463 $ 191 $ 137 $ 342 $ 1,133
REAL ESTATE EXPENSES 271 70 45 137 523
------- ------- ------- ------- -------
OPERATING INCOME $ 192 $ 121 $ 92 $ 205 $ 610
------- ------- ------- ------- -------
STOCKYARD REVENUES $ 1,047 $ 882 $ 654 $ 688 $ 3,271
STOCKYARD EXPENSES 784 709 643 660 2,796
------- ------- ------- ------- -------
OPERATING INCOME $ 263 $ 173 $ 11 $ 28 $ 475
------- ------- ------- ------- -------
NET INCOME (LOSS) $ 123 $ (29) $ (221) $ (195) $ (322)
======= ======= ======= ======= =======
NET INCOME (LOSS)
PER COMMON SHARE:
BASIC & DILUTED $ 0.03 $ (0.01) $ (0.06) $ (0.06) $ (0.10)
======= ======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF SHARES:
BASIC & DILUTED 4,327 4,327 4,327 4,327 4,327
======= ======= ======= ======= =======
23
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses
from market risk sensitive instruments attributable to reasonably possible
market changes. Market risk sensitive instruments include all financial or
commodity instruments and other financial instruments (such as investments
and debt) that are sensitive to future changes in interest rates, currency
exchange rates, commodity prices or other market factors. We are not
exposed to market risks from changes in foreign currency exchange rates or
commodity prices. We do not hold derivative financial instruments nor do
we hold securities for trading or speculative purposes. Under our current
policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes.
At October 31, 2007, the following long-term debt-related party financial
instruments are sensitive to changes in interest rates by expected
maturity dates:
As of Fixed rate Average Fair
October 31, ($ US) Interest Rate Value
----------- ---------- ------------- -----
2008 $ 0 N/A
2009 2,687 10%
2010 0 N/A
2011 0 N/A
2012 0 N/A
Thereafter 0 N/A
-------
Total $ 2,687 N/A (A)
------- -------
(A) Long-term debt related party (See Note 5): it is not practicable to
estimate the fair value of the related party debt (See Note 18).
24
ITEM 8. Financial Statements and Supplemental Data
The financial statements filed as part of this Annual Report are
identified in the Index to Consolidated Financial Statements on page F-1 hereto
and are set forth on pages F-2 through F-31 included in Item 15(A) of the
report.
ITEM 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15 (e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this Annual Report.
Based on such evaluation, such officers have concluded that, as of such date,
our disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to Canal Capital Corporation (and
its consolidated subsidiaries) required to be included in our reports filed or
submitted under the Exchange Act.
Changes in Internal Control over Financial Reporting. There were no
significant changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. Other Information
None.
25
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The company's Board of Directors is comprised of two non-independent
directors, the Chairman, Asher B. Edelman and the President, Michael E. Schultz.
Due to the limited number of directors, the creation of numerous independent
committees is not feasible. During fiscal 2007, the Board of Directors held
three meetings.
In addition to Messrs. Edelman and Schultz, there is one additional
executive officer, Reginald Schauder, Vice President and Chief Financial
Officer. Due to, among other things, the financial condition of the company and
the limited number of executive officers, the company has not adopted a code of
ethics that applies to the Company's principle executive officer, principle
financial and accounting officer, or persons performing similar functions. The
Company has not adopted such a code of ethics because all of management's
efforts have been directed to maintaining the business of the Company. At a
later time, a code of ethics may be adopted by the Board of Directors.
The following information with respect to the principal occupation or
employment of each director and executive officer and the name and principal
business of the Company or other organization in which such occupation or
employment is carried on, and in regard to other affiliations and business
experience during the past five years, has been furnished to the Company by the
respective directors.
Asher B. Edelman, age 68, has been Chairman of the Board since September
1991 and prior thereto Vice Chairman of the Board and Chairman of the Executive
Committee since February, 1985. Mr. Edelman was a Director, Vice-Chairman of the
Board, and Chairman of the Executive Committee of The CattleSale Company
formerly known as Dynacore Holdings Corporation, ("CattleSale") from March 1985
to December 2003.
Michael E. Schultz, age 71, has been President and Chief Executive Officer
since September 1991 and a Director since 1985; and had been a partner in the
law firm of Ehrenkranz, Ehrenkranz & Schultz until December 31, 1994.
Reginald Schauder, age 58, has been Vice President, Chief Financial
Officer and Treasurer since January 1989 and assumed responsibility as Secretary
of the Company in September 1995.
There are no family relationships between any of the aforementioned
executive officers of the Registrant and such executive officers were elected to
serve for a term of one year or until the election and qualification of their
respective successors.
26
ITEM 11. Executive Compensation
The following table summarizes the compensation of the Company's Chief
Executive Officer and the other two executive officers of the Company whose
salary for fiscal 2007 exceeded $100,000.
SUMMARY COMPENSATION TABLE - Annual Compensation
Name and Principal
Position Year Salary
------------------ ---- ----------
Michael E. Schultz 2007 $ 175,000
President and Chief 2006 $ 175,000
Executive Officer 2005 $ 175,000
Asher B. Edelman 2007 $ 175,000
Chairman of the Board 2006 $ 175,000
and Executive Committee 2005 $ 175,000
Reginald Schauder 2007 $ 124,000
Vice President, Chief 2006 $ 115,000
Financial Officer 2005 $ 115,000
Treasurer and Secretary
In order to help ease the stress on the Company's cash flow, Messrs.
Edelman and Schultz each agreed to defer receipt for $55,000 of their annual
salaries effective June 1, 2001. Additionally, effective November 1, 2006 Mr.
Schauder agreed to defer receipt for $12,000 of his annual salary. These amounts
are accrued by the Company with payments made from time to time as cash becomes
available to the Company. At October 31, 2007, the total liability under these
agreements was $129,000. Additionally, Mr. Schultz has deferred interest and
other reimbursable expenses in the amount of approximately $95,000 as of October
31, 2007. All of the outstanding liability under these agreements was repaid in
the first quarter of fiscal 2008.
Retirement Plans - The Canal Capital Corporation Retirement Plan (the
"Retirement Plan") provides benefits to eligible employees of the Company and
its subsidiaries and affiliates. Directors who are not employees are not
eligible to participate in the Retirement Plan. The Retirement Plan is
administered by the Company. All Company contributions under the Retirement Plan
were deposited with an insurance company and invested in a group annuity
contract through May 30, 1985. Thereafter, all Company contributions have been
held in trust under a Trust Agreement between the Company and the Executive
Committee of the Board of Directors, as trustee. Contributions to the Retirement
Plan are determined on an actuarial basis, without individual allocation.
27
In October 1991, each of three executive officers of the Company
voluntarily withdrew from participation in the Retirement Plan. As a result of
prior service, Messrs. Edelman and Schauder have deferred annual accumulated
benefits of approximately $1,300 and $600, respectively, as of October 31, 2007.
Mr. Schultz has no benefit under the Retirement Plan. For further information on
the Retirement Plan (see Note 22).
COMPENSATION OF DIRECTORS
Fees and Expenses; Other Benefits
Directors who are not officers of the Company (if any) do not receive cash
compensation for service as Directors. Directors are reimbursed for expenses
incurred in attending Board and Committee meetings, including those for travel,
food and lodging. There have been no expense reimbursements made in the past
three years.
Stock Options for Directors
The Company maintains an option plan for the benefit of directors of the
Company -- the 1985 Directors' Stock Option Plan (the "1985 Plan"), which was
approved by the stockholders of the Company on March 12, 1986. Pursuant to the
1985 Plan, a maximum of 264,000 shares of common stock, $0.01 par value per
share, of the Company have been reserved for issuance to directors and members
of the Executive Committee of the Company and its subsidiaries.
Options granted under the 1985 Plan are non-qualified stock options and
have an exercise price equal to 100% of fair market value of the shares on the
date of grant. The options may be exercised no earlier than one year from the
date of grant and no later than ten years after the date of grant. Under the
1985 Plan, options covering 22,000 shares are automatically granted to each new
director upon the effective date of his election to office and options covering
5,500 shares are automatically granted to each new member of the Executive
Committee upon the effective date of his appointment to office.
During the 2007 fiscal year, no options under the 1985 plan were granted
and no options previously granted were exercised. At October 31, 2007, there
were no options outstanding under the 1985 Plan.
Compensation Committee - Interlocks and Insider Participation
The Board of Directors (comprised of Asher B. Edelman, Chairman of the
Board and Chairman of the Executive Committee, Michael E. Schultz, President and
Chief Executive Officer) determines the compensation of the Chief Executive
Officer and the Company's other executive officers and administers the Company's
1984 Employees Stock Option Plan and 1985 Directors Stock Option Plan.
28
In connection with the Company's investment activities, the Executive
Committee of the Board of Directors, through Mr. Edelman, has the authority to
invest funds of the Company in securities of other companies. In the past, the
Company had been invested in the securities of other companies in which Mr.
Edelman, other directors of the Company or their affiliates were directors or
officers, or in which one or more of such persons may also have invested. Since
November 1, 1993, such companies included The CattleSale Company (formerly known
as Dynacore Holdings Corporation). The Company has filed with the SEC Schedules
13D jointly with Plaza, Mr. Edelman, Edelman Management, Edelman Limited
Partnership, certain investment partnerships of which Mr. Edelman is sole or
controlling general partner, certain of the companies referred to in the
preceding sentence and other persons, indicating that the filing parties
constitute groups for purposes of such filings with respect to the acquisition
of securities in the companies referred to in the preceding sentence. At October
31, 2007, the Company had no such investments.
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
To the knowledge of the Company, the only beneficial owners of 5% or more
of the voting stock of the Company (other than those listed below under
"Securities Owned by Management") as of January 15, 2008 were:
SECURITIES BENEFICIALLY OWNED
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
---- ---------------------- ---------------
Asher B. Edelman 1,909,605 (c) 44.13
Michael E. Schultz 58,835 (c) 1.36
William G. Walters 234,440 (b) 5.42
(a) Under applicable regulations of the Securities and Exchange Commission
(the "SEC"), a person who has or shares the power to direct the voting or
disposition of stock is considered a "beneficial owner". Each individual
referred to in the above table has the sole power to direct the voting and
disposition of the shares shown.
(b) The number reported herein for Mr. Walters includes 117,220 shares
owned by Mr. Walters, 117,220 shares owned by Whale Securities Co., L.P., of
which Mr. Walters is Chief Executive Officer. Mr. Walters has sole power to vote
and dispose of the shares described herein.
(c) For additional information about beneficial ownership see "Securities
Owned by Management" below.
29
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of January 15, 2008,
with respect to the beneficial ownership of the Company's Common Stock with
respect to all persons who are directors, each of the executives named in the
Executive Compensation Table and by all directors and officers as of the most
practical date. Unless otherwise indicated, the percentage of stock owned
constitutes less than one percent of the outstanding Common Stock and the
beneficial ownership for each person consists of sole voting and sole investment
power.
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
---- ---------------------- ---------------
Asher B. Edelman 1,909,605 (b) 44.13
Reginald Schauder 100 (c) 0.01
Michael E. Schultz 58,835 (d)(e) 1.36
---------
All Directors and Officers
as a group (3 persons) 1,968,540 45.50
=========
(a) Under applicable regulations of the Securities and Exchange Commission
(the "SEC"), a person who has or shares the power to direct the voting or
disposition of stock is considered a "beneficial owner". Each director and
officer referred to in the above table has the sole power to direct the voting
and disposition of the shares shown, except as otherwise set forth in footnote
(e)below.
(b) The number reported herein for Mr. Edelman includes 31,300 shares held
in Mr. Edelman's retirement plan, 1,017,220 shares owned by A.B. Edelman Limited
Partnership ("Edelman Limited Partnership"), of which Mr. Edelman is the sole
general partner, 590,186 shares of common stock owned by the Edelman Family
Partnership, L.P. ("Edelman Family Partnership"), of which Mr. Edelman is the
general partner, 43,830 shares of common stock owned by Edelman Value Partners,
L.P. ("Value Partners"), of which Mr. Edelman is the sole stockholder of the
general partner, 26,620 shares of common stock held by Canal Capital Corporation
Retirement Plan ("Canal Retirement Plan"), of which Mr. Edelman serves as a
trustee, 8,400 shares owned by Aile Blanche, Inc., of which Mr. Edelman is the
sole stockholder and 3,399 shares owned by Felicitas Partners, L.P.
("Felicitas"), the general partner of which is Citas Partners ("Citas") of which
Mr. Edelman is the controlling general partner. Edelman Limited Partnership has
the sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the sole general partner of Edelman Limited
Partnership. Edelman Family Partnership has the
30
sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the general partner. Value Partners has shared
power to vote and dispose of the shares owned by it. The power to dispose of
such shares is exercisable by A. B. Edelman Management Company, Inc., a
corporation controlled by Mr. Edelman as the sole stockholder. Canal Retirement
Plan has the sole power to vote and dispose of the shares owned by it, which
power is exercisable by Mr. Edelman as trustee. Aile Blanche, Inc. has the sole
power to vote and dispose of the shares owned by it, which power is exercisable
by Mr. Edelman as President. Felicitas has the sole power to vote and dispose of
the shares owned by it, which power is exercisable by Mr. Edelman as the
controlling general partner of Citas. Additionally, the number reported herein
for Mr. Edelman includes 188,650 shares of common stock held in three Uniform
Gifts to Minors Act accounts for the benefit of Mr. Edelman's children of which
Mr. Edelman is the custodian.
(c) Represents 100 shares owned directly.
(d) Represents 58,835 shares owned directly.
(e) The number reported herein for Mr. Schultz excludes 26,620 shares of
common stock held by the Canal Capital Corporation Retirement Plan of which Mr.
Schultz serves as a trustee, as to which Mr. Schultz expressly disclaims
beneficial ownership.
ITEM 13. Certain Relationships and Related Transactions
See: Item 11 "Compensation Committee Interlocks and Insider
Participation"
ITEM 14. Principal Accounting Fees and Services
The following fees were billed to us by Todman & Co., CPAs, PC during
fiscal 2007 and 2006:
2007 2006
---- ----
Audit fees $55,000 $55,000
Tax fees 8,000 0
All other fees 3,000 3,000
------- -------
$66,000 $58,000
======= =======
Audit-related fees include statutory audits and Sarbanes-Oxley related
consultation. Other fees primarily consist of routine advisory services.
The Board of Directors of Canal has determined that Todman & Co., CPAs, PC
provision of non-audit services is compatible with maintaining the
independence of Todman & Co., CPAs PC.
31
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements and Notes
See accompanying index to consolidated financial statements.
2. Schedules and Supplementary Note
None
3. Exhibits
See accompanying index to exhibits.
(b) 1. Reports on Form 8-K
None
32
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Item 15(a)(3). Exhibits -
The following exhibits required by Item 601 of Regulations S-K are filed
as part of this report. For convenience of reference, the exhibits are listed
according to the numbers appearing in Table I to Item 601 of Regulation S-K.
Each exhibit which is incorporated by reference and the document in which such
exhibit was originally filed are indicated in parentheses immediately following
the description of such exhibit.
Exhibit No.
-----------
3(a) Restated Certificate of Incorporation (filed as Exhibit 3(a)
to the Registrant's Registration Statement on Form 10 filed
with the Securities and Exchange Commission on May 3, 1984
(the "Form 10") and incorporated herein by reference).
3(b) Bylaws (filed as Exhibit 3(b) to the Registrant's Registration
Statement on Form 10 and incorporated herein by reference).
3(c) Certificate of Amendment of the Restated Certificate of
Incorporation dated September 22, 1988 (filed as Exhibit 3(c)
to the Registrant's Form 10-K filed January 29, 1989 and
incorporated herein by reference).
10(a) 1984 Stock Option Plan (1) (see Exhibit A included in the
Registrant's Proxy Statement dated January 31, 1985, relating
to the annual meeting of stockholders held March 18, 1985,
which exhibit is incorporated herein by reference).
10(b) Form of Incentive Stock Option Agreement (filed as Exhibit
10(b) to the Registrant's Form 10-K filed January 31, 1986 and
incorporated herein by reference).
10(c) 1985 Directors' Stock Option Plan (1) (See Exhibit A included
in the Registrant's Proxy Statement dated January 31, 1986,
relating to the annual meeting of stockholders held March 12,
1986, which exhibit is incorporated herein by reference).
10(d) Form of Directors' Stock Option Agreement (filed as Exhibit
10(ab) to the Registrant's Form 10-K filed January 29, 1986
and incorporated herein by reference).
10(e) Stock Pledge and Security Agreement dated January 8, 1998 by
and between Canal Capital Corporation, SY Trading Corporation
and CCC Lending Corporation (filed as Exhibit 10 (ai) to the
Registrant's Form 10-K filed January 30, 1998 and incorporated
herein by reference).
33
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
-----------
10(f) Security Agreement dated January 8, 1998 by and between Canal
Capital Corporation, Canal Galleries Corporation, Canal Arts
Corporation and CCC Lending Corporation (filed as Exhibit 10
(an) to the Registrant's Form 10-K filed January 30, 1998 and
incorporated herein by reference).
10(g) $1,000,000 Promissory Note dated January 8, 1998 by and
between Michael E. Schultz and Canal Capital Corporation
(filed as Exhibit 10 (ao) to the Registrant's Form 10-K filed
January 30, 1998 and incorporated herein by reference).
10(h) $242,000 Promissory Note dated January 8, 1998 by and between
Michael E. Schultz Defined Benefit Trust and Canal Capital
Corporation (filed as Exhibit 10 (ap) to the Registrant's Form
10-K filed January 30, 1998 and incorporated herein by
reference).
10(i) $229,000 Promissory Note dated January 8, 1998 by and between
Lora K. Schultz and Canal Capital Corporation (filed as
Exhibit 10 (aq) to the Registrant's Form 10-K filed January
30, 1998 and incorporated herein by reference).
10(j) $186,000 Promissory Note dated January 8, 1998 by and between
Roger A. Schultz Pension Plan and Canal Capital Corporation
(filed as Exhibit 10 (ar) to the Registrant's Form 10-K filed
January 30, 1998 and incorporated herein by reference).
10(k) $143,000 Promissory Note dated January 8, 1998 by and between
Richard A. Schultz and Canal Capital Corporation (filed as
Exhibit 10 (as) to the Registrant's Form 10-K filed January
30, 1998 and incorporated herein by reference).
22 Subsidiaries of the registrant.
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
34
INVESTOR INFORMATION
Annual Meeting Corporate Headquarters
The Annual Meeting of Shareholders 490 Wheeler Road, Suite 185
of Canal Capital Corporation will Hauppauge, NY 11788
be held in our offices at 490
Wheeler Road, Suite 185, Hauppauge,
NY, 11788 on a date to be announced.
Stock Certificates
The Board of Directors of Canal Inquiries regarding change of
Capital Corporation urges all name or address, or to replace
shareholders to vote their shares lost certificates should be made
in person or by proxy and thus directly to American Stock
participate in the decisions that Transfer and Trust Co., 59 Maiden
will be made at the annual meeting. Lane, New York, NY 10007 or
telephone (718) 921-8200
Stock Listing
Canal Capital Corporation common stock Auditors
is traded on the over-the-counter
market through the "pink sheets".
Todman & Co., CPAs, P.C.
120 Broadway
New York, NY 10271
Investment Analyst Inquiries General Counsel
Analyst inquiries are welcome. Proskauer Rose LLP
1585 Broadway
Phone or write: Michael E. Schultz, New York, NY 10036
President at (631) 234-0140 (212) 969-3000
35
FORM 10-K -- ITEM 15(a)(1) and (2)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The following documents are filed as part of this report:
(a) 1. Financial Statements --
Report of Independent Registered Public Accounting
Firm ................................................. F-2
Consolidated Balance Sheets as of October 31, 2007
and 2006.............................................. F-3
Consolidated Statements of Operations and Comprehensive
(Loss) Income for the years ended October 31, 2007,
2006 and 2005......................................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended October 31, 2007, 2006 and 2005 ........... F-7
Consolidated Statements of Cash Flows for the
years ended October 31, 2007, 2006 and 2005............ F-8
Notes to Consolidated Financial Statements................ F-10
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of Canal Capital Corporation:
We have audited the accompanying consolidated balance sheets of Canal
Capital Corporation (a Delaware corporation) and Subsidiaries (the "Company") as
of October 31, 2007 and 2006, and the related consolidated statements of
operations and comprehensive (loss) income, stockholders' equity, and cash flows
for each of the three years in the period ended October 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States) . Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Canal Capital
Corporation and Subsidiaries at October 31, 2007 and 2006, and the results of
their operations and their cash flows for each of the three years in the period
ended October 31, 2007, in conformity with U.S. generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and is obligated to continue making substantial annual contributions to its
defined benefit pension plan. All of these matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. 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.
/S/ Todman & Co., CPAs,P.C.
---------------------------
New York, New York TODMAN & CO., CPAs, P.C.
January 25, 2008 Certified Public Accountants (N.Y.)
F-2
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31,
-------------------------
2007 2006
---- ----
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 27,925 $ 38,121
MORTGAGE NOTE RECEIVABLE 1,600,000 1,750,000
NOTES AND ACCOUNTS RECEIVABLE, NET OF AN
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
ZERO AT BOTH OCTOBER 31, 2007 AND 2006 75,879 117,128
ART INVENTORY, NET OF A VALUATION ALLOWANCE
OF $ 396,522 AND $713,000 AT OCTOBER
31, 2007 AND 2006, RESPECTIVELY 100,000 333,000
STOCKYARDS INVENTORY 16,761 11,270
PREPAID EXPENSES 28,839 33,885
---------- ----------
TOTAL CURRENT ASSETS 1,849,404 2,283,404
---------- ----------
NON-CURRENT ASSETS:
PROPERTY ON OPERATING LEASES, NET OF
ACCUMULATED DEPRECIATION OF $ 405,799
AND $ 383,624 AT OCTOBER 31, 2007
AND 2006, RESPECTIVELY 1,741,007 1,763,182
---------- ----------
PROPERTY USED IN STOCKYARD OPERATIONS, NET OF
ACCUMULATED DEPRECIATION OF $ 210,872
AND $ 191,052 AT OCTOBER 31, 2007 AND
2006, RESPECTIVELY 1,079,843 1,099,661
---------- ----------
OTHER ASSETS:
PROPERTY HELD FOR DEVELOPMENT OR RESALE 91,510 149,260
RESTRICTED CASH - TRANSIT INSURANCE 44,952 49,746
DEPOSITS AND OTHER 2,700 113,720
---------- ----------
139,162 312,726
---------- ----------
$4,809,416 $5,458,973
========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31,
----------------------------
2007 2006
---- ----
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES $ 269,105 $ 282,968
PENSION PLAN PAYABLE 94,677 126,844
SALARIES AND INTEREST PAYABLE - OFFICERS 223,916 11,873
ACCRUED PROFESSIONAL FEES 110,000 112,417
COMMERCIAL RENT TAX PAYABLE 0 61,500
INCOME TAXES PAYABLE 10,000 10,000
------------ ------------
TOTAL CURRENT LIABILITIES 707,698 605,602
------------ ------------
NON-CURRENT LIABILITIES:
LONG-TERM PENSION LIABILITY 320,140 331,271
REAL ESTATE TAXES PAYABLE 108,982 104,437
------------ ------------
TOTAL NON-CURRENT LIABILITIES 429,122 435,708
------------ ------------
LONG-TERM DEBT, RELATED PARTY 2,687,000 2,687,000
------------ ------------
COMMITMENTS AND CONTINGENCIES NOTE 15
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.01 PAR VALUE:
10,000,000 SHARES AUTHORIZED; 9,102,655 AND
8,014,137 SHARES ISSUED AND OUTSTANDING AT
OCTOBER 31, 2007 AND 2006, RESPECTIVELY AND
AGGREGATE LIQUIDATION PREFERENCE OF $10.00
PER SHARE FOR $ 91,026,550 AND $ 80,141,370
AT OCTOBER 31, 2007 AND 2006, RESPECTIVELY 91,027 80,141
COMMON STOCK, $0.01 PAR VALUE:
10,000,000 SHARES AUTHORIZED; 5,313,794
SHARES ISSUED & 4,326,929 SHARES OUTSTANDING
AT OCTOBER 31, 2007 AND 2006, RESPECTIVELY 53,138 53,138
ADDITIONAL PAID-IN CAPITAL 28,322,341 28,224,358
ACCUMULATED DEFICIT (14,885,103) (13,811,198)
986,865 SHARES OF COMMON STOCK
HELD IN TREASURY, AT COST (11,003,545) (11,003,545)
COMPREHENSIVE INCOME (LOSS):
PENSION VALUATION RESERVE (1,592,262) (1,812,231)
------------ ------------
985,596 1,730,663
------------ ------------
$ 4,809,416 $ 5,458,973
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
October 31,
---------------------------------------------
2007 2006 2005
---- ---- ----
REAL ESTATE OPERATIONS:
REAL ESTATE REVENUES:
SALE OF REAL ESTATE $ 75,000 $ 580,000 $ 2,810,000
OUTSIDE REAL ESTATE RENT 492,435 519,734 550,571
EXCHANGE BUILDING RENT 30,870 33,134 30,564
OTHER INCOME 0 0 0
----------- ----------- -----------
598,305 1,132,868 3,391,135
----------- ----------- -----------
REAL ESTATE EXPENSES:
COST OF REAL ESTATE SOLD 56,711 338,756 1,495,345
LABOR, OPERATING AND MAINTENANCE 79,362 90,674 82,204
DEPRECIATION AND AMORTIZATION 22,175 23,676 22,200
TAXES OTHER THAN INCOME TAXES 26,400 37,200 72,000
LOSS ON ABANDONMENT 11,275 0 0
GENERAL AND ADMINISTRATIVE 42,822 32,400 26,500
----------- ----------- -----------
238,745 522,706 1,698,249
----------- ----------- -----------
INCOME FROM REAL ESTATE OPERATIONS 359,560 610,162 1,692,886
----------- ----------- -----------
STOCKYARD OPERATIONS:
STOCKYARD REVENUES:
YARD HANDLING AND AUCTION 2,681,159 2,949,367 2,798,927
FEED AND BEDDING INCOME 182,430 147,147 150,009
RENTAL & OTHER INCOME 167,536 174,674 126,878
----------- ----------- -----------
3,031,125 3,271,188 3,075,814
----------- ----------- -----------
STOCKYARD EXPENSES:
LABOR AND RELATED COSTS 1,412,823 1,361,572 1,414,847
OTHER OPERATING AND MAINTENANCE 797,973 796,627 672,470
FEED AND BEDDING EXPENSE 161,776 129,012 116,464
DEPRECIATION AND AMORTIZATION 19,817 21,597 20,947
TAXES OTHER THAN INCOME TAXES 174,883 166,256 161,575
GENERAL AND ADMINISTRATIVE 356,169 320,829 293,875
----------- ----------- -----------
2,923,441 2,795,893 2,680,178
----------- ----------- -----------
INCOME FROM STOCKYARD OPERATIONS 107,684 475,295 395,636
----------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSE (1,114,429) (1,195,596) (1,151,543)
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (647,185) (110,139) 936,979
----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
Continued ...
October 31,
---------------------------------------------
2007 2006 2005
---- ---- ----
OTHER (EXPENSES) INCOME:
INTEREST AND OTHER INCOME 125,986 96,296 83,974
INTEREST EXPENSE-RELATED PARTY (268,993) (270,482) (279,183)
INCOME (LOSS) FROM ART SALES 17,124 (6,520) 13,806
LOSS - WRITE DOWN ART INVENTORY (89,122) 0 0
LOSS ON SALE OF JOINT VENTURE (86,020) (31,579) (39,410)
OTHER EXPENSE 0 0 0
----------- ----------- -----------
(301,025) (212,285) (220,813)
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES (948,210) (322,424) 716,166
PROVISION FOR INCOME TAXES 0 0 0
----------- ----------- -----------
NET (LOSS) INCOME (948,210) (322,424) 716,166
OTHER COMPREHENSIVE INCOME:
MINIMUM PENSION LIABILITY ADJUSTMENT 233,635 236,456 201,402
----------- ----------- -----------
COMPREHENSIVE (LOSS) INCOME $ (714,575) $ (85,968) $ 917,568
=========== =========== ===========
NET (LOSS) INCOME PER COMMON SHARE:
- BASIC $ (0.25) $ (0.10) $ 0.15
- DILUTED $ (0.25) $ (0.10) $ 0.15
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,326,929 4,326,929 4,326,929
- DILUTED 4,326,929 4,326,929 4,326,929
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 2007, 2006, AND 2005
COMMON STOCK PREFERRED STOCK
NUMBER NUMBER
OF OF
SHARES AMOUNT SHARES AMOUNT
BALANCE, NOVEMBER 1, 2004 5,313,794 $ 53,138 6,198,367 $ 61,984
NET INCOME 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 852,469 8,524
MINIMUM PEN. LIAB. ADJ. 0 0 0 0
----------------------- -----------------------
BALANCE, OCTOBER 31, 2005 5,313,794 $ 53,138 7,050,836 $ 70,508
NET LOSS 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 963,301 9,633
MINIMUM PEN. LIAB. ADJ. 0 0 0 0
----------------------- -----------------------
BALANCE, OCTOBER 31, 2006 5,313,794 $ 53,138 8,014,137 $ 80,141
NET LOSS 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 1,088,518 10,886
DISTRIBUTION 0 0 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 0 0
----------------------- -----------------------
BALANCE, OCTOBER 31, 2007 5,313,794 $ 53,138 9,102,655 $ 91,027
======================= =======================
ADDITIONAL TREASURY STOCK,
PAID-IN ACCUMULATED COMPREHENSIVE AT COST
CAPITAL DEFICIT (LOSS)INCOME 986,865 SHARES
BALANCE, NOVEMBER 1, 2004 $ 28,060,908 ($14,031,634) ($ 2,250,089) ($11,003,545)
NET INCOME 0 716,166 0 0
PREFERRED STOCK DIVIDEND 76,739 (81,112) 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 201,402 0
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 2005 $ 28,137,647 ($13,396,580) ($ 2,048,687) ($11,003,545)
NET LOSS 0 (322,424) 0 0
PREFERRED STOCK DIVIDEND 86,711 (92,194) 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 236,456 0
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 2006 $ 28,224,358 ($13,811,198) ($ 1,812,231) ($11,003,545)
NET LOSS 0 (948,210) 0 0
PREFERRED STOCK DIVIDEND 97,983 (104,717) 0 0
DISTRIBUTION 0 (20,978) 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 219,969 0
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 2007 $ 28,322,341 ($14,885,103) ($ 1,592,262) ($11,003,545)
============ ============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENT
F-7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OCTOBER 31,
---------------------------------------------
2007 2006 2005
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $ (948,210) $ (322,424) $ 716,166
----------- ----------- -----------
ADJUSTMENTS TO RECONCILE NET (LOSS)
INCOME TO NET CASH (USED) BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 41,992 45,273 48,147
GAIN ON SALES OF REAL ESTATE (18,289) (241,244) (1,314,655)
LOSS ON ABANDONMENT 11,275 0 0
LOSS ON SALE OF JOINT VENTURE 86,020 0 0
LOSS (GAIN) ON ART SALES (NET OF RESERVE) (17,124) 6,520 (13,806)
MINIMUM PENSION LIABILITY ADJUSTMENT 219,969 236,456 201,402
VALUATION RESERVE - ART INVENTORY 89,122 0 0
PREFERRED STOCK ISSUED IN LIEU OF
OFFICER COMPENSATION 4,150 4,150 4,151
DECREASE (INCREASE) IN ASSETS:
NOTES AND ACCOUNTS RECEIVABLE 41,249 54,776 109,629
STOCKYARDS INVENTORY (5,491) 385 (1,533)
PREPAID EXPENSES 5,046 (987) 87
RESTRICTED CASH - TRANSIT INSURANCE 4,794 (8,418) 8,672
DEFERRED LEASING AND FINANCING COSTS 0 0 12,075
DEPOSITS AND OTHER 0 0 6,500
INCREASE (DECREASE) IN LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (13,863) (100,587) (30,751)
PENSION PLAN PAYABLE (43,298) (120,616) (356,245)
SALARIES AND INTEREST PAYABLE - OFFICERS 307,345 (58,386) (149,008)
ACCRUED PROFESSIONAL FEES (2,417) (27,583) 3,009
COMMERCIAL RENT TAX PAYABLE (61,500) 61,500 0
INCOME TAXES PAYABLE 0 0 0
REAL ESTATE TAXES PAYABLE 4,545 (27,563) (176,116)
----------- ----------- -----------
TOTAL ADJUSTMENTS 653,525 (176,324) (1,648,442)
----------- ----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (294,685) (498,748) (932,276)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF REAL ESTATE 75,000 580,000 1,060,000
PROCEEDS FROM SALES OF ART 63,198 28,800 91,700
PROCEEDS FROM MORTGAGE NOTE RECEIVABLE 150,000 0 0
PROCEEDS FROM SALE OF JOINT VENTURE 25,000 0 0
COSTS RELATING TO SALES OF REAL ESTATE (10,236) (135,201) (129,298)
COSTS RELATING TO SALES OF ART - NET (18,473) (15,920) (17,094)
----------- ----------- -----------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 284,489 457,679 1,005,308
----------- ----------- -----------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
F-8
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued...
OCTOBER 31,
---------------------------------------------
2007 2006 2005
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENT OF LONG-TERM DEBT OBLIGATIONS 0 0 (80,000)
PROCEEDS FROM LONG-TERM DEBT ISSUED 0 0 0
PREFERRED STOCK CASH DIVIDEND 0 0 0
PREFERRED STOCK REPURCHASE 0 0 0
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 0 0 (80,000)
----------- ----------- -----------
NET (DECREASE ) INCREASE IN CASH AND CASH
EQUIVALENTS (10,196) (41,069) (6,968)
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR 38,121 79,190 86,158
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 27,925 $ 38,121 $ 79,190
=========== =========== ===========
OCTOBER 31,
---------------------------------------------
2007 2006 2005
---- ---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $ 268,993 $ 270,482 $ 279,183
=========== =========== ===========
INCOME TAXES $ 5,000 $ 11,000 $ 14,000
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
MORTGAGE NOTE RECEIVED FOR SALE OF
REAL ESTATE $ 0 $ 0 $ 1,750,000
=========== =========== ===========
PREFERRED STOCK DIVIDENDS $ 104,717 $ 92,194 $ 81,112
=========== =========== ===========
PROCEEDS FROM SALE OF ART INVENTORY
APPLIED TO REDUCE SALARIES AND
INTEREST PAYABLE - OFFICERS $ 95,302 $ 0 $ 0
=========== =========== ===========
LOSS INCURRED FROM SALE OF ART INVENTORY
TO RELATED PARTY REPORTED AS A
DISTRIBUTION TO SHAREHOLDER $ 20,978 $ 0 $ 0
=========== =========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
F-9
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO 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.
General - 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 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 believes
that 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, however, be no assurance that Canal will
be able to effectuate its planned 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 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 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.
Its principal real estate operating revenues are derived from lease income from
land and structures leased to various commercial and retail enterprises, rental
income from its Exchange Building, and proceeds from the sale of real estate
properties. In addition to selling what was excess stockyard property, the
company entertains any offers to purchase, develop and restructure real estate
lots surrounding its existing operating lease properties, stockyard operating
properties and properties held for development or resale in order to enhance the
value of the existing properties and surrounding real estate.
F-10
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stockyard Operations - Through an August 1, 1999 asset repurchase
agreement, Canal now operates two central public stockyards located in St.
Joseph, Missouri and Sioux Falls, South Dakota.
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 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.
Actual marketing transactions at a stockyard are managed for livestock
producers by market agencies and independent commission sales people to which
the livestock are consigned for sale. These market agencies (some of which are
owned and operated by the Company) and independent sales people receive
commissions from the seller upon settlement of a transaction and the stockyard
receives a yardage fee on all livestock using the facility which is paid within
twenty-four hours of the sale. Yardage fees vary depending upon the type of
animal, the extent of services provided by the stockyard, and local competition.
Yardage revenues are not directly dependent upon market prices, but rather are a
function of the volume of livestock handled. In general, stockyard livestock
volume is dependent upon conditions affecting livestock production and upon the
market agencies and independent commission sales people which operate at the
stockyards. Stockyard operations are seasonal, with greater volume generally
experienced during the first and fourth quarters of each fiscal year, during
which periods livestock is generally brought to market.
Virtually all of the volume at Canal's Sioux Falls stockyards is handled
through market agencies and independent commission sales people, while the St.
Joseph stockyards has solicitation operations of its own which account for
approximately 50% of its livestock volume annually.
Canal intends to continue its soliciting efforts at its St. Joseph
stockyards in fiscal 2008. Further, Canal tries to balance its dependence on
market agencies and independent commission sales people in various ways,
including: developing solicitation operations of its own; direct public
relations; advertising and personal solicitation of producers on behalf of the
stockyards; providing additional services at the stockyards to attract sellers
and buyers; and providing incentives to market agencies and independent
commission sales people for increased business.
F-11
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
A) Principles of Consolidation -- The consolidated financial statements
include the accounts of Canal Capital Corporation ("Canal") and its wholly-owned
subsidiaries ("the Company"). All material intercompany balances and
transactions have been eliminated in consolidation.
B) Investments in Joint Venture -- Investment in which ownership interest
range from 20% to 50% or less owned joint venture is accounted for under the
equity method. The joint venture is not, in the aggregate, material in relation
to the financial position or results of operations of Canal. The carrying amount
of such investment was $111,000 at October 31, 2006 and was included in other
assets. During the 2007 fiscal year the Company sold its investment back to the
Joint Venture at the Company's original purchase price of $25,000 and recorded a
loss of approximately $86,000 on the sale. The operating results of the joint
venture were accounted for on the equity method for fiscal years 2006 and 2005,
were not material to financial statement presentation and were therefore
included in other income from real estate operations.
C) Properties and Related Depreciation -- Properties are stated at cost
less accumulated depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of the properties. Such lives are
estimated from 35 to 40 years for buildings and from 5 to 20 years for
improvements and equipment.
Property held for Development or Resale -- Property held for
development or resale consist of approximately 18 acres located in the midwest
of undeveloped land not currently utilized for corporate purposes nor included
in any of the present operating leases. The Company constantly evaluates
proposals received for the purchase, leasing or development of this asset. The
land is valued at cost which does not exceed the net realizable value.
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.
D) Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renewals and betterments are capitalized. When properties
are sold or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is reflected in current
income.
F-12
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
E) Art Inventory Held for Sale - Inventory of art consisting of
antiquities only as of October 31, 2007 is valued at the lower of cost,
including direct acquisition and restoration expenses, or net realizable value
on a specific identification basis. The nature of art makes it difficult to
determine a replacement value. The most compelling evidence of a value in most
cases is an independent appraisal. In fiscal 2005 independent appraisals covered
approximately 46% of the art inventory value at October 31, 2005. For fiscal
2007 the net realizable value of Canals remaining art inventory has been
estimated by management based in part on the Company's history of art sales in
the current and previous years and in part on the results of the independent
appraisals done in previous years. However, because of the nature of art
inventory, such determination is very subjective and, therefore, the estimated
values could differ significantly from the amount ultimately realized.
F) Income Taxes -- Canal and its subsidiaries file a consolidated Federal
income tax return. The Company accounts for income taxes under the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities.
G) Stockyard Inventory - Inventory is stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
H) Accounting Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
I) Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period covered. All real estate leases are accounted for as operating
leases. Revenues from real estate sales are recognized generally when title to
the property passes. Revenues from stockyard operations which consist primarily
of yardage fees (a standard per head charge for each animal sold through the
stockyards) and sale of feed and bedding are recognized at the time the service
is rendered or the feed and bedding are delivered.
Other Income (Expense) Items -- Art sales are recognized using the
specific identification method, when the piece is shipped to the purchaser. Art
owned by Canal which is on consignment, joint venture, or being examined in
contemplation of sale is not removed from inventory and not recorded as a sale
until notice of sale or acceptance has been received. The sale of investments
available for sale, if any, are recognized, on a specific identification method,
on a trade date basis.
F-13
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
J) Statements of Cash Flows -- The company considers all short-term
investments with a maturity of three months or less to be cash equivalents. Cash
equivalents primarily include bank, broker and time deposits with an original
maturity of less than three months. These investments are carried at cost, which
approximates market value. Canal made state income tax payments of $5,000,
$11,000 and $14,000 and interest payments of $269,000, $270,000 and $279,000 in
2007, 2006 and 2005, respectively.
K) Reclassification -- Certain prior year amounts have been reclassified
to conform to the current year presentation.
L) Comprehensive Income (Loss) -- The Company's only adjustments for each
classification of the comprehensive income was for minimum pension liability.
M) 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.
N) Recent Accounting Pronouncements -- In September 2006, the FASB issued
SFAS No. 157, "Fair Value Measurements," which is effective for fiscal years
beginning after November 15, 2007. The Statement defines fair value, establishes
a frame work for measuring fair value in accordance with Generally Accepted
Accounting Principles, and expands disclosures about fair value measurements.
The Statement codifies the definition of fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The standard
clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability and
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. The Company is currently assessing the potential
impacts of implementing this standard.
In September 2006, the SEC staff issued Staff Accounting Bulletin
(SAB) Topic 1M (SAB 108), "Financial Statements - Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements," which is effective for the 2007 year. SAB 108 provides
guidance on how prior year misstatements should be taken into consideration when
quantifying misstatements in current year financial statements for the purpose
of determining whether the financial statements are materially misstated. Under
this guidance,
F-14
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
companies should take into account both the effect of a misstatement on the
current year balance sheet as well as the impact upon the current year income
statement in assessing the materiality of a current year misstatement. Once a
current year misstatement has been quantified, the guidance in SAB Topic 1M,
"Financial Statements - Materiality," (SAB 99) should be applied to determine
whether the misstatement is material. The implementation of SAB 108 did not have
any impact on the Company's financial statements.
In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes." FIN 48 prescribes detailed
guidance for the financial statement recognition, measurement and disclosure of
uncertain tax positions recognized in an enterprise's financial statements in
accordance with FASB Statement No. 109, "Accounting for Income Taxes." The
Company is required to apply the provisions of this interpretation beginning on
November 1, 2007. The provisions of FIN 48 will be applied to all existing
uncertain income tax provisions on the effective date. Upon the implementation
of FIN 48, the cumulative effect of applying the provisions of this
Interpretation will be reported as an adjustment to the opening balance of
retained earnings. The Company is currently assessing the potential impacts of
implementing this standard.
3. MORTGAGE NOTE RECEIVABLE
On November 1, 2004 Canal sold its Exchange Building and the associated
five acres of land located in South Saint Paul, Minnesota on a contract for deed
for $1,750,000, generating operating income of approximately $850,000. Canal
issued a mortgage note for the full sales price, which note carries interest at
a rate of 4.12% per annum, payable in equal monthly installments. The mortgage
note was due and payable in full on October 31, 2007.
In March, 2007 Canal received a $50,000 payment on this note as the result
of the mortgagee having sold a small piece (0.1 acres of land) of the underlying
collateral. On October 31, 2007 Canal received a $100,000 payment on this note,
at which time Canal extended the due date to December 17, 2007 at an interest
rate of 10% per annum. On December 17, 2007 Canal received a $1,400,000 payment
on this note and issued a 90 day note for the balance due of $200,000 at an
interest rate of 12% per annum. Canal expects this note to be paid in full in
March 2008.
4. LEASE COMMITMENTS
Canal leases approximately 1,000 square feet of office space in Hauppauge,
New York at a monthly rental of approximately $1,400. This lease expires May 31,
2010. Canal's future minimum payments for the next five years required under
operating leases that have initial or remaining noncancellable terms in excess
of one year as of October 31, 2007 are $23,000, $24,000 and $14,000 in fiscal
2008, 2009 and 2010, respectively. There are no commitments extending past five
years. Net rent expense under these and other operating leases was $19,000,
$17,000 and $16,000 for the years ended October 31, 2007, 2006 and 2005.
F-15
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. BORROWINGS
The Company's variable rate mortgage notes (originally issued in 1998) are
due May 15, 2009 and are held entirely by the Company's Chief Executive Officer
and members of his family. 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; 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 October 31, 2007, the
balance due under these notes was $2,687,000, all of which is classified as
long-term debt-related party. Canal has incurred interest expense on these notes
of $269,000, $270,000 and $279,000 for the years ended October 31, 2007, 2006
and 2005, respectively.
At October 31, 2007, substantially all of Canal's real properties, the
stock of certain subsidiaries and its art inventories are pledged as collateral
for the following obligations:
October 31,
--------------------
($ 000's Omitted) 2007 2006
----------------- ---- ----
Variable rate mortgage notes due
May 15, 2009 - related party (see Note 16) .... $ 2,687 $ 2,767
Less -- current maturities ...................... 0 0
------- --------
Long-term debt $ 2,687 $ 2,767
------- --------
The following table summarizes the Company's commitments as of October 31,
2007 to make future payments under its debt agreements and other contractual
obligations (in 000's):
More
Less Than 1 - 3 3 - 5 Than
Total 1 year Years Years 5 Yrs.
------ --------- ------ ------ ------
Pension Plan Liability (a) $ 415 $ 95 $ 232 $ 88 $ 0
Mortgage Notes Payable (b) 2,687 0 2,687 0 0
------- ------ ------- ------ -----
$ 3,102 $ 95 $ 2,919 $ 88 $ 0
------- ------ ------- ------ -----
(a) See Note 22 and Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(b) The mortgage notes are due May 15, 2009 and are held entirely by the
Company's Chief Executive Officer and members of his family. These
notes carry interest at 10% per annum and are collateralized by
substantially all of Canal's property, the stock of certain
subsidiaries and its art inventories.
F-16
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES
Significant components of the Company's deferred asset/(liability) as of
October 31, 2007, 2006 and 2005 include differences in depreciation methods,
inventory valuation allowance and net operating loss carryforward ($ 000's
Omitted):
2007 2006 2005
---- ---- ----
Total Gross Deferred Tax assets $ 3,920 $ 4,470 $ 4,364
Less - Valuation Allowance (3,920) (4,470) (4,364)
Net Deferred Tax Assets $ 0 $ 0 $ 0
------- ------- -------
Total Gross Deferred Tax Liability $ 0 $ 0 $ 0
------- ------- -------
Net Deferred Tax Asset (Liability) $ 0 $ 0 $ 0
------- ------- -------
Actual income tax (benefit) expense differs from the "expected" tax
expense computed by applying the U.S. federal corporate tax rate of 35% to
income(loss) before income taxes as follows (& 000's Omitted):
2007 2006 2005
---- ---- ----
Computed Expected Tax (Benefit)Expense $(332) $(110) $ 251
Change in Valuation Allowance 437 106 (51)
Inventory Valuation Differences (111) 19 59
Difference between gain on sale of
real estate recognized for income
tax and financial reporting purposes 0 0 (265)
Other 6 (15) 6
----- ----- -----
$ 0 $ 0 $ 0
----- ----- -----
At October 31, 2007, the Company has net operating loss carryforwards of
approximately $11,000,000 that expire through 2027. 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.
Such allowance decreased by approximately ($550,000), $(106,000) and $(51,000)
during the years ended October 31, 2007, 2006 and 2005, respectively. 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.
F-17
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. 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
October 31, 2007, 2006 or 2005.
8. PENSION VALUATION RESERVE
In September 2006, the FASB issued, SFAS 158, Employers' Accounting for
Defined Benefit Pension and Other Retirement Plans, an amendment of SFAS No. 87,
88, and 132(R) to improve financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit plan as an
asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through
comprehensive income. This statement also improves financial reporting by
requiring an employer to measure funded status of a plan as of the date of its
year end statement of financial position.
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.
F-18
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. ART INVENTORY HELD FOR SALE
Canal is in the process of selling, in an orderly manner, its remaining
antiquities art inventory. This will be accomplished primarily through direct
sales, consignment arrangements with various independent art dealers and through
sale at public art auctions. The Company's ability to dispose of its art
inventory is dependent primarily on general economic conditions and the
competitiveness of the art market itself. Accordingly, there can be no assurance
that Canal will be successful in selling its art inventory.
In fiscal 2007, Canal sold its remaining 13 pieces of contemporary art, 12
of which were sold to a related party, (see note 24). Canal's art operations
have generated income of $17,000, a loss of $7,000 and income of $14,000 on
revenues of approximately $59,000, $29,000 and $92,000 for the years ended
October 31, 2007, 2006 and 2005, respectively. In fiscal 2007, Canal recognized
a $89,122 valuation allowance against its remaining art inventory to reflect
management's estimate of the inventories net realizable value at October 31,
2007.
Antiquities and contemporary art represented 100% ($100,000) and 0% ($0)
and 57% ($189,122) and 43% ($143,878) of total art inventory at October 31, 2007
and 2006, respectively. Substantially all of the contemporary art inventory held
for resale was comprised of the work of Jules Olitski.
The Company classified its art inventory for the two years ended October
31, 2007 and 2006 as follows ($ 000's Omitted):
2007 2006
---- ----
Antiquities $ 496 $ 496
Contemporary 0 550
Val. Allow. (396) (713)
------- -------
Net Value $ 100 $ 333
------- -------
The Company's valuation allowance for the three years ended October 31,
2007, 2006 and 2005 is as follows:
Bal. Start Bal. End
of Period Reductions of Period
--------- ---------- ---------
Year ended October 31, 2007
Deducted from art inventories:
Reserve for valuation allowance $ 713 $ (317) $ 396
Year ended October 31, 2006
Deducted from art inventories:
Reserve for valuation allowance $ 768 $ (55) $ 713
Year ended October 31, 2005
Deducted from art inventories:
Reserve for valuation allowance $ 938 $ (170) $ 768
F-19
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The amount recorded as the current portion of art inventory represents
management's estimate of the inventory expected to be sold during the next
twelve months. The Company recorded 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. In fiscal 2007, Canal recognized a $89,122 valuation
allowance against its remaining art inventory to reflect management's estimate
of the inventories net realizable value at October 31, 2007. Additionally, in
fiscal 2007 Canal applied against sales $405,600 of the valuation allowance
against its art inventory, thereby, decreasing the total valuation allowance to
$396,522 as of October 31, 2007 as compared to $713,000 and $767,800 at October
31, 2006 and 2005, respectively.
10. 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 1/2% of the
employee's annual salary by the Company. The Company made 401(k) matching
contributions of approximately $22,000 for each of fiscal 2007 and 2006.
11. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments (all of which are held for non-trading
purposes) for which it is practicable to estimate that value.
October 31,
2007 2006
----------------------- -----------------------
($ 000's Omitted)
-----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Cash and
cash equivalents $ 28 $ 28 $ 38 $ 38
--------- --------- --------- ---------
Mortgage note receivable $ 1,600 $ 1,600 $ 1,750 $ 1,750
--------- --------- --------- ---------
Long-term debt $ 2,687 (b) $ 2,687 (b)
--------- --------- --------- ---------
a) Cash and cash equivalents: The carrying amount approximates fair
market value because of the short maturities of such instruments.
b) Long-Term Debt Related Party (see Note 5): It is not practicable to
estimate the fair value of the related party debt.
F-20
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. EARNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS PAID
During each of the fiscal years ended October 31, 2007, 2006 and 2005, the
Company had no options outstanding. There were no dividends declared on common
stock during the years ended October 31, 2007, 2006 and 2005. Dividends declared
on preferred stock during the years ended October 31, 2007, 2006 and 2005 were
approximately $105,000, $92,000 and $81,000.
Basic earnings (loss) per share are computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common share
outstanding during the period. Diluted earnings (loss) per share reflect per
share amounts that would have resulted if dilutive potential common stock had
been reported in the financial statements.
Basic and diluted earnings (losses) available to common stockholders at
October 31, 2007, 2006 and 2005 were:
For the Year Ended October 31, 2007
---------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net (loss) $ (948,000)
Less preferred stock dividends (105,000)
Less distributions (21,000)
-----------
(Loss) available to common stock-
holders-diluted earnings per share $(1,074,000) 4,327,000 $(0.25)
=========== ========= ======
For the Year Ended October 31, 2006
---------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net (loss) $ (332,000)
Less preferred stock dividends (92,000)
-----------
(Loss) available to common stock-
holders-diluted earnings per share $ (414,000) 4,327,000 $(0.10)
=========== ========== ======
For the Year Ended October 31, 2005
---------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net income $ 716,000
Less preferred stock dividends (81,000)
-----------
Income available to common stock-
holders-diluted earnings per share $ 635,000 4,327,000 $ 0.15
=========== ========== ======
F-21
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. FINANCIAL INFORMATION FOR BUSINESS SEGMENTS
Canal is engaged in two distinct businesses - the management and further
development of its agribusiness related real estate operations and stockyard
operations.
The following summary presents segment information relating to these lines
of business except for the respective revenues, operating income and the
reconciliation of operating income with pre-tax income which information is
presented on Canal's income statement.
October 31,
-------------------------------------
($ 000's Omitted) 2007 2006 2005
----------------- ---- ---- ----
Identifiable assets:
Real estate .............. $ 3,433 $ 3,775 $ 4,004
Stockyard operations ..... 1,273 1,345 1,425
Corporate ................ 103 339 385
--------- --------- ---------
$ 4,809 $ 5,459 $ 5,814
--------- --------- ---------
($ 000's Omitted) 2007 2006 2005
----------------- ---- ---- ----
Capital expenditures:
Real estate .............. $ 0 $ 0 $ 0
Stockyard operations ..... 0 0 0
Corporate ................ 0 0 0
--------- --------- ---------
$ 0 $ 0 $ 0
--------- --------- ---------
Income from real estate operations includes gains on sales of real estate
of $0.1 million, $0.2 million and $1.3 million in 2007, 2006 and 2005,
respectively.
14. 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 $525,000, $550,000,
$575,000, $600,000 and $625,000 for fiscal years 2008, 2009, 2010, 2011 and
2012, respectively.
F-22
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. LITIGATION
Canal and its subsidiaries are from time to time involved in litigation
incidental to their normal business activities, none of which, in the opinion of
management, will have a material adverse effect on the consolidated financial
condition and operations of the Company. Canal was not a party to any ongoing
litigation at October 31, 2007. The following situation did arise in fiscal
2005:
Environmental Protection Agency - Special Notice Letter for Investigation,
Portland, Oregon Property
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. This investigation
is in its preliminary stages and the Company intends to vigorously defend any
liability for remediation. At October 31, 2007, the liability for remediation,
if any, is not estimatable and therefore no accrual has been recorded in the
financial statements.
16. Restricted Cash - 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 October 31, 2007 balance in restricted cash- transit insurance of
approximately $45,000 represents the excess of per head fees charged over actual
payments made for livestock that was injured or died while at the stockyards.
17. IMPAIRMENT LOSS ON LONG-LIVED ASSETS
The Company reviews the values of its long-lived assets annually. There
was no impairment in the value of Canal's long-lived assets to be recorded as of
October 31, 2007, 2006 and 2005.
F-23
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. Property on Operating Leases
Property on operating leases consist of approximately 37 acres of land
located in Omaha, Nebraska; S. St. Paul, Minnesota; Sioux City, Iowa as well as
furniture and equipment used in the Hauppauge, New York office. Land and
structures leased to third parties include vacant land, exchange buildings
(commercial office space), meat packing facilities, railcar repair shops, lumber
yards and various other commercial and retail businesses.
A schedule of the Company's property on operating leases at October 31,
2007 is as follows (000's omitted):
Current Year
------------
(Retirements
------------ Carrying
Historical Cost Additions --------
--------------- --------- Accum. Value
Bldgs. & Bldgs. & ------ --------
Description (1) Land Imprvmts. Land Imprvmts. Depr. 10/31/07
--------------- ---- --------- ---- --------- ----- --------
New York office
Various leasehold $ 0 $ 8 $ 0 $ 0 $ (8) $ 0
improvements
9 acres of land
in Omaha, NE 1,150 21 0 0 (12) 1,159
Acquired in 1976
10 acres of land
in S. St. Paul, MN 83 485 0 0 (386) 182
Acquired in 1937
18 acres of land
in Sioux City, IA 400 0 0 0 0 400
Acquired in 1937 ------- ------- ------- ------- ------- -------
$ 1,633 $ 514 $ 0 $ 0 $ (406) $ 1,741
======= ======= ======= ======= ======= =======
A schedule of the Company's reconciliation of property on operating leases
carried for the three years ended October 31, 2007, 2006 and 2005 is as follows
(000's omitted):
2007 2006 2005
---- ---- ----
Balance at beginning of year $ 1,763 $ 1,840 $ 2,715
Acquisitions and Improvements 0 0 0
Cost of property sold 0 (53) (848)
Depreciation (22) (24) (27)
Reclassifications 0 0 0
------- ------- -------
Balance at end of year $ 1,741 $ 1,763 $ 1,840
------- ------- -------
(1) Substantially all of Canal's real property is pledged as collateral for
its debt obligations (see Note 4).
F-24
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. Property used in Stockyard Operations
Property used in stockyard operations consist of approximately 60 acres of
land located in St. Joseph, Missouri and Sioux Falls, South Dakota. The
Company's stockyards provide all services and facilities required to operate an
independent market for the sale of livestock. Stockyard facilities include
exchange buildings (commercial office space), auction arenas, scale houses,
veterinary facilities, barns, livestock pens and loading docks.
A schedule of the Company's property used in stockyard operations at
October 31, 2007 is as follows (000's omitted):
Current Year
------------
(Retirements)
------------- Carrying
Historical Cost Additions --------
--------------- --------- Accum. Value
Bldgs. & Bldgs. & ------ --------
Description (1) Land Imprvmts. Land Imprvmts. Depr. 10/31/07
--------------- ---- --------- ---- --------- ------ --------
30 acres of land
in St. Joseph, MO $ 902 $ 200 $ 0 $ 0 $ (154) $ 948
Acquired in 1942
30 acres of land
in Sioux Falls, SD 100 89 0 0 (57) 132
Acquired in 1937 ------- ------- ------- ------- ------- -------
$ 1,002 $ 289 $ 0 $ 0 $ (211) $ 1,080
======= ======= ======= ======= ======= =======
A schedule of the Company's reconciliation of property used in stockyard
operations carried for the three years ended October 31, 2007, 2006 and 2005 is
as follows (000's omitted):
2007 2006 2005
---- ---- ----
Balance at beginning of year $ 1,100 $ 1,121 $ 1,142
Acquisitions and Improvements 0 0 0
Cost of property sold 0 0 0
Depreciation (20) (21) (21)
------- ------- -------
Balance at end of year $ 1,080 $ 1,100 $ 1,121
------- ------- -------
(1) Substantially all of Canal's real property is pledged as collateral for
its debt obligations (see Note 4).
F-25
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. Property Held for Development or Resale
Property held for development or resale consist of approximately 20 acres
of land located in the midwest of undeveloped land not currently utilized for
corporate purposes and not included in any of the present operating leases. The
Company constantly evaluates proposals received for the purchase, leasing or
development of this asset. The land is valued at cost which does not exceed the
net realizable value.
A schedule of the Company's property held for development or resale at
October 31, 2007 is as follows (000's omitted):
Current Year
------------
(Retirements)
------------- Carrying
Historical Cost Additions --------
--------------- --------- Accum. Value
Bldgs. & Bldgs. & ------ --------
Description (1) Land Imprvmts. Land Imprvmts. Depr. 10/31/07
--------------- ---- --------- ---- --------- ------ --------
16 acres of land
in St. Joseph, MO $ 39 N/A N/A $ 0 N/A $ 39
Acquired in 1942
2 acres of land
in Sioux City, IA 110 N/A (57) 0 N/A 53
Acquired in 1937 ---- ---- ---- ---- ---- ----
$149 $ 0 $(57) $ 0 $ 0 $ 92
==== ==== ==== ==== ==== ====
A schedule of the Company's reconciliation of property held for
development or resale carried for the three years ended October 31, 2007, 2006
and 2005 is as follows (000's omitted):
2007 2006 2005
---- ---- ----
Balance at beginning of year $ 149 $ 300 $ 817
Acquisitions and Improvements 0 0 0
Cost of property sold (57) (151) (517)
Reclassification of property 0 0 0
------ ------ ------
Balance at end of year $ 92 $ 149 $ 300
------ ------ ------
(1) Substantially all of Canal's real property is pledged as collateral for
its debt obligations (see Note 4).
F-26
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
21. PREFERRED STOCK ISSUANCE
On October 15, 1986 Canal exchanged 986,865 shares of its $1.30
Exchangeable Preferred Stock ("the Preferred Stock") for a like amount of its
outstanding common stock. Since the exchange, the Company has issued an
additional 9,108,015 shares in the form of stock dividends and in October 2003
the Company, repurchased for retirement, 992,225 shares (from an affiliate) at
$0.10 per share resulting in a total outstanding at October 31, 2007 of
9,102,655. All of the Preferred Stock has a par value of $0.01 per share and a
liquidation preference of $10 per share. The Preferred Stock is subject to
optional redemption, in exchange for Canal's 13% Subordinated Notes, by Canal,
in whole or in part at any time on or after September 30, 1988 at the redemption
price of $10 per share. Dividends on the Preferred Stock accrue at an annual
rate of $1.30 per share and are cumulative. Dividends are payable quarterly in
cash or in Preferred Stock at Canal's option. Payment commenced December 31,
1986. To date, seventy-two of the eighty-four payments have been paid in
additional stock resulting in the issuance of 9,108,015 shares recorded at their
fair value at the time of issuance.
Canal is restricted from paying cash dividends by certain of its debt
agreements (See Note 5). The last cash dividend paid on Canal's preferred stock
was in September 1989. The quarterly dividends payable September 30, 2007 and
December 31, 2007 were passed by the Board of Directors. It is the Company's
intention to pay its next dividend on the preferred stock on June 30, 2008 at
which time a one year dividend will have accumulated. The dividend planned for
June 30, 2008 will also be paid in additional stock.
Whenever quarterly dividends payable on the Preferred Stock are in arrears
in the aggregate amount at least equal to six full quarterly dividends (which
need not be consecutive), the number of directors constituting the Board of
Directors of Canal shall be increased by two and the holders of the Preferred
Stock shall have, in addition to the rights set forth above, the special right,
voting separately as a single class, to elect two directors of Canal to fill
such newly created directorships at the next succeeding annual meeting of
shareholders (and at each succeeding annual meeting of shareholders thereafter
until such cumulative dividends have been paid in full).
VOTING RIGHTS - The holders of the Preferred Stock shall not have any
voting rights except that the following actions must be approved by holders of
66 2/3% of the shares of Preferred Stock, voting as a class: (I) any amendment
to the Certificate of Incorporation of Canal which would materially alter the
relative rights and preferences of the Preferred Stock so as to adversely affect
the holders thereof; and (ii) issuance of securities of any class of Canal's
capital stock ranking prior (as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock. The holders of the Preferred Stock shall be
entitled to specific enforcement of the foregoing covenants and to injunctive
relief against any violation thereof.
F-27
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
22. PENSION PLANS
Canal has a defined benefit pension plan covering substantially all of its
salaried employees (the "Plan"). The benefits are based on years of service and
the employee's compensation earned each year. The Company's funding policy is to
contribute the amount that can be deducted for federal income tax purposes.
Accordingly, the Company has made contributions of approximately $91,000 for
fiscal 2007, $149,000 for fiscal 2006 and $399,000 for fiscal 2005.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future. Assets
of the plan were invested in U.S. Government securities, common stocks and
antiquities. The Company uses an October 31 measurement date for its pension
plan.
The following tables in accordance with FASB Statement No. 158, Employers'
Accounting for Defined Benefit Pension Plans sets forth the benefit obligations,
fair value of plan assets, funded status, and amounts recognized in the
Company's consolidated balance sheets at October 31, 2007 and 2006.
Plan Year
---------
($ 000's Omitted) 2007 2006
----------------- ---- ----
Change in benefit obligation
Benefit obligation at beginning of year $ 1,828 $ 1,804
Service cost 6 5
Interest cost 100 100
Plan participants' contributions 0 0
Amendments 0 0
Actuarial (gain) loss (58) 11
Benefits paid (90) (92)
------- -------
Benefit obligation at end of year $ 1,786 $ 1,828
------- -------
Change in plan assets
Fair value of plan assets at beginning of year $ 1,354 $ 1,208
Actual return on plan assets 87 152
Employer contribution 91 149
Plan participants' contributions 0 0
Plan expenses (71) (63)
Benefits paid (90) (92)
------- -------
Fair value of plan assets at end of year $ 1,371 $ 1,354
------- -------
F-28
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Plan Year
---------
($ 000's Omitted) 2007 2006
----------------- ---- ----
Net Amount Recognized
Funded Status $ (415) $ (474)
------- -------
Amounts Recognized in the Consolidated
Balance Sheets as of October 31, 2007
Current Liabilities $ (95) $ --
Non-current Liabilities (320) --
------- -------
Net Amount Recognized $ (415) $ --
------- -------
Funded Status and Net Amount Recognized
in the Consolidated Balance Sheets as of
October 31, 2006
Plan Assets Less Than Benefit Obligation $ -- $ (474)
Unrecognized Net Actuarial Loss -- 1,828
------- -------
Net Amount Recognized $ -- $ 1,354
------- -------
Amounts Recognized in the Consolidated
Balance Sheets as of October 31, 2006
Accrued Benefit Liability $ -- $ (458)
Accumulated Other Comprehensive Income -- 1,812
------- -------
Net Amount Recognized $ -- $ 1,354
------- -------
Amounts Recognized in Accumulated Other
Comprehensive Income as of October 31, 2007
Net Loss $ 1,592 $ --
------- -------
F-29
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table presents the incremental effect of applying FAS 158 on
individual line items in the consolidated statement of financial position at
October 31, 2007:
Before After
application application
of FAS 158 Adjustments of FAS 158
----------- ----------- -----------
Pension Plan Liabilities $ (401) $ (14) $ (415)
Accumulated Other
Comprehensive Income 1,578 14 1,592
--------- --------- ---------
$ 1,177 $ 0 $ 1,177
--------- --------- ---------
The accumulated benefit obligation for the pension plan was $1,592 and $1,812 at
October 31, 2007 and 2006, respectively.
Information for Pension Plans With an Accumulated
Benefit Obligation in Excess of Plan Assets
Projected Benefit Obligation $ 1,786 $ 1,828
Accumulated Benefit Obligation 1,772 1,812
Fair Value of Plan Assets 1,371 1,354
Components of Net Periodic Benefit Cost
Service Cost $ 6 $ 5
Interest Cost 100 101
Expected Return on Plan Assets (107) (108)
Amortization of Prior Service Costs 0 0
Amortization of Net Loss or (Gain) 269 256
--------- ---------
Net Periodic Benefit Cost $ 268 $ 254
--------- ---------
F-30
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Plan Year
---------
($ 000's Omitted) 2007 2006
----------------- ---- ----
Additional Information
Decrease in Minimum Liability Included in
Other Comprehensive Income, Net of $13,666
Recognized due to FAS 158 for change in
Accrued Benefit Cost and Funded Status $ 220 $ 236
Weighted-Average Assumptions Used to Determine
Benefit Obligations at October 31
Discount Rate 6.00% 5.75%
Rate of Compensation Increase 5.50% 5.50%
Weighted-Average Assumptions Used to Determine
Net Periodic Benefit Cost for the Years Ended
October 31
Discount Rate 6.00% 5.75%
Expected Return on Plan Assets 8.00% 8.00%
Rate of Compensation Increase 5.50% 5.50%
The expected long-term rate of return for the plan's total assets is based on
the expected return of each of the above categories, weighted based on the
median of the target allocation for each class. Equity securities are expected
to return 10% to 11% over the long-term, while cash and fixed income is expected
to return between 4% to 6%. Based on historical experience, the company expects
that the plan's asset managers will provide a modest (0.5% to 1.0% per annum)
premium to their respective market benchmark indices.
F-31
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Plan Assets
The company's pension plan weighted-average asset allocations at October 31,
2007 and 2006, by asset category are as follows:
Plan Year
---------
2007 2006
---- ----
Asset Category
Equity Securities* 44.2% 35.6%
Debt Securities 41.1% 60.9%
Real Estate 0.0% 0.0%
Other 14.7% 3.5%
------ ------
Total 100.0% 100.0%
------ ------
* Includes Canal Capital Corporation common stock in the amounts of
approximately $1,000 (0.0%) and $2,000 (0.0%) at October 31, 2007 and
2006, respectively.
The policy as established by the pension plan trustees, is to provide for growth
of capital with a moderate level of volatility by investing assets per the
established target allocations. The assets will be reallocated from time to time
to meet the target allocations. The investment policy will be reviewed on a
regular basis, to determine if the established policies should be changed.
Cash Flows
Contributions
The company expects to contribute approximately $95,000 to its pension plan in
fiscal 2008.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid for the fiscal years ending:
2008 $ 120,000
2009 122,000
2010 127,000
2011 138,000
2012 133,000
2013 through 2017 745,000
F-32
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
23. QUARTERLY FINANCIAL DATA
The following table sets forth certain quarterly financial data for the
eight quarters ended October 31, 2007. This quarterly information is unaudited,
has been prepared on the same basis as the annual financial statements, and, in
our opinion, reflects all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the information for periods
presented.
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2007 2007 2007 2007 TOTAL
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REAL ESTATE REVENUES $ 206 $ 131 $ 131 $ 130 $ 598
REAL ESTATE EXPENSES 101 43 42 53 239
--------- --------- --------- --------- ---------
OPERATING INCOME $ 105 $ 88 $ 89 $ 77 $ 359
--------- --------- --------- --------- ---------
STOCKYARD REVENUES $ 1,000 $ 849 $ 526 $ 656 $ 3,031
STOCKYARD EXPENSES 788 778 628 729 2,923
--------- --------- --------- --------- ---------
OPERATING INCOME $ 212 $ 71 $ (102) $ (73) $ 108
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (8) $ (222) $ (336) $ (382) $ (948)
========= ========= ========= ========= =========
NET INCOME (LOSS)
PER COMMON SHARE:
BASIC & DILUTED $ (0.01) $ (0.06) $ (0.08) $ (0.10) $ (0.25)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES:
BASIC & DILUTED 4,327 4,327 4,327 4,327 4,327
========= ========= ========= ========= =========
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2006 2006 2006 2006 TOTAL
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REAL ESTATE REVENUES $ 463 $ 191 $ 137 $ 342 $ 1,133
REAL ESTATE EXPENSES 271 70 45 137 523
--------- --------- --------- --------- ---------
OPERATING INCOME $ 192 $ 121 $ 92 $ 205 $ 610
--------- --------- --------- --------- ---------
STOCKYARD REVENUES $ 1,047 $ 882 $ 654 $ 688 $ 3,271
STOCKYARD EXPENSES 784 709 643 660 2,796
--------- --------- --------- --------- ---------
OPERATING INCOME $ 263 $ 173 $ 11 $ 28 $ 475
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 123 $ (29) $ (221) $ (195) $ (322)
========= ========= ========= ========= =========
NET INCOME (LOSS)
PER COMMON SHARE:
BASIC & DILUTED $ 0.03 $ (0.01) $ (0.06) $ (0.06) $ (0.10)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES:
BASIC & DILUTED 4,327 4,327 4,327 4,327 4,327
========= ========= ========= ========= =========
F-33
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
24. RELATED PARTY TRANSACTIONS
At October 31, 2007, all of Canal's Long-Term Debt is held by the
company's Chief Executive Officer and members of his family. These notes pay
interest at a rate of 10% per annum and come due May 15, 2009. Canal has
incurred interest expense on these notes of $269,000, $270,000 and $279,000 for
the years ended October 31, 2007, 2006 and 2005, respectively. At various times
during fiscal 2007 certain holders of these notes agreed to defer interest
payments in the amount of $88,000. This deferred interest liability accrued
additional interest at a rate of 10% per annum, while outstanding and was repaid
as funds became available in the first quarter of fiscal 2008. As of October 31,
2007, the balance due under these notes was $2,687,000 all of which is
classified as long-term debt related party.
In September, 2007 Canal sold its remaining 12 pieces of contemporary art
to a group which included the Company's Chairman. The 12 pieces were sold for
$100,000 (of which $95,000 was used to repay deferred executive salaries
payable) which was approximately $20,000 less than its carrying value. The sale
was reviewed by the independent members of management with the Chairman
abstaining as he was part of the purchasing group. In considering the adequacy
of the offer, independent management, had to give significant weight to the
length of time (18 years) these pieces had been held for resale. In addition the
independent management considered the nature of the current art market; general
economic conditions; Canal's cash flow needs and financial condition; and the
future costs to Canal in continuing to maintain this inventory. After giving due
consideration to all of these factors, independent management, determined that
it was in Canal's best interest to sell its remaining contemporary art inventory
at the price offered. The loss of approximately $20,000 has been shown as a
distribution in stockholders' equity for the year ended October 31, 2007.
25. SUBSEQUENT EVENTS
Property Sale - On December 11, 2007 Canal sold approximately 2 acres of
land located in South Saint Paul, Minnesota for $200,000 generating operating
income of $127,000.
Mortgage Note Receivable - On December 17, 2007 Canal received a
$1,400,000 payment on this note and issued a 90 day note for the balance due of
$200,000 at an interest rate of 12% per annum. Canal expects this note to be
paid in full in March 2008.
The proceeds from both the property sale and the mortgage note payment
were used to reduce long-term debt, related party by $1.0 million; to repay in
full the salaries and interest payable to executive officers; to pay current
real estate taxes and to make contributions currently due to the company's
defined benefit pension plan.
F-34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29rd day of
January, 2008.
CANAL CAPITAL CORPORATION
By: /S/ Michael E. Schultz
----------------------------
Michael E. Schultz
President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ Michael E. Schultz President and Chief
------------------------ Executive Officer and Director
Michael E. Schultz (Principal Executive Officer) January 29, 2008
Vice President-Finance
/S/ Reginald Schauder Secretary and Treasurer
------------------------ (Principal Financial and
Reginald Schauder Accounting Officer) January 29, 2008
/S/ Asher B. Edelman Chairman of the Board
------------------------ and Director January 29, 2008
Asher B. Edelman
S-1