CANAL CAPITAL CORP - FORM 10-Q - September 13, 2011

Attached files

file	filename
EX-32 - EXHIBIT 32 - CANAL CAPITAL CORP	ex32.htm
EX-31.1 - EXHIBIT 31.1 - CANAL CAPITAL CORP	ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - CANAL CAPITAL CORP	ex31_2.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 JULY 31, 2011

o	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 o

Accelerated filer o

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 o Nox

The number of shares of Common Stock, $.01 par value, outstanding at August 31, 2011 was 4,326,929.

CANAL CAPITAL CORPORATION AND SUBSIDIARIES

FORM 10-Q JULY 31, 2011

INDEX

The following documents are filed as part of this report:

Part I -	Financial Information:	3

Item I .	Condensed Financial Statements:

Consolidated Balance Sheets - July 31, 2011 and October 31, 2010		4

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Nine Month Periods ended April 30, 2011 and 2010		6

Consolidated Statements of Changes in Stockholders’ Equity for the One Year and Nine Month Periods ended October 31, 2010 and July 31, 2011		10

Consolidated Statements of Cash Flows for the Nine Month Periods ended July 31, 2011 and 2010		11

Notes to Consolidated Financial Statements		13

Item II	Management’s Discussion and Analysis of Financial Condition	28

Liquidity and Capital Resources		37

Other Factors		38

Item III	Quantitative and Qualitative Disclosures About Market Risk	39

Item IV	Controls and Procedures	39

Part II	Other Information	40

Items 1 through 6		41

Signatures and Certifications		42

Index

PART I

FINANCIAL INFORMATION

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JULY 31, 2011 AND OCTOBER 31, 2010

	JULY 31,		OCT. 31,
	2011		2010
	(UNAUDITED)		(UNAUDITED)

ASSETS:

CURRENT ASSETS:

CASH AND CASH EQUIVALENTS	$	78,472	$	510,361

NOTES AND ACCOUNTS RECEIVABLE, NET OF AN ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $ZERO AT BOTH JULY 31, 2011 AND OCTOBER 31, 2010,		71,784		138,879

STOCKYARDS INVENTORY		1,260		14,608

PREPAID EXPENSES		29,642		12,461

TOTAL CURRENT ASSETS		181,158		676,309

NON-CURRENT ASSETS:

PROPERTY ON OPERATING LEASES, NET OF ACCUMULATED DEPRECIATION OF $489,049AND $472,399 AT JULY 31, 2011 AND OCTOBER 31, 2010, RESPECTIVELY		1,388,557		1,391,407

PROPERTY USED IN STOCKYARD OPERATIONS, NET OF ACCUMULATED DEPRECIATION OF $207,157 AND $191,857 AT JULY 31, 2011 AND OCTOBER 31, 2010, RESPECTIVELY		554,282		532,672

ART INVENTORY, NET OF A VALUATION ALLOWANCE OF $396,522 AT BOTH JULY 31, 2011 AND OCTOBER 31, 2010		100,000		100,000

OTHER ASSETS:

PROPERTY HELD FOR DEVELOPMENT OR RESALE		52,250		52,250
RESTRICTED CASH – LETTER OF CREDIT		140,000		140,000
RESTRICTED CASH - TRANSIT INSURANCE		40,700		26,000
DEPOSITS AND OTHER ASSETS		0		0
		232,950		218,250
	$	2,456,947	$	2,918,638

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JULY 31, 2011 AND OCTOBER 31, 2010

	JULY 31, 2011			OCT.31, 2010
	(UNAUDITED)			(UNAUDITED)

LIABILITIES & STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES	$	73,886		$	267,827
ACCRUED PROFESSIONAL FEES		37,205			55,000
INCOME TAXES PAYABLE		10,000			10,000
TOTAL CURRENT LIABILITIES		121,091			332,827

NON-CURRENT LIABILITIES:
LONG-TERM PENSION LIABILITY		714,830			869,676
PREFERRED STOCK DIVIDEND PAYABLE		223,550			169,550
SALARIES AND INTEREST PAYABLE – OFFICERS		344,025			175,000
REAL ESTATE TAXES PAYABLE		55,182			44,543
OTHER NON-CURRENT LIABILITIES		40,700			26,000
TOTAL NON-CURRENT LIABILITIES		1,378,287			1,284,769

LONG-TERM DEBT, RELATED PARTY		847,000			847,000

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

PREFERRED STOCK, $0.01 PAR VALUE:10,000,000 SHARES AUTHORIZED; 9,102,655SHARES ISSUED AND OUTSTANDING AT JULY 31,2011 AND OCTOBER 31, 2010, RESPECTIVELY AND AGGREGATE LIQUIDATION PREFERENCE OF $10 PER SHARE FOR $ 91,026,550 AT JULY 31, 2011AND OCTOBER 31, 2010, 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 JULY 31, 2011 AND OCTOBER 31,2010, RESPECTIVELY		53,138			53,138

ADDITIONAL PAID-IN CAPITAL		28,322,341			28,322,341

ACCUMULATED DEFICIT		(15,539,019.00	)		(15,114,546.00	)

986,865 SHARES OF COMMON STOCK HELD IN TREASURY, AT COST		(11,003,545.00	)		(11,003,545.00	)

COMPREHENSIVE INCOME:
PENSION VALUATION RESERVE		(1,813,373.00	)		(1,894,373.00	)
		110,569		454,042

	$	2,456,947		$	2,918,638

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010

	2011			2010
	(UNAUDITED)			(UNAUDITED)

REAL ESTATE OPERATIONS:

REAL ESTATE REVENUES:
SALE OF REAL ESTATE		0			0
OUTSIDE REAL ESTATE RENT		202,732			202,284
EXCHANGE BUILDING RENTAL INCOME		0			14,493
		202,732			216,777

REAL ESTATE EXPENSES:
COST OF REAL ESTATE SOLD		0			0
LABOR, OPERATING AND MAINTENANCE		7,034			19,343
DEPRECIATION AND AMORTIZATION		16,650			16,650
TAXES OTHER THAN INCOME TAXES		11,250			16,550
GENERAL AND ADMINISTRATIVE		7,650			16,873
		42,584			69,416

INCOME FROM REAL ESTATE OPERATIONS		160,148			147,361


STOCKYARD OPERATIONS:

STOCKYARD REVENUES:
YARD HANDLING AND AUCTION	$	1,255,424		$	1,353,303
FEED AND BEDDING INCOME		83,224			79,836
RENTAL & OTHER INCOME		92,629			214,369
		1,431,277			1,647,508

STOCKYARD EXPENSES:
LABOR AND RELATED COSTS		562,070			610,017
OTHER OPERATING AND MAINTENANCE		332,280			386,417
FEED AND BEDDING EXPENSE		66,311			66,125
DEPRECIATION AND AMORTIZATION		15,300			10,103
TAXES OTHER THAN INCOME TAXES		56,909			116,272
GENERAL AND ADMINISTRATIVE		246,315			244,123
		1,279,185			1,433,057

INCOME (LOSS) FROM STOCKYARD OPERATIONS		152,092			214,451


GENERAL AND ADMINISTRATIVE EXPENSE		(619,510.00	)		(627,896.00	)


(LOSS) INCOME FROM OPERATIONS		(307,270.00	)		(266,084.00	)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010

Continued ...

	2011			2010
	(UNAUDITED)			(UNAUDITED)

OTHER (EXPENSE) INCOME:
INTEREST & OTHER INCOME		322			407
INTEREST EXPENSE		(63,525.00	)		(88,179.00	)
ART SALES AND OPERATIONS		0		0
		(63,203.00	)		(87,772.00	)

(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES		(370,473.00	)		(353,856.00	)
PROVISION FOR INCOME TAXES		0		0

NET (LOSS) INCOME		(370,473	)		(353,856	)

OTHER COMPREHENSIVE (LOSS) INCOME:

MINIMUM PENSION LIABILITY ADJUSTMENT		81,000		81,000

COMPREHENSIVE (LOSS) INCOME	$	(289,473	)	$	(272,856	)
(LOSS) EARNINGS PER COMMON SHARE:

NET (LOSS) INCOME	$	(370,473	)	$	(353,856	)

LESS PREFERRED STOCK DIVIDEND		(54,000.00	)		(54,000.00	)

(LOSS) INCOME AVAILABLE TO COMMON STKDERS	$	(424,473	)	$	(407,856	)


NET (LOSS) INCOME PER COMMON SHARE BASIC AND DILUTED	$	(0.10	)	$	(0.09	)

AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED		4,326,929			4,326,929

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED JULY 31, 2011 AND 2010

	2011			2010
	(UNAUDITED)			(UNAUDITED)
REAL ESTATE OPERATIONS:

REAL ESTATE REVENUES:
SALE OF REAL ESTATE		0			0
OUTSIDE REAL ESTATE RENT		66,244			67,270
EXCHANGE BUILDING RENTAL INCOME		0			2,414
		66,244			69,684

REAL ESTATE EXPENSES:
COST OF REAL ESTATE SOLD		0			0
LABOR, OPERATING AND MAINTENANCE		2,500			5,765
DEPRECIATION AND AMORTIZATION		5,550			5,550
TAXES OTHER THAN INCOME TAXES		3,750			5,550
GENERAL AND ADMINISTRATIVE		2,550			7,257
		14,350			24,122

INCOME FROM REAL ESTATE OPERATIONS		51,894			45,562

STOCKYARD REVENUES:
YARD HANDLING AND AUCTION	$	216,003		$	277,142
FEED AND BEDDING INCOME		16,161			21,817
RENTAL & OTHER INCOME		27,471			34,028
		259,635			332,987

STOCKYARD EXPENSES:
LABOR AND RELATED COSTS		150,917			145,810
OTHER OPERATING AND MAINTENANCE		92,598			111,536
FEED AND BEDDING EXPENSE		16,197			15,826
DEPRECIATION AND AMORTIZATION		5,100			3,368
TAXES OTHER THAN INCOME TAXES		16,513			35,886
GENERAL AND ADMINISTRATIVE		45,131			54,641
		326,456			367,067

INCOME (LOSS) FROM STOCKYARD OPERATIONS		(66,821.00	)		(34,080.00	)

GENERAL AND ADMINISTRATIVE EXPENSE		(205,483.00	)		(208,042.00	)

(LOSS) INCOME FROM OPERATIONS		(220,410.00	)		(196,560.00	)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED JULY 31, 2011 AND 2010

Continued ...

	2011			2010
	(UNAUDITED)			(UNAUDITED)

OTHER (EXPENSE) INCOME:
INTEREST & OTHER INCOME		53			177
INTEREST EXPENSE		(21,175.00	)		(33,300.00	)
ART SALES AND OPERATIONS		0			0
		(21,122.00	)		(33,123.00	)


(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES		(241,532.00	)		(229,683.00	)
PROVISION FOR INCOME TAXES		0			0
NET (LOSS) INCOME		(241,532.00	)		(229,683.00	)

OTHER COMPREHENSIVE (LOSS) INCOME:

MINIMUM PENSION LIABILITY ADJUSTMENT		27,000			27,000

COMPREHENSIVE (LOSS) INCOME	$	(214,532	)	$	(202,683	)

(LOSS) EARNINGS PER COMMON SHARE:

NET (LOSS) INCOME	$	(241,532	)	$	(229,683	)
LESS PREFERRED STOCK DIVIDEND		(18,000.00	)		(18,000.00	)

(LOSS) INCOME AVAILABLE TO COMMON STKDERS	$	(259,532	)	$	(247,683	)

NET (LOSS) INCOME PER COMMON SHARE BASIC AND DILUTED	$	(0.06	)	$	(0.06	)

AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED		4,326,929			4,326,929

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED OCTOBER 31, 2010 (UNAUDITED) AND

FOR THE NINE MONTHS ENDED JULY 31, 2011 (UNAUDITED)

	COMMON STOCK				PREFERRED STOCK
	NUMBER				NUMBER				ADDITIONAL								TREASURY
	OF				OF				PAID-IN		ACCUMULATED			COMPREHENSIV			STOCK,
	SHARES		AMOUNT		SHARES		AMOUNT		CAPITAL		DEFICIT			LOSS			AT COST

BALANCE, OCTOBER 31, 2009		5,313,794	$	53,138		9,102,655	$	91,027	$	28,322,341	$	(15,068,051	)	$	(1,915,985	)	$	(11,003,545	)
NET INCOME		0		0		0		0		0		10,505			0			0
PREFERRED STOCK DIVIDEND		0		0		0		0		0		-57,000			0			0
MINIMUM PEN. LIAB. ADJ.		0		0		0		0		0		0			21,612			0

BALANCE, OCTOBER 31, 2010		5,313,794	$	53,138		9,102,655	$	91,027	$	28,322,341	$	(15,114,546	)	$	(1,894,373	)	$	(11,003,545	)
NET LOSS		0		0		0		0		0		-370,473			0			0
PREFERRED STOCK DIVIDEND		0		0		0		0		0		-54,000			0			0
MINIMUM PEN. LIAB. ADJ.		0		0		0		0		0		0			81,000			0

BALANCE, JULY 31, 2011		5,313,794	$	53,138		9,102,655	$	91,027	$	28,322,341	$	(15,539,019	)	$	(1,813,373	)	$	(11,003,545	)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010

	JULY 2011			JULY 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME	$	(370,473	)	$	(353,856	)

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

DEPRECIATION AND AMORTIZATION		31,950			26,753
GAIN ON SALES OF REAL ESTATE		0			0
MINIMUM PENSION LIABILITY ADJUSTMENT		81,000			81,000

DECREASE (INCREASE) IN ASSETS:

NOTES AND ACCOUNTS RECEIVABLE		67,095			(164,470.00	)
STOCKYARDS INVENTORY		13,348			11,729
PREPAID EXPENSES		(17,181.00	)		(44,974.00	)
RESTRICTED CASH – LETTER OF CREDIT		0			-10,000
RESTRICTED CASH – TRANSIT INSURANCE		(14,700.00	)		(6,535.00	)

INCREASE (DECREASE) IN LIABILITIES:

ACCOUNTS PAYABLE AND ACCRUED EXPENSES		(193,941.00	)		113,159
PENSION PLAN PAYABLE		0			0
PAYABLE TO EXECUTIVE OFFICERS		169,025			337,875
ACCRUED PROFESSIONAL FEES		(17,795.00	)		(65,969.00	)
LONG-TERM PENSION LIABILITY		(154,846.00	)		(14,540.00	)
REAL ESTATE TAXES PAYABLE		10,639			(27,391.00	)
OTHER NON-CURRENT LIABILITIES		14,700		0
TOTAL ADJUSTMENTS		(10,706.00	)	236,637

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(381,179.00	)		(117,219.00	)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010

Continued ...

	JULY 2010			JULY 2010

CASH FLOWS FROM INVESTING ACTIVITIES:

PROCEEDS FROM SALES OF REAL ESTATE		0			0
COSTS RELATING TO SALES OF REAL ESTATE		0			0
CAPITAL EXPENDITURES		(50,710	)		(375,000	)
NET CASH PROVIDED BY INVESTING ACTIVITIES		(50,710	)		(375,000	)

CASH FLOWS PROVIDED BY (USED) IN FINANCING ACTIVITIES:

PROCEEDS FROM LONG-TERM DEBT OBLIGATION		0			340,000
REPAYMENT OF LONG-TERM DEBT OBLIGATION		0			0

NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES		0			340,000

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(431,889.00	)		(152,219.00	)

CASH AND CASH EQUIVALENTS AT BEGN OF YEAR		510,361			154,624

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	78,472		$	2,405

	JULY 31,
	2011			2010

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

CASH PAID DURING THE YEAR FOR:

INTEREST	$	63,525		$	88,179
INCOME TAXES	$	0		$	0

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

PREFERRED STOCK DIVIDENDS	$	54,000		$	54,000

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

Index

CANAL CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2011

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 2011 and 2010 Financial Statements are being presented in this Form 10-Q without benefit of independent audit or 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 land and structures leased to third parties (rail car repair shops, lumber yards and various other commercial and retail businesses) as well as vacant land available for development or resale. Its principal real estate operating revenues are derived from lease income from land and structures leased to various commercial and retail enterprises, and proceeds from the sale of real estate properties. 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.

Index

Real estate operations resulted in operating income of $160,000 and $147,000 for the nine month periods ended July 31, 2011 and 2010, respectively. There were no real estate sales in the first nine months of fiscal 2011 or 2010. Additionally, real estate operations contributed $203,000 and $217,000 to Canal’s revenues for the nine month periods ended July 31, 2011 and 2010, respectively.

As of July 31, 2011, there are approximately 2 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.

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. In September 2010,Canal sold approximately 37 acres of land previously used in stockyard operations located in Sioux Falls, South Dakota for $2.0 million generating operating income of $0.7 million.

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

Index

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.

In addition to market agencies and independent commission sales people 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 2011. 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 $152,000 and operating income of $214,000 for the nine month periods ended July 31, 2011 and 2010, respectively. Additionally, stockyard operations contributed $1,431,000 and $1,648,000 to Canal’s revenues for the nine month periods ended JULY 31, 2011 and 2010, respectively. Canal maintains an inventory of feed and bedding which is comprised primarily of hay, corn and straw. The value of this inventory was $1,000 and $15,000 at July 31, 2011 and October 31, 2010, respectively.

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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 2 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.

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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.

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.

Index

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.

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 $64,000, and $88,000 for the nine month periods ended July 31, 2011 and 2010, 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.

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.

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3.	INTERIM FINANCIAL STATEMENTS

The interim consolidated financial statements included herein have been prepared by Management, in accordance with accounting principles generally accepted in the United States, and in the opinion of Management, contain all adjustments necessary to present fairly its financial position as of July 31, 2011 and the results of its operations and its cash flows for the nine month period ended July 31, 2011. 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, 2010 and the notes thereto which are contained in Canal’s 2010 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 2011.

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 July 31, 2011 or 2010.

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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 April 30, 2011, the balance due under these notes was 847,000, all of which is classified as long-term debt-related party. Canal has incurred interest expense on these notes of $64,000 and $88,000 for the nine month periods ended July 31, 2011 and 2010, respectively.

At July 31, 2011, substantially all of Canal's real properties, the stock of certain subsidiaries, the investments and a substantial portion of its art inventories are pledged as collateral for the following obligations:

	July 31,		October 31,
($ 000's Omitted)	2011		2010
Variable rate mortgage notes due May 15, 2012 - related party	$	847	$	847
Less -- current maturities		0		0
Long-term debt	$	847	$	847

The following table summarizes the Company’s commitments as of July 31, 2011 to make future payments under its debt agreements and other contractual obligations (in 000's):

	Total		Less Than 1 year		1 - 3 Years		3 - 5 Years		More Than 5Yrs.

Pension Plan Liability (a)	$	715	$	125	$	400	$	190	$	0
Mortgage Notes Payable (b)		847		0		847		0		0
	$	1,562	$	125	$	1,247	$	190	$	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.

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6.	RESTRICTED CASH

Letter of Credit - This is a $140,000 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 $26,000 at July 31, 2011 and October 31, 2010, 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 July 31, 2011, the Company has net operating loss carryforwards of approximately $8,100,000 that expire through 2030. 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 July 31, 2011 and October 31, 2010.

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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 six months of fiscal 2011 or 2010.

Antiquities art valued at $100,000 represented 100% of total art inventory at both July 31, 2011 and October 31, 2010. The Company records a valuation allowance against the current portion of its inventory to reduce it to its estimated net realizable value based on the history of losses sustained on inventory items sold in the current and previous years. As of July 31, 2011 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 July 31, 2011. Accordingly, Canal has no future minimum payments due over the next five years.

11.	MINIMUM FUTURE RENTALS ON OPERATING LEASES

Minimum future rentals consist primarily of rental income from leased land and structures, Exchange Building rents (commercial office space) and other rental activities, all of which are accounted for as operating leases. The estimated minimum future rentals on operating leases are $275,000, $275,000, $300,000, $300,000 and $350,000 for fiscal years 2011, 2012, 2013, 2014 and 2015, respectively.

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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 July 31, 2011 is as follows (000's omitted):

	Current Year
	(Retirements
	Historical Cost				Additions							Carrying
Description (1)	Land		Bldgs. & Imprvmts.		Land		Bldgs. & Imprvmts.		Accum. Depr.			Value 07/31/11
New York office
Leasehold assets	$	0	$	8	$	0	$	0	$	(8	)	$	0

9 acres of land
in Omaha, NE	$	800	$	21	$	0	$	14	$	(19	)	$	816
Acquired in 1976

3 acres of land
in S. St. Paul, MN	$	10	$	485	$	0	$	0	$	(462	)	$	33
Acquired in 1937

4 acres of land
in Sioux City, IA Acquired in 1937	$	540	0		$	0	$	0	$	0		$	540

	$	1,350	$	514	$	0	$	14	$	(489	)	$	1,389

A schedule of the Company’s reconciliation of property on operating leases carried for the nine months ended July 31, 2011 and the year ended October 31, 2010 is as follows (000's omitted):

	July 31,			October 31,
	2011			2010
Balance at beginning of year		1391			1074
Acquisitions and Improvements		14			0
Cost of property sold		0			0
Depreciation		(16	)		(23	)
Reclassifications		0			340
Balance at end of the period		1389			1391

(1)

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

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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 July 31, 2011 is as follows (000's omitted):

					Current Year
					(Retirements)
	Historical Cost				Additions						Carrying
Description (1)	Land		Bldgs. & Imprvmts.		Land		Bldgs. & Imprvmts.		Accum. Depr.		Value 07/31/11

30 acres of land in St. Joseph, MO Acquired in 1942	$	400	$	325	$	0	$	37	$	(206)		554

A schedule of the Company’s reconciliation of property used in stockyard operations carried for the nine months ended July 31, 2011 and the year ended October 31, 2010 is as follows (000's omitted):

	July 31,			October 31,
	2011			2010

Balance at beginning of year	$	533		$	988
Acquisitions and Improvements		37			60
Transfers		0			(502	)
Depreciation		(16	)		(13	)
Balance at end of the period	$	554		$	533

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

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14.	PROPERTY HELD FOR DEVELOPMENT OR RESALE

Property held for development or resale consist of approximately 2 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 July 31, 2011 is as follows (000's omitted):

Current Year

(Retirements)

Historical Cost

Additions

Carrying

Description (1)

Land

Bldgs. &

Imprvmts.

Land

Bldgs. &

Imprvmts.

Accum.

Depr.

Value

07/31/11

2 acres of land

in Sioux City, IA

Acquired in 1937

N/A

A schedule of the Company’s reconciliation of property held for development or resale carried for the nine months ended July 31, 2011 and the year ended October 31, 2010 is as follows (000's omitted):

	July 31,		October 31,
	2011		2010

Balance at beginning of year	$	53	$	273
Acquisitions and Improvements		0		0
Cost of property sold		0		0
Reclassification of property		0		(220	)
Balance at end of the period	$	53	$	53

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

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15.	PENSION VALUATION RESERVE

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

The components of net periodic benefit cost are as follows:

	Six Months Ended
	7/31/11			7/31/10


Service cost		6,000			6,000
Interest cost		78,000			78,000
Expected return on plan assets		(84,000	)		(84,000	)
Amortization of prior service cost		0			0
Recognized net actuarial loss		90,000			90,000
Net periodic benefit cost		90,000			90,000

For the nine months ended July 31, 2011 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 2011 is approximately $172,000. A $155,000 contribution has been made to date and 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 $8,000 for each of the nine month periods ended July 31, 2011 and 2010.

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17.	RELATED PARTY TRANSACTIONS

Interest Expense Related Party - At July 31, 2011, all of Canal’s Long-Term Debt is held by the company’s Chief Executive Officer. These notes pay interest at a rate of 10% per annum and come due May 15, 2012. Canal has incurred interest expense on these notes of $64,000 and $88,000 and for the nine month periods ended July 31, 2011 and 2010, respectively. At various times during fiscal 2011 and 2010 the holder of these notes agreed to defer interest payments due him to help Canal with its cash flow. All deferred interest liability for fiscal 2011 and 2010 plus accrued interest at a rate of 10% per annum, will be repaid as funds become available. As of July 31, 2011, the balance due under these notes was $847,000 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 July 31, 2011. 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 July 31, 2011, the liability for remediation, if any, is not estimatable and therefore no accrual has been recorded in the financial statements.

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ITEM II.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF THERESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE NINE MONTHS ENDED JULY 31, 2011

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 land and structures leased to third parties (rail car repair shops, lumber yards and various other commercial and retail businesses) as well as vacant land available for development or resale. Its principal real estate operating revenues are derived from lease income from land and structures leased to various commercial and retail enterprises and proceeds from the sale of real estate properties. 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".

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Stockyard Operations - Canal currently operates one central public stockyard located in St. Joseph, Missouri.

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

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.

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Stockyard Operations

Stockyard Operations - Canal currently operates one central public stockyard located in St. Joseph, Missouri.

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.

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Stockyard operations resulted in operating income of $152,000 and $214,000 for the nine month periods ended July 31, 2011 and 2010, respectively. Additionally, stockyard operations contributed $1,431,000 and $1,648,000 to Canal’s revenues for the nine month periods ended July 31, 2011 and 2010, 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.

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.

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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 2011 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.

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.

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Results of Operations

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

	Nine Months Ended July 31,
	2011			2010
	(In Thousands)
Revenues:
Real Estate Revenues	$	203		$	217
Stockyard Revenues		1,431			1,648
Total Revenues		1,634			1,865

Costs and Expenses:
Real Estate Expenses		43			70
Stockyard Expenses		1,279			1,433
General and Administrative Expenses		619			628
Total Costs and Expenses		1,941			2,131

(Loss) Income from Operations		(307.00	)		(266.00	)

Other Income		0			0
Other Expenses		(63.00	)		(88.00	)
Net (Loss) Income	$	(307	)	$	(354	)

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 recognized a net loss of approximately $370,000 in the first nine months of fiscal 2011 as compared to a net loss of $354,000 for the same period in fiscal 2010. After recognition of accrued preferred stock dividends of $54,000 and $54,000 in 2011 and 2010, respectively, the results attributable to common stockholders were a net loss of 424,000 in 2011 and a net loss of 408,000 in 2010.

Canal's revenues from continuing operations consist of revenues from its real estate and stockyard operations. Revenues for the first nine months of fiscal 2011 decreased by $231,000 to $1,634,000 as compared with 2010 revenues of $1,865,000. The fiscal 2011 decrease in revenues is due primarily to a $217,000 decrease in stockyard revenues as a result of the closing of the Sioux Falls Stockyards in the first quarter of fiscal 2010 combined with a $14,000 decrease in real estate revenues in the first nine months of fiscal 2011.

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COMPARISON OF FISCAL PERIODS ENDED JULY 31, 2011 AND 2010

Real Estate Revenues

Real estate revenues for the nine months ended July 31, 2011 of $203,000 accounted for 12.4% of the fiscal 2011 revenues as compared to real estate revenues of $217,000 or 11.6% for the same period in fiscal 2010. 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 (100.0% and 93.3%) and rental income from commercial office space in its Exchange Buildings (0.0% and 6.7%) for the nine months ended July 31, 2011 and 2010, respectively. The percentage variations in the year to year comparisons are due primarily to the elimination of rental income from the Sioux Falls, South Dakota Exchange Building which was closed in September 2010.

Real estate revenues for the three months ended July 31, 2011 of $66,000 accounted for 20.3% of the fiscal 2011 revenues as compared to real estate revenues of $70,000 or 17.3% for the same period in fiscal 2010. 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 (100.0% and 96.5%) and rental income from commercial office space in its Exchange Buildings (0.0% and 3.5%) for the three months ended July 31, 2011 and 2010, respectively. The percentage variations in the year to year comparisons are due primarily to the elimination of rental income from the Sioux Falls, South Dakota Exchange Building which was closed in September 2010.

Real Estate Expenses

Real estate expenses for the nine months ended July 31, 2011 of $43,000 decreased by $27,000 (38.7%) from real estate expenses of $70,000 for the same period in fiscal 2010. The decrease in real estate expenses is consistent with the 2011 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 (16.5% and 27.9%), depreciation and amortization (39.1% and 24.0%), taxes other than income taxes (26.4% and 23.8%) and general and administrative expenses (18.0% and 24.3%) for the nine months ended July 31, 2011 and 2010, respectively. The percentage variations in the year to year comparisons are the result of the fiscal 2011 decreases in all but depreciation expense.

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Real estate expenses for the three months ended July 31, 2011 of $14,000 decreased by $10,000 (40.5%) from real estate expenses of $24,000 for the same period in fiscal 2010. The decrease in real estate expenses is consistent with the 2011 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 (17.4% and 23.9%), depreciation and amortization (38.7% and 23.0%), taxes other than income taxes (26.1% and 23.0%) and general and administrative expenses (17.8% and 30.1%) for the three months ended July 31, 2011 and 2010, respectively. The percentage variations in the year to year comparisons are the result of the fiscal 2011 decreases in all but depreciation expense.

Stockyard Revenues

Stockyard revenues for the nine months ended July 31, 2011 of $1,431,000 accounted for 87.6% of the fiscal 2011 revenues as compared to stockyard revenues of $1,648,000 or 88.4% for the same period in fiscal 2010. The 2011 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 (87.7% and 82.1%), feed and bedding income (5.8% and 4.8%) and rental and other income (6.5% and 13.1%) for the nine month periods ended July 31, 2011 and 2010, 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 revenues for the three months ended July 31, 2011 of $260,000 accounted for 79.7% of the fiscal 2011 revenues as compared to stockyard revenues of $333,000 or 82.7% for the same period in fiscal 2010. The 2011 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 (83.2% and 83.2%), feed and bedding income (6.2% and 6.6%) and rental and other income (10.6% and 10.2%) for the three month periods ended July 31, 2011 and 2010, 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 nine months ended July 31, 2011 of $1,279,000 decreased by $154,000 (10.7%) from stockyard expenses of $1,433,000 for the same period in fiscal 2010. Stockyard expenses are comprised of labor and related costs (43.9% and 42.6%), other operating and maintenance (26.0% and 27.0%), feed and bedding expense (5.2% and 4.6%), depreciation and amortization (1.2% and 0.7%), taxes other than income taxes (4.4% and 8.1%) and general and administrative expense (19.3% and 17.0%) for the nine month periods ended July 31, 2011 and 2010, respectively. There were no significant percentage variations in the year to year comparisons.

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Stockyard expenses for the three months ended July 31, 2011 of $326,000 decreased by $41,000 (11.1%) from stockyard expenses of $367,000 for the same period in fiscal 2010. Stockyard expenses are comprised of labor and related costs (46.2% and 39.7%), other operating and maintenance (28.4% and 30.4%), feed and bedding expense (5.0% and 4.3%), depreciation and amortization (1.6% and 0.9%), taxes other than income taxes (5.1% and 9.8%) and general and administrative expense (13.7% and 14.9%) for the three month periods ended July 31, 2011 and 2010, respectively. There were no significant percentage variations in the year to year comparisons.

General and Administrative

General and administrative expenses for the nine months ended July 31, 2011 of $620,000 decreased by $8,000 (1.3%) as compared to $628,000 for the same period in fiscal 2010. The major components of general and administrative expenses are officers salaries (57.4% and 56.6%), pension expense (13.1% and 12.9%), insurance expense (6.7% and 6.6%), office salaries (11.4% and 11.2%), travel expense (2.2% and 2.8%) and professional fees (1.7% and 2.9%) for the nine month periods ended July 31, 2011 and 2010, respectively. The percentage variations in the year to year comparisons are due primarily to the sharp decreases in both travel and professional fees expenses in fiscal 2011.

General and administrative expenses for the three months ended July 31, 2011 of $205,000 decreased by $3,000 (1.2%) as compared to $208,000 for the same period in fiscal 2010. The major components of general and administrative expenses are officers salaries (58.4% and 56.5%), pension expense (13.3% and 12.9%), insurance expense (6.8% and 6.6%), office salaries (11.6% and 11.2%), travel expense (2.2% and 2.9%) and professional fees (1.5% and 2.9%) for the three month periods ended July 31, 2011 and 2010, respectively. The percentage variations in the year to year comparisons are due primarily to the sharp decreases in both travel and professional fees expenses in fiscal 2011.

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Interest Expense

Interest expense for the nine months ended July 31, 2011 of $64,000 decreased by $24,000 (28.0%) from $88,000 for the same period in fiscal 2010. The 2011 decrease is due primarily to Canal’s $485,000 partial repayment of this debt in fiscal 2010. The principal balance outstanding at July 31, 2011 of $847,000 is classified as long-term debt-related party.

(Expense) Income from Art Sales & Operations

There were no other expense from art sales & operations for the nine month periods ended July 31, 2011 and 2010, respectively. Canal had no art sales in the first nine months of fiscal 2011 or fiscal 2010. 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. 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.

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 there solution 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. These notes carry interest at the rate of ten percent per annum.

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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 July 31, 2011, the balance due under these notes was $847,000, all of which is classified as long-term debt-related party.

Cash and cash equivalents of $78,000 at July 31, 2011 decreased $432,000 from $510,000 at October 31, 2010. Net cash used in operating activities in fiscal 2011 was $381,000. 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 2011 the balance of Canal’s liabilities decreased by a total of $118,000.

At July 31, 2011 the Company’s current assets exceed current liabilities by approximately $0.6 million as compared to October 31, 2010 when the Company’s current assets exceeded current liabilities by $0.3 million. The only required principal repayments under Canal's debt agreements for fiscal 2011 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.

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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 July 31, 2011, 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 July 31, 2011, 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
JULY 31,	($ US)		Interest Rate		Value
2011	$	0		N/A
2012		847		10%
2013		0		N/A
2014		0		N/A
2015		0		N/A
Thereafter		0		N/A
Total	$	847			N/A (A)

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

ITEM IV.

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 July 31, 2011 (“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.

PART II

Legal Proceedings:

Also see Item 3 of Canal’s October 31, 2010 Form 10-K.

The following situation did arise in fiscal 2005:

Environmental Protection Agency - Special Notice Letter for Investigation, Portland, Oregon Property

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

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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 12th day of September, 2011.

	CANAL CAPITAL CORPORATION


Date	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)	September 12, 2011

	Vice President-Finance
	Secretary and Treasurer
/S/ Reginald Schauder	(Principal Financial and
Reginald Schauder	Accounting Officer)	September 12, 2011


/S/ Asher B. Edelman	Chairman of the Board
Asher B. Edelman	and Director	September 12, 2011

CANAL CAPITAL CORP - FORM 10-Q - September 13, 2011

Attached files

CANAL CAPITAL CORP Reports