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

FORM 10-Q

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

For the quarterly period ended January 31, 2012

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

For the transition period from __________to __________

002-96666
(Commission File Number)

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

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

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

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

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

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

Yes [  ]          No [X]

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

Yes [  ]          No [  ]

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

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

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

Yes [  ]          No [X]

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

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


EXPLANATORY NOTE

As a result of financial constraints, the Company’s financial statements for the fiscal years ended October 31, 2011, 2010 and 2009, and for the interim fiscal quarters had not been previously audited or reviewed by an independent auditor. In February 2012, the Company received notice from the SEC of its obligation to file audited and reviewed financial statements with its periodic reports and the nine reports outlined above were appropriately amended and filed with the SEC on October 30, 2012. This report is the first of the final three filings which the Company expects to file in order to become fully compliant with its reporting requirements with SEC. The Company expects to be fully compliant on or before January 31, 2013.

Where indicated, the financial data presented in the 10-Q is as of January 31, 2012, however, the other disclosures have been updated to reflect the Company’s operations as at the date of this filing.

2


CANAL CAPITAL CORPORATION

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
    PAGE
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28
ITEM 4. CONTROLS AND PROCEDURES 28
     
PART II – OTHER INFORMATION  
     
ITEM 1. LEGAL PROCEEDINGS 29
ITEM 1A.         RISK FACTORS 30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 30
ITEM 4. MINE SAFETY DISCLOSURES 30
ITEM 5. OTHER INFORMATION 30
ITEM 6. EXHIBITS 30
SIGNATURES 31

3


PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets (Unaudited) – January 31, 2012 and October 31, 2011

5

Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the Three Month Periods ended January 31, 2012 and 2011

7

Consolidated Statements of Cash Flows (Unaudited) for the Three Month Periods ended January 31, 2012 and 2011

9

Notes to (Unaudited) Consolidated Financial Statements

11

4


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2012 (UNAUDITED) AND OCTOBER 31, 2011

    JANUARY 31,     OCTOBER 31,  
    2012     2011  

ASSETS:

           

CURRENT ASSETS:

           

             CASH AND CASH EQUIVALENTS

$  63,050   $  35,514  

             RESTRICTED CASH – TRANSIT INSURANCE

  60,503     35,484  

             ACCOUNTS RECEIVABLE

  73,087     120,300  

             STOCKYARDS INVENTORY

  6,885     20,749  

             PREPAID EXPENSES

  35,360     13,948  

                                       TOTAL CURRENT ASSETS

  238,885     225,995  

       

NON-CURRENT ASSETS:

           

             PROPERTY ON OPERATING LEASES, NET OF ACCUMULATED DEPRECIATION OF $500,149 AND $494,599 AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY

  1,662,458     1,668,008  

 

           

             PROPERTY USED IN STOCKYARD OPERATIONS, NET OF ACCUMULATED DEPRECIATION OF $217,057 AND $212,257 AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY

  1,067,467     1,072,267  

 

           

             PROPERTY HELD FOR DEVELOPMENT OR RESALE

  52,250     52,250  

 

           

     OTHER ASSETS:

           

             RESTRICTED CASH – LETTER OF CREDIT

  140,000     140,000  

             ART INVENTORY

  10,000     10,000  

 

  150,000     150,000  

$  3,171,060   $  3,168,520  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

5


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2012 (UNAUDITED) AND OCTOBER 31, 2011

    JANUARY 31,     OCTOBER 31,  
    2012     2011  
             

LIABILITIES & STOCKHOLDERS’ EQUITY:

           

 

           

CURRENT LIABILITIES:

           

             ACCOUNTS PAYABLE AND ACCRUED EXPENSES

$  134,561   $  160,370  

             LINE OF CREDIT – ORDER BUYING

  0     106,395  

             TRANSIT INSURANCE

  60,503     35,484  

 

           

                              TOTAL CURRENT LIABILITIES

  195,064     302,249  

       

NON-CURRENT LIABILITIES:

           

             LONG-TERM DEBT, RELATED PARTY

  847,000     847,000  

             LONG-TERM PENSION LIABILITY

  784,637     812,820  

             SALARIES AND INTEREST PAYABLE – OFFICERS

  573,375     458,700  

             REAL ESTATE TAXES PAYABLE

  47,117     56,200  

 

           

                             TOTAL NON-CURRENT LIABILITIES

  2,252,129     2,174,720  

 

           

 

           

COMMITMENTS AND CONTINGENCIES

           

 

           

STOCKHOLDERS’ EQUITY:

           

 

           

     PREFERRED STOCK, $0.01 PAR VALUE: 10,000,000 SHARES AUTHORIZED; 9,102,655 SHARES ISSUED AND OUTSTANDING AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY AND AGGREGATE LIQUIDATION PREFERENCE OF $10 PER SHARE FOR $ 91,026,550 AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY

  91,027     91,027  

 

           

     COMMON STOCK, $0.01 PAR VALUE: 10,000,000 SHARES AUTHORIZED; 5,313,794 SHARES ISSUED AND 4,326,929 SHARES OUT- STANDING AT JANUARY 31, 2012 AND OCTOBER 31, 2011, RESPECTIVELY

  53,138     53,138  

 

           

     ADDITIONAL PAID-IN CAPITAL

  25,526,721     25,526,721  

 

           

     ACCUMULATED DEFICIT

  (12,051,348 )   (12,056,664 )

 

           

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

  (11,003,545 )   (11,003,545 )

 

           

     COMPREHENSIVE INCOME: PENSION VALUATION RESERVE

  (1,892,126 )   (1,919,126 )

 

           

 

  723,867     691,551  

 

           

$  3,171,060   $  3,168,520  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

6


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JANUARY 31, 2012 AND 2011
(UNAUDITED)

    2012     2011  

REAL ESTATE OPERATIONS:

           

 

           

     REAL ESTATE REVENUES:

           

           SALE OF REAL ESTATE

  0     0  

           OUTSIDE REAL ESTATE RENT

  65,444     65,444  

           EXCHANGE BUILDING RENTAL INCOME

  4,800     4,800  

 

  70,244     70,244  

 

           

     REAL ESTATE EXPENSES:

           

           COST OF REAL ESTATE SOLD

  0     0  

           LABOR, OPERATING AND MAINTENANCE

  2,539     2,330  

           DEPRECIATION AND AMORTIZATION

  5,550     5,550  

           TAXES OTHER THAN INCOME TAXES

  3,750     3,750  

           GENERAL AND ADMINISTRATIVE

  2,550     2,550  

 

  14,389     14,180  

 

           

INCOME FROM REAL ESTATE OPERATIONS

  55,855     56,064  

       

GENERAL AND ADMINISTRATIVE EXPENSE

  (207,721 )   (205,860 )

       

(LOSS) FROM CONTINUING OPERATIONS

  (151,866 )   (149,796 )

       

OTHER (EXPENSE) INCOME:

           

 

           

     INTEREST & OTHER INCOME

  120     217  

 

           

     INTEREST EXPENSE

  (21,175 )   (21,175 )

 

           

     ART SALES AND OPERATIONS

  0     0  

 

           

 

  (21,055 )   (20,958 )

       

(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES

  (172,921 )   (170,754 )

PROVISION FOR INCOME TAXES

  0     0  

 

           

NET (LOSS) FROM CONTINUING OPERATIONS

  (172,921 )   (170,754 )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

7


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JANUARY 31, 2012 AND 2011
Continued ...

 

  2012     2011  

 

           

DISCONTINUED STOCKYARD OPERATIONS:

           

 

           

STOCKYARD REVENUES:

           

           YARD HANDLING AND AUCTION

$  614,465   $  506,073  

           FEED AND BEDDING INCOME

  43,287     39,898  

           RENTAL & OTHER INCOME

  31,818     32,846  

 

  689,570     578,817  

 

           

STOCKYARD EXPENSES:

           

           LABOR AND RELATED COSTS

  218,783     205,645  

           OTHER OPERATING AND MAINTENANCE

  119,218     107,166  

           FEED AND BEDDING EXPENSE

  37,877     28,806  

           DEPRECIATION AND AMORTIZATION

  4,800     5,100  

           TAXES OTHER THAN INCOME TAXES

  21,148     20,215  

           GENERAL AND ADMINISTRATIVE

  109,507     103,601  

 

  511,333     470,533  

 

           

INCOME FROM DISCONTINUED STKY OPERATIONS

  178,237     108,284  

 

           

NET INCOME (LOSS)

  5,316     (62,470 )

 

           

OTHER COMPREHENSIVE (LOSS) INCOME:

           

 

           

     MINIMUM PENSION LIABILITY ADJUSTMENT

  27,000     27,000  

 

           

COMPREHENSIVE INCOME (LOSS)

$  32,316   $  (35,470 )

 

           

NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED

$  0.00   $  (0.01 )

 

           

WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED

  4,326,929     4,326,929  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

8


CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2012 AND 2011
(UNAUDITED)

 

  2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

           

     NET (LOSS)

$  5,316   $  (62,470 )

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

       

         DEPRECIATION AND AMORTIZATION

  10,350     10,650  

         GAIN ON SALES OF REAL ESTATE

  0     0  

         MINIMUM PENSION LIABILITY ADJUSTMENT

  27,000     27,000  

 

           

DECREASE (INCREASE) IN OPERATING ASSETS

           

         ACCOUNTS RECEIVABLE

  47,213     92,721  

         STOCKYARDS INVENTORY

  13,864     9,564  

         PREPAID EXPENSES

  (21,412 )   (16,716 )

         RESTRICTED CASH – LETTER OF CREDIT

  0     0  

         RESTRICTED CASH – TRANSIT INSURANCE

  (25,019 )   (18,926 )

 

           

INCREASE (DECREASE) IN OPERATING LIABILITIES:

           

         ACCOUNTS PAYABLE AND ACCRUED EXPENSES

  (25,809 )   (48,167 )

         LINE OF CREDIT – ORDER BUYING

  (106,395 )   (65,000 )

         PENSION PLAN PAYABLE

  (28,183 )   (146,470 )

         SALARIES AND INTEREST PAYABLE - OFFICERS

  114,675     (60,325 )

         REAL ESTATE TAXES PAYABLE

  (9,083 )   (8,861 )

         TRANSIT INSURANCE

  25,019     18,926  

                    TOTAL ADJUSTMENTS

  22,220     (205,604 )

 

           

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

  27,536     (268,074 )

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, 2012 AND 2011
Continued ...

    2012     2011  

 

           

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) INCREASE IN CASH AND CASH EQUIVALENTS

  27,536     (268,074 )

 

           

CASH AND CASH EQUIVALENTS AT BEGN OF YEAR

  35,514     510,361  

       

CASH AND CASH EQUIVALENTS AT END OF YEAR

$  63,050   $  242,287  

 

           

  JANUARY 31,  

 

  2012     2011  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

       

 

           

CASH PAID DURING THE YEAR FOR:

           

 

           

         INTEREST

$  21,175   $  21,175  

         INCOME TAXES

$  0   $  0  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

10


CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

Due to cash flow constraints, the Company has entered a program of closely monitoring and reducing where possible its operating expenses. As part of that program, the Company has sold most of its property and has reduced the level of its art inventories to enhance cash flows. As of the date of this report, the Company has sold its Sioux Falls, South Dakota property (formerly used in stockyard operations), two of its three remaining rental properties and its stockyard operations, including the 30 acres of land and the improvements thereon located in St. Joseph, Missouri. The Company’s only remaining real estate property is a rental property located in Omaha, Nebraska. Management is unsure if its income from operations combined with its cost-cutting program and planned reduction of its antiquities art inventory will enable it to finance its future business activities or fund operating cash requirements. In the interim, the Company is undertaking efforts to identify alternative business opportunities for the Company. If for some reason the Company is not able to identify an acceptable alternative business opportunity within a reasonable period of time, it may not have sufficient resources to continue meeting its reporting obligations with the Securities and Exchange Commission or other obligations which arise from its minimal operations. This in turn would severely diminish the ability of the Company to explore alternative business opportunities.

11


Canal was engaged in two distinct businesses - real estate and stockyard operations. As discussed above, as of the date of this report, Canal is no longer in the stockyards business.

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

Stockyard Operations – At January 31, 2012 Canal operated one central public stockyard located in St. Joseph, Missouri. In August 2012, Canal sold its St. Joseph, Missouri stockyard operation (including approximately 30 acres of land and improvements) for $500,000 generating a loss of $577,000. Canal repaid $164,000 of its outstanding mortgage notes from the proceeds of this sale.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

12


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

3.

INTERIM FINANCIAL STATEMENTS

The interim consolidated financial statements included herein have been prepared by Management, in accordance with accounting principles generally accepted in the United States, and in the opinion of Management, contain all adjustments necessary to present fairly its financial position as of January 31, 2012 and the results of its operations and its cash flows for the three month period ended January 31, 2012. All of the above referenced adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements for the two years ended October 31, 2011 and the notes thereto which are contained in Canal’s 2011 Annual Report on Form 10-K. The results of operations for the period presented is not necessarily indicative of the results to be expected for the remainder of fiscal 2012.

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, 2012.

13



5.

RELATED PARTY DEBT

The Company’s mortgage notes (originally issued in 1998) are due May 15, 2015 and are held entirely by the Company’s Chief Executive Officer. These notes carry interest at the rate of ten percent per annum. These notes, among other things, prohibit Canal from becoming an investment company as defined by the Investment Company Act of 1940; require Canal to maintain minimum net worth; restricts Canal’s ability to pay cash dividends or repurchase stock and require principal prepayments to be made only out of the proceeds from the sale of certain assets. As of January 31, 2012, 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 $21,000 and $21,000 for the three month periods ended January 31, 2012 and 2011, respectively. Accrued interest of $105,875 and $84,700 is included in salaries and interest payable-officers at January 31, 2012 and October 31, 2011, respectively.

At January 31, 2012, substantially all of Canal’s real properties, the stock of certain subsidiaries, the investments and a substantial portion of its art inventories are pledged as collateral for the following obligations:

    Jan. 31,     October 31,  
($ 000’s Omitted)   2012     2011  

Variable rate mortgage notes due May 15, 2015 - related party

$  847   $  847  

Less -- current maturities

  0     0  

Long-term debt

$  847   $  847  

The Company has a line of credit with HNB Bank in the amount of $250,000. This credit line is used in the Company’s Saint Joseph stockyard order buying operation. The outstanding balances on this line of credit are secured by either the livestock purchased on order or the associated receivable for the livestock that has been delivered to the purchaser.

The outstanding balances on this credit line were approximately $0 and $106,000 at January 31, 2012 and October 31, 2011, respectively.

14



6.

RESTRICTED CASH

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

Transit Insurance - Transit insurance covers livestock for the period that they are physically at the stockyards and under the care of stockyard personnel. This self insurance program is funded by a per head charge on all livestock received at the stockyard. The restricted cash - transit insurance balances of approximately $61,000 and $35,000 at January 31, 2012 and October 31, 2011, respectively, represents the excess of per head fees charged over actual payments made for livestock that was injured or died while at the stockyards.

7.

ART INVENTORY

Antiquities art valued at $10,000 represented 100% of total art inventory at both January 31, 2012 and October 31, 2011. The Company records a valuation allowance against the current portion of its inventory to reduce it to its estimated net realizable value based on the history of losses sustained on inventory items sold in the current and previous years. As of January 31, 2012 the valuation allowance is approximately $466,000.

8.

INCOME TAXES

At January 31, 2012, the Company has net operating loss carry forwards of approximately $8,872,000 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.

15



9.

LEASE COMMITMENTS

Canal’s corporate headquarters are now located in the personal residence of its Chief Financial Officer.

There are no operating leases that have initial or remaining non-cancellable terms in excess of one year as of January 31, 2012. Accordingly, Canal has no future minimum payments due over the next five years.

10.

MINIMUM FUTURE RENTALS ON OPERATING LEASES

Minimum future rentals consist primarily of rental income from leased land and structures, Exchange Building rents (commercial office space) and other rental activities, all of which are accounted for as operating leases. The estimated minimum future rentals on operating leases are $210,000, $110,000, $110,000, $110,000 and $110,000 for fiscal years 2012, 2013, 2014, 2015 and 2016, respectively.

11.

PROPERTY USED IN STOCKYARD OPERATIONS

A schedule of the Company’s property used in stockyard operations at January 31, 2012 is as follows (000’s omitted):

                Current Year              
                (Retirements)              
    Historical Cost     Additions           Carrying  

 

        Bldgs. &           Bldgs. &     Accum.     Value  

Description (1)

  Land     Imprvmts.     Land     Imprvmts.     Depr.     01/31/12  

 

                                   

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

$  902   $  383   $  0   $  0   $  (218 ) $  1,067  

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

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12.

PROPERTY ON OPERATING LEASES

A schedule of the Company’s property on operating leases at January 31, 2012 is as follows (000’s omitted):

          Current Year              
          (Retirements              
    Historical Cost     Additions           Carrying  
          Bldgs. &           Bldgs. &     Accum.     Value  
Description (1)   Land     Imprvmts.     Land     Imprvmts.     Depr.     01/31/12  

New York office Leasehold assets

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

 

                                   

9 acres of land in Omaha, NE Acquired in 1976

  1,150     35     0     0     (20 )   1,165  

 

                                   

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

  10     485     0     0     (473 )   22  

 

                                   

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

  475     0     0     0     0     475  

 

$ 1,635   $  528   $  0   $  0   $  (501 ) $  1,662  

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

13.

PROPERTY HELD FOR DEVELOPMENT OR RESALE

A schedule of the Company’s property held for development or resale at January 31, 2012 is as follows (000’s omitted):

Description   Land  
02 acres of land Sioux City, IA $  52  

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

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14.

PENSION VALUATION RESERVE

The Pension Valuation Reserve represents the excess of additional minimum pension liability required under the provisions of ASC 715 over the unrecognized prior service costs of former stockyard employees. Such excess arose due to the decline in the market value of pension assets available for pension benefits of former employees, which benefits were frozen at the time the stockyard operations were sold in 1989. The additional minimum pension liability will be expensed as actuarial computations of annual pension cost recognize the deficiency that exists.

The components of net periodic benefit cost are as follows:

    Three Months Ended  
    1/31/12     1/31/11  

 

           

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, 2012, 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 2012 is approximately $182,000. A $28,000 contribution has been made to date and the Company expects to make the full required contribution before the end of the fiscal year.

15.

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 for each of the three month periods ended January 31, 2012 and 2011.

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16.

LEGAL PROCEEDINGS

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

Environmental Contingency

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

Since the receipt of the letter, the Company has been in periodic communications with the other parties who received a similar letter with respect to what action, collectively or individually, should be taken in response to the EPA assertion of liability. The Company believes that the remediation of contamination of the site is properly the responsibility of other parties that have occupied and used it for waste recycling purposes since 1961, although under CERCLA the EPA is able to assert joint and several liability against all parties who ever owned or operated the site or generated or transported wastes to it. The EPA investigation is in its preliminary stages and the Company intends to vigorously defend any liability for remediation. At January 31, 2012, the liability for remediation, if any, was not estimable and therefore no accrual has been recorded in the financial statements.

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

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17.

RELATED PARTY TRANSACTIONS

At January 31, 2012, all of Canal’s Long-Term Debt is held by the company’s Chief Executive Officer. The notes pay interest at a rate of 10% per annum and come due May 15, 2015. Canal has incurred interest expense on these notes of $21,000 and $21,000 for the three month periods ended January 31, 2012 and 2011, respectively. At various times during period the holder of these notes agrees to defer interest payments. This deferred interest liability accrues additional interest at a rate of 10% per annum, while outstanding and is repaid as funds become available. As of January 31, 2012, the balance due under these notes was $847,000 all of which is classified as long-term debt related party. Accrued interest of $105,875 and $84,700 is included in salaries and interest payable-officers at January 31, 2012 and October 31, 2011, respectively.

18.

SUBSEQUENT EVENTS

In April 2012, Canal sold 6 acres of land and the improvements thereon located in Sioux City, Iowa to the company’s Chief Executive Officer, Michael E. Schultz for $852,000 generating a gain of $346,000. Canal repaid $283,000 of its outstanding mortgage notes from the proceeds of this sale.

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

In August 2012, Canal sold its stockyard operation (30 acres of land and the improvements thereon) located in St. Joseph, Missouri, to an unrelated third party, for $500,000 generating a loss of $577,000. Canal repaid $164,000 of its outstanding mortgage notes from the proceeds of this sale.

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

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

Special Note Regarding Our Financial Statements and Forward-looking Statements

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

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

Use of Terms

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

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

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

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

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

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

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Canal Capital Corporation’s fiscal year ends on October 31, of each calendar year. Each reference to a fiscal quarter refers to a three-month period ending on either, January 31, April 30 and July 31, of the calendar year indicated, and each reference to a fiscal year refers to the fiscal year ended October 31 of the calendar year indicated.

Overview of the Company’s Business

Canal Capital Corporation engages in real estate and stockyard operations in the Midwest section of the United States. Canal, along with its wholly owned subsidiaries, Omaha Livestock Market, Inc. and Sioux Falls Stockyards Company is involved in the management and sale of its real estate properties and, until August 2012, in the operation of central public stockyards. Canal also sells antiquities through independent art dealers and at public art auctions through its wholly owned subsidiary Canal Arts Corporation.

At January 31, 2012, Canal’s real estate properties were located in Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri and Omaha, Nebraska. The properties consisted, for the most part, of an Exchange Building (commercial office space), land and structures leased to third parties (rail car repair shops, lumber yards and various other commercial and retail businesses) as well as vacant land available for development or resale. Canal owned approximately 2 acres of undeveloped land in Sioux City, Iowa and it operated a central public stockyard located in St. Joseph, Missouri. Canal’s stockyard provided various services and facilities required to operate an independent market for the sale of livestock including veterinary facilities, auction arenas, auctioneers, weight masters and scales, feed and bedding facilities and security personnel. Canal also offered other services, such as pure bred and other specialty sales for producer organizations.

Recent Developments

Due to cash flow constraints, the Company has entered a program of closely monitoring and reducing where possible its operating expenses. As part of that program, the Company has sold most of its property and has reduced the level of its art inventories to enhance cash flows. In September 2010, Canal sold approximately 35 acres of land and the improvements thereon located in Sioux Falls, South Dakota (formerly used in stockyard operations) for $2,000,000, generating a gain of $1,242,000. In April 2012, Canal sold 6 acres of land and the improvements thereon located in Sioux City, Iowa to the company’s Chief Executive Officer, Michael E. Schultz for $852,000, generating a gain of $346,000. In July 2012, Canal sold one acre of land and the improvements thereon located in South St. Paul, Minnesota for $839,000, generating a gain of $791,000. In August 2012, Canal sold its stockyard operation (30 acres of land and the improvements thereon) located in St. Joseph, Missouri for $500,000, generating a loss of $577,000. The Company’s only remaining real estate property is a rental property located in Omaha, Nebraska.

As a result of the foregoing financial constraints, the Company’s financial statements for the fiscal years ended October 31, 2011, 2010 and 2009, and for the interim fiscal quarters had not been previously audited or reviewed by an independent auditor. In February 2012, the Company received notice from the SEC of its obligation to file audited and reviewed financial statements with its periodic reports and the nine reports outlined above were appropriately amended and filed with the SEC on October 30, 2012. This report is another in the series of corrective filings which the Company expects to file in order to become fully compliant with its reporting requirements with SEC. The Company expects to be fully compliant on or before January 31, 2013.

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

22


Plan of Operations

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

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

Results of Operations

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

    Three Months Ended January 31,  
    2012     2011  
    (In Thousands)  
Revenues:            
Real Estate Revenue $  70   $  70  
Stockyard Revenue   690     579  
       Total Revenue   760     649  
       
Costs and Expenses:            
Real Estate Expenses   15     14  
Stockyard Expenses   511     470  
General and Administrative Expenses   208     206  
       Total Costs and Expenses   734     690  
             
             
Income (Loss) from Operations   26     (41 )
Other Income   0     0  
Interest Expense   (21 )   (21 )
Other Expenses   0     0  
             
Net Income (Loss) $  5   $  (62 )

23


Revenues

Canal’s revenues from operations consist of revenues from its real estate and stockyard operations. Revenues for the first three months of fiscal 2012 increased by $111,000 to $760,000 as compared with 2011 revenues of $649,000. The fiscal 2012 increase in revenues was due primarily to an increase in the volume of livestock handled at the St. Joseph stockyards during the first quarter of fiscal 2012.

Real Estate Revenues: Real estate revenues for the three months ended January 31, 2012 of $70,000 accounted for 9.2% of the fiscal 2012 revenues as compared to real estate revenues of $70,000 or 10.0% for the same period in fiscal 2011. For the three months ended January 31, 2012 and 2011, respectively, real estate revenues were comprised of rentals and other lease income from the rental of vacant land and certain structures. There were no significant percentage variations in the year to year comparisons.

Stockyard Revenues: Stockyard revenues for the three months ended January 31, 2012 of $690,000 accounted for 90.8% of the fiscal 2012 revenues as compared to stockyard revenues of $579,000 or 89.2% for the same period in fiscal 2011. The 2012 increase in stockyard revenues was due primarily to an increase in the volume of livestock handled at the St. Joseph stockyards during the first quarter of fiscal 2012. Stockyard revenues were comprised of yard handling and auction (89.1% and 87.4%), feed and bedding income (6.3% and 6.9%) and rental and other income (4.4% and 5.7%) for the three month periods ended January 31, 2012 and 2011, respectively. There were no significant percentage variations in the year to year comparisons.

Art Revenues: Canal had no art sales in the first three months of fiscal 2012 or fiscal 2011. Art revenues, if any, were comprised of the proceeds from the sale of antiquities art. There were no art expenses for the three month periods ended January 31, 2012 and 2011, respectively. Art expenses’ if any, were comprised of the cost of inventory sold and selling, general and administrative expenses. It is the Company’s policy to use the adjusted carrying value for sales, thereby reducing the valuation reserve proportionately as the inventory is sold.

Expenses

Real Estate Expenses: Real estate expenses of $15,000 for the three months ended January 31, 2012 were virtually unchanged from real estate expenses of $14,000 for the same period in fiscal 2011. For the three months ended January 31, 2012 and 2011, respectively, real estate expenses were comprised of the labor, operating and maintenance (17.6% and 16.4%), depreciation and amortization (38.6% and 39.1%), taxes other than income taxes (26.1% and 26.5%) and general and administrative expenses (17.7% and 18.0%) . There were no significant percentage variations in the year to year comparisons.

Stockyard Expenses: Stockyard expenses for the three months ended January 31, 2012 of $511,000 increased by $41,000 (8.7%) from stockyard expenses of $470,000 for the same period in fiscal 2011. The increase in stockyard expenses was consistent with the 2012 increase in stockyard revenues. Stockyard expenses were comprised of labor and related costs (42.8% and 43.7%), other operating and maintenance (23.3% and 22.8%), feed and bedding expense (7.4% and 6.1%), depreciation and amortization (0.9% and 1.1%), taxes other than income taxes (4.1% and 4.3%) and general and administrative expense (21.5% and 22.0%) for the three month periods ended January 31, 2012 and 2011, respectively. There were no significant percentage variations in the year to year comparisons.

24


General and Administrative

General and administrative expenses for the three months ended January 31, 2012 of $208,000 increased by $2,000 (0.9%) as compared to $206,000 for the same period in fiscal 2011. The major components of general and administrative expenses were officers’ salaries (58.5% and 57.6%), pension expense (13.0% and 13.1%), insurance expense (7.4% and 6.7%), administrative salaries (11.3% and 11.4%), travel expense (1.8% and 1.7%) and professional fees (2.6% and 1.5%) for the three month periods ended January 31, 2012 and 2011, respectively. There were no significant percentage variations in the year to year comparisons.

Interest Expense

Interest expense for the three months ended January 31, 2012 of $21,000 was unchanged from $21,000 for the same period in fiscal 2011. The principal balance outstanding at January 31, 2012 of $847,000 was classified as long-term debt-related party.

Net (Loss) Income

Canal recognized net income of approximately $5,000 in the first three months of fiscal 2012 as compared to a net loss of $62,000 for the same period in fiscal 2012. The fiscal 2012 improvement was due primarily to an increase in the volume of livestock handled at the St. Joseph stockyards during the first quarter of fiscal 2012.

Liquidity and Capital Resources

Cash and cash equivalents increased $27,000, from $36,000 at October 31, 2011, to $63,000 at January 31, 2012. At January 31, 2012 the Company’s current assets exceeded current liabilities by approximately $44,000 as compared to October 31, 2011 when the Company’s current liabilities exceeded current assets by approximately $76,000.

Net cash provided by operating activities for the three months ended January 31, 2012 were $28,000, as compared to net cash used in operating activities of $268,000 for the same period in fiscal 2011, for a net cash increase of $296,000. This increase in cash provided by operations during the first fiscal quarter of 2012 was mainly due to the increase in outstanding liabilities in the first quarter of fiscal 2012. The Company did not engage in any financing and investment activities, except with respect to its payment of interest on the long-term debt discussed at “Obligations under Material Contracts” below.

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

25


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

Obligations under Material Contracts

At January 31, 2012, all of the Company’s Long-Term Debt was held by the company’s Chief Executive Officer. These notes pay interest at a rate of 10% per annum and come due May 15, 2015. At various times during fiscal 2012 the holder of these notes agreed to defer interest payments. This deferred interest liability accrued additional interest at a rate of 10% per annum, while outstanding, and is repaid as funds became available. Canal has incurred interest expense on these notes of $21,000 and $21,000 for the fiscal quarters ended January 31, 2012 and 2011, respectively. These notes, among other things, prohibit Canal from becoming an investment company, as defined by the Investment Company Act of 1940, restrict 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, 2012, the balance due under these notes was $847,000 all of which was classified as long-term debt due to related party. Accrued interest of $105,875 and $84,700 is included in salaries and interest payable-officers at January 31, 2012 and October 31, 2011, respectively. As of the filing of this report, the balance due under these notes was $400,000.

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

Recent Accounting Pronouncements

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

26


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

Critical Accounting Policies and Estimates

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

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

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

Seasonality

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

Off-Balance Sheet Arrangements

For the quarter ended January 31, 2012, we did not have any off-balance sheet arrangements.

27



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act Reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer, Mr. Michael E. Schultz, and Chief Financial Officer, Mr. Reginald Schauder, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2012. Based upon, and as of the date of this evaluation, Messrs. Schultz and Schauder determined that because of the material weaknesses described below, our disclosure controls and procedures were not effective.

Our management concluded that our internal control over financial reporting was not effective, as of October 31, 2009 through the period covered by this report, as we had limited accounting personnel and funds available for continuous legal and accounting advice as it pertained to our filing requirements with the SEC. Furthermore, since its annual report for the fiscal year ended October 31, 2008, the Company submitted its annual and quarterly financial statements in filings to the SEC without the benefit of the audit, and review, as applicable by an independent public accounting firm. Additionally, in our annual and quarterly reports on Forms 10-K and 10-Q for our fiscal years 2009, 2010 and 2011 there was a lack of adequate controls over the recording of gains on sales of properties and other transactions that constituted a material weakness in internal control over financial reporting.

In an effort to remediate this material weakness, our management has appointed qualified personnel and has engaged the Company’s auditors to conduct reviews and audits, as applicable, of its financial statements for the non-compliant periods. Accordingly, the nine reports outlined above were appropriately amended and filed with the SEC on October 30, 2012. The Company expects that the filing of this quarterly report on Form 10-Q for the three months ended January 31, 2012 and 2011 will be a further step in curing this deficiency with the SEC. Our management does not believe that this material weakness had a material effect on our financial condition or results of operations or caused our financial statements as of and for the three months ended January 31, 2012 and 2011, included in this report to contain a material misstatement.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the first fiscal quarter ended January 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Environmental Contingency

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

Since the receipt of the letter, the Company has been in periodic communications with the other parties who received a similar letter with respect to what action, collectively or individually, should be taken in response to the EPA assertion of liability. The Company believes that the remediation of contamination of the site is properly the responsibility of other parties that have occupied and used it for waste recycling purposes since 1961, although under CERCLA the EPA is able to assert joint and several liability against all parties who ever owned or operated the site or generated or transported wastes to it. The EPA investigation is in its preliminary stages and the Company intends to vigorously defend any liability for remediation. At January 31, 2012, the liability for remediation, if any, was not estimable and therefore no accrual has been recorded in the financial statements.

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

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ITEM 1A. RISK FACTORS – Not applicable
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - None
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
   
ITEM 4. MINE SAFETY DISCLOSURES – Not applicable
   
ITEM 5. OTHER INFORMATION

We have no information to disclose that was required to be disclosed in a report on Form 8-K during our first quarter ended January 31, 2012, but was not reported.

ITEM 6. EXHIBITS

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

EXHIBIT No. 31.1 – Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
EXHIBIT No. 31.2 – Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
EXHIBIT No. 32.1 – Certifications of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
EXHIBIT No. 32.2 – Certifications of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
EXHIBIT No.101* – Interactive data files pursuant to Rule 405 of Regulation S-T.

*Filed with this Form 10-Q for Canal Capital Corporation. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

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

Dated: November 28, 2012

  CANAL CAPITAL CORPORATION
     
     
  By:  /S/ Michael E. Schultz                 
    Michael E. Schultz
    President and Chief
    Executive Officer
    (Principal Executive Officer)
     
     
  By: /S/ Reginald Schauder                 
    Reginald Schauder
    Vice President-Finance,
    Secretary and Treasurer
    (Principal Financial and
    Accounting Officer)

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