SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2001
[ ] 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 1-8709
CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0102492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
717 Fifth Avenue
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 826-6040
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) or 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 [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at January 15, 2002, was approximately $196,000. The number of
shares of Common Stock, $.01 par value, outstanding at January 15, 2002 was
4,326,929.
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
Description Page
PART I
ITEM 1. Business.................................................. 1
ITEM 2 Properties................................................ 8
ITEM 3. Legal Proceedings......................................... 9
ITEM 4. Submission of Matters to a Vote of Stockholders........... 9
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters....................................... 10
ITEM 6. Selected Financial Data................................... 11
ITEM 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition............. 13
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................... 22
ITEM 8. Financial Statements and Supplementary Data............... 22
ITEM 9. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 22
PART III
ITEM 10. Directors and Executive Officers of the Registrant........ 23
ITEM 11. Executive Compensation.................................... 24
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 27
ITEM 13. Certain Relationships and Related Transactions............ 29
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 30
i
PART I
Item 1. Business
A. General Description of Business
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 -- the management and further
development of its agribusiness related real estate properties and stockyard
operations.
Real Estate Operations - Canal's real estate properties located in six
Midwest states are primarily associated with its current and former agribusiness
related operations. Each property is adjacent to a stockyards operation (three
of which are operated by the company) and consist, for the most part, of an
Exchange Building (commercial office space), land and structures leased to third
parties (meat packing facilities, rail car repair shops, truck stops, 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 rental income from its Exchange Buildings, lease
income from land and structures leased to various commercial and retail
enterprises and proceeds from the sale of real estate properties. Canal has
continued its program of development or sale of what was excess stockyard
property. See "Real Estate Operations".
Stockyard Operations - As a result of an August 1, 1999 asset purchase
agreement, Canal now operates three central public stockyards located in Sioux
City, Iowa, St. Joseph, Missouri and Sioux Falls, South Dakota (collectively the
"Stockyards"). Public stockyards act much like a securities exchange, providing
markets for all categories of livestock and fulfilling the economic functions of
assembly, grading, and price discovery. The Company's principal stockyard
revenues are derived from a per head charge ("yardage charge") imposed on all
livestock and the sale of feed and bedding. See "Stockyard Operations".
1
B. Factors That May Affect Future Results
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
The Company's actual results of operations and future financial condition may
differ materially from those expressed in any such forward- looking statements
as a result of many factors that may be beyond the Company's control. Such
factors include, without limitation: overall economic conditions; competition
for tenants in the agribusiness; the ability of the Company's tenants to compete
in their respective businesses; the effect of fluctuations in supply, demand,
international monetary conditions and inflation on the Company's art operations;
the effects of forgery and counterfeiting on the Company's art operations;
securities risks associated with collections of antiquities and art; and the
effect of fluctuations in interest rates and inflation on the Company's
indebtedness. These risks and uncertainties are beyond the ability of the
Company to control, and in many cases, the Company cannot predict the risks and
uncertainties that could cause its actual results to differ materially from
those indicated by the forward-looking statements. When used in this Annual
Report on Form 10-K, the words "believes," "estimates," "plans," "expects," and
"anticipates" and similar expressions as they relate to the Company or its
management are intended to identify forward-looking statements.
C. Real Estate Operations
General
Real estate operations, which relate primarily to Canal's current and
former agribusiness operations, resulted in operating income of $0.4 million,
while contributing $1.4 million to Canal's revenues for fiscal 2001. Canal is
involved in the management, development or sale of its agribusiness related real
estate properties at its current and former stockyard locations.
During fiscal 2001, Canal sold a six acre parcel of land located in South
St. Paul, Minnesota for $0.4 million generating operating income of $0.3
million.
During fiscal 2001, Canal experienced moderate success in increasing the
occupancy rate in its South St. Paul, Minnesota Exchange Building. The occupancy
of this building increased to 74% from 60% during the year. Canal will continue
to aggressively pursue additional tenants for this building in fiscal 2002. In
fiscal 1999 Canal changed building managers for this property and has made a
number of improvements to the building which management believes has made this
building more competitive in the South St. Paul market.
2
As of October 31, 2001, there are approximately 178 acres of undeveloped
land owned by Canal adjacent to its current and former stockyards. Canal is
continuing the program, which it started several years ago, to develop or sell
this property.
Former Agribusiness Operations
In connection with the 1989 sale of its stockyard operations, Canal entered
into a master lease (the "Lease") with the purchaser covering approximately 139
acres of land and certain facilities used by the stockyard operations. The Lease
was a 10 year lease, renewable at the purchaser's option for an additional ten
year period, with annual rentals of $750,000 per year for the first year
escalating to $1.0 million per year for the fourth through the tenth years.
In September, 1998 Canal sold a 60 acre parcel of land to the City of
Omaha, Nebraska. This sale included the 17 acres of land leased to the
stockyards operator. In April 1999, Canal sold to the stockyard operator the 31
acres located in South St. Paul, Minnesota which was subject to the Lease.
Finally, in August 1999 Canal bought the operating assets of the remaining three
stockyards subject to the Lease from the operator. All the obligations of the
lessor under the Lease terminated as of October 31, 1999.
Risk
Real estate activities in general may involve various degrees of risk, such
as competition for tenants, general market conditions and interest rates.
Furthermore, there can be no assurance that Canal will be successful in the
development, lease or sale of its agribusiness related real estate properties.
Competition
Canal competes in the area of agribusiness related real estate development
with other regional developers, some of which are substantially larger and have
significantly greater financial resources than Canal. To a certain extent,
Canal's agribusiness revenues are dependent on the ability of the stockyard
operations purchaser and the various meat packers with whom Canal has yardage
agreements to successfully compete in their respective businesses.
3
D. Stockyard Operations
General
On August 1, 1999, Canal purchased the operating assets of three public
stockyards (formerly subject to the Master Lease between the Company and United
Market Services - See "Former Agribusiness Operations") located in Sioux City
Iowa, St. Joseph, Missouri and Sioux Falls, South Dakota.
Public stockyards act much like a securities exchange, providing markets
for all categories of livestock and fulfilling the economic functions of
assembly, grading, and price discovery. The livestock handled by the Company's
stockyards include cattle, hogs, and sheep. Cattle and hogs may come through the
stockyard facilities at two different stages, either as feeder livestock or
slaughter livestock. The Company's stockyards provide all services and
facilities required to operate an independent market for the sale of livestock,
including veterinary facilities, auction arenas, auctioneers, weigh masters and
scales, feed and bedding, and security personnel. In addition, the stockyards
provide other services including pure bred and other specialty sales for
producer organizations. The Company promotes its stockyard business through
public relations efforts, advertising, and personal solicitation of producers.
Actual marketing transactions at a stockyard are managed for livestock
producers by market agencies and independent commission sales people to which
the livestock are consigned for sale. These market agencies (some of which are
owned and operated by the Company) and independent sales people receive
commissions from the seller upon settlement of a transaction and the stockyard
receives a yardage fee on all livestock using the facility which is paid within
twenty-four hours of the sale. Yardage fees vary depending upon the type of
animal, the extent of services provided by the stockyard, and local competition.
Yardage revenues are not directly dependent upon market prices, but rather are a
function of the volume of livestock handled. In general, stockyard livestock
volume is dependent upon conditions affecting livestock production and upon the
market agencies and independent commission sales people which operate at the
stockyards. Stockyard operations are seasonal, with greater volume generally
experienced during the first and fourth quarters of each fiscal year, during
which periods livestock is generally brought to market.
As discussed above, virtually all of the volume at Canal's Sioux Falls
stockyards is handled through market agencies and independent commission sales
people, while the St. Joseph and Sioux City stockyards have solicitation
operations of their own which accounts for approximately 50% and 25% of their
livestock volume annually, respectively.
4
Canal intends to continue its soliciting efforts at its St. Joseph
stockyards in fiscal 2002. Further, Canal tries to balance its dependence on
market agencies and independent commission sales people in various ways,
including: developing solicitation operations of its own; direct public
relations; advertising and personal solicitation of producers on behalf of the
stockyards; providing additional services at the stockyards to attract sellers
and buyers; and providing incentives to market agencies and independent
commission sales people for increased business.
Stockyard operations resulted in operating income of approximately $0.4
million while contributing approximately $3.4 million to Canal's revenues for
fiscal 2001.
Canal has entered into an option agreement to sell the property on which
the Sioux City Stockyards operates. The Company anticipates that this sale will
occur in the second or third quarter of fiscal 2002 at which time stockyard
operations in Sioux City, Iowa will cease.
Risk
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.
E. Art Inventory Held for Sale
Canal has not purchased inventory in several years nor does it currently
have any intention of purchasing additional art inventory in the foreseeable
future. It is the Company's intention to liquidate, in an orderly manner, its
art inventory.
Canal established its art operations in October 1988 by acquiring a
significant inventory for resale of antiquities primarily from the ancient
Mediterranean cultures. In November 1989, Canal expanded its art operations by
entering into a cost and revenue sharing agreement with a New York City
5
gallery for the exclusive representation of Jules Olitski, a world renowned
artist of contemporary paintings. As part of this agreement Canal purchased a
number of Olitski paintings which it holds for resale with a book value of
approximately $600,000 at October 31, 2001. The representation agreement expired
December 1, 1994 and Canal now operates independently in the marketing of its
contemporary art inventory.
Canal will sell its art primarily through two sources, in galleries and at
art auctions. In the case of sales in galleries, the Company has consignment
arrangements with various art galleries in the United States. In these
arrangements Canal consigns its pieces at specific prices to the gallery. In the
case of auctions, the Company primarily consigns its art pieces to the two
largest auction houses for their spring and fall art auctions. The Company
assigns a minimum acceptable price on the pieces consigned. The auction house
negotiates a commission on the sale of major pieces. The pieces can be withdrawn
at any time before or during the auction. There are no significant differences
between the prices obtained in galleries and those obtained at auction.
Antiquities and contemporary art represented 46% ($541,990) and 54%
($641,749) and 45% ($542,758) and 55% ($653,889) of total art inventory at
October 31, 2001 and 2000, respectively.
Art operations resulted in an operating loss of approximately $20,000 while
contributing approximately $24,000 to Canal's revenues for fiscal 2001.
Risk
Selling art in general involves various degrees of risk. Canal's success in
selling its art inventory is dependent at least in part, on general economic
conditions, including supply, demand, international monetary conditions and
inflation. There can be no assurance that Canal will be able to sell its art
inventory at a price greater than or equal to its acquisition costs. Further,
there are security risks associated with collections of antiquities and art,
including problems of security in their storage, transportation and exhibition.
Canal carries insurance to cover such risks.
Competition
Canal competes in the sale of its art inventory with investment groups and
other dealers, most of whom are substantially larger and have greater financial
resources and staff than Canal. There may be a number of dealers offering
similar pieces of art for sale or auction at the same time as Canal, thereby
exerting a downward pressure on prices.
6
F. Investments Available for Sale
Canal has an investment in a company in which it, together with other
affiliated entities, comprise a reporting group for regulatory purposes. It is
important to note that it is the group (as defined) that can exercise influence
over this company, not Canal. Accordingly, this investment does not qualify for
consolidation as a method of reporting. Certain of Canal's officers and
directors also serve as officer and/or directors of this company. This
investment (in which Canal's ownership interest is approximately 1%) is carried
at market value and any unrealized gains or losses are reflected in
Stockholders' Equity. The realized gains or losses, if any, are recognized in
operating results.
On May 3, 2000 the company Canal has invested in filed for reorganization
under Chapter 11 of the Bankruptcy Code and subsequently emerged in December,
2000. This action, in combination with other factors, has resulted in Canal's
determination that the decline in market value of its investment in this company
is permanent, and accordingly, recognized realized losses on investments in
marketable securities of $47,249 and $466,917 in fiscal 2001 and 2000,
respectively. Additionally, Canal recognized an unrealized loss on investments
of $86,000 for the year ended October 31, 1999, which was shown as a separate
component of Stockholders' Equity.
G. Employees
At December 31, 2001, Canal had approximately 100 employees.
7
ITEM 2. Properties
Canal's real estate properties located in six Midwest states are primarily
associated with its current and former agribusiness related operations. Each
property is adjacent to a stockyard operation (three of which are once again
operated by the company) and consist, for the most part, of an Exchange Building
(commercial office space), land and structures leased to third parties (meat
packing facilities, rail car repair shops, truck stops, lumber yards and various
other commercial and retail businesses) as well as vacant land available for
development or resale. As landlord, Canal's management responsibilities include
leasing, billing, repairs and maintenance and overseeing the day to day
operations of its properties. Canal's properties at October 31, 2001 include:
Leased Held for
Year Total Exchange Stkyds to Third Develop-
Location Acquired Site(2) Bldgs. Opertns(1) Parties ment(3)
-------- -------- ------- -------- ----------- -------- --------
St. Joseph, MO 1942 98 2 21 0 75
West Fargo, ND 1937 81 0 0 0 81
S. St. Paul, MN 1937 29 5 0 13 11
Sioux City, IA 1937 53 0 24 19 10
Omaha, NE 1976 11 0 0 11 0
Sioux Falls, SD 1937 33 1 30 0 2
--- -- --- --- ---
Total 305 8 75 43 179
--- -- --- --- ---
The following schedule shows the average occupancy rate and average rental rate
at each of Canal's three Exchange Buildings:
2001 2000
---------------------- -----------------------
Occupancy Average(4) Occupancy Average(4)
Location Rate Rental Rate Rate Rental Rate
- -------- --------- ----------- --------- -----------
St. Joseph, MO 75% $ 4.75 75% $ 4.75
S. St. Paul, MN 74% $12.00 60% $12.00
Sioux Falls, SD 90% $ 7.00 90% $ 7.00
NOTES
(1) As a result of an August 1, 1999 asset purchase agreement, Canal now
operates three central public stockyards.
(2) For information with respect to mortgages and pledges see Note 7.
(3) For information related to this see Note 2(c).
(4) Per square foot.
8
ITEM 3. Legal Proceedings
Canal and its subsidiaries are from time to time involved in litigation
incidental to their normal business activities, none of which, in the opinion of
management, will have a material adverse effect on the consolidated financial
condition and operations of the Company. Canal or its subsidiaries are party to
the following litigation:
Canal Capital Corporation v. Valley Pride Pack, Inc.
Canal commenced an action in U.S. District Court in Minnesota on September
23, 1997, as the assignee of United Market Services Company, against Valley
Pride Pack, Inc. (formerly Pine Valley Meats, Inc. and referred to herein as
"Pine Valley") to recover unpaid livestock fees and charges (estimated to be as
much as $1,000,000) due from Pine Valley under a 1936 Agreement between the
predecessors of Pine Valley and Canal.
On December 20, 2000, the U.S. District Court in Minnesota ruled in Canal's
favor granting its motion for summary judgment, thereby establishing Pine
Valley's liability to Canal for unpaid livestock fees. Additionally, the court
denied all of Pine Valley's assorted defenses and counter claims clearing this
matter to go to trial. On February 7, 2001, a Special Verdict was entered in
favor of Canal resulting in a total award (including pre- judgment interest and
court costs) to Canal of approximately $189,000.
On October 15, 2001, Pine Valley filed a voluntary Chapter 11 bankruptcy
petition with the court. This action makes the collectability of Canal's award
uncertain. For financial statement purposes as of October 31, 2001, Canal has
fully reserved the Pine Valley receivable.
ITEM 4. Submission of Matters to a Vote of Shareholders
None.
9
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Stock Matters
Canal's stock is traded over-the-counter through the "pink sheets". The high and
low price ranges of Canal's common stock for the eight quarters ended October
31, 2001 as reported on the "pink sheets" were:
Fiscal 2001 Fiscal 2000
------------------- ------------------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
October 31 ................. $ 1/8 -- $ 1/16 $ 1/4 -- $ 1/16
July 31 .................... 1/16 -- 1/16 1/4 -- 1/16
April 30 ................... 1/16 -- 1/16 1/2 -- 1/16
January 31 ................. 1/8 -- 1/16 1/4 -- 1/16
There were no cash dividends paid during fiscal 2001 or 2000. Canal is
subject to restrictions on the payment of cash dividends under certain debt
agreements. As of January 15, 2002, Canal had approximately 1,500 holders of
record of its common stock, par value $.01 per share.
10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE FOLLOWING DATA HAVE BEEN DERIVED FROM CONSOLIDATED FINANCIAL STATEMENTS
THAT HAVE BEEN AUDITED BY TODMAN & CO., CPAs, P.C., INDEPENDENT ACCOUNTANTS. THE
INFORMATION SET FORTH BELOW IS NOT NECESSARILY INDICATIVE OF THE RESULTS OF
FUTURE OPERATIONS AND SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS ANNUAL REPORT
ON FORM 10-K.
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEARS ENDED OCTOBER 31, 2001 2000 1999 1998 1997
------------------------------------------------
OPERATING DATA:
REVENUES FROM CONTINUING OPERATIONS $5,262(1) $5,768(2) $7,584(3) $4,457(4) $5,311(5)
NET (LOSS) INCOME ($ 773) ($ 922) $1,285 ($1,413) ($1,001)
(LOSS) INCOME PER SHARE:
BASIC ($0.25) ($0.27) $ 0.24 ($0.37) ($0.27)
DILUTED ($0.25) ($0.27) $ 0.24 ($0.37) ($0.27)
CASH DIVIDENDS PAID $0.00 $0.00 $ 0.00 $0.00 $0.00
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,327 4,327 4,327 4,327 4,327
- DILUTED(6) 4,327 4,327 4,327 4,327 5,327
AT OCTOBER 31, 2001 2000 1999 1998 1997
------------------------------------------------
BALANCE SHEET DATA:
CURRENT ASSETS $ 602 $1,569 $1,661 $1,197 $2,151
PROPERTY ON OPERATING LEASES, NET 3,302 3,098 3,088 5,861 5,323
PROPERTY USED AS STOCKYARDS 1,281 1,237 1,248 0 0
ART INVENTORY NON-CURRENT 934 697 735 949 2,311
OTHER ASSETS 859 860 1,202 1,500 3,175
--------------------------------------------
TOTAL ASSETS $6,978 $7,461 $7,934 $9,507 $12,960
--------------------------------------------
CURRENT LIABILITIES $2,548 $2,215 $1,965 $2,186 $ 2,068
LONG-TERM DEBT 2,667 2,522 2,612 5,167 6,050
STOCKHOLDERS' EQUITY 1,763 2,724 3,357 2,154 4,842
--------------------------------------------
TOTAL LIAB. & STOCKHOLDERS'EQUITY (7) $6,978 $7,461 $7,934 $9,507 $12,960
--------------------------------------------
COMMON SHARES OUTSTANDING AT YEAR-END 4,327 4,327 4,327 4,327 4,327
11
ITEM 6. Selected Financial Data (continued..)
NOTES:
(1) The revenue decrease was due primarily t a $0.3 million decrease in sales
of real estate.
(2) The revenue decrease was due primarily to a $4.1 million decrease in sales
of real estate coupled with the elimination of $0.6 million ground lease
income, which decreases were offset to a certain extent by a $3.1 million
increase in revenues from stockyard operations (represents a full year
operation in fiscal 2000 as compared to three months in fiscal 1999).
(3) The revenue increase was due primarily to a $3.4 million increase in sales
of real estate coupled with the $1 million of revenue from the new
stockyard operations.
(4) The revenue decrease was due primarily to a $1.1 million decrease in sales
of real estate.
(5) The revenue decrease was due primarily to a $2.7 million decrease in sales
of real estate.
(6) Weighted average number of diluted shares have been calculated to give
effect to certain convertible notes issued in March 1994.
(7) For discussion of material uncertainties and commitments, see Notes 12 and
17 to the Consolidated Financial Statement.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations - 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 in nine of the last ten years and is obligated to continue making
substantial annual contributions to its defined benefit pension plan. The
financial statements do not include any adjustments that might result from the
resolution of these uncertainties (See Note 1). Additionally, the accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Canal recognized a net loss of $0.8 million for 2001 as compared to the
2000 net loss of $0.9 million and the 1999 net income of $1.3 million. After
recognition of preferred stock dividend payments (paid in additional shares of
preferred stock for each of fiscal 2001, 2000 and 1999) of $302,000 in 2001,
$266,000 in 2000 and $235,000 in 1999, the results attributable to common
stockholders were a net loss of $1.1 million in 2001, a net loss of $1.3 million
in 2000 and net income of $1.1 million in 1999. Canal's 2001 net loss of $0.8
million is due primarily to softer than anticipated results from both the real
estate and stockyard operations. This was the result in part to the severity of
the weather in the Midwest this past winter. The severe winter weather increased
operating costs in the real estate operations (i.e. utility costs, snow removal,
etc.) and significantly restricted the ability of producers to move livestock to
our markets. Canal's 2000 net loss of $0.9 million is due primarily to a $0.5
million realized loss on investments and marketable securities (reflecting a
permanent diminution in the investments value) combined with a significant
decrease in gains on real estate sales ($2.1 million) in the current year. These
decreases were offset to a certain extent by a $0.4 million increase in income
from stockyard operations (reflecting a full years operation in fiscal 2000 as
compared to three months in fiscal 1999) and recognition of a $0.1 million
extraordinary gain on early retirement of debt.
Canal's revenues from continuing operations consist of revenues from its
real estate operations, stockyard operations (twelve months in fiscal 2001 and
2000 and three months in fiscal 1999) and the sale of art. Due to general
economic conditions and more specifically a depressed national art market,
Canal's aggregate revenues from art sales and the prices at which sales were
made have significantly declined in recent years. Revenues in 2001 decreased by
$0.5 million to $5.3 million as compared with 2000 revenues which had decreased
by $1.8 million to $5.8 million from 1999 revenues of $7.6 million. The fiscal
2001 decrease in revenues is due primarily to a $0.3 million decrease in sales
of real estate coupled with a $0.3 million
13
decrease in stockyard operating revenues primarily caused by the severity of the
weather conditions experienced throughout the Midwest this past winter. The
fiscal 2000 decrease is due primarily to the $4.1 million decrease in sales of
real estate coupled with the elimination of the ground lease and volume based
rental incomes of $0.6 million, which were offset to a certain extent by a $3.1
million increase in revenue from stockyard operations (reflecting a full year's
operation in fiscal 2000 as compared to three months of operations in fiscal
1999).
Capital Resources and Liquidity
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 in nine of the last ten years and is obligated to continue making
substantial annual contributions to its defined benefit pension plan. The
financial statements do not include any adjustments that might result from the
resolution of these uncertainties (See Note 1). Additionally, the accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
On January 8, 1998, the Company issued $3,700,000 of variable rate mortgage
notes due May 15, 2001. The purchasers of these notes included certain entities
controlled by the Company's Chairman, the Company's Chief Executive Officer and
members of their families. The notes carried interest at the highest of four
variable rates, determined on a quarterly basis. These notes, among other
things, prohibit Canal from becoming an investment company as defined by the
Investment Company Act of 1940; require Canal to maintain minimum net worth;
restrict Canal's ability to pay cash dividends or repurchase stock; require
principal prepayments to be made only out of the proceeds from the sale of
certain assets, and required the accrual of additional interest (to be paid at
maturity) of approximately three percent per annum.
On July 29, 1999 the above notes were amended to extend the maturity date
to May 15, 2003; to fix the interest rate at 10% per annum; to agree that the
additional interest due to the holders of the notes shall become current and be
treated as principal due under the notes; and to have certain of the holders
loan the Company $525,000 in additional financing, the proceeds of which was
used to repay in full certain of the holders of the notes. As a result, the
notes are now held in total by the Company's Chief Executive Officer and members
of his family.
14
On January 10, 2000, the above notes were further amended to have the
noteholders loan the Company $1,725,000 in additional financing, the proceeds of
which was used to repay in full all of the Company's outstanding non related
party long-term debt. As of October 31, 2000, the balance due under these notes
was $2,667,000, all of which is classified as long-term debt- related party.
Cash and cash equivalents of $14,000 at October 31, 2001 decreased $73,000
or 84.0% from $87,000 at October 31, 2000. Net cash used by operations in fiscal
2001 was $0.2 million. Substantially all of the 2001 net proceeds from the sale
of real estate of $0.3 million was used to support current operations.
During fiscal 2001 Canal increased the balance due under its variable rate
mortgage notes (through additional advances from certain of the noteholders) by
$0.1 million as well as experiencing a $0.3 million increase in its current
liabilities for a total 2001 increase in outstanding debt of $0.5 million.
At October 31, 2001 the Company's current liabilities exceed current assets
by $1.9 million (which was an increase of $1.3 million) as compared to October
31, 2000 when the Company's current liabilities exceeded current assets by $0.6
million, which represented an increase of $0.9 million from 1999. The fiscal
2001 change in the Company's liquidity is due primarily to the decreases in real
estate sales and stockyard revenues experienced during the year coupled with
significantly higher operating costs in Canal's real estate and stockyard
operations due to the severe weather conditions experienced throughout the
Midwest this past winter. Additionally, the Company incurred legal fees of $0.2
million associated with its Pine Valley lawsuit (see Note 17) and made
contributions of $0.3 million to its pension fund as required by ERISA
regulations. The only required principal repayments under Canal's debt
agreements for fiscal 2002 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 year. Canal continues to closely monitor and reduce where
possible its operating expenses and plans to continue 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.
15
2001 COMPARED TO 2000
Real Estate Revenues
Real estate revenues for 2001 of $1.4 million accounted for 27.4% of the
2001 revenues as compared to revenues of $1.7 million or 28.7% for 2000. Real
estate revenues are comprised of sale of real estate (29.5% and 41.3%), rental
income from commercial office space in its Exchange Buildings (29.8% and 25.0%),
rentals and other lease income from the rental of vacant land and certain
structures (40.6% and 33.7%) and other income (0.1% and 0.0%) for 2001 and 2000,
respectively. The 2001 decrease is due primarily to the $0.3 million decrease in
sales of real estate offset to a certain extent by modest increases in Exchange
Building and outside real estate rental income. The percentage variations in the
year to year comparisons are due primarily to the decrease in real estate sales
for fiscal 2001.
Real Estate Expenses
Real estate expenses for 2001 of $1.0 million decreased by $0.2 million
(14.0%) from $1.2 million in 2000. Real estate expenses are comprised of labor,
operating and maintenance (42.8% and 36.6%), depreciation and amortization
(12.8% and 9.4%), taxes other than income taxes (15.2% and 11.8%), cost of real
estate sold (16.6% and 34.8%),and general and administrative and other expenses
(12.6% and 7.4%) for 2001 and 2000, respectively. The 2001 decrease in real
estate expenses is due primarily to the $0.2 million decrease in cost of real
estate sold in fiscal 2001. The percentage variations in year to year
comparisons is also due primarily to the decrease in the cost of real estate
sold in fiscal 2001.
Art Inventory Held for Sale
Canal has not purchased inventory in several years, nor does it currently
have any intention of purchasing additional art inventory in the foreseeable
future. It is the Company's intention to liquidate, in an orderly manner, its
art inventory. Management estimates it may take approximately five years to
dispose of its current art inventory. The Company's ability to dispose of its
art inventory is dependent at least in part, on general economic conditions,
including supply, demand, international monetary conditions and inflation.
Additionally, the art market itself is a very competitive market. Accordingly,
there can be no assurance that Canal will be successful in disposing of its art
inventory within the time frame discussed above.
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 its art inventory appraised by independent appraisers annually. The
2001 appraisal covered approximately 53% of the inventory
16
value. The appraised values estimate the current market value of each piece
giving consideration to Canal's practices of engaging in consignment, private
and public auction sales. The net realizable value of the remaining 47% of the
inventory was estimated by management based in part on the Company's history of
losses sustained on art sales in the current and previous years and in part on
the results of the independent appraisals done. In fiscal 2001 Canal applied
against sales $35,800 of the valuation allowance against its art inventory,
thereby, decreasing the total valuation allowance to $2,692,150 as of October
31, 2001 as compared to $2,727,950 and $2,788,000 at October 31, 2000 and 1999,
respectively.
The valuation allowance represents management's best estimate of the loss
that will be incurred by the Company in the normal course of business. The
estimate is predicated on past history and the information that was available at
the time that the financial statements were prepared.
Art Revenues
Art revenues for 2001 of $24,000 decreased $28,000 or 52.6% from $52,000 in
2000. Art revenues are comprised of proceeds from the sale of antiquities and
contemporary art (1.6% and 98.4%) for 2001 and 2000, respectively. The Company's
art inventory was reduced through sales by $13,000 and $38,000 in fiscal years
2001 and 2000, respectively.
Art Expenses
Art expenses for 2001 of $0.1 million approximated art expenses in 2000.
Art expenses (excluding valuation allowances) consisted of the cost of art sold
(61.5% and 75.5%) and selling, general and administrative expenses (38.5% and
24.5%) for 2001 and 2000, respectively. Included in art expenses is a $36,000
and a $51,000 reduction in the valuation allowance against the Company's art
inventory (see Note 9 to the Consolidated Financial Statements) for fiscal years
2001 and 2000, respectively.
General and Administrative
General and administrative expenses for 2001 of $1.3 million decreased
slightly (3.3%) from $1.3 million in 2000. The major components of general and
administrative expenses are officers salaries (36.0% and 34.5%), rent (7.1% and
6.8%), legal and professional fees (15.0% and 9.4%), insurance (8.6% and 15.2%)
and office salaries (8.4% and 9.2%) for 2001 and 2000,
17
respectively. The percentage increase in legal and professional fees is due to a
sharp increase in legal fees associated with the Pine Valley lawsuit. The
percentage decrease in insurance reflects a decrease in coverage purchased. The
percentage decrease in office salaries reflects staff reductions in fiscal 2001.
Interest and Other Income
Interest and other income of $131,000 for 2001 decreased $9,000 (6.4%) from
$140,000 in fiscal 2000. Interest and other income amounts are comprised
primarily of dividend and interest income.
Interest Expense
Interest expense for 2001 of $0.3 million increased slightly (0.6%) from
$0.3 million in 2000. The 2001 increase is due primarily to a modest increase in
the outstanding debt. Interest rates on Canal's variable rate mortgage notes
averaged 10.00% in 2001 as compared to averages of 10.00% and 11.00% in fiscal
2000 and 1999, respectively. At October 31, 2001 the outstanding balance of
these notes was $2,667,000.
Realized Loss on Investments
At October 31, 2001, Canal determined that the decline in the market value
of its investments available for sale was permanent, and accordingly, recognized
a realized loss of approximately $47,000 in fiscal 2001. Further, Canal had
recognized a realized loss of approximately $467,000 on this investment in
fiscal 2000.
Other Expense
Other expense of $170,000 for 2001 decreased $9,000 (5.3%)from $179,000 in
fiscal 2000.
18
2000 COMPARED TO 1999
Real Estate Revenues
Real estate revenues for 2000 of $1.7 million accounted for 28.7% of the
2000 revenues as compared to revenues of $6.4 million or 84.9% for 1999. Real
estate revenues are comprised of rental income from Exchange Building
(commercial office space) rentals and other lease income from the rental of
vacant land and certain structures (58.7% and 15.8%), Ground lease income (0.0%
and 9.2%), volume based rental income (0.0% and 0.3%) and sale of real estate
and other income (41.3% and 74.7%) for 2000 and 1999, respectively. The 2000
decrease is due primarily to the $4.1 million decrease in sales of real estate,
combined with decreases in ground lease ($0.6) and volume based ($0.1)rental
income. The decrease in ground lease income of $0.6 million is due to Canal's
August 1, 1999 purchase of the stockyard assets in Sioux City, Iowa; St. Joseph,
Missouri and Sioux Falls, South Dakota, thereby terminating the ground lease.
The decrease in volume based rental income of $0.1 million is due to the
permanent closing of the packing plant in West Fargo, North Dakota by its
operator in January, 1999. The percentage variations in the year to year
comparisons are due primarily to the significant decrease in real estate sales
for fiscal 2000.
Real Estate Expenses
Real estate expenses for 2000 of $1.2 million decreased by $2.3 million
(66.7%) from $3.5 million in 1999. Real estate expenses are comprised of labor,
operating and maintenance (36.6% and 14.3%), depreciation and amortization (9.4%
and 4.4%), taxes other than income taxes (11.8% and 9.0%), cost of real estate
sold (34.8% and 69.9%),and general and administrative and other expenses (7.4%
and 2.4%) for 2000 and 1999, respectively. The 2000 decrease in real estate
expenses is due primarily to the $2.0 million decrease in cost of real estate
sold in fiscal 2000. The percentage variations in year to year comparisons is
also due primarily to the decrease in the cost of real estate sold in fiscal
2000.
Art Inventory Held for Sale
Canal has not purchased inventory in several years nor does it currently
have any intention of purchasing additional art inventory in the foreseeable
future. It is the Company's intention to liquidate, in an orderly manner, its
art inventory. Management estimates it may take approximately five years to
dispose of its current art inventory. The Company's ability to dispose of its
art inventory is dependent at least in part, on general economic conditions,
including supply, demand, international monetary conditions and inflation.
Additionally, the art market itself is a very competitive market. Accordingly,
there can be no assurance that Canal will be successful in disposing of its art
inventory within the time frame discussed above.
19
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 its art inventory appraised by independent appraisers annually. The
2000 appraisal covered approximately 57% of the inventory value. The appraised
values estimate the current market value of each piece giving consideration to
Canal's practices of engaging in consignment, private and public auction sales.
The net realizable value of the remaining 43% of the inventory was estimated by
management based in part on the Company's history of losses sustained on art
sales in the current and previous years and in part on the results of the
independent appraisals done. In fiscal 2000 Canal applied against sales $50,750
of the valuation allowance against its art inventory, thereby, decreasing the
total valuation allowance to $2,727,950 as of October 31, 2000 as compared to
$2,778,700 and $3,400,000 at October 31, 1999 and 1998, respectively.
The valuation allowance represents management's best estimate of the loss
that will be incurred by the Company in the normal course of business. The
estimate is predicated on past history and the information that was available at
the time that the financial statements were prepared.
Art Revenues
Art revenues for 2000 of $52,000 decreased $134,000 or 72.4% from $186,000
in 1999. Art revenues are comprised of proceeds from the sale of antiquities and
contemporary art (100.0% and 100.0%) and commission income on sale of art owned
by third parties (0.0% and 0.0%) for 2000 and 1999, respectively. The Company's
art inventory was reduced through sales by $0.1 million and $0.8 in fiscal years
2000 and 1999, respectively.
Art Expenses
Art expenses for 2000 of $0.1 million decreased by $0.2 million (74.4%)
from $0.3 million in 1999. Art expenses (excluding valuation allowances)
consisted of the cost of art sold (75.5% and 95.1%) and selling, general and
administrative expenses (24.5% and 4.9%) for 2000 and 1999, respectively.
Included in art expenses is a $0.1 million and a $0.6 million reduction in the
valuation allowance against the Company's art inventory (see Note 9 to the
Consolidated Financial Statements) for fiscal years 2000 and 1999, respectively.
20
General and Administrative
General and administrative expenses for 2000 of $1.3 million increased
slightly (2.7%) from $1.3 million in 1999. The major components of general and
administrative expenses are officers salaries (34.5% and 33.6%), rent (6.8% and
8.2%), legal and professional fees (9.4% and 3.4%), insurance (15.2% and 10.6%)
and office salaries (9.2% and 8.7%) for 2000 and 1999, respectively. The
percentage increase in legal and professional fees is due to a sharp increase in
legal fees associated with the Pine Valley lawsuit. The percentage increase in
insurance reflects a combination of increased coverage and increases in premiums
charged. The percentage increases in officers salaries and office salaries
reflects salary increases given in fiscal 2000.
Interest and Other Income
Interest and other income of $140,000 for 2000 decreased $10,000 (7.1%)
from $150,000 in fiscal 1999. Interest and other income amounts are comprised
primarily of dividend and interest income.
Interest Expense
Interest expense for 2000 of $0.3 million decreased by $0.2 million (44.8%)
from $0.5 million in 1999. The 2000 decrease is due primarily to the aggregate
reduction in the outstanding debt. Interest rates on Canal's variable rate
mortgage notes averaged 10.00% in 2000 as compared to averages of 11.00% and
12.00% in fiscal 1999 and 1998, respectively. At October 31, 2000 the
outstanding balance of these notes was $2,522,000.
Realized Loss on Investments
At October 31, 2000, Canal determined that the decline in the market value
of its investments available for sale was permanent, and accordingly, recognized
a realized loss of approximately $467,000 in fiscal 2000. There were no such
realized losses in fiscal 1999. In accordance with Canal's accounting policies,
the fiscal 2000 realized loss of $466,917 resulted in a current year charge to
Stockholders' Equity of $123,192 because the balance of $343,725 had been
charged directly to equity in prior years.
Other Expense
Other expense of $179,000 for 2000 increased $40,000 (29.2%)from $139,000
in fiscal 1999.
21
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses from
market risk sensitive instruments attributable to reasonably possible
market changes. Market risk sensitive instruments include all financial or
commodity instruments and other financial instruments (such as investments
and debt) that are sensitive to future changes in interest rates, currency
exchange rates, commodity prices or other market factors. We are not
exposed to market risks from changes in foreign currency, exchange rates or
commodity prices. As of October 31, 2001, 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.
ITEM 8. Financial Statements and Supplemental Data
The response to this item is included in Item 14(A) of the report.
ITEM 9. Disagreements on Accounting and Financial Disclosure
None.
22
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The Board of Directors has designated an Executive Committee consisting of
Messrs. Edelman and Schultz. The Board of Directors has delegated to the
Executive Committee general authority with respect to most matters that would
otherwise be considered by the full Board. During fiscal 2001 the Board of
Directors held one meeting, and the Executive Committee held four meetings, all
of which were attended by both Mr. Edelman and Mr. Schultz.
The following information with respect to the principal occupation or
employment of each director and executive officer and the name and principal
business of the Company or other organization in which such occupation or
employment is carried on, and in regard to other affiliations and business
experience during the past five years, has been furnished to the Company by the
respective directors.
Asher B. Edelman, age 62, has been Chairman of the Board since September
1991 and prior thereto Vice Chairman of the Board and Chairman of the Executive
Committee since February, 1985. Mr. Edelman has been a Director, Chairman of the
Board, and Chairman of the Executive Committee of Dynacore Holdings Corporation,
formerly known as Datapoint Corporation ("Dynacore") since March 1985 and has
been Dynacore's Chief Executive Officer since February 1993. Mr. Edelman has
served as General Partner of Asco Partners, a general partner of Edelman
Securities Company L.P. (formerly Arbitrage Securities Company) since June 1984
and is a General Partner and Manager of various investment partnerships and
funds.
Michael E. Schultz, age 65, has been President and Chief Executive Officer
since September 1991 and a Director since 1985; and had been a partner in the
law firm of Ehrenkranz, Ehrenkranz & Schultz until December 31, 1994.
Gerald N. Agranoff, age 55, has been a Director since 1984. Mr. Agranoff is
currently Vice President, General Counsel and Corporate Secretary of Dynacore
and has been a Director of Dynacore since 1991. Mr. Agranoff has been a General
Partner of Edelman Securities Company L.P. (formerly Arbitrage Securities
Company) and Plaza Securities Company for more than five years. Mr. Agranoff is
a director of Bull Run Corporation, Atlantic Gulf Communities and The American
Energy Group, Ltd.. Mr. Agranoff has also been the General Counsel to Edelman
Securities Company L.P. and Plaza Securities Company for more than five years.
Reginald Schauder, age 52, has been Vice President, Chief Financial Officer
and Treasurer since January 1989 and assumed responsibility as Secretary of the
Company in September 1995. Mr. Schauder was corporate controller from July 1985
to January 1989.
23
There are no family relationships between any of the aforementioned
executive officers of the Registrant and such executive officers were elected to
serve for a term of one year or until the election and qualification of their
respective successors.
ITEM 11. Executive Compensation
The following table summarizes the compensation of the Company's Chief
Executive Officer and the other two executive officers of the Company whose
salary for fiscal 2001 exceeded $100,000.
SUMMARY COMPENSATION TABLE - Annual Compensation
Name and Principal
Position Year Salary
- ------------------ ---- ----------
Michael E. Schultz 2001 $ 175,000
President and Chief 2000 $ 175,000
Executive Officer 1999 $ 165,000
Asher B. Edelman 2001 $ 175,000
Chairman of the Board 2000 $ 175,000
and Executive Committee 1999 $ 165,000
Reginald Schauder 2001 $ 108,700
Vice President, Chief 2000 $ 108,700
Financial Officer 1999 $ 101,200
Treasurer and Secretary
In order to help ease the stress on the Company's cash flow, Messrs.
Edelman and Schultz each agreed to defer $55,000 of their salaries effective
June 1, 2001. These amounts will be accrued by the Company until such time as
the Company can make the payments.
The Company pays certain expenses related to Mr. Edelman's European offices
as well as his travel expenses between Europe and the U.S. These expenses
totaled $24,000, $36,000 and $53,000 for fiscal years 2001, 2000 and 1999,
respectively.
Retirement Plans
The Canal Capital Corporation Retirement Plan (the "Retirement Plan")
provides benefits to eligible employees of the Company and its subsidiaries and
affiliates. Directors who are not employees are not eligible to participate in
the Retirement Plan. The Retirement Plan is administered by the Company. All
Company contributions under the Retirement Plan were deposited with an insurance
company and invested in a group annuity contract through May 30, 1985.
Thereafter, all Company contributions have been held
24
in trust under a Trust Agreement between the Company and the Executive Committee
of the Board of Directors, as trustee. Contributions to the Retirement Plan are
determined on an actuarial basis, without individual allocation.
In October 1991, each of three executive officers of the Company
voluntarily withdrew from participation in the Retirement Plan. As a result of
prior service, Messrs. Edelman and Schauder have deferred annual accumulated
benefits of approximately $1,300 and $600, respectively, as of October 31, 2001.
Mr. Schultz has no benefit under the Retirement Plan. For further information on
the Retirement Plan see Note 9.
Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year End Option Value
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Name Options at Fiscal Year End At Fiscal Year End
- ------------------ -------------------------- --------------------
Michael E. Schultz 5,500* $ -0-
Asher B. Edelman 0 $ -0-
Reginald Schauder 0 $ -0-
* All options were exercisable at October 31, 2001.
COMPENSATION OF DIRECTORS
Fees and Expenses; Other Benefits
Directors who are not officers of the Company do not receive cash
compensation for service as Directors. Mr. Agranoff was granted 25,000 options
of the Company under the 1985 Directors Stock Option Plan, as amended, in lieu
of an annual retainer and per meeting fees. The options were granted December
1991. Directors are reimbursed for expenses incurred in attending Board and
Committee meetings, including those for travel, food and lodging.
Stock Options for Directors
The Company maintains an option plan for the benefit of directors of the
Company -- the 1985 Directors' Stock Option Plan (the "1985 Plan"), which was
approved by the stockholders of the Company on March 12, 1986. Pursuant to the
1985 Plan, a maximum of 264,000 shares of common stock, $0.01 par value per
share, of the Company have been reserved for issuance to directors and members
of the Executive Committee of the Company and its subsidiaries.
25
Options granted under the 1985 Plan are non-qualified stock options and
have an exercise price equal to 100% of fair market value of the shares on the
date of grant. The options may be exercised no earlier than one year from the
date of grant and no later than ten years after the date of grant. Under the
1985 Plan, options covering 22,000 shares are automatically granted to each new
director upon the effective date of his election to office and options covering
5,500 shares are automatically granted to each new member of the Executive
Committee upon the effective date of his appointment to office. In addition, the
1985 Plan was amended on December 18, 1991 to provide an automatic grant of
options covering 25,000 shares to each current and new director who is not an
employee of the Company including Mr. Agranoff. The 1985 Plan is administered by
the Board of Directors of the Company.
During the 2001 fiscal year, no options under the 1985 plan were granted
and no options previously granted were exercised. At October 31, 2001, options
covering an aggregate of 30,500 shares were outstanding under the 1985 Plan and
were held by members of the Board of Directors and Executive Committee. The
exercise price per share of all outstanding options under the 1985 Plan ranges
from $0.13 to $0.25. The expiration dates for outstanding options under the 1985
Plan range from December 2001 to January 2003.
Compensation Committee - Interlocks and Insider Participation
The Board of Directors (comprised of Asher B. Edelman, Chairman of the
Board and Chairman of the Executive Committee, Michael E. Schultz, President and
Chief Executive Officer and Gerald N. Agranoff) determines the compensation of
the Chief Executive Officer and the Company's other executive officers and
administers the Company's 1984 Stock Option Plan and 1985 Stock Option Plan for
Directors.
In connection with the Company's investment activities, the Executive
Committee of the Board of Directors, through Mr. Edelman, has the authority to
invest funds of the Company in securities of other companies. Certain funds of
the Company have been invested in the securities of other companies in which Mr.
Edelman, other directors of the Company or their affiliates are directors or
officers, or in which one or more of such persons may also have invested. Since
November 1, 1993, such companies included Dynacore Holdings Corporation
(formerly known as Datapoint Corporation). The Company has filed with the SEC
Schedules 13D jointly with Plaza, Mr. Edelman, Edelman Management, Edelman
Limited Partnership, certain investment partnerships of which Mr. Edelman is
sole or controlling general partner, certain of the companies referred to in the
preceding sentence and other persons, indicating that the filing parties
constitute groups for purposes of such filings with respect to the acquisition
of securities in the companies referred to in the preceding sentence.
26
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, the only beneficial owners of 5% or more
of the voting stock of the Company (other than those listed below under
"Securities Owned by Management") as of January 15, 2002 were:
SECURITIES BENEFICIALLY OWNED
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
---- ----------------------- -----------------
Asher B. Edelman 2,463,405 (c) 56.93
Michael E. Schultz 64,335 (c) 1.49
William G. Walters 234,440 (b) 5.42
(a) Under applicable regulations of the Securities and Exchange Commission
(the "SEC"), a person who has or shares the power to direct the voting or
disposition of stock is considered a "beneficial owner". Each individual
referred to in the above table has the sole power to direct the voting and
disposition of the shares shown.
(b) The number reported herein for Mr. Walters includes 117,220 shares
owned by Mr. Walters, 117,220 shares owned by Whale Securities Co., L.P., of
which Mr. Walters is Chief Executive Officer. Mr. Walters has sole power to vote
and dispose of the shares described herein.
(c) For additional information about beneficial ownership see "Securities
Owned by Management" below.
27
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of January 15, 2002,
with respect to the beneficial ownership of the Company's Common Stock with
respect to all persons who are directors, each of the executives named in the
Executive Compensation Table and by all directors and officers as of the most
practical date. Unless otherwise indicated, the percentage of stock owned
constitutes less than one percent of the outstanding Common Stock and the
beneficial ownership for each person consists of sole voting and sole investment
power.
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
---- ----------------------- -----------------
Gerald Agranoff 25,000 (b) 0.57
Asher B. Edelman 2,463,405 (c)(d) 56.93
Reginald Schauder 100 (e) 0.01
Michael E. Schultz 64,335 (f)(g) 1.49
---------
All Directors and Officers
as a group (4 persons) 2,552,840 58.59
=========
(a) Under applicable regulations of the Securities and Exchange Commission
(the "SEC"), a person who has or shares the power to direct the voting or
disposition of stock is considered a "beneficial owner". Each director and
officer referred to in the above table has the sole power to direct the voting
and disposition of the shares shown, except as otherwise set forth in footnotes
(c), (d) and (f) below.
(b) Includes 25,000 shares subject to options which are presently
exercisable.
(c) The number reported herein for Mr. Edelman includes 31,300 shares held
in Mr. Edelman's retirement plan, 1,017,220 shares owned by A.B. Edelman Limited
Partnership ("Edelman Limited Partnership"), of which Mr. Edelman is the sole
general partner, 590,186 shares of common stock owned by the Edelman Family
Partnership, L.P. ("Edelman Family Partnership"), of which Mr. Edelman is the
general partner, 413,750 shares of common stock owned by the Edelman Value Fund
Ltd. (the "Fund") of which Mr. Edelman is the investment manager, 43,830 shares
of common stock owned by Edelman Value Partners, L.P. ("Value Partners"), of
which Mr. Edelman is the sole stockholder of the general partner, 26,620 shares
of common stock held by Canal Capital Corporation Retirement Plan ("Canal
Retirement Plan"), of which Mr. Edelman serves as a
28
trustee, 8,400 shares owned by Aile Blanche, Inc., of which Mr. Edelman is the
sole stockholder and 3,399 shares owned by Felicitas Partners, L.P.
("Felicitas"), the general partner of which is Citas Partners ("Citas") of which
Mr. Edelman is the controlling general partner. Edelman Limited Partnership has
the sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the sole general partner of Edelman Limited
Partnership. Edelman Family Partnership has the sole power to vote and dispose
of the shares owned by it, which power is exercisable by Mr. Edelman as the
general partner. Mr. Edelman as the investment manager of the Fund directs the
voting and disposition of the Fund's securities. Value Partners has shared power
to vote and dispose of the shares owned by it. The power to dispose of such
shares is exercisable by A. B. Edelman Management Company, Inc., a corporation
controlled by Mr. Edelman as the sole stockholder. Canal Retirement Plan has the
sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as trustee. Aile Blanche, Inc. has the sole power to
vote and dispose of the shares owned by it, which power is exercisable by Mr.
Edelman as President. Felicitas has the sole power to vote and dispose of the
shares owned by it, which power is exercisable by Mr. Edelman as the controlling
general partner of Citas. Additionally, the number reported herein for Mr.
Edelman includes 137,750 shares of common stock owned by Mr. Edelman's wife,
2,900 shares held in his wife's retirement plan and 188,650 shares of common
stock held in three Uniform Gifts to Minors Act accounts for the benefit of Mr.
Edelman's children of which Mr. Edelman is the custodian.
(d) The number reported herein for Mr. Edelman excludes 241,000 shares of
common stock owned by Mr. Edelman's mother, as to which Mr. Edelman expressly
disclaims beneficial ownership.
(e) Represents 100 shares owned directly.
(f) Includes 58,835 shares owned directly and 5,500 shares subject to
options which are presently exercisable.
(g) The number reported herein for Mr. Schultz excludes 26,620 shares of
common stock held by the Canal Capital Corporation Retirement Plan of which Mr.
Schultz serves as a trustee, as to which Mr. Schultz expressly disclaims
beneficial ownership.
ITEM 13. Certain Relationships and Related Transactions
See: Item 11 "Compensation Committee Interlocks and Insider
Participation"
29
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) 1. Financial Statements and Notes
See accompanying index to consolidated financial statements.
(a) 2. Schedules and Supplementary Note
None
(a) 3. Exhibits
See accompanying index to exhibits.
(b) 1. Reports on Form 8-K
During the quarter ended October 31, 2001 the Company filed
no reports on Form 8-K.
30
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 29th day of
January, 2002.
CANAL CAPITAL CORPORATION
By: /S/ Michael E. Schultz
----------------------------
Michael E. Schultz
President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President and Chief
/S/ Michael E. Schultz Executive Officer and Director
- ---------------------- (Principal Executive Officer) January 29, 2002
Michael E. Schultz
/S/ Reginald Schauder Vice President-Finance
- ---------------------- Secretary and Treasurer
Reginald Schauder (Principal Financial and
Accounting Officer) January 29, 2002
/S/ Asher B. Edelman Chairman of the Board
- ---------------------- and Director January 29, 2002
Asher B. Edelman
/S/ Gerald N. Agranoff
- ---------------------- Director January 29, 2002
Gerald N. Agranoff
31
FORM 10-K -- ITEM 14(a)(1) and (2)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this report:
(a) 1. Financial Statements --
Independent Accountants Report.............................. F-2
Consolidated Balance Sheets October 31, 2001 and 2000....... F-3
Consolidated Statements of Operations and Comprehensive
(Loss) Income for the years ended October 31, 2001,
2000 and 1999........................................... F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended October 31, 2001, 2000
and 1999................................................. F-7
Consolidated Statements of Cash Flows for the
years ended October 31, 2001, 2000 and 1999.............. F-8
Notes to Consolidated Financial Statements.................. F-9
F-1
INDEPENDENT ACCOUNTANTS REPORT
To the Stockholders of Canal Capital Corporation:
We have audited the accompanying consolidated balance sheets of Canal
Capital Corporation (a Delaware corporation) and Subsidiaries as of October 31,
2001 and 2000 and the related consolidated statements of operations &
comprehensive (loss) income, changes in stockholders' equity and cash flows for
each of the years in the three year period ended October 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Canal Capital Corporation
and Subsidiaries as of October 31, 2001 and 2000, and the results of their
operations and cash flows for each of the years in the three year period ended
October 31, 2001, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
in nine of the last ten years and is obligated to continue making substantial
annual contributions to its defined benefit pension plan. All of these matters
raise substantial doubt about the company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
/S/ Todman & Co., CPAs,P.C.
-----------------------------------
New York, N.Y. TODMAN & CO., CPAs, P.C.
January 14, 2002 Certified Public Accountants (N.Y.)
F-2
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND 2000
2001 2000
---- ----
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 13,680 $ 87,269
NOTES AND ACCOUNTS RECEIVABLE, NET 127,771 736,388
ART INVENTORY, NET OF A VALUATION ALLOWANCE
OF $ 1,750,000 AND $1,500,000 AT
OCTOBER 31, 2001 AND 2000, RESPECTIVELY 250,000 500,000
STOCKYARDS INVENTORY 16,213 21,361
INVESTMENTS 21,392 68,641
PREPAID EXPENSES 172,625 154,875
----------- -----------
TOTAL CURRENT ASSETS 601,681 1,568,534
----------- -----------
NON-CURRENT ASSETS:
PROPERTY ON OPERATING LEASES, NET OF
ACCUMULATED DEPRECIATION OF $ 1,300,727
AND $ 1,420,681 AT OCTOBER 31, 2001
AND 2000, RESPECTIVELY 3,302,073 3,097,938
----------- -----------
PROPERTY USED IN STOCKYARD OPERATIONS, NET OF
ACCUMULATED DEPRECIATION OF $ 44,340
AND $ 18,458 AT OCTOBER 31, 2001 AND
2000, RESPECTIVELY 1,281,476 1,237,476
----------- -----------
ART INVENTORY NON-CURRENT, NET OF A
VALUATION ALLOWANCE OF $ 942,150
AND $1,227,950 AT OCTOBER 31, 2001 AND
2000, RESPECTIVELY 933,739 696,657
----------- -----------
OTHER ASSETS:
PROPERTY HELD FOR DEVELOPMENT OR RESALE 620,416 647,669
DEFERRED LEASING AND FINANCING COSTS 28,118 8,202
DEPOSITS AND OTHER 210,902 204,421
----------- -----------
859,436 860,292
----------- -----------
$ 6,978,405 $ 7,460,897
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND 2000
2001 2000
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 2,538,229 $ 2,209,724
INCOME TAXES PAYABLE 9,857 5,379
------------ ------------
TOTAL CURRENT LIABILITIES 2,548,086 2,215,103
------------ ------------
LONG-TERM DEBT, RELATED PARTY 2,667,000 2,522,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.01 PAR VALUE:
5,000,000 SHARES AUTHORIZED; 4,998,446 AND
4,407,614 SHARES ISSUED AND OUTSTANDING AT
OCTOBER 31, 2001 AND 2000, RESPECTIVELY AND
AGGREGATE LIQUIDATION PREFERENCE OF $10.00
PER SHARE FOR $ 49,984,460 AND $ 44,076,140
AT OCTOBER 31, 2001 AND 2000, RESPECTIVELY 49,984 44,076
COMMON STOCK, $0.01 PAR VALUE:
10,000,000 SHARES AUTHORIZED; 5,313,794
SHARES ISSUED & 4,326,929 SHARES OUTSTANDING
AT OCTOBER 31, 2001 AND 2000, RESPECTIVELY 53,138 53,138
ADDITIONAL PAID-IN CAPITAL 27,848,561 27,545,053
ACCUMULATED DEFICIT (13,019,374) (11,945,307)
986,865 SHARES OF COMMON STOCK
HELD IN TREASURY, AT COST (11,003,545) (11,003,545)
COMPREHENSIVE INCOME:
PENSION VALUATION RESERVE (2,165,445) (1,969,621)
------------ ------------
1,763,319 2,723,794
------------ ------------
$ 6,978,405 $ 7,460,897
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
2001 2000 1999
----------- ----------- -----------
REAL ESTATE OPERATIONS:
REAL ESTATE REVENUES:
SALE OF REAL ESTATE $ 426,240 $ 684,516 $ 4,794,570
RENTAL INCOME 1,016,394 972,920 1,014,925
GROUND LEASE INCOME 0 0 592,011
OTHER INCOME 1,000 250 38,009
----------- ----------- -----------
1,443,634 1,657,686 6,439,515
----------- ----------- -----------
REAL ESTATE EXPENSES:
COST OF REAL ESTATE SOLD 166,108 404,928 2,435,630
LABOR, OPERATING AND MAINTENANCE 427,566 424,917 499,143
DEPRECIATION AND AMORTIZATION 127,859 108,751 153,430
TAXES OTHER THAN INCOME TAXES 151,700 136,400 313,743
GENERAL AND ADMINISTRATIVE 126,123 86,342 81,051
----------- ----------- -----------
999,356 1,161,338 3,482,997
----------- ----------- -----------
INCOME FROM REAL ESTATE OPERATIONS 444,278 496,348 2,956,518
----------- ----------- -----------
STOCKYARD OPERATIONS:
STOCKYARD REVENUES:
YARD HANDLING AND AUCTION $ 3,358,554 $ 3,588,697 $ 851,014
FEED AND BEDDING INCOME 249,154 262,717 64,388
RENTAL INCOME 4,521 3,788 758
OTHER INCOME 182,248 204,081 41,587
----------- ----------- -----------
3,794,477 4,059,283 957,747
----------- ----------- -----------
STOCKYARD EXPENSES:
LABOR AND RELATED COSTS 1,542,324 1,703,285 402,658
OTHER OPERATING AND MAINTENANCE 889,037 829,880 197,625
FEED AND BEDDING EXPENSE 192,513 199,328 50,215
DEPRECIATION AND AMORTIZATION 26,891 15,958 2,500
TAXES OTHER THAN INCOME TAXES 246,760 261,322 57,533
GENERAL AND ADMINISTRATIVE 523,133 507,223 106,428
----------- ----------- -----------
3,420,658 3,516,996 816,959
----------- ----------- -----------
INCOME FROM STOCKYARD OPERATIONS 373,819 542,287 140,788
----------- ----------- -----------
ART OPERATIONS:
ART REVENUES:
SALES $ 24,400 $ 51,500 $ 186,400
OTHER REVENUES 0 0 0
----------- ----------- -----------
24,400 51,500 186,400
----------- ----------- -----------
ART EXPENSES:
COST OF ART SOLD 48,958 89,000 839,986
VALUATION RESERVE (35,800) (50,750) (621,300)
SELLING, GENERAL AND ADMINISTRATIVE 30,593 28,888 43,736
----------- ----------- -----------
43,751 67,138 262,422
----------- ----------- -----------
LOSS FROM ART OPERATIONS (19,351) (15,638) (76,022)
----------- ----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
Continued
2001 2000 1999
----------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSE (1,274,529) (1,317,829) (1,283,021)
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (475,783) (294,832) 1,738,263
----------- ----------- -----------
OTHER INCOME (EXPENSE):
INTEREST AND OTHER INCOME 130,737 139,703 150,385
INTEREST EXPENSE 0 (43,676) (227,685)
INTEREST EXPENSE-RELATED PARTY (257,022) (213,188) (237,451)
REALIZED LOSS ON INVESTMENTS (47,249) (466,917) 0
OTHER EXPENSE (123,230) (179,000) (138,508)
----------- ----------- -----------
(296,764) (763,078) (453,259)
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY GAIN (772,547) (1,057,910) 1,285,004
PROVISION FOR INCOME TAXES 0 0 0
----------- ----------- -----------
(LOSS)INCOME BEFORE EXTRAORDINARY GAIN (772,547) (1,057,910) 1,285,004
EXTRAORDINARY GAIN ON EARLY RETIREMENT
OF DEBT 0 136,328 0
----------- ----------- -----------
NET (LOSS) INCOME (772,547) (921,582) 1,285,004
OTHER COMPREHENSIVE (LOSS) INCOME:
MINIMUM PENSION LIABILITY ADJUSTMENT (195,824) (66,445) (6,338)
UNREALIZED (LOSS) ON INVESTMENTS
AVAILABLE FOR SALE 0 0 (86,342)
----------- ----------- -----------
COMPREHENSIVE (LOSS) INCOME $ (968,371) $ (998,027) $ 1,192,324
=========== =========== ===========
(LOSS) INCOME BEFORE EXTRAORDINARY GAIN
PER COMMON SHARE:
- BASIC $ (0.25) $ (0.24) $ 0.24
- DILUTED $ (0.25) $ (0.24) $ 0.24
EXTRAORDINARY GAIN ON EARLY RETIREMENT
OF DEBT PER COMMON SHARE:
- BASIC $ -- $ 0.03 $ --
- DILUTED $ -- $ 0.03 $ --
NET (LOSS) INCOME PER COMMON SHARE:
- BASIC $ (0.25) $ (0.27) $ 0.24
- DILUTED $ (0.25) $ (0.27) $ 0.24
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,326,929 4,326,929 4,326,929
- DILUTED 4,326,929 4,326,929 4,326,929
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999
COMMON STOCK PREFERRED STOCK
------------------- --------------------
NUMBER NUMBER
OF OF
SHARES AMOUNT SHARES AMOUNT
------------------- --------------------
BALANCE, NOVEMBER 1, 1998 5,313,794 $53,138 3,411,681 $34,117
NET INCOME 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 467,577 4,676
MINIMUM PEN. LIAB. ADJ. 0 0 0 0
------------------- --------------------
BALANCE, OCTOBER 31, 1999 5,313,794 $53,138 3,879,258 $38,793
NET (LOSS) 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 528,356 5,283
MINIMUM PEN. LIAB. ADJ. 0 0 0 0
UNREALIZED LOSS ON INVEST. 0 0 0 0
------------------- --------------------
BALANCE, OCTOBER 31, 2000 5,313,794 $53,138 4,407,614 $44,076
NET (LOSS) 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 590,832 5,908
MINIMUM PEN. LIAB. ADJ. 0 0 0 0
UNREALIZED LOSS ON INVEST. 0 0 0 0
------------------- --------------------
BALANCE, OCTOBER 31, 2001 5,313,794 $53,138 4,998,446 $49,984
=================== ====================
ADDITIONAL TREASURY
PAID-IN ACCUMULATED COMPREHENSIVE STOCK,
CAPITAL DEFICIT (LOSS)INCOME AT COST
----------- ------------ ----------- ------------
BALANCE, NOVEMBER 1, 1998 $27,033,046 ($11,808,043) ($2,154,221) ($11,003,545)
NET INCOME 0 1,285,004 0 0
PREFERRED STOCK DIVIDEND 241,113 (235,149) 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 (6,338) 0
UNREALIZED GAIN ON INVEST. 0 0 (86,342) 0
----------- ------------ ----------- ------------
BALANCE, OCTOBER 31, 1999 $27,274,159 ($10,758,188) ($2,246,901) ($11,003,545)
NET (LOSS) 0 (921,582) 0 0
PREFERRED STOCK DIVIDEND 270,894 (265,537) 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 (66,445) 0
TRANSFER OF UNREALIZED
(LOSS) ON INVESTMENT TO
A REALIZED (LOSS) 0 0 343,725 0
----------- ------------ ----------- ------------
BALANCE, OCTOBER 31, 2000 $27,545,053 ($11,945,307) ($1,969,621) ($11,003,545)
NET (LOSS) 0 (772,547) 0 0
PREFERRED STOCK DIVIDEND 303,508 (301,520) 0 0
MINIMUM PEN. LIAB. ADJ. 0 0 (195,824) 0
----------- ------------ ----------- ------------
BALANCE, OCTOBER 31, 2001 $27,848,561 ($13,019,374) ($2,165,445) ($11,003,545)
=========== ============ =========== ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $ (772,547) $ (921,582) $1,285,004
ADJUSTMENTS TO RECONCILE NET (LOSS)
INCOME TO NET CASH (USED) BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 183,576 151,808 174,127
GAIN ON SALES OF REAL ESTATE (260,132) (279,588) (2,358,940)
VALUATION RESERVE - ART INVENTORY (35,800) (50,750) (621,300)
REALIZED LOSS ON INVESTMENTS 47,249 466,917 0
CHANGES IN ASSETS AND LIABILITIES:
NOTES AND ACCOUNTS RECEIVABLES, NET 608,617 (415,323) (109,995)
ART INVENTORY, NET (22,882) (12,500) (407,082)
PREPAID EXPENSES AND OTHER, NET (254,745) 21,420 91,032
PAYABLES AND ACCRUED EXPENSES, NET 332,983 325,384 (185,805)
---------- ---------- ----------
NET CASH (USED) BY OPERATING ACTIVITIES (173,681) (714,214) (2,132,959)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF REAL ESTATE 426,240 684,516 4,794,570
CAPITAL EXPENDITURES (471,148) (134,514) (213,235)
---------- ---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (44,908) 550,002 4,581,335
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM LONG-TERM DEBT-RELATED
PARTIES 145,000 1,775,000 525,000
REPAYMENT OF SHORT-TERM BORROWINGS 0 (75,000) 0
REPAYMENT OF LONG-TERM DEBT OBLIGATIONS 0 (1,864,710) (2,590,723)
---------- ---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES 145,000 (164,710) (2,065,723)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (73,589) (328,922) 382,653
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR 87,269 416,191 33,538
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,680 $ 87,269 $416,191
========== ========== ==========
NOTE: IN FISCAL 2001, 2000 AND 1999,$ 301,520, $ 265,537 AND $ 235,149,
RESPECTIVELY, OF PREFERRED STOCK DIVIDENDS WERE PAID THROUGH THE
ISSUANCE OF 590,832, 528,356 AND 467,577, RESPECTIVELY, OF SHARES OF
PREFERRED STOCK.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Canal Capital Corporation ("Canal"), incorporated in the state of Delaware
in 1964, commenced business operations through a predecessor in 1936. Canal was
a wholly-owned subsidiary of Canal-Randolph Corporation until June 1, 1984, when
Canal-Randolph Corporation distributed to its stockholders all of the
outstanding shares of Canal's common stock, under a plan of complete
liquidation.
Canal is engaged in two distinct businesses - the management and further
development of its agribusiness related real estate properties located in the
midwest and stockyard operations.
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 in nine of the last ten years and is obligated to continue making
substantial annual contributions to its defined benefit pension plan. The
financial statements do not include any adjustments that might result from the
resolution of these uncertainties (See Note 1). Additionally, the accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Canal continues to closely monitor and reduce where possible its operating
expenses and plans to continue 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.
F-9
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Principles of Consolidation -- The consolidated financial statements
include the accounts of Canal Capital Corporation ("Canal") and its wholly-
owned subsidiaries ("the Company"). All material intercompany balances and
transactions have been eliminated in consolidation.
B) Investments Available for Sale -- Canal has an investment in a company
in which it, together with other affiliated entities, comprise a reporting group
for regulatory purposes. It is important to note that it is the group (as
defined) that can exercise influence over this company, not Canal. Accordingly,
this investment does not qualify for consolidation as a method of reporting.
Certain of Canal's officers and directors also serve as officers and/or
directors of this company. This investment (in which Canal's ownership interest
is approximately 1%) is carried at market value and the realized gains or
losses, if any, are recognized in operating results. Any unrealized gains or
losses are reflected in Stockholders Equity (see Note 4).
Investments in Joint Ventures -- Investments in which ownership interest
range from 20% to 50% or less owned joint ventures are accounted for under the
equity method. These joint ventures are not, in the aggregate, material in
relation to the financial position or results of operations of Canal. The
carrying amount of such investments was $101,000 at both October 31, 2001 and
2000, and is included in other assets. The operating results of joint ventures
accounted for on the equity method, for fiscal year 2001, 2000 and 1999 were not
material to financial statement presentation and were therefore included in
other income from real estate operations.
C) Deferred Leasing and Financing Costs -- Costs incurred in obtaining new
leases and long-term financing are deferred and amortized over the terms of the
related leases or debt agreements, as applicable.
D) 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 178 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.
F-10
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Impairment of Long-Lived Assets - The Company adopted Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to be Disposed of" ("SFAS No. 121")
as of November 1, 1996. SFAS No. 121 prescribes that an impairment loss is
recognized in the event that facts and circumstances indicate that the carrying
amount of an asset may not be recoverable and an estimate of future undiscounted
cash flows is less than the carrying amount of the asset. Assets are grouped and
evaluated at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets. The Company
considers historical performance and future estimated results in its evaluation
of potential impairment and then compares the carrying amount of the asset to
the estimated future cash flows expected to result from the use of the asset. An
impairment loss is recognized whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. (See Note
20).
E) Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renewals and betterments are capitalized. When properties
are sold or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is reflected in current
income.
F) Art Inventory - 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. Net realizable value is determined in part
by independent appraisal. Independent appraisals covered approximately 53% and
57% of the inventory value at October 31, 2001 and 2000, respectively. The
remaining 47% and 43% at October 31, 2001 and 2000, respectively was estimated
by management based in part on the independent appraisals done. 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.
The cost of art is generally specified on the purchase invoice. When
individual art is purchased as part of a group or collection of art, cost is
allocated to individual pieces by management using the information available to
it. A significant portion of the art inventory remains in inventory longer than
a year. Consequently, for financial statement purposes, Canal has classified a
portion of its inventory as non-current assets (see Note 8). Antiquities and
contemporary art represented 46% ($541,990) and 54% ($641,749) and 45%
($542,758) and 55% ($653,889) of total art inventory at October 31, 2001 and
2000, respectively. Substantially all of the contemporary art inventory held for
resale is comprised of the work of Jules Olitski.
Stockyard Inventory - Inventory is stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
F-11
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
G) Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles 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.
H) Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period covered. All real estate leases are accounted for as operating
leases. Revenues from real estate sales are recognized generally when title to
the property passes. Revenues from stockyard operations which consist primarily
of yardage fees and sale of feed and bedding are recognized at the time the
service is rendered or the feed and bedding are delivered. Revenues from 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. Revenues from the sale of investments available for sale, if any, are
recognized, on a specific identification method, on a trade date basis.
I) Income Taxes -- Canal and its subsidiaries file a consolidated Federal
income tax return. The Company accounts for income taxes under the liability
method in accordance with the FASB Statement No. 109. Deferred income taxes, if
any, are provided for temporary differences between financial reporting and
taxable basis of assets and liabilities.
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 federal and state income tax payments of
$25,000, $27,000 and $20,000 and interest payments of $257,000, $257,000 and
$465,000 in 2001, 2000 and 1999, respectively.
K) Comprehensive Income -- Effective for fiscal years beginning after
December 15, 1997, Statement of Financial Accounting Standards No. 130 requires
that comprehensive income and its components, as defined in the statement, be
reported in a financial statement. The only adjustments for each classification
of the comprehensive income was for minimum pension liability and unrealized
(loss) gain on investments available for sale.
L) Earnings Per Share -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings Per Share," which requires companies to present basic earnings per
share (EPS) and diluted earnings per share. The new standard requires additional
information disclosure, and also makes certain modifications to
F-12
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
the currently applicable EPS calculations defined in Accounting Principles Board
No. 15. The new standard was required to be adopted by all public companies for
reporting periods ending after December 15, 1997, and requires restatement of
EPS for all prior periods reported.
M) Reclassification -- Certain prior year amounts have been reclassified to
conform to the current year's presentation.
3. NOTES AND ACCOUNTS RECEIVABLE
Included in notes and accounts receivable at October 31, 2001 and 2000 were
the current portion of notes receivable in the amount of $0 and $578,000,
respectively, which were generated by real estate and other sales. Notes and
accounts receivable is shown net of a provision for doubtful accounts in the
amount of $0 and $8,000 for fiscal 2001 and 2000, respectively.
4. INVESTMENTS AVAILABLE FOR SALE
At October 31, the investments available for sale consisted of the
following: ($ 000's Omitted)
2001 2000
---- ----
Aggregate market value..................... $ 21 $ 69
---- ----
Aggregate carrying value................... $ 21 $ 69
---- ----
Canal has an investment in a company in which it, together with other
affiliated entities, comprise a reporting group for regulatory purposes. It is
important to note that it is the group (as defined) that can exercise influence
over this company, not Canal. Accordingly, this investment does not qualify for
consolidation as a method of reporting. Certain of Canal's officers and
directors also serve as officers and/or directors of this company. This
investment (in which Canal's ownership interest is approximately 1%) is carried
at market value and any unrealized gains or losses are reflected in Stockholders
Equity. The realized gains or losses, if any, are recognized in operating
results.
On May 3, 2000 this company filed for reorganization under Chapter 11 of
the Bankruptcy Code and subsequently emerged in December 2000. This action, in
combination with other factors, has resulted in Canal's determination that the
decline in market value of its investment in this company is permanent, and
accordingly, recognized a realized loss on investments in marketable securities
of approximately $47,000 and $467,000 in fiscal 2001 and 2000, respectively.
Additionally, Canal recognized an unrealized loss on investments of $86,000 for
the year ended October 31, 1999, which was shown as a separate component of
Stockholders Equity.
F-13
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. STOCKYARD OPERATIONS SALE AND SUBSEQUENT REPURCHASE
On October 31, 1989 Canal sold most of its stockyards assets to a group
formed by a former Executive Vice President and Director of the Company. Not
included in the sale was certain land and some facilities previously used by the
stockyard operations. Canal entered into a master lease (the "Lease") with the
purchaser covering approximately 139 acres of land and certain facilities used
by the stockyard operations. The Lease was a 10 year lease, renewable at the
purchaser's option for an additional ten year period, with annual rentals of
$750,000 per year for the first year escalating to $1.0 million per year for the
fourth through the tenth years.
In September, 1998 Canal sold a 60 acre parcel of land to the City of
Omaha, Nebraska. This sale included the seventeen acres of land leased to the
stockyards operator. As part of this transaction, Canal received the stockyards
rental payments under the Lease through October 31, 1999 at which time the
operator moved the stockyards to a new location. In April 1999, Canal sold to
the stockyard operator the 31 acres located in South St. Paul, Minnesota which
was subject to the Lease. Finally, in August 1999 Canal bought the operating
assets of the remaining three stockyards subject to the Lease from the operator.
The August transaction released the operator from any further obligations under
the Lease.
Canal commenced stockyard operations August 1, 1999 in Sioux City, Iowa,
St. Joseph, Missouri and Sioux Falls, South Dakota. 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 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.
Canal maintains an inventory of feed and bedding which is comprised
primarily of hay, corn and straw. The value of this inventory was $16,000 and
$21,000 at October 31, 2001 and 2000, respectively.
F-14
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 on 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.
As discussed above, virtually all of the volume at Canal's Sioux Falls
stockyards is handled through market agencies or independent commission sales
people, while the St. Joseph and Sioux City stockyards have solicitation
operations of their own which accounts for approximately 50% and 25% of their
livestock volume annually, respectively. Canal intends to continue its
soliciting efforts at its St. Joseph stockyards in fiscal 2001. 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.
Canal has entered into an option agreement to sell the property on which
the Sioux City Stockyards operates. The Company anticipates that this sale will
occur in the second or third quarter of fiscal 2002 at which time stockyard
operations in Sioux City, Iowa will cease.
F-15
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. BORROWINGS
At October 31, 2001, 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:
October 31,
---------------------
($ 000's Omitted) 2001 2000
- ----------------- ---- ----
Variable rate mortgage notes due
May 15, 2003 - related party .................. $ 2,667 $ 2,522
Other Note ...................................... 0 0
------- --------
Total ........................................... 2,667 2,522
Less -- current maturities ...................... 0 0
------- --------
Long-term debt $ 2,667 $ 2,522
------- --------
On January 8, 1998, the Company issued $3,700,000 of variable rate mortgage
notes due May 15, 2001. The purchasers of these notes included certain entities
controlled by the Company's Chairman, the Company's Chief Executive Officer and
members of their families. These notes carried interest at the highest of four
variable rates, determined on a quarterly basis. These notes, among other
things, prohibits Canal from becoming an investment company as defined by the
Investment Company Act of 1940; requires Canal to maintain minimum net worth;
restricts Canal's ability to pay cash dividends or repurchase stock; requires
principal prepayments to be made only out of the proceeds from the sale of
certain assets, and required the accrual of additional interest (to be paid at
maturity) of approximately three percent per annum.
On July 29, 1999 the above Notes were amended to extend the maturity date
to May 15, 2003; to fix the interest rate at 10% per annum; to agree that the
additional interest due to the holders of the notes shall become current and be
treated as principal due under the notes; and to have certain of the holders
loan the Company $525,000 in additional financing, the proceeds of which was
used to repay in full certain of the other holders of the notes. As a result,
the notes are now held in total by the Company's Chief Executive Officer and
members of his family.
On January 10, 2000, the above Notes were further amended to have holders
loan the Company $1,725,000 in additional financing, the proceeds of which was
used to repay in full all of the Company's outstanding non related party
long-term debt. As of October 31, 2001 the balance due under these notes was
$2,667,000 all of which is classified as long-term debt-related party.
The scheduled maturities and sinking fund requirements of long-term debt
during the next five years are $2,667,000 due May 15, 2003.
F-16
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES
Significant components of the Company's deferred asset/(liability) as of
October 31, 2001, 2000 and 1999 include differences in depreciation methods,
deferred rent, inventory valuation allowance and net operating loss carryforward
($ 000's Omitted):
2001 2000 1999
-------- -------- --------
Total Gross Deferred Tax assets $ 3,422 $ 3,186 $ 2,868
Less - Valuation Allowance (3,422) (3,186) (2,868)
-------- -------- --------
Net Deferred Tax Assets $ 0 $ 0 $ 0
-------- -------- --------
Total Gross Deferred Tax Liability $ 0 $ 0 $ 0
-------- -------- --------
Net Deferred Tax Asset (Liability) $ 0 $ 0 $ 0
-------- -------- --------
Actual income tax (benefit) expense differs from the "expected" tax expense
computed by applying the U.S. federal corporate tax rate of 35% to income(loss)
before income taxes as follows (& 000's Omitted):
2001 2000 1999
------ ------ ------
Computed Expected Tax (Benefit)Expense $ (270) $ (323) $ 450
Change in Valuation Allowance 236 318 (285)
Inventory Valuation Differences (13) (18) (217)
Other 47 23 52
------ ------ ------
$ 0 $ 0 $ 0
------ ------ ------
At October 31, 2001, the Company has net operating loss carryforwards of
approximately $9,777,000 that expire through 2015 and a net capital loss
carryforward of approximately $2,070,000 that expires October 31, 2005. For
financial statement purposes, a valuation allowance has been provided to offset
the net deferred tax assets due to the cumulative operating losses and capital
losses incurred during recent years. Such allowance increased (decreased) by
approximately $236,000, $318,000 and $(285,000) during the years ended October
31, 2001, 2000 and 1999, respectively. The valuation allowance will be reduced
when and if, in the opinion of management, significant positive evidence exists
which indicates that it is more likely than not that the Company will be able to
realize its deferred tax assets.
F-17
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. PENSION PLANS
Canal has a defined benefit pension plan covering substantially all of its
salaried employees (the "Plan"). The benefits are based on years of service and
the employee's compensation earned each year. The Company's funding policy is to
contribute the amount that can be deducted for federal income tax purposes.
Accordingly, the Company will make a contribution of approximately $123,000 for
fiscal 2001 and has made contributions of approximately $317,000 for fiscal 2000
and $243,000 for fiscal 1999. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future. Assets of the plan were invested in U.S. Government securities,
common stocks and antiquities.
Assumptions used in computing the 2001, 2000 and 1999 pension cost were:
2001 2000 1999
---- ---- ----
Discount rate ........................... 7.00% 8.00% 7.75%
Rate of increase in compensation
level ................................. 5.50% 6.50% 6.25%
Expected long-term rate of return
on assets ............................. 10.00% 10.00% 10.00%
Net periodic pension cost for plan years ended October 31, 2001, 2000 and
1999 included the following components:
Plan Year
-------------------------
($ 000's Omitted) 2001 2000 1999
----------------- ----- ----- -----
Service costs - benefits earned during
the period ............................ $ 10 $ 10 $ 10
Interest cost on projected benefit
obligation ............................ 111 109 100
Net (Return) loss on assets ........... 46 26 13
Net amortization and deferral ........... (54) (54) (51)
----- ----- -----
Net period pension cost ................. $ 113 $ 91 $ 72
----- ----- -----
F-18
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheets at October 31, 2001 and
2000.
Plan Year
------------------
($ 000's Omitted) 2001 2000
----------------- -------- --------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation, including
vested benefits of $1,437 and $1,422 in
2001 and 2000, respectively.................. $ 1,437 $ 1,422
Additional benefit due to assumed future
compensation levels ......................... 160 35
-------- --------
Projected benefit obligation (1) .............. 1,597 1,437
-------- --------
Plan assets at fair value ..................... 848 682
-------- --------
Projected benefit obligation in excess
of plan assets .............................. 749 755
Unrecognized net obligation ................... 25 51
Unrecognized net loss ......................... (2,227) (2,056)
Valuation reserve to recognize accrued pension
costs in the consolidated balance sheets .... 2,165 1,970
-------- --------
Accrued pension cost included among accrued
expenses in the consolidated balance sheets.. $ 712 $ 720
-------- --------
(1) The vast majority of the projected benefit obligation is related to
the Company's former stockyard employees.
9. ART INVENTORY HELD FOR SALE
Due to general economic conditions and the softness of the art markets,
Canal has not purchased inventory in several years nor does it currently have
any intention of purchasing additional art inventory in the foreseeable future.
It is the Company's intention to liquidate, in an orderly manner, its art
inventory. Management estimates it may take approximately five years to dispose
of its current art inventory. 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 disposing of its art inventory within the time
frame discussed above.
Antiquities and contemporary art represented 46% ($541,990) and 54%
($641,749) and 45% ($542,758) and 55% ($653,889) of total art inventory at
October 31, 2001 and 2000, respectively. Substantially all of the contemporary
art inventory held for resale is comprised of the work of Jules Olitski. F-19
F-19
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ART INVENTORY - The Company classified its art inventory for the two years
ended October 31, 2001 and 2000 as follows ($ 000's Omitted):
Current Portion Non-Current Portion Total
--------------- ------------------- -----------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Antiquities $1,000 $1,000 $ 426 $ 428 $ 1,426 $ 1,428
Contemporary 1,000 1,000 1,450 1,497 2,450 2,497
Valuation
Allowance (1,750) (1,500) ( 942) (1,228) ( 2,692) (2,728)
------ ------ ------- ------ ------- -------
Net Value $ 250 $ 500 $ 934 $ 697 $ 1,184 $ 1,197
------ ------ ------- ------ ------- -------
The amount recorded as the current portion of art inventory represents
management's estimate of the inventory expected to be sold during the next
twelve months. The Company recorded a valuation allowance against the current
portion of its inventory to reduce it to its estimated net realizable value
based on the history of losses sustained on inventory items sold in the current
and previous years. In fiscal 2001 Canal applied against sales $35,800 of the
valuation allowance against its art inventory, thereby, decreasing the total
valuation allowance to $2,962,150 as of October 31, 2001 as compared to
$2,727,950 and $2,788,000 at October 31, 2000 and 1999, respectively.
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 its art inventory appraised by independent appraisers annually. The
2001 appraisal covered approximately 53% of the inventory value. The appraised
values estimate the current market value of each piece giving consideration to
Canal's practices of engaging in consignment, private and public auction sales.
The net realizable value of the remaining 47% of the inventory was estimated by
management based in part on the Company's history of losses sustained on art
sales in the current and previous years and in part on the results of the
independent appraisals done.
Canal's art operations have generated operating losses of approximately
$19,000, $16,000 and $76,000 on revenues of approximately $24,000, $52,000 and
$186,000 for the years ended October 31, 2001, 2000 and 1999, respectively.
The Company had approximately $1,012,000 and $1,273,000 of art inventory
(at original cost) on consignment with third party dealers at October 31, 2001
and 2000, respectively.
F-20
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. LEASE COMMITMENTS
In February 1999 Canal, together with two other related entities, amended
its lease for commercial office space in New York City, which space serves as
its headquarters operations. The new lease is for a period of 128 months
expiring in October 2009. Canal's portion of the new space is approximately
1,000 square feet and Canal is responsible for 25% of the lease expense. Each of
the three entities that are parties to this lease are jointly and severally
responsible for the payments required under the lease.
The following is a schedule of Canal's portion of future minimum payments
required under operating leases that have initial or remaining noncancellable
terms in excess of one year as of October 31, 2001:
Year ended October 31, ($ 000's Omitted)
---------------------- -----------------
2002 $ 96,000
2003 102,000
2004 104,000
2005 104,000
2006 104,000
Thereafter 303,000
--------
$813,000
Rent expense under these and other operating leases for the years ended
October 31, 2001, 2000 and 1999 were as follows:
($ 000's Omitted) 2001 2000 1999
----------------- ---- ---- ----
Minimum rentals ................... $ 90 $ 90 $ 84
Less: sublease rentals ............ 0 0 0
---- ---- ----
$ 90 $ 90 $ 84
---- ---- ----
11. IMPAIRMENT LOSS ON LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of" ("SFAS No. 121") as of November 1, 1996. Canal reviews the
values of its long-lived assets annually. There was no impairment in the value
of Canal's long-lived assets to be recorded as of October 31, 2001, 2000 and
1999.
F-21
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. 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. At October 31,
2001 the purchase price of shares subject to each option granted equaled 100% of
the fair market value on 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. At October 31, 2001,
there were 30,500 exercisable options outstanding under these plans.
Transactions under these plans are summarized as follows:
Shares Option Price Range
-------- ------------------
Balance outstanding October 31, 1999.... 319,000 $0.125-$2.250
Options granted ........................ 0 - -
Options expired ........................ (10,500) $2.250-$2.250
-------- -------------
Balance outstanding October 31, 2000.... 308,500 $0.125-$0.810
Options granted ........................ 0 - -
Options expired ........................ (278,000) $0.125-$0.810
-------- -------------
Balance outstanding October 31, 2001.... 30,500 $0.125-$0.810
-------- -------------
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has been
recognized for the years ended October 31, 2001, 2000 and 1999.
F-22
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In October, 1995, the Financial Accounting Standards Board issued Statement
(SFAS) No. 123, Accounting for Stock Based Compensation, which becomes effective
for transactions entered into in fiscal years beginning after December 15, 1995.
This statement permits an entity to apply the fair value based method to stock
options awarded during 1995 and thereafter in order to measure the compensation
cost at the grant date and recognize it over its vesting period. This statement
also allows an entity to continue to measure compensation costs for these plans
pursuant to APB Opinion 25. Entities electing to remain with the accounting
treatment under APB Opinion 25 must make proforma disclosures of net income and
earnings per share to include the effects of all awards granted in fiscal years
beginning after December 31, 1994, as if the fair value based method of
accounting pursuant to SFAS No. 123 has been applied.
The Company adopted the disclosure requirements for this statement
effective for the year ending October 31, 1996, while continuing to measure
compensation cost using APB 25. Had compensation cost been determined on the
basis of SFAS No. 123, the proforma effect on the Company's net income and
earnings per share for the years ended October 31, 2001, 2000 and 1999 would
have been deminimus.
13. EARNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS PAID
During each of the fiscal years ended October 31, 2001, 2000 and 1999, the
Company had 30,500, 308,500 and 319,000 options outstanding. The options were
not included in the computation of diluted earnings (loss) per share because the
effect of exercisable price conversion would be antidilutive. There were no
dividends declared on common stock during the years ended October 31, 2001, 2000
and 1999. Dividends declared on preferred stock during the years ended October
31, 2001, 2000 and 1999 were approximately $302,000, $266,000 and $235,000.
Basic earnings (loss) per share are computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common share
outstanding during the period. Diluted earnings (loss) per share reflect per
share amounts that would have resulted if dilutive potential common stock had
been reported in the financial statements.
F-23
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Basic and diluted earnings (losses) available to common stockholders at
October 31, 2001, 2000 and 1999 were:
For the Year Ended October 31, 2001
---------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net (loss) $ (773,000)
Less preferred stock dividends (302,000)
------------
(Loss) available to common stock-
holders-basic earnings per share (1,075,000) 4,327,000 $(0.25)
======
Effect of dilutive securities:
Options (antidilutive) N/A N/A
----------- ---------
(Loss) available to common stock-
holders-diluted earnings per share $(1,075,000) 4,327,000 $(0.25)
=========== ========= ======
For the Year Ended October 31, 2000
---------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net (loss) (922,000)
Less preferred stock dividends (266,000)
-----------
(Loss) available to common stock-
holders-basic earnings per share (1,188,000) 4,327,000 $(0.27)
======
Effect of dilutive securities:
Options (antidilutive) N/A N/A
----------- --------
(Loss) available to common stock-
holders-diluted earnings per share $(1,188,000) 4,327,000 $(0.27)
=========== ========= ======
F-24
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Year Ended October 31, 1999
---------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net income $ 1,285,000
Less preferred stock dividends (235,000)
-----------
Income available to common stock-
holders-basic earnings per share 1,050,000 4,327,000 $ 0.24
======
Effect of dilutive securities:
Options (antidilutive) N/A N/A
---------- ----------
Income available to common stock-
holders-diluted earnings per share $ 1,050,000 4,327,000 $ 0.24
=========== ========== ======
14. PREFERRED STOCK ISSUANCE
On October 15, 1986 Canal exchanged 986,865 shares of its $1.30
Exchangeable Preferred Stock ("the Preferred Stock") for a like amount of its
outstanding common stock. Since the exchange, the Company has issued an
additional 4,011,581 shares in the form of stock dividends for a total
outstanding at October 31, 2001 of 4,998,446. All of the Preferred Stock has a
par value of $0.01 per share and a liquidation preference of $10 per share. The
Preferred Stock is subject to optional redemption, in exchange for Canal's 13%
Subordinated Notes, by Canal, in whole or in part at any time on or after
September 30, 1988 at the redemption price of $10 per share. Dividends on the
Preferred Stock accrue at an annual rate of $1.30 per share and are cumulative.
Dividends are payable quarterly in cash or in Preferred Stock at Canal's option.
Payment commenced December 31, 1986. To date, forty-eight of the sixty quarterly
payments have been paid in additional stock resulting in the issuance of
4,011,581 shares recorded at their fair value at the time of issuance.
Canal is restricted from paying cash dividends by certain of its debt
agreements (See Note 6). The last cash dividend paid on Canal's preferred stock
was in September 1989. The quarterly dividends payable September 30,
F-25
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2001 and December 31, 2001 were passed by the Board of Directors. It is the
Company's intention to pay its next dividend on the preferred stock on June 30,
2002 at which time a one year dividend will have accumulated. The dividend
planned for June 30, 2002 will also be paid in additional stock. In order to pay
this dividend it will be necessary to increase the number of preferred shares
authorized under the Company's Charter.
VOTING RIGHTS - The holders of the Preferred Stock shall not have any
voting rights except that the following actions must be approved by holders of
66 2/3% of the shares of Preferred Stock, voting as a class: (I) any amendment
to the Certificate of Incorporation of Canal which would materially alter the
relative rights and preferences of the Preferred Stock so as to adversely affect
the holders thereof; and (ii) issuance of securities of any class of Canal's
capital stock ranking prior (as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock. The holders of the Preferred Stock shall be
entitled to specific enforcement of the foregoing covenants and to injunctive
relief against any violation thereof.
Whenever quarterly dividends payable on the Preferred Stock are in arrears
in the aggregate amount at least equal to six full quarterly dividends (which
need not be consecutive), the number of directors constituting the Board of
Directors of Canal shall be increased by two and the holders of the Preferred
Stock shall have, in addition to the rights set forth above, the special right,
voting separately as a single class, to elect two directors of Canal to fill
such newly created directorships at the next succeeding annual meeting of
shareholders (and at each succeeding annual meeting of shareholders thereafter
until such cumulative dividends have been paid in full).
15. PENSION VALUATION RESERVE
The Pension Valuation Reserve represents the excess of additional minimum
pension liability required under the provisions of SFAS No. 87 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 (made in
accordance with SFAS No. 87) recognize the deficiency that exists.
F-26
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. FINANCIAL INFORMATION FOR BUSINESS SEGMENTS
Canal is engaged in two distinct businesses - the management and further
development of its agribusiness related real estate operations and stockyard
operations.
The following summary presents segment information relating to these lines
of business except for the respective revenues, operating income and the
reconciliation of operating income with pre-tax income which information is
presented on Canal's income statement.
October 31,
-------------------------------
($ 000's Omitted) 2001 2000 1999
----------------- -------- -------- -------
Identifiable assets:
Real estate ....................... $ 4,092 $ 4,458 $ 4,339
Stockyard operations .............. 1,497 1,500 1,613
Corporate ......................... 1,389 1,503 1,982
-------- -------- -------
$ 6,978 $ 7,461 $ 7,934
-------- -------- -------
($ 000's Omitted) 2001 2000 1999
----------------- ------ ------ ------
Capital expenditures:
Real estate ....................... $ 393 $ 120 $ 14
Stockyard operations .............. 70 6 150
Corporate ......................... 8 9 25
----- ----- -----
$ 471 $ 135 $ 189
----- ----- -----
Income from real estate operations includes gains (losses) on sales of real
estate of $0.4 million, $0.3 million and $2.4 million in 2001, 2000 and 1999,
respectively. Art identifiable assets included in corporate of approximately
$1.0 million and $1.3 million of art inventory in galleries or on consignment
abroad as of October 31, 2001 and 2000, respectively.
F-27
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. 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 of the Company. Canal or its subsidiaries are party to the following
litigations:
Canal Capital Corporation v. Valley Pride Pack, Inc.
Canal commenced an action in U.S. District Court in Minnesota on September
23, 1997, as the assignee of United Market Services Company, against Valley
Pride Pack, Inc. (formerly Pine Valley Meats, Inc. and referred to herein as
"Pine Valley") to recover unpaid livestock fees and charges (estimated to be as
much as $1,000,000) due from Pine Valley under a 1936 Agreement between the
predecessors of Pine Valley and Canal.
On December 20, 2000, the U.S. District Court in Minnesota ruled in Canal's
favor granting its motion for summary judgment, thereby establishing Pine
Valley's liability to Canal for unpaid livestock fees. Additionally, the court
denied all of Pine Valley's assorted defenses and counter claims clearing this
matter to go to trial. On February 7, 2001, a Special Verdict was entered in
favor of Canal resulting in a total award (including pre- judgment interest and
court costs) to Canal of approximately $189,000.
On October 15, 2001, Pine Valley filed a voluntary Chapter 11 bankruptcy
petition with the court. This action makes the collectability of Canal's award
uncertain. For financial statements purposes as of October 31, 2001, Canal has
fully reserved the Pine Valley receivable.
F-28
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. PROPERTY ON OPERATING LEASES AND USED IN STOCKYARD OPERATIONS
The following schedule provides an analysis of the Company's investment in
property on operating leases and stockyard operations by location as of October
31, 2001:
($ 000's Omitted)
- ----------------- Accumulated
Location Land Improvements Depreciation Value
- -------- ---- ------------ ------------ --------
Operating leases:
St. Joseph, MO $ 362 $ 312 $ (222) $ 452
S. St. Paul, MN 151 1,979 (944) 1,186
Sioux City, IA 417 0 0 417
Omaha, NE 1,200 10 (2) 1,208
Corporate Office 0 171 (132) 39
------- -------- --------- --------
2,130 2,472 (1,300) 3,302
------- -------- --------- --------
Stkyd Operations:
St. Joseph, MO $ 500 $ 102 $ (17) $ 585
Sioux City, IA 500 67 (14) 553
Sioux Falls, SD 100 57 (13) 144
------- -------- --------- --------
1,100 226 (44) 1,282
------- -------- --------- --------
$ 3,230 $ 2,698 $ (1,344) $ 4,584
======= ======== ========= ========
The following is a schedule by years of minimum future rentals on operating
leases as of October 31, 2001:
($ 000's Omitted)
-----------------
Year Ending Rental
October 31, Income (1)
----------- ----------
2002 $ 1,100
2003 1,200
2004 1,300
2005 1,400
2006 1,500
-------
$ 6,500
=======
(1) Consists of rental income from Exchange Building (commercial office space),
lease income from land and structures and other rental income. All real
estate leases are accounted for as operating leases.
F-29
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments (all of which are held for non-trading
purposes) for which it is practicable to estimate that value.
October 31,
-------------------------------------------
2001 2000
----------------- -------------------
($ 000's Omitted) Carrying Fair Carrying Fair
- ----------------- Amount Value Amount Value
-------- ------ -------- ------
Cash and
cash equivalents $ 14 $ 14 $ 87 $ 87
------ ------ ------ ------
Current Portion of Long-
Term Debt 0 0 0 0
------ ------ ------ ------
Long-Term Debt 0 0 0 0
------ ------ ------ ------
Long-Term Debt - Related
Party 2,667 (d) 2,522 (d)
------ ------ ------ ------
a) Cash and cash equivalents: The carrying amount approximates fair
market value because of the short maturities of such instruments.
b) Long-Term Debt (See Note 6): The fair value of the Company's long-
term debt, including the current portion thereof, is estimated based
on the quoted market price for the same or similar issues.
c) Long-Term Debt Related Party (see Note 6): It is not practicable to
estimate the fair value of the related party debt.
F-30
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
21. Property Held for Development or Resale
Property held for development or resale consist of approximately 178 acres
of land located in the midwest of undeveloped land not currently utilized for
corporate purposes and not included in any of the present operating leases. The
Company constantly evaluates proposals received for the purchase, leasing or
development of this asset. The land is valued at cost which does not exceed the
net realizable value.
A schedule of the Company's property held for development or resale at
October 31, 2001 is as follows (000's omitted):
Capitalized Cost
Subsequent to
Initial Cost Acquisition Date
-------------- ---------------- Carrying
Bldgs. & Bldgs. & Accum. Value
Description (1) Land Imprvmts. Land Imprvmts. Depr. 10/31/01
- ----------------- ---- --------- ---- --------- ------ --------
75 acres of land
in St. Joseph, MO $195 N/A N/A N/A N/A $195
Acquired in 1942
81 acres of land
in W. Fargo, ND 55 N/A N/A N/A N/A 55
Acquired in 1937
11 acres of land
in S. St. Paul, MN 158 N/A N/A N/A N/A 158
Acquired in 1937
10 acres of land
in Sioux City, IA 202 N/A N/A N/A N/A 202
Acquired in 1937
1 acre of land
in Sioux Falls, SD 10 N/A N/A N/A N/A 10
Acquired in 1937 ---- --- --- --- --- ----
$620 $ 0 $ 0 $ 0 $ 0 $620
==== === === === === ====
(1) Substantially all of Canal's real property is pledged as collateral for its
debt obligations (see Note 6).
F-31
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A schedule of the Company's property held for development or resale at
October 31, 2000 is as follows (000's omitted):
Capitalized Cost
Subsequent to
Initial Cost Acquisition Date
-------------- ---------------- Carrying
Bldgs. & Bldgs. & Accum. Value
Description (1) Land Imprvmts. Land Imprvmts. Depr. 10/31/00
- ----------------- ---- --------- ---- --------- ------ --------
75 acres of land
in St. Joseph, MO $195 N/A N/A N/A N/A $195
Acquired in 1942
81 acres of land
in W. Fargo, ND 5 N/A N/A N/A N/A 5
Acquired in 1937
17 acres of land
in S. St. Paul, MN 244 N/A N/A N/A N/A 244
Acquired in 1937
10 acres of land
in Sioux City, IA 202 N/A N/A N/A N/A 202
Acquired in 1937
1 acre of land
in Sioux Falls, SD 2 N/A N/A N/A N/A 2
Acquired in 1937 ----- --- --- --- --- -----
$ 648 $ 0 $ 0 $ 0 $ 0 $ 648
===== === === === === =====
(1) Substantially all of Canal's real property is pledged as collateral for its
debt obligations (see Note 6).
F-32
CANAL CAPITAL CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
22. QUARTERLY INFORMATION (UNAUDITED)
FINANCIAL INFORMATION FOR THE INTERIM PERIODS FISCAL 2001 AND 2000 IS PRESENTED
BELOW:
(000'S OMITTED, EXCEPT PER SHARE DATA)
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2001 2001 2001 2001
REVENUES $1,547 $1,300 $1,019 $ 1,387
====== ====== ====== =======
NET (LOSS) INCOME $ 115 ($ 140) ($ 237) ($ 511)
====== ====== ====== =======
NET (LOSS) INCOME
PER COMMON SHARE:
- BASIC $ 0.01 ($0.05) ($0.07) ($ 0.11)
====== ====== ====== =======
- DILUTED $ 0.01 ($0.05) ($0.07) ($ 0.11)
====== ====== ====== =======
WEIGHTED AVERAGE NUMBER
OF SHARES:
- BASIC 4,327 4,327 4,327 4,327
====== ====== ====== =======
- DILUTED 4,327 4,327 4,327 4,327
====== ====== ====== =======
(000'S OMITTED, EXCEPT PER SHARE DATA)
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2000 2000 2000 2000
REVENUES $1,585 $1,402 $1,009 $ 1,772
====== ====== ====== =======
NET (LOSS) INCOME $ 128 ($ 71) ($ 290) ($ 689)
====== ====== ====== =======
NET (LOSS) INCOME
PER COMMON SHARE:
- BASIC $ 0.02 ($0.03) ($0.09) ($ 0.17)
====== ====== ====== =======
- DILUTED $ 0.02 ($0.03) ($0.09) ($ 0.17)
====== ====== ====== =======
WEIGHTED AVERAGE NUMBER
OF SHARES:
- BASIC 4,327 4,327 4,327 4,327
====== ====== ====== =======
- DILUTED 4,327 4,327 4,327 4,327
====== ====== ====== =======
F-33
INDEX TO EXHIBITS
Exhibit No.
- -----------
22 Subsidiaries of the Registrant.
CANAL CAPITAL CORPORATION
717 FIFTH AVENUE
NEW YORK, NY 10022
SUBSIDIARIES IDENTIFICATION #
- ------------ ----------------
SY Trading Corp. 13-3244066
Omaha Livestock Market, Inc. 47-0582031
Union Stockyards Co. of Fargo 45-0205040
Sioux Falls Stockyards Company 46-0189565
Wheeling Industrial Corporation 36-2545924
Canal Galleries Corporation 13-3492920
Canal Arts Corporation 13-3492921
DIVISIONS
- ---------
Canal Capital Corporation (parent) 51-0102492
St. Joseph Stockyards
St. Paul Union Stockyards
Sioux City Stockyards
Note: All subsidiaries are 100% owned
FORM 10-K - ITEM 14(a)(3)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
(a) 3. Exhibits -
The following exhibits required by Item 601 of Regulations S-K are filed as
part of this report. For convenience of reference, the exhibits are listed
according to the numbers appearing in Table I to Item 601 of Regulation S-K.
Each exhibit which is incorporated by reference and the document in which such
exhibit was originally filed are indicated in parentheses immediately following
the description of such exhibit.
Exhibit No.
- -----------
3(a) Restated Certificate of Incorporation (filed as Exhibit 3(a) to
the Registrant's Registration Statement on Form 10 filed with the
Securities and Exchange Commission on May 3, 1984 (the "Form 10")
and incorporated herein by reference).
3(b) Bylaws (filed as Exhibit 3(b) to the Registrant's Registration
Statement on Form 10 and incorporated herein by reference).
3(c) Certificate of Amendment of the Restated Certificate of
Incorporation dated September 22, 1988 (filed as Exhibit 3(c) to
the Registrant's Form 10-K filed January 29, 1989 and incorporated
herein by reference).
10(a) 1984 Stock Option Plan (1) (see Exhibit A included in the
Registrant's Proxy Statement dated January 31, 1985, relating to
the annual meeting of stockholders held March 18, 1985, which
exhibit is incorporated herein by reference).
10(b) Form of Incentive Stock Option Agreement (filed as Exhibit 10(b)
to the Registrant's Form 10-K filed January 31, 1986 and
incorporated herein by reference).
10(c) Form of Nonstatutory Stock Option Agreement (filed as Exhibit
10(c) to the Registrant's Form 10-K filed January 31, 1986 and
incorporated herein by reference).
10(d) 1985 Directors' Stock Option Plan (1) (See Exhibit A included in
the Registrant's Proxy Statement dated January 31, 1986, relating
to the annual meeting of stockholders held March 12, 1986, which
exhibit is incorporated herein by reference).
E-1
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
- -----------
10(e) Form of Directors' Stock Option Agreement (filed as Exhibit 10(ab)
to the Registrant's Form 10-K filed January 29, 1986 and
incorporated herein by reference).
10(f) Agreement of Lease dated January 14, 1994 by and between The
Equitable Life Assurance Society of the United States, Intelogic
Trace Incorporated, Datapoint Corporation and Canal Capital
Corporation (filed as Exhibit 10 (bp) to the Registrant's Form
10-K filed January 27, 1995 and incorporated herein by reference).
10(g) Stock Pledge and Security Agreement dated January 8, 1998 by and
between Canal Capital Corporation, SY Trading Corporation and CCC
Lending Corporation (filed as Exhibit 10 (ai) to the Registrant's
Form 10-K filed January 30, 1998 and incorporated herein by
reference).
10(h) Security Agreement dated January 8, 1998 by and between Canal
Capital Corporation, Canal Galleries Corporation, Canal Arts
Corporation and CCC Lending Corporation (filed as Exhibit 10 (an)
to the Registrant's Form 10-K filed January 30, 1998 and
incorporated herein by reference).
10(i) $1,000,000 Promissory Note dated January 8, 1998 by and between
Michael E. Schultz and Canal Capital Corporation (filed as Exhibit
10 (ao) to the Registrant's Form 10-K filed January 30, 1998 and
incorporated herein by reference).
10(j) $242,000 Promissory Note dated January 8, 1998 by and between
Michael E. Schultz Defined Benefit Trust and Canal Capital
Corporation (filed as Exhibit 10 (ap) to the Registrant's Form
10-K filed January 30, 1998 and incorporated herein by reference).
10(k) $229,000 Promissory Note dated January 8, 1998 by and between Lora
K. Schultz and Canal Capital Corporation (filed as Exhibit 10 (aq)
to the Registrant's Form 10-K filed January 30, 1998 and
incorporated herein by reference).
E-2
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
- -----------
10(l) $186,000 Promissory Note dated January 8, 1998 by and between
Roger A. Schultz Pension Plan and Canal Capital Corporation (filed
as Exhibit 10 (ar) to the Registrant's Form 10-K filed January 30,
1998 and incorporated herein by reference).
10(m) $143,000 Promissory Note dated January 8, 1998 by and between
Richard A. Schultz and Canal Capital Corporation (filed as Exhibit
10 (as) to the Registrant's Form 10-K filed January 30, 1998 and
incorporated herein by reference).
22 Subsidiaries of the registrant.
E-3
INVESTOR INFORMATION
Annual Meeting Corporate Headquarters
The Annual Meeting of Shareholders 7l7 Fifth Avenue 15th floor
of Canal Capital Corporation will New York, NY 10022
be held in our offices at 717
Fifth Avenue, 15th floor, New York,
NY, on a date to be announced.
Stock Certificates
The Board of Directors of Canal Inquiries regarding change of
Capital Corporation urges all name or address, or to replace
shareholders to vote their shares lost certificates should be made
in person or by proxy and thus directly to American Stock
participate in the decisions that Transfer and Trust Co., 59 Maiden
will be made at the annual meeting. Lane, New York, NY 10007 or
telephone (718) 921-8200
Stock Listing
Canal Capital Corporation common stock Auditors
is traded on the over-the-counter
market through the "pink sheets".
Todman & Co., CPAs, P.C.
120 Broadway
New York, NY 10271
Investment Analyst Inquiries General Counsel
Analyst inquiries are welcome. Proskauer Rose LLP
1585 Broadway
Phone or write: Michael E. Schultz, New York, NY 10036
President at (212) 826-6040 (212) 969-3000
ii