Attached files

file filename
EX-32 - EXHIBIT 32 - CANAL CAPITAL CORPex32.htm
EX-31.2 - EXHIBIT 31.2 - CANAL CAPITAL CORPex31_2.htm
EX-31.1 - EXHIBIT 31.1 - CANAL CAPITAL CORPex31_1.htm


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 2010

¨ 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 incorporation or organization)
(I.R.S. Employer Identification Number)

4 Morris Street, Port Jefferson Station, NY
11776
(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 number of shares of Common Stock, $.01 par value, outstanding at February 28, 2010 was 4,326,929.
 


 
 

 

CANAL CAPITAL CORPORATION AND SUBSIDIARIES
FORM 10-Q JANUARY 31, 2010


The following documents are filed as part of this report:

Part I -
 
3
       
Item I.
   
       
   
4
       
   
6
       
   
8
       
   
9
       
   
11
       
Item II.
 
26
       
   
34
       
   
35
       
Item III.
 
36
       
Item IV.
 
36
       
Part II
 
37
       
   
38
       
   
39

 
2



FINANCIAL INFORMATION

 
3


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2010 AND OCTOBER 31, 2009
 
 
   
JAN. 31,
   
OCT. 31,
 
   
2010
   
2009
 
   
(UNAUDITED)
   
(UNAUDITED)
 
ASSETS:
           
             
CURRENT ASSETS:
           
             
CASH AND CASH EQUIVALENTS
  $ 105,132     $ 154,624  
                 
NOTES AND ACCOUNTS RECEIVABLE, NET OF AN ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $ZERO AT BOTH JANUARY 31, 2010 AND OCTOBER 31, 2009,
    232,634       72,702  
                 
ART INVENTORY, NET OF A VALUATION ALLOWANCE OF $396,522 AT BOTH JANUARY 31, 2010 AND OCTOBER 31, 2009
    100,000       100,000  
                 
STOCKYARDS INVENTORY
    2,850       16,586  
                 
PREPAID EXPENSES
    32,624       16,965  
                 
TOTAL CURRENT ASSETS
    473,240       360,877  
                 
                 
NON-CURRENT ASSETS:
               
                 
PROPERTY ON OPERATING LEASES, NET OF ACCUMULATED DEPRECIATION OF $453,899 AND $455,749 AT JANUARY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY
    1,068,057       1,073,607  
                 
                 
PROPERTY USED IN STOCKYARD OPERATIONS, NET OF ACCUMULATED DEPRECIATION OF $181,754 AND $178,386 AT JANUARY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY
    984,954       988,322  
                 
                 
OTHER ASSETS:
               
                 
PROPERTY HELD FOR DEVELOPMENT OR RESALE
    272,525       272,525  
RESTRICTED CASH – LETTER OF CREDIT
    130,000       130,000  
RESTRICTED CASH - TRANSIT INSURANCE
    40,910       30,690  
DEPOSITS AND OTHER ASSETS
    0       0  
                 
      443,435       433,215  
                 
    $ 2,969,686     $ 2,856,021  


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
4


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2010 AND OCTOBER 31, 2009

   
JAN. 31, 2010
   
OCT.31, 2009
 
   
(UNAUDITED)
   
(UNAUDITED)
 
             
LIABILITIES & STOCKHOLDERS' EQUITY:
           
             
CURRENT LIABILITIES:
           
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  $ 274,491     $ 194,394  
SALARIES AND INTEREST PAYABLE - OFFICERS
    110,720       0  
ACCRUED PROFESSIONAL FEES
    28,394       84,570  
PREFERRED STOCK DIVIDEND PAYABLE
    175,735       157,735  
INCOME TAXES PAYABLE
    10,000       10,000  
TOTAL CURRENT LIABILITIES
    599,340       446,699  
                 
                 
NON-CURRENT LIABILITIES:
               
LONG-TERM PENSION LIABILITY
    796,672       796,672  
REAL ESTATE TAXES PAYABLE
    169,011       141,725  
TOTAL NON-CURRENT LIABILITIES
    965,683       938,397  
                 
                 
LONG-TERM DEBT, RELATED PARTY
    992,000       992,000  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' EQUITY:
               
                 
PREFERRED STOCK, $0.01 PAR VALUE:
               
10,000,000 SHARES AUTHORIZED; 9,102,655 SHARES ISSUED AND OUTSTANDING AT JANUARY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY AND AGGREGATE LIQUIDATION PREFERENCE OF $10 PER SHARE FOR $ 91,026,550 AT JANUARY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY
    91,027       91,027  
                 
COMMON STOCK, $0.01 PAR VALUE:
               
10,000,000 SHARES AUTHORIZED; 5,313,794SHARES ISSUED AND 4,326,929 SHARES OUT-STANDING AT JANUARY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY
    53,138       53,138  
                 
ADDITIONAL PAID-IN CAPITAL
    28,322,341       28,322,341  
                 
ACCUMULATED DEFICIT
    (15,161,313 )     (15,068,051 )
                 
986,865 SHARES OF COMMON STOCK HELD IN TREASURY, AT COST
    (11,003,545 )     (11,003,545 )
                 
COMPREHENSIVE INCOME:
               
PENSION VALUATION RESERVE
    (1,888,985 )     (1,915,985 )
      412,663    
478,925_
 
                 
    $ 2,969,686     $ 2,856,021  


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
5


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JANUARY 31, 2010 AND 2009

   
2010
   
2009
 
   
(UNAUDITED)
   
(UNAUDITED)
 
REAL ESTATE OPERATIONS:
           
             
REAL ESTATE REVENUES:
           
SALE OF REAL ESTATE
    0       0  
OUTSIDE REAL ESTATE RENT
    72,544       95,999  
EXCHANGE BUILDING RENTAL INCOME
    3,686    
7,713
 
      76,230    
103,712
 
                 
REAL ESTATE EXPENSES:
               
COST OF REAL ESTATE SOLD
    0       0  
LABOR, OPERATING AND MAINTENANCE
    6,456       15,166  
DEPRECIATION AND AMORTIZATION
    5,550       5,550  
TAXES OTHER THAN INCOME TAXES
    5,450       6,150  
GENERAL AND ADMINISTRATIVE
    4,800    
9,900
 
      22,256    
36,766
 
                 
INCOME FROM REAL ESTATE OPERATIONS
    53,974    
66,946
 
                 
                 
STOCKYARD OPERATIONS:
               
                 
STOCKYARD REVENUES:
               
YARD HANDLING AND AUCTION
  $ 494,423     $ 715,872  
FEED AND BEDDING INCOME
    27,700       58,034  
RENTAL & OTHER INCOME
    136,258    
40,609
 
      658,381    
814,515
 
                 
STOCKYARD EXPENSES:
               
LABOR AND RELATED COSTS
    264,743       350,006  
OTHER OPERATING AND MAINTENANCE
    140,057       183,869  
FEED AND BEDDING EXPENSE
    24,849       42,877  
DEPRECIATION AND AMORTIZATION
    3,368       4,954  
TAXES OTHER THAN INCOME TAXES
    39,954       44,163  
GENERAL AND ADMINISTRATIVE
    77,996    
100,163
 
      550,967    
726,032
 
                 
INCOME (LOSS) FROM STOCKYARD OPERATIONS
    107,414    
88,483
 
                 
                 
GENERAL AND ADMINISTRATIVE EXPENSE
    (211,946 )     (224,683 )
                 
                 
(LOSS) INCOME FROM OPERATIONS
    (50,558 )     (69,254 )


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
6


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JANUARY 31, 2010 AND 2009
Continued


   
2010
   
2009
 
   
(UNAUDITED)
   
(UNAUDITED)
 
             
OTHER (EXPENSE) INCOME:
           
INTEREST & OTHER INCOME
    126       177  
INTEREST EXPENSE
    (24,830 )     (31,550 )
ART SALES AND OPERATIONS
    0       (1,200 )
                 
      (24,704 )     (32,573 )
                 
                 
(LOSS) INCOME BEFORE PROVISION FOR
               
INCOME TAXES
    (75,262 )     (101,827 )
PROVISION FOR INCOME TAXES
    0    
0
 
                 
NET (LOSS) INCOME
    (75,262 )     (101,827 )
                 
                 
OTHER COMPREHENSIVE (LOSS) INCOME:
               
                 
MINIMUM PENSION LIABILITY ADJUSTMENT
    27,000    
30,000
 
                 
                 
COMPREHENSIVE (LOSS) INCOME
  $ (48,262 )   $ (71,827 )
                 
                 
(LOSS) EARNINGS PER COMMON SHARE:
               
                 
NET (LOSS) INCOME
  $ (75,262 )   $ (101,827 )
                 
LESS PREFERRED STOCK DIVIDEND
    (18,000 )     (18,000 )
                 
(LOSS) INCOME AVAILABLE TO COMMON STKDERS
  $ (93,262 )   $ (119,827 )
                 
                 
NET (LOSS) INCOME PER COMMON SHARE BASIC AND DILUTED
  $ (0.02 )   $ (0.03 )
                 
                 
AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
    4,326,929       4,326,929  


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
7


CANAL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 2009 (UNAUDITED) AND
FOR THE THREE MONTHS ENDED JANUARY 31, 2010 (UNAUDITED)
 
 
   
COMMON STOCK
   
PREFERRED STOCK
 
   
NUMBER
OF
SHARES
   
AMOUNT
   
NUMBER
OF
SHARES
   
AMOUNT
 
                         
BALANCE, OCTOBER 31, 2008
    5,313,794     $ 53,138       9,102,655     $ 91,027  
NET INCOME
    0       0       0       0  
PREFERRED STOCK DIVIDEND
    0       0       0       0  
MINIMUM PEN. LIAB. ADJ.
    0       0       0       0  
                                 
BALANCE, OCTOBER 31, 2009
    5,313,794     $ 53,138       9,102,655     $ 91,027  
NET LOSS
    0       0       0       0  
PREFERRED STOCK DIVIDEND
    0       0       0       0  
MINIMUM PEN. LIAB. ADJ.
    0       0       0       0  
                                 
BALANCE, JANUARY 31, 2010
    5,313,794     $ 53,138       9,102,655     $ 91,027  
                                 
                                 
   
ADDITIONAL
PAID-IN
CAPITAL
   
TREASURY
ACCUMULATED
DEFICIT
   
COMPREHENSIV
LOSS
   
STOCK,
AT COST
 
                                 
BALANCE, OCTOBER 31, 2008
  $ 28,322,341     $ (15,025,327 )   $ (1,706,472 )   $ (11,003,545 )
NET INCOME
    0       30,299       0       0  
PREFERRED STOCK DIVIDEND
    0       (73,023 )     0       0  
MINIMUM PEN. LIAB. ADJ.
    0       0       (209,513 )     0  
                                 
BALANCE, OCTOBER 31, 2009
  $ 28,322,341     $ (15,068,051 )   $ (1,915,985 )   $ (11,003,545 )
NET LOSS
    0       (75,262 )     0       0  
PREFERRED STOCK DIVIDEND
    0       (18,000 )     0       0  
MINIMUM PEN. LIAB. ADJ.
    0       0       27,000       0  
BALANCE, JANUARY 31, 2010
  $ 28,322,341     $ (15,161,313 )   $ (1,888,985 )   $ (11,003,545 )
 
 
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
8


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2010 AND 2009


   
JAN. 2010
   
JAN. 2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
NET (LOSS) INCOME
  $ (75,262 )   $ (101,827 )
                 
                 
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
               
                 
DEPRECIATION AND AMORTIZATION
    8,918       10,504  
                 
GAIN ON SALES OF REAL ESTATE
    0       0  
                 
MINIMUM PENSION LIABILITY ADJUSTMENT
    27,000       30,000  
                 
DECREASE (INCREASE) IN ASSETS:
               
                 
                 
NOTES AND ACCOUNTS RECEIVABLE
    (159,932 )     (64,883 )
                 
STOCKYARDS INVENTORY
    13,736       12,507  
                 
PREPAID EXPENSES
    (15,659 )     (35,480 )
                 
RESTRICTED CASH – LETTER OF CREDIT
    0       0  
                 
RESTRICTED CASH – TRANSIT INSURANCE
    (10,220 )     (13,709 )
                 
INCREASE (DECREASE) IN LIABILITIES:
               
                 
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
    80,097       19,975  
                 
PENSION PLAN PAYABLE
    0       0  
                 
PAYABLE TO EXECUTIVE OFFICERS
    110,720       128,550  
                 
ACCRUED PROFESSIONAL FEES
    (56,176 )     (15,741 )
                 
REAL ESTATE TAXES PAYABLE
    27,286       28,651  
                 
TOTAL ADJUSTMENTS
    25,770       100,374  
                 
                 
NET CASH (USED IN) PROVIDED BY
               
OPERATING ACTIVITIES
    (49,492 )     (1,453 )


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
9


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2010 AND 2009
Continued

   
JAN. 2010
   
JAN. 2009
 
             
CASH FLOWS FROM INVESTING ACTIVITIES:
           
             
PROCEEDS FROM SALES OF REAL ESTATE
    0       0  
COSTS RELATING TO SALES OF REAL ESTATE
    0       0  
CAPITAL EXPENDITURES
    0       0  
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES
    0       0  
                 
                 
CASH FLOWS PROVIDED BY (USED) IN FINANCING ACTIVITIES:
               
                 
PROCEEDS FROM LONG-TERM DEBT OBLIGATION
    0       0  
REPAYMENT OF LONG-TERM DEBT OBLIGATION
    0       0  
                 
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES
    0       0  
                 
                 
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
    (49,492 )     (1,453 )
                 
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR
    154,624       21,115  
                 
                 
CASH AND CASH EQUIVALENTS AT END OF YEAR
  $ 105,132     $ 19,662  


   
JAN. 31,
 
   
2010
   
2009
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
             
CASH PAID DURING THE YEAR FOR:
           
             
INTEREST
  $ 24,830     $ 31,550  
INCOME TAXES
  $ 0     $ 0  
                 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
                 
PREFERRED STOCK DIVIDENDS
  $ 18,000     $ 18,000  


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

 
10


CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2010

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.

As a Stockholder of Canal Capital Corporation you should be aware that due to financial constraints Canal’s fiscal 2010 Financial Statements are being presented in this Form 10-Q without benefit of independent review.

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 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 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.

 
11


Real estate operations resulted in operating income of $22,000 and $37,000 for the three month periods ended January 31, 2010 and 2009, respectively. There were no real estate sales in the first quarter of fiscal 2010 or 2009. Additionally, real estate operations contributed $76,000 and $104,000 to Canal’s revenues for the three month periods ended January 31, 2010 and 2009, respectively.

As of January 31, 2010, there are approximately 37 acres of undeveloped land owned by Canal adjacent to its stockyard 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.

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

Sioux Falls Stockyard Closure - In December 2009, after extensive efforts to reorganize and return this stockyard to profitability, Canal ceased all stockyard operations at its Sioux Falls, South Dakota location. Canal now leases a portion of this property (approximately 10 acres), on a month to month basis, to a group that formerly operated at the stockyards as independent commission firms. This group will only handle hogs and sheep on the leased property. Canal has listed the entire property (approximately 30 acres) for sale with a local real estate agency. The sale of this property will be a priority in fiscal 2010. Canal will entertain all reasonable offers. The net value of this property was transferred to property held for development or resale as of October 31, 2009.

Public stockyards act much like a securities exchange, providing markets for all categories of livestock and fulfilling the economic functions of assembly, grading, and price discovery. The livestock handled by the Company’s stockyards include cattle, hogs, and sheep. Cattle and hogs may come through the stockyard facilities at two different stages, either as feeder livestock or slaughter livestock. The Company’s stockyards provide all services and facilities required to operate an independent market for the sale of livestock, including veterinaryservices facilities, auction arenas, auctioneers, weigh masters andscales, 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 2010. 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 $107,000 and operating income of $88,000 for the three month periods ended January 31, 2010 and 2009, respectively. Additionally, stockyard operations contributed $658,000 and $815,000 to Canal’s revenues for the three month periods ended January 31, 2010 and 2009, respectively. Canal maintains an inventory of feed and bedding which is comprised primarily of hay, corn and straw. The value of this inventory was $3,000 and $17,000 at January 31, 2010 and October 31, 2009, respectively.

 
13


2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
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) 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 37 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.

C) 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.

D) Reclassification -- Certain prior year amounts have been reclassified to conform to the current year presentation.

E) Art Inventory Held for Sale - Inventory of art 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. 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.

 
14


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 the sale of real estate are recognized at the time the sale has been consummated on the full accrual method wherein the seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property; the seller’s receivable is not subject to future subordination and the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property. 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.

 
15


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 $0, and $0, and interest payments of $25,000, and $32,000 for the three month periods ended January 31, 2010 and 2009, respectively.

K) Comprehensive Income (Loss) -- The Company’s only adjustments for each classification of the comprehensive income was for minimum pension liability.

L) 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.

M) Recently Issued Accounting Pronouncements –- In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a frame work for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 becomes effective for fiscal years beginning after November 15, 2007, which is the Company’s 2009 fiscal year beginning on November 1, 2008. In February 2008, the FASB issued FASB staff position No. 157-2, effective date of FASB statement No. 157 (FSP 157-2), which delayed the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008. The Company evaluated the impact of SFAS No. 157 and FSP 157-2 on its consolidated financial statements, and has determined the impact of adopting this standard does not have a material effect on the Company’s financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162” (“SFAS 168”). Under SFAS 168, the FASB Accounting Standards Codification (Codification) will become the sole source of authoritative U.S. GAAP to be applied by nongovernmental entities. SFAS 168 is effective for the financial statements issued for interim and annual periods ending after September 15, 2009. The adoption will have no material impact on the Company’s consolidated financial statements but will require that interim and annual filings include references to the Codification.

 
16


3.
INTERIM FINANCIAL STATEMENTS

As a Stockholder of Canal Capital Corporation you should be aware that due to financial constraints Canal’s fiscal 2010 Financial Statements are being presented in this Form 10-Q without benefit of independent review.

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.

The interim consolidated financial statements included herein have been prepared by Management, in accordance with accounting principles generally accepted in the United States, and in the opinion of Management, contain all adjustments necessary to present fairly its financial position as of January 31, 2010 and the results of its operations and its cash flows for the three month period ended January 31, 2010. All of the above referenced adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements for the three years ended October 31, 2009 and the notes thereto which are contained in Canal’s 2009 Annual Report on Form 10-K. The results of operations for the period presented is not necessarily indicative of the results to be expected for the remainder of fiscal 2010.


4.
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 January 31, 2010 or 2009.

 
17


5.
BORROWINGS

The Company’s variable rate mortgage notes (originally issued in 1998) are due May 15, 2012 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; 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 January 31, 2010, the balance due under these notes was $992,000, all of which is classified as long-term debt-related party. Canal has incurred interest expense on these notes of $25,000 and $32,000 for the three month periods ended January 31, 2010 and 2009, respectively.

At January 31, 2010, substantially all of Canal's real properties, the stock of certain subsidiaries, the investments and a substantial portion of its art inventories are pledged as collateral for the following obligations:

   
Jan. 31,
   
October 31,
 
($ 000's Omitted)
 
2010
   
2009
 
Variable rate mortgage notes due
           
May 15, 2012 - related party
  $ 992     $ 992  
Less -- current maturities
    0       0  
Long-term debt
  $ 992     $ 992  


The following table summarizes the Company’s commitments as of January 31, 2010 to make future payments under its debt agreements and other contractual obligations (in 000's):

                               
                               
   
Total
   
Less Than 1 year
   
1 – 3Years
   
3 - 5Years
   
More Than 5Yrs.
 
                               
Pension Plan Liability (a)
  $ 797     $ 58     $ 500     $ 239     $ 0  
Mortgage Notes Payable (b)
    992       0       992       0       0  
    $ 1,789     $ 58     $ 1,492     $ 239     $ 0  

 
(a)
See Note 16.
 
(b)
The mortgage notes are due May 15, 2012 and are held entirely by the Company’s Chief Executive Officer and members of his family. These notes carry annual interest of 10% and are collateralized by substantially all of Canal’s property, the stock of certain subsidiaries and its art inventories.

 
18


6.
RESTRICTED CASH

Letter of Credit - This is a $130,000 deposit with Chase Bank to secure a Letter of Credit issued by the bank to the Hartford Insurance Company for bonds issued in relation to the St. Joseph Stockyards clearing operation. This deposit is maintained in an interest bearing account.

Transit Insurance - Transit insurance covers livestock for the period that they are physically at the stockyards and under the care of stockyard personnel. This self insurance program is funded by a per head charge on all livestock received at the stockyard. The restricted cash - transit insurance balances of approximately $41,000 and $31,000 at January 31, 2010 and October 31, 2009, respectively, represents the excess of per head fees charged over actual payments made for livestock that was injured or died while at the stockyards.


7.
INCOME TAXES

At January 31, 2010, the Company has net operating loss carryforwards of approximately $10,200,000 that expire through 2029. For financial statement purposes, a valuation allowance has been provided to offset the net deferred tax assets due to the cumulative net operating losses incurred during recent years. The valuation allowance will be reduced when and if, in the opinion of management, significant positive evidence exists which indicates that it is more likely than not that the Company will be able to realize its deferred tax assets.

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 applied the provisions of this interpretation on November 1, 2007. The provisions of FIN 48 were applied to all existing uncertain income tax provisions on the effective date. Upon the implementation of FIN 48, any cumulative effect of this Interpretation would be required to be reported as an adjustment to the opening balance of retained earnings. The implementation of FIN 48 did not have any impact on the Company’s financial statements.


8.
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 January 31, 2010 and October 31, 2009.

 
19


9.
ART INVENTORY HELD FOR SALE


Canal is in the process of selling, in an orderly manner, its remaining art inventory. This will be accomplished primarily through 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. Canal had no sales of art in the first three months of fiscal 2010 or 2009. Canal's art operations have generated an operating losses of approximately $0 and $1,000 in the three month periods ended January 31, 2010 and 2009, respectively.

Antiquities art valued at $100,000 represented 100% of total art inventory at both January 31, 2010 and October 31, 2009. The Company records a valuation allowance against the current portion of its inventory to reduce it to its estimated net realizable value based on the history of losses sustained on inventory items sold in the current and previous years. As of January 31, 2010 the valuation allowance is approximately $397,000.


10.
LEASE COMMITMENTS
 
In July 2009 Canal terminated its lease on approximately 1,000 square feet of office space in Hauppauge, New York at a monthly rental of approximately $1,900. Canal relocated its New York operations to approximately 300 square feet of rent free office space located in Port Jefferson Station, New York.
 
There are no operating leases that have initial or remaining noncancellable terms in excess of one year as of January 31, 2010. Accordingly, Canal has no future minimum payments due over the next five years.


11.
MINIMUM FUTURE RENTALS ON OPERATING LEASES

Minimum future rentals consist primarily of rental income from leased land and structures, Exchange Building rents (commercial office space) and other rental activities, all of which are accounted for as operating leases. The estimated minimum future rentals on operating leases are $325,000, $350,000, $375,000, $400,000 and $425,000 for fiscal years 2010, 2011, 2012, 2013 and 2014, respectively.

 
20


12.
PROPERTY ON OPERATING LEASES

Property on operating leases consist of approximately 16 acres of land located in Omaha, Nebraska; S. St. Paul, Minnesota; Sioux City, Iowa as well as furniture and equipment used in the Port Jefferson Station, 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 January 31, 2010 is as follows (000's omitted):

   
Historical Cost Bldgs. &
         
Current Year
(Retirements
Additions Bldgs. & Accum
   
Carrying Value
 
Description (1)
 
Land
   
Imprvmts.
   
Land
   
Imprvmts.
   
Depr.
   
01/31/10
 
New York office Leasehold assets
  $ 0     $ 8     $ 0     $ 0     $ (8 )   $ 0  
                                                 
9 acres of land in Omaha, NE Acquired in 1976
    800       21       0       0       (17 )     804  
                                                 
3 acres of land in S. St. Paul, MN Acquired in 1937
    10       485       0       0       (431 )     64  
                                                 
4 acres of land in Sioux City, IA Acquired in 1937
    200       0       0       0       0       200  
    $ 1,210     $ 514     $ 0     $ 0     $ (456 )   $ 1,068  


A schedule of the Company’s reconciliation of property on operating leases carried for the three months ended January 31, 2010 and the year ended October 31, 2009 is as follows (000's omitted):

   
Jan. 31,
   
October 31,
 
   
2010
   
2009
 
Balance at beginning of year
  $ 1,074     $ 1,646  
Acquisitions and Improvements
    0       0  
Cost of property sold
    0       (550 )
Depreciation
    (16 )     (22 )
Reclassifications
    0       0  
Balance at end of the period
  $ 1,068     $ 1,074  


 
(1)
Substantially all of Canal’s real property is pledged as collateral for its debt obligations.

 
21


13.
PROPERTY USED IN STOCKYARD OPERATIONS

Property used in stockyard operations consist of approximately 30 acres of land located in St. Joseph, Missouri. 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 January 31, 2010 is as follows (000's omitted):


   
Historical Cost Bldgs. &
   
Current Year
(Retirements
Additions Bldgs. & Accum
         
Carrying Value
 
Description (1)
 
Land
   
Imprvmts.
   
Land
   
Imprvmts.
   
Depr.
   
01/31/10
 
                                     
                                     
30 acres of land in St. Joseph, MO Acquired in 1942
  $ 902     $ 265     $ 0     $ 0     $ (182 )   $ 985  


A schedule of the Company’s reconciliation of property used in stockyard operations carried for the six months ended January 31, 2010 and the year ended October 31, 2009 is as follows (000's omitted):


   
Jan. 31,
   
October 31,
 
   
2010
   
2009
 
             
Balance at beginning of year
  $ 988     $ 1,125  
Acquisitions and Improvements
    0       0  
Transfers
    0       (116 )
Depreciation
    (3 )     (21 )
Balance at end of the period
  $ 985    
$ 988_
 


 
(1)
Substantially all of Canal’s real property is pledged as collateral for its debt obligations.

 
22


14.
PROPERTY HELD FOR DEVELOPMENT OR RESALE


Property held for development or resale consist of approximately 37 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 January 31, 2010 is as follows (000's omitted):


   
Historical Cost Bldgs. &
   
Current Year
(Retirements
Additions Bldgs. & Accum
         
Carrying Value
 
Description (1)
 
Land
   
Imprvmts.
   
Land
   
Imprvmts.
   
Depr.
   
01/31/10
 
                                     
35 acres of land in Sioux Falls, SD Acquired in 1937
   220        N/A      0        N/A        N/A     225  
                                                 
2 acres of land in Sioux City, IA Acquired in 1937
    53       N/A     $ 0       N/A       N/A       53  
                                                 
    $ 273     $ 0     $ 0     $ 0     $ 0     $ 273  


A schedule of the Company’s reconciliation of property held for development or resale carried for the three months ended January 31, 2010 and the year ended October 31, 2009 is as follows (000's omitted):


   
Jan. 31,
   
October 31,
 
   
2010
   
2009
 
             
Balance at beginning of year
  $ 273$       92  
Acquisitions and Improvements
    0       0  
Cost of property sold
    0       (39 )
Reclassification of property
    0       220  
Balance at end of the period
  $ 273     $ 273  


 
(1)
Substantially all of Canal’s real property is pledged as collateral for its debt obligations.

 
23


15.
PENSION VALUATION RESERVE

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

The components of net periodic benefit cost are as follows:


   
Nine Months Ended
 
   
1/31/10
   
1/31/09
 
             
             
Service cost
    2,000       2,000  
Interest cost
    26,000       26,000  
Expected return on plan assets
    (28,000 )     (28,000 )
Amortization of prior service cost
    0       0  
Recognized net actuarial loss
    30,000       30,000  
Net periodic benefit cost
    30,000       30,000  


For the three months ended January 31, 2010 amounts have been estimated, actual amounts will be based on the discount rate and assets available at year end.

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


16.
401(k) PLAN

The Company has a defined contribution 401(k) plan covering substantially all of its full time stockyard employees. The plan provides for employee contributions and 401(k) matching contributions of up to 2 ½% of the employee’s annual salary by the Company. The Company made 401(k) matching contributions of approximately $3,000 and $5,000 for each of the three month periods ended January 31, 2010 and 2009.

 
24


17.
RELATED PARTY TRANSACTIONS

Interest Expense Related Party - At January 31, 2010, 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, 2012. Canal has incurred interest expense on these notes of $25,000 and $32,000 and for the three month periods ended January 31, 2010 and 2009, respectively. At various times during fiscal 2010 and 2009 certain holders of these notes have agreed to defer interest payments due them to help Canal with its cash flow. All deferred interest liability for fiscal 2010 and 2009 plus accrued interest at a rate of 10% per annum, will be repaid as funds become available. As of January 31, 2010, the balance due under these notes was $992,000 all of which is classified as long-term debt related party.


18.
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 January 31, 2010. 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 January 31, 2010, the liability for remediation, if any, is not estimatable and therefore no accrual has been recorded in the financial statements.

 
25


MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE THREEE MONTHS ENDED JANUARY 31, 2010


As a Stockholder of Canal Capital Corporation you should be aware that due to financial constraints Canal’s fiscal 2010 Financial Statements are being presented in this Form 10-Q without benefit of independent review.
 
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 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".

 
26


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

Real estate operations resulted in operating income of $54,000 and $67,000 for the three month periods ended January 31, 2010 and 2009, respectively. There were no real estate sales in the first quarter of fiscal 2010 or 2003. Additionally, real estate operations contributed $76,000 and $104,000 to Canal’s revenues for the three month periods ended January 31, 2010 and 2009, respectively.

As of January 31, 2010, there are approximately 37 acres of undeveloped land owned by Canal adjacent to its stockyard 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.

Risk - Real estate activities in general may involve various degrees of risk, such as the ability to collect receivables, 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

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

 
27


Sioux Falls Stockyard Closure - In December 2009, after extensive efforts to reorganize and return this stockyard to profitability, Canal ceased all stockyard operations at its Sioux Falls, South Dakota location. Canal now leases a portion of this property (approximately 10 acres), on a month to month basis, to a group that formerly operated at the stockyards as independent commission firms. This group will only handle hogs and sheep on the leased property. Canal has listed the entire property (approximately 30 acres) for sale with a local real estate agency. The sale of this property will be a priority in fiscal 2010. Canal will entertain all reasonable offers. The net value of this property was transferred to property held for development or resale as of October 31, 2009.

Public stockyards act much like a securities exchange, providing markets for all categories of livestock and fulfilling the economic functions of assembly,  grading,  and  price  discovery.   The  livestock handled by the Company’s stockyards include cattle, hogs, and sheep.  Cattle and hogs may come through the stockyard facilities at two different stages, either as feeder livestock or slaughter livestock. The Company’s stockyards provide all services and facilities required to operate an independent market for the sale of livestock, including veterinary 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.

 
28


Canal intends to continue its soliciting efforts at its St. Joseph stockyards in fiscal 2010. 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 $107,000 and $88,000 for the three month periods ended January 31, 2010 and 2009, respectively.  Additionally, stockyard operations contributed $658,000 and $815,000 to Canal’s revenues for the three month periods ended January 31, 2010 and 2009, respectively.

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.

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.

 
29


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 Quarterly 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 the sale of real estate are recognized at the time the sale has been consummated on the full accrual method wherein the seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property; the seller’s receivable is not subject to future subordination and the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property. 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 2010 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.

Property held for Development or Resale -- Property held for development or resale consist of approximately 37 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.

 
30


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:

   
Three Months Ended January 31,
 
   
2010
   
2009
 
(In Thousands)
           
Revenues:
           
Real Estate Revenues
  $ 76     $ 104  
Stockyard Revenues
    659       815  
Total Revenues
    735       919  
                 
Costs and Expenses:
               
Real Estate Expenses
    22       37  
Stockyard Expenses
    551       726  
General and Administrative Expenses
    212       225  
Total Costs and Expenses
    785       988  
                 
(Loss) Income from Operations
    (50 )     (69 )
                 
Other Income
    0       0  
Other Expenses
    (25 )     (33 )
Net (Loss) Income
  $ (75 )   $ 102  


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.

 
31


Canal recognized a net loss of approximately $75,000 in the first three months of fiscal 2010 as compared to a net loss of $102,000 for the same period in fiscal 2009.  After recognition of accrued preferred stock dividends of $18,000 and $18,000 in 2010 and 2009, respectively, the results attributable to common stockholders were a net loss of $93,000 in 2010 and a net loss of $120,000 in 2009.

Canal's revenues from continuing operations consist of revenues from its real estate and stockyard operations.  Revenues for the first three months of fiscal 2010 decreased by $184,000 to $735,000 as compared with 2009 revenues of $919,000.  The fiscal 2010 decrease in revenues is due primarily to a $157,000 decrease in stockyard revenues as a result of the closing of the Sioux Falls Stockyards in the first quarter of fiscal 2010.


COMPARISON OF FISCAL PERIODS ENDED JANUARY 31, 2010 AND 2009

 
Real Estate Revenues

Real estate revenues for the three months ended January 31, 2010 of $76,000 accounted for 10.4% of the fiscal 2010 revenues as compared to real estate revenues of $104,000 or 11.3% for the same period in fiscal 2009. Real estate revenues are comprised of sale  of  real  estate (0.0% and 0.0%), rentals   and  other lease  income  from the rental of vacant land and certain structures (88.9% and 92.6%) and rental income from commercial office space in its Exchange Buildings (11.1% and 7.4%) for the three months ended January 31, 2010 and 2009, respectively. There were no significant percentage variations in the year to year comparisons.


Real Estate Expenses

Real estate expenses for the three months ended January 31, 2010 of $22,000 decreased by $15,000 (39.5%) from real estate expenses of $37,000 for the same period in fiscal 2009. The decrease in real estate expenses is consistent with the 2010 decrease in real estate revenues.  Real estate expenses are comprised of the cost of real estate sold (0.0% and 0.0%), labor, operating and maintenance (29.0% and 41.3%), depreciation and  amortization  (24.9% and 15.1%),  taxes  other than  income taxes (24.5% and 16.7%) and general and administrative expenses (21.6% and 26.9%) for the three months ended January 31, 2010 and 2009, respectively. The percentage variations in the year to year comparisons are consistent with the decrease in real estate revenues discussed above.

 
32


Stockyard Revenues

Stockyard revenues for the three months ended January 31, 2010 of $658,000 accounted for 89.6% of the fiscal 2010 revenues as compared to stockyard revenues of $815,000 or 88.7% for the same period in fiscal 2009.  The 2010 decrease in stockyard revenues  was due  primarily to the closing of the Sioux Falls Stockyards in the first quarter of fiscal 2010. Stockyard revenues are comprised of yard handling and auction (75.1% and 87.9%), feed and bedding income (4.2% and 7.1%) and rental and other income (20.7% and 5.0%) for the three month periods ended January 31, 2010 and 2009, respectively.  The 2010 percentage variations in the year to year comparisons are due primarily to the closing of the Sioux Falls Stockyards in the first quarter of fiscal 2010 as discussed above.


Stockyard Expenses

Stockyard expenses for the three months ended January 31, 2010 of $551,000 decreased by $175,000 (24.1%) from stockyard expenses of $726,000 for the same period in fiscal 2009.  Stockyard expenses are comprised of labor and related costs (48.1% and 48.2%), other operating and maintenance (25.4% and 25.3%), feed and bedding expense (4.5% and 5.9%), depreciation and amortization (0.6% and 0.7%), taxes other than income taxes (7.3% and 6.1%) and general and administrative expense (14.2% and 13.8%) for the three month periods ended January 31, 2010 and 2009, respectively.  There were no significant percentage variations in the year to year comparisons.


General and Administrative

General and administrative expenses for the three months ended January 31, 2010 of $212,000 decreased by $13,000 (5.7%) as compared to $225,000 for the same period in fiscal 2009. The major components of general and  administrative  expenses are officers salaries (55.9% and 52.7%), pension expense (12.7% and 13.4%), insurance expense (6.5% and 5.9%), office salaries (11.1% and 10.5%), travel expense (3.3% and 4.2%), rent (0.0% and 2.6%) and professional fees (2.8% and 3.2%) for the three month periods ended January 31, 2010 and 2009, respectively. The percentage variations in the year to year comparisons are due primarily to the sharp decreases in both pension and rent expenses in fiscal 2010.


Interest Expense

Interest expense for the three months ended January 31, 2010 of $25,000 decreased by $7,000 (21.3%) from $32,000 for the same period in fiscal 2009. The 2010 decrease is due primarily to Canal’s $300,000 partial repayment of this debt in fiscal 2009.  The principal balance outstanding at January 31, 2010 of $992,000 is classified as long-term debt-related party.

 
33


(Expense) Income from Art Sales & Operations

Other expense from art sales & operations of $0 and an operating loss of $1,000 for the three month periods ended January 31, 2010 and 2009, respectively. Canal had no art sales in the first three months of fiscal 2010 or fiscal 2009.  Art revenues, if any, are comprised of the proceeds from the sale of antiquities art.  Art expenses are comprised of the cost of inventory sold and selling, general and administrative expenses. Canal incurred selling, general and administrative expenses of $0 and $1,000 for the three month periods ended January 31, 2010 and 2009, respectively.  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.




As a Stockholder of Canal Capital Corporation you should be aware that due to financial constraints Canal’s fiscal 2010 Financial Statements are being presented in this Form 10-Q without benefit of independent review.
 
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.
 
The Company’s variable rate mortgage notes (originally issued in 1998 and amended several times since then) are due May 15, 2012 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 this is 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. Accordingly, as of January 31, 2010, the balance due under these notes was $992,000, all of which is classified as long-term debt-related party.

 
34


Cash and cash equivalents of $105,000 at January 31, 2010 decreased $50,000 from $155,000 at October 31, 2009. Net cash used in operating activities in fiscal 2010 was $50,000.  Substantially all of the  net proceeds from the sales of real estate or art, if any, will be used in operating activities or to reduce debt. During fiscal 2010 the balance of Canal’s liabilities increased by a total of $180,000.
 
At January 31, 2010 the Company’s current liabilities exceed current assets  by approximately $0.1 million which was unchanged as compared to October 31, 2009 when the Company’s current liabilities exceeded current assets by $0.1 million.  The only required principal repayments under Canal's debt agreements for fiscal 2010 will be from the proceeds (if any) of the sale of certain assets.
 
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 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.


Other Factors
 
Some of the statements in this Form 10-Q, as well as statements by the Company in periodic press releases, oral statements made by the Company’s officials to analysts and stockholders in the course of presentations about the Company and conference calls following earning releases, constitute “forward-looking statements”  within the  meaning of the Private Securities Litigation  Reform  Act of 1995.   Such forward-looking statements involved known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 
35


ITEM III.
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.  As of January 31, 2010, 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 January 31, 2010, 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
Jan. 31,
   
($ US)
   
Interest Rate
   
Value
2010
    $ 0       N/A    
 
2011
      0       N/A      
2012
      992       10 %    
2013
      0       N/A      
2014
      0       N/A      
Thereafter
      0       N/A      
Total
    $  992            
N/A (A)

(A)
Long-term debt related party: it is not practicable to estimate the fair value of the related party debt.


Controls and Procedures

Our management, which includes our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13(a)-14(c) promulgated under the Securities Exchange Act of 1934) as of January 31, 2010 (“the Evaluation Date”) within 45 days prior to the filing date of this report.  Based upon that evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for timely gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended.  There have been no significant changes made in our internal controls or other factors that could significantly effect our internal controls subsequent to the Evaluation Date.

 
36


PART II

OTHER INFORMATION

 
37


Item 1:    Legal Proceedings:

Also see Item 3 of Canal’s October 31, 2009 Form 10-K.

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 January 31, 2010.

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 January 31, 2010, the liability for remediation, if any, is not estimatable and therefore no accrual has been recorded in the financial statements.
 
 
Item 2 and 3:      Not applicable.
 
Item 4: Submission of Matters to a Vote of Security Holders:    None.

Item 5: Other Information:      None.

Item 6: Exhibits and Reports on Form 8-K:
(A)
Not applicable.
 
(B)
None

 
38


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 9th day of March, 2010.


 
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
         
         
   
President and Chief
   
/S/ Michael E. Schultz
 
Executive Officer and Director
   
Michael E. Schultz
 
Principal Executive Officer)
 
March 9, 2010
         
   
Vice President-Finance
   
   
Secretary and Treasurer
   
/S/ Reginald Schauder
 
(Principal Financial and
   
Reginald Schauder
 
Accounting Officer)
 
March 9, 2010
         
         
/S/ Asher B. Edelman
 
Chairman of the Board
   
Asher B. Edelman
 
and Director
 
March 9, 2010
 
 
39