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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, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 002-96666
CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0102492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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, 2004, was approximately $106,000. The number of
shares of Common Stock, $.01 par value, outstanding at January 15, 2004 was
4,326,929.
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
2003 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page
----
ITEM 1. Business........................................................ 1
ITEM 2 Properties...................................................... 7
ITEM 3. Legal Proceedings............................................... 8
ITEM 4. Submission of Matters to a Vote of Security Holders............. 8
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters............................................. 9
ITEM 6. Selected Consolidated Financial Data............................ 10
ITEM 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition................... 12
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk..................................................... 24
ITEM 8. Financial Statements and Supplementary Data..................... 24
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 24
ITEM 9A. Controls and Procedures......................................... 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant............. 26
ITEM 11. Executive Compensation......................................... 27
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters ................ 30
ITEM 13. Certain Relationships and Related Transactions................. 32
ITEM 14. Principal Accounting Fees and Services ........................ 32
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................................. 33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................. F-1
SIGNATURES................................................................. S-1
CERTIFICATIONS............................................................. S-2
i
PART I
This Annual Report on Form 10-K includes "forward-looking statements". The
words "may," "will," "should," "continue," "future," "potential," "believe,"
"expect," "anticipate," "project," "plan," "intend," "seek," "estimate" and
similar expressions identify forward-looking statements. We caution you that any
forward-looking statements made by us are not guarantees of future performance
and that a variety of factors, including those discussed below, could cause our
actual results and experience to differ materially from the anticipated results
or other expectations expressed in our forward-looking statements. Please see
"Risk Factors" below for detailed information about the uncertainties and other
factors that may cause actual results to materially differ from the views stated
in such forward-looking statements. All forward-looking statements and risk
factors included in this Annual Report on Form 10-K are made as of the date
hereof, based on information available to us as of the date hereof, and we
assume no obligation to update any forward-looking statement or risk factors.
Canal Capital Corporation's fiscal year ends on October 31, of each
calendar year. Each reference to a fiscal year in this Annual Report on Form 10K
refers to the fiscal year ending October 31, of the calendar year indicated.
Unless the context requires otherwise, references to "we", "us", "our", "Canal
Capital Corporation" and the "company" refer to Canal Capital Corporation and
its subsidiaries.
Item 1. Business
Company Overview
The Registrant, Canal Capital Corporation ("Canal" or the "Company"),
incorporated in the state of Delaware in 1964, commenced business operations
through a predecessor in 1936.
Canal is engaged in two distinct businesses -- real estate and stockyard
operations.
Real Estate Operations - Canal's real estate properties located in five
Midwest states are primarily associated with its current and former agribusiness
related operations. Each property is adjacent to a stockyards operation (two 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. In addition to
selling what was excess stockyard property, the company entertains any offers to
purchase, develop and restructure real estate lots surrounding its existing
operating lease properties, stockyard operating properties and properties held
for development or resale in order to enhance the value of the existing
properties and surrounding real estate. See "Real Estate Operations".
1
Stockyard Operations - As a result of an August 1, 1999 asset purchase
agreement, Canal now operates two central public stockyards located in St.
Joseph, Missouri and Sioux Falls, South Dakota (collectively the "Stockyards").
Public stockyards act much like a securities exchange, providing markets for all
categories of livestock and fulfilling the economic functions of assembly,
grading, and price discovery. The Company's principal stockyard revenues are
derived from a per head charge ("yardage charge") imposed on all livestock and
the sale of feed and bedding. See "Stockyard Operations".
Real Estate Operations
General
Canal is involved in the management, development or sale of its
agribusiness related real estate properties at its current and former stockyard
locations. Real estate operations, which relate primarily to Canal's current and
former agribusiness operations, resulted in operating income of $0.2 million,
while contributing $1.4 million to Canal's revenues for fiscal 2003. During
fiscal 2003, Canal sold approximately 26 acres of land located in two states
(Missouri-25 acres and Minnesota-1 acre) for $0.4 million generating operating
income of $0.2 million.
As of October 31, 2003, there are approximately 71 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. Additionally, Canal will continue to aggressively pursue
additional tenants for its Exchange Buildings and undeveloped properties in
fiscal 2004.
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.
2
Stockyard Operations
General
Through an asset repurchase agreement, Canal commenced stockyard
operations August 1, 1999 in Sioux City Iowa, St. Joseph, Missouri and Sioux
Falls, South Dakota.
In March 2002, Canal permanently closed its stockyard operations in Sioux
City, Iowa. The Sioux City stockyard operations generated operating losses of
$0, $75,000, and $118,000 for the three years ended October 31, 2003, 2002 and
2001, respectively. The stockyard facility was dismantled with the equipment,
fixtures and materials going either to Canal's remaining two stockyards or sold
at a public sale held at the Sioux City location in April 2002. Canal has been
engaged in extended negotiations to sell this property to a real estate
developer whose intention is to convert the property into a retail shopping
center. Canal will continue to pursue the sale of this property to this
developer as well as exploring any other opportunities to develop or sell this
property in fiscal 2004.
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.
3
Virtually all of the volume at Canal's Sioux Falls stockyards is handled
through market agencies and independent commission sales people, while the St.
Joseph stockyards has solicitation operations of its own which account for
approximately 50% of its livestock volume annually.
Canal intends to continue its soliciting efforts at its St. Joseph
stockyards in fiscal 2004. 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 $0.6
million while contributing approximately $3.4 million to Canal's revenues for
fiscal 2003.
Risk
Stockyard activities face a variety of risks and uncertainties related to
the safeguarding of the national food supply which are beyond our control.
Public confidence in the government's efforts to safeguard the food supply is
essential for the success of our stockyard operations. An outbreak of a disease
such as bovine spongiform encephalopathy (BSE) better known as Mad Cow Disease
could have a devastating impact on stockyard operations. For the company's part
we strictly follow all USDA regulations to ensure to the extent we can the
safety of the food supply. Furthermore, stockyard activities in general may
involve various degrees of risk, such as competition from other regional
stockyards and sale barns, general market conditions and to a lesser extent
interest rates.
Competition
Canal competes in the area of public stockyards with other regional public
stockyards and sale barns, some of which are substantially larger and have
greater financial resources than Canal. To a certain extent, Canal's stockyard
revenues are dependent on the ability of the market agencies and independent
commission sales people at each of Canal's stockyard locations to compete within
the region.
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.
4
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 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
$500,000 at October 31, 2003. 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 27% ($189,122) and 73%
($520,549) and 26% ($230,639) and 74% ($641,749) of total art inventory at
October 31, 2003 and 2002, respectively.
In fiscal 2003, Canal sold contemporary art totaling $173,000 which sales
generated a net gain of approximately $51,000. Additionally, in fiscal 2003
Canal wrote off 11 pieces of antiquity art with a book value of approximately
$42,000 due to questions regarding authenticity.
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.
5
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. Historically,
this investment (in which Canal's ownership interest is approximately 1%) was
carried at market value.
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 steady decline in market value of its investment in this
company is permanent. Accordingly, as of October 31, 2003 Canal has written off
this investment entirely. This has resulted in Canal's recognizing realized
losses on investments in marketable securities of $ 7,405, $13,987 and $47,249
in fiscal 2003, 2002 and 2001, respectively.
Employees - At December 31, 2003, Canal had approximately 75 employees.
Risk Factors - In addition to other information in this Annual Report on
Form 10-K, the following risk factors should be carefully considered when
evaluating our Company and our business. Investing in our common stock involves
a high degree of risk, and you should be able to bear the complete loss of your
investment. We also caution you that this Form 10-K includes forward-looking
statements that are based on management's beliefs and assumptions and on
information currently available to management. Future events and circumstances
and our actual results could differ materially from those projected in any
forward-looking statements. The risk and uncertainties described below are not
the only ones we face. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial also may impair our business operations.
If any of the following risk and uncertainties actually occur, our future
operating results and financial condition could be harmed and the market price
of our common stock could decline.
Risk Related to Our Business - The Company's risk and uncertainties
related to our financial condition and our business include a variety of factors
that are beyond our control. Such factors include, without limitation: overall
economic conditions; public confidence in the government's ability to safeguard
the food supply from infectious diseases; competition for tenants in the
agribusiness; the ability of the Company's tenants to compete in their
respective businesses; the effect of fluctuations in supply, demand,
international monetary conditions and inflation on the Company's art
inventories; securities risks associated with collections of antiquities and
art; and the effect of fluctuations in interest rates and inflation on the
Company's indebtedness.
6
ITEM 2. Properties
Canal's real estate properties located in five Midwest states are
primarily associated with its current and former agribusiness related
operations. Each property is adjacent to a stockyard operation 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. In
addition to selling what was excess stockyard property, the company entertains
any offers to purchase, develop and restructure real estate lots surrounding its
existing operating lease properties, stockyard operating properties and
properties held for development or resale in order to enhance the value of the
existing properties and surrounding real estate. As landlord, Canal's management
responsibilities include leasing, billing, repairs and maintenance and
overseeing the day to day operations of its properties. Canal's properties at
October 31, 2003 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 59 0 31 0 28
S. St. Paul, MN 1937 25 5 0 10 10
Sioux City, IA 1937 52 0 0 19 33
Omaha, NE 1976 11 0 0 11 0
Sioux Falls, SD 1937 31 1 30 0 0
--- --- --- --- ---
Total 178 6 61 40 71
--- --- --- --- ---
The following schedule shows the average occupancy rate and average rental rate
at each of Canal's three Exchange Buildings:
2003 2002
------------------------ ------------------------
Occupancy Average(4) Occupancy Average(4)
Location Rate Rental Rate Rate Rental Rate
- -------- --------- ----------- --------- -----------
St. Joseph, MO (5) N/A N/A 75% $ 4.75
S. St. Paul, MN 74% $12.00 74% $12.00
Sioux Falls, SD 90% $ 7.00 90% $ 7.00
NOTES
(1) Canal now operates two central public stockyards.
(2) For information with respect to mortgages and pledges see Note 7.
(3) For information related to property held for development see Note 2(c).
(4) Per square foot.
(5) In March 2003, Canal sold its Exchange Building in St. Joseph, Missouri.
7
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
doubtful. For financial statement purposes as of October 31, 2003, Canal has
fully reserved the Pine Valley receivable.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to our stockholders during the fourth quarter of
the fiscal year ended October 31, 2003.
8
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Market Information
Canal's stock is traded over-the-counter through the "pink sheets". The high and
low price ranges of Canal's common stock for the eight quarters ended October
31, 2003 as reported on the "pink sheets" were:
Fiscal 2003 Fiscal 2002
------------------ -------------------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
October 31 ................. $ 1/16 -- $ 1/20 $ 1/16 -- $ 1/20
July 31 .................... 1/16 -- 1/20 1/10 -- 1/16
April 30 ................... 1/14 -- 1/16 1/10 -- 1/16
January 31 ................. 1/11 -- 1/20 1/9 -- 1/16
Dividend Policy and Holders
There were no cash dividends paid during fiscal 2003 or 2002. Canal is
subject to restrictions on the payment of cash dividends under certain debt
agreements. As of January 15, 2004, Canal had approximately 1,500 holders of
record of its common stock, par value $.01 per share.
9
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE FOLLOWING SELECTED FINANCIAL DATA HAVE BEEN DERIVED FROM OUR
CONSOLIDATED FINANCIAL STATEMENTS THAT HAVE BEEN AUDITED BY TODMAN & CO., CPAs,
P.C., INDEPENDENT AUDITORS. THE INFORMATION SET FORTH BELOW IS NOT NECESSARILY
INDICATIVE OF THE RESULTS OF FUTURE OPERATIONS AND SHOULD BE READ IN CONJUNCTION
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS" INCLUDED IN ITEM 7 OF OUR ANNUAL REPORT ON FORM 10-K.
YEARS ENDED OCTOBER 31,
-----------------------
STATEMENT OF OPERATIONS DATA 2003 2002 2001 2000 1999
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES FROM CONTINUING OPERATIONS $4,760(1) $5,413(2) $5,238(3) $5,768(4) $7,584(5)
NET (LOSS) INCOME ($537) $426 ($773) ($922) $1,285
(LOSS) INCOME PER SHARE:
BASIC ($0.16) $0.07 ($0.25) ($0.27) $0.24
DILUTED ($0.16) $0.07 ($0.25) ($0.27) $0.24
CASH DIVIDENDS PAID $0.00 $0.00 $0.00 $0.00 $0.00
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,327 4,327 4,327 4,327 4,327
- DILUTED 4,327 4,327 4,327 4,327 4,327
OCTOBER 31,
-----------
2003 2002 2001 2000 1999
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
CURRENT ASSETS $ 477 $ 636 $ 602 $1,569 $1,661
PROPERTY ON OPERATING LEASES, NET 2,874 3,337 3,302 3,098 3,088
PROPERTY USED AS STOCKYARDS 1,136 1,176 1,281 1,237 1,248
ART INVENTORY NON-CURRENT 460 622 934 697 735
OTHER ASSETS 1,195 742 859 860 1,202
------------------------------------------
TOTAL ASSETS $6,142 $6,513 $6,978 $7,461 $7,934
------------------------------------------
CURRENT LIABILITIES $ 765 $ 585 $1,345 $1,168 $ 910
NON-CURRENT LIABILITIES 1,208 1,282 1,203 1,047 1,055
LONG-TERM DEBT 2,767 2,667 2,667 2,522 2,612
STOCKHOLDERS' EQUITY 1,402 1,979 1,763 2,724 3,357
------------------------------------------
TOTAL LIAB. & STOCKHOLDERS'EQUITY (6) $6,142 $6,513 $6,978 $7,461 $7,934
------------------------------------------
COMMON SHARES OUTSTANDING AT YEAR-END 4,327 4,327 4,327 4,327 4,327
10
ITEM 6. Selected Financial Data (continued..)
NOTES:
(1) The revenue decrease was due primarily to a $0.4 million decrease in sales
of real estate coupled with $0.1 million decreases in both stockyard and
real estate operating revenues.
(2) The revenue increase was due primarily to a $0.4 million increase in sales
of real estate which was offset to a certain extent by a $0.2 million
decrease in stockyard revenues.
(3) The revenue decrease was due primarily to a $0.3 million decrease in sales
of real estate.
(4) 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).
(5) 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.
(6) For discussion of material uncertainties and commitments, see Notes 9 and
17 to the Consolidated Financial Statement.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto included elsewhere in this report.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
We may from time to time make written or oral forward-looking statements,
including those contained in the following section. These forward-looking
statements involve risks and uncertainties and actual results could differ
materially from those discussed in the forward-looking statements. For this
purpose, any statements contained in this section that are not statements of
historical fact may be deemed to be forward-looking statements. Factors which
may effect our results include, but are not limited to, our ability to expand
our customer base, our ability to develop additional and leverage our existing
distribution channels for our products and solutions, dependance on strategic
and channel partners including their ability to distribute our products and meet
or renew their financial commitments, our ability to address international
markets, the effectiveness of our sales and marketing activities, the acceptance
of our products in the market place, the timing and scope of deployments of our
products by customers, fluctuations in customer sales cycles, customers' ability
to obtain additional funding, the emergence of new competitors in the
marketplace, our ability to compete successfully against established competitors
with greater resources, the uncertainty of future governmental regulation, our
ability to manage growth, and obtain additional funds, general economic
conditions and other risks discussed in this report and in our other filings
with the Securities and Exchange Commission. All forward- looking statements and
risk factors included in this document are made as of the date hereof, based on
information available to us as of the date thereof, and we assume no obligation
to update any forward-looking statement or risk factors.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. These
generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. We continually evaluate our estimates, including those related
to revenue recognition, bad debts, income taxes, fixed assets, restructuring,
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the facts
and circumstances. Actual results may differ from these estimates under
different assumptions or conditions.
12
Management believes the following critical accounting policies impact our
most difficult, subjective and complex judgments used in the preparation of our
consolidated financial statements, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. For a
further discussion of these and other accounting policies, please see Note 2 of
the Notes to Consolidated Financial Statements included elsewhere in this Annual
Report.
Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period covered. All real estate leases are accounted for as operating
leases. Revenues from real estate sales are recognized generally when title to
the property passes. Revenues from stockyard operations which consist primarily
of yardage fees (a standard per head charge for each animal sold through the
stockyards) and sale of feed and bedding are recognized at the time the service
is rendered or the feed and bedding are delivered.
Art Inventory Held for Sale -- The nature of art makes it difficult to
determine a replacement value. The most compelling evidence of a value in most
cases is an independent appraisal. Canal has its art inventory appraised by
independent appraisers annually. The 2003 appraisal covered approximately 31% 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 69%
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.
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 71 acres located in the Midwest of
undeveloped land not currently utilized for corporate purposes nor included in
any of the present operating leases. The Company constantly evaluates proposals
received for the purchase, leasing or development of this asset. The land is
valued at cost which does not exceed the net realizable value.
Long-Lived Assets -- The Company reviews the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company considers historical
performance and future estimated results in its evaluation of potential
impairment and then compares the carrying amount of the assets to the estimated
future cash flows expected to result from the use of the asset. The measurement
of the loss, if any, will be calculated as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. (See Note 19).
13
Results of Operations - General
The following tables set forth certain items in our statement of
operations for the periods indicated:
Fiscal Year Ended October 31,
-----------------------------
2003 2002 2001
---- ---- ----
(In Thousands)
Revenues:
Real Estate Revenue $ 1,373 $ 1,852 $ 1,444
Stockyard Revenue 3,387 3,561 3,794
------- ------- -------
Total Revenue 4,760 5,413 5,238
------- ------- -------
Costs and Expenses:
Real Estate Expenses 1,131 1,109 999
Stockyard Expenses 2,802 3,023 3,420
General and Administrative Expenses 1,079 1,135 1,275
------- ------- -------
Total Costs and Expenses 5,012 5,267 5,694
------- ------- -------
(Loss) Income from Operations (252) 146 (456)
Other Income 25 674 130
Other Expenses (310) (394) (447)
------- ------- -------
Net (Loss) Income $ (537) $ 426 $ (773)
======= ======= =======
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 eight of the last ten years, is obligated to continue making
substantial annual contributions to its defined benefit pension plan. In
addition, Canal has joint and several liability on its lease for commercial
space in New York City. At October 31, 2003, Canal was current under its
obligation, however, the group was approximately $85,000 in arrears on this
lease (see Note 9). 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 $0.5 million for 2003 as compared to the
2002 net income of $0.4 million and the 2001 net loss of $0.8 million. After
recognition of preferred stock dividend payments (paid in additional shares of
preferred stock for each of fiscal 2003, 2002 and 2001) of $158,000 in 2003,
$116,000 in 2002 and $302,000 in 2001, the results attributable to common
stockholders were a net loss of $0.7 million in 2003, net income of
14
$0.3 million in 2002 and a net loss of $1.1 million in 2001. Canal's 2003 net
loss of $0.7 is due primarily to a $0.5 million decrease in income from real
estate operations (consisting of a $0.3 million decrease in gains on sales of
real estate; a $0.1 decrease in rental income and a $0.1 million increase in
real estate operating expenses); a $0.3 million decrease in other income and a
$0.2 million decrease in income from art sales. Canal's 2002 net income of $0.4
million is due primarily to a $0.2 million increase in gains on sales of real
estate coupled with a $0.3 million increase in other income (included in Canal's
2002 other income is approximately $350,000 received by Canal as a
demutualization compensation payment from an insurance company, from which,
Canal had purchased annuity contracts in the early 1980's for certain of its
retired stockyard employees).
Canal's revenues from continuing operations consist of revenues from its
real estate and stockyard operations. Revenues in 2003 decreased by $0.6 million
to $4.8 million as compared with 2002 revenues which had increased by $0.2
million to $5.4 million from 2001 revenues of $5.2 million. The fiscal 2003
decrease in revenues is due primarily to a $0.4 million decrease in sales of
real estate coupled with $0.1 million decreases in both stockyard and real
estate operating revenues. The fiscal 2002 increase in revenues is due primarily
to a $0.4 million increase in sales of real estate which was offset to a certain
extent by a $0.2 million decrease in stockyard revenues.
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 2003 AND 2002
Stockyard Revenues
Stockyard revenues for 2003 of $3.4 million accounted for 71.2% of the
2003 revenues as compared to revenues of $3.6 million or 65.8% for 2002.
Stockyard revenues are comprised of yard handling and auction (89.5% and 89.4%),
feed and bedding income (5.5% and 5.6%), rental income (0.1% and 0.1%) and other
income (4.9% and 4.9%) for 2003 and 2002, respectively. The 2003 decrease is due
primarily to softer than anticipated results from the Sioux Falls Stockyards in
fiscal 2003. There were no significant percentage variations in the year to year
comparisons.
Stockyard Expenses
Stockyard expenses for 2003 of $2.8 million decreased by $0.2 million
(7.3%) from $3.0 million in 2002. Stockyard expenses are comprised of labor and
related costs (47.4% and 47.6%), operating and maintenance (27.0% and 27.5%),
feed and bedding expense (5.7% and 5.3%), depreciation and amortization (0.7%
and 0.8%), taxes other than income taxes (6.2% and 7.2%) and general and
administrative expenses (13.0% and 11.6%) for 2003 and 2002, respectively. The
2003 decrease is due primarily to across the board decreases consistent with the
revenue reductions in fiscal 2003. There were no significant percentage
variations in the year to year comparisons.
15
Real Estate Revenues
Real estate revenues for 2003 of $1.4 million accounted for 28.8% of the
2003 revenues as compared to revenues of $1.9 million or 34.2% for 2002. Real
estate revenues are comprised of sale of real estate (31.2% and 44.2%), rental
income from commercial office space in its Exchange Buildings (31.8% and 26.3%),
rentals and other lease income from the rental of vacant land and certain
structures (37.0% and 29.5%) and other income (0.0% and 0.0%) for 2003 and 2002,
respectively. The 2003 decrease is due primarily to the $0.4 million decrease in
sales of real estate. The percentage variations in the year to year comparisons
are due primarily to the decrease in real estate sales for fiscal 2003.
Real Estate Expenses
Real estate expenses for 2003 of $1.1 million were essentially unchanged
from $1.1 million in 2002. Real estate expenses are comprised of labor,
operating and maintenance (36.0% and 40.4%), depreciation and amortization
(12.8% and 12.0%), taxes other than income taxes (22.0% and 10.7%), cost of real
estate sold (24.6% and 32.8%),and general and administrative and other expenses
(4.6% and 4.1%) for 2003 and 2002, respectively. The percentage variations in
year to year comparisons is due primarily to the decrease in the cost of real
estate sold in fiscal 2003 coupled with the increase in taxes other than income
taxes which reflects a catchup accrual for back real estate taxes relating to
the Sioux City, Iowa property.
General and Administrative
General and administrative expenses for 2003 of $1.1 million were
essentially unchanged from $1.1 million in 2002. The major components of general
and administrative expenses are officers salaries (43.9% and 40.4%), rent (1.6%
and 4.9%), legal and professional fees (0.8% and 2.8%), insurance (10.2% and
14.1%) and office salaries (8.2% and 6.6%) for 2003 and 2002, respectively. The
percentage decrease in rent reflects Canal's subletting a significant portion of
its New York office space commencing in the fourth quarter of fiscal 2002. The
percentage decrease in legal and professional fees is due to a sharp decrease in
legal fees which were associated with the fiscal 2001 Pine Valley lawsuit. The
percentage decrease in insurance reflects a reduction in insurance coverage
during fiscal 2003. The percentage increase in office salaries reflects a
severance accrual for an employee terminated in the fourth quarter of fiscal
2003.
Interest and Other Income
Interest and other income of $25,000 for 2003 decreased $442,000 from
$467,000 in fiscal 2002. The 2002 interest and other income included
approximately $350,000 received by Canal as a demutalization compensation
payment from an insurance company, from which, Canal had purchased annuity
16
contracts in the early 1980's for certain of its retired stockyard employees.
Interest and other income is primarily comprised of dividend and interest
income.
Interest Expense
Interest expense for 2003 of $0.3 million increased slightly (5.0%) from
$0.3 million in 2002. The 2003 increase is due primarily to a modest increase in
the outstanding debt incurred in the final quarter of fiscal 2003 coupled with
accrued interest on certain payments which are overdue to Canal's pension plan.
Interest rates on Canal's variable rate mortgage notes averaged 10.00% in 2003
and 2002. At October 31, 2003 the outstanding balance of these notes was
$2,767,000.
(Loss) Income from Art Sales
In fiscal 2003, Canal recognized a net loss from art sales of $8,000 as
compared to a net gain of $207,000 for fiscal 2002. The 2003 decrease reflects
the overall decrease in sales of art during 2003 as compared to 2002. Art
revenues are comprised of the proceeds from the sale of antiquities and
contemporary art. In fiscal 2003, Canal sold three pieces of contemporary art
generating gross proceeds of $173,000 as compared to fiscal 2002 sales of two
pieces of antiquity art generating gross proceeds of $540,000. Art expenses are
comprised of the cost of inventory sold and selling, general and administrative
expenses. In fiscal 2003, Canal incurred cost of inventory sold of $121,000 (net
of a valuation allowance of $341,000) as well as selling, general and
administrative expenses of $63,000 (which amount included the write off of 11
pieces of antiquity art with a book value of approximately $42,000 net of a
valuation allowance of $68,000) as compared to fiscal 2002 cost of inventory
sold of $311,000 (net of a valuation allowance of $509,000) and selling, general
and administrative expenses of $22,000. It is the Company's policy to use the
adjusted carrying value for sales, thereby reducing the valuation reserve
proportionately as the inventory is sold.
Realized Loss on Investments
At October 31, 2003, Canal determined that the decline in the market value
of its investments available for sale was permanent. Accordingly, as of October
31, 2003, Canal has written off this investment entirely. This has resulted in
Canal's recognizing realized losses of approximately $7,000 and $14,000 in
fiscal 2003 and 2002, respectively. Further, Canal had recognized a realized
loss of approximately $47,000 on this investment in fiscal 2001.
Other Expense
Other expense of $15,000 for 2003 decreased $98,000 (86.8%)from $113,000
in fiscal 2002. Other expenses are primarily related to the administration of
the company's pension plans.
17
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 2002 AND 2001
Stockyard Revenues
Stockyard revenues for 2002 of $3.6 million accounted for 65.8% of the
2002 revenues as compared to revenues of $3.8 million or 72.4% for 2001.
Stockyard revenues are comprised of yard handling and auction (89.4% and 88.5%),
feed and bedding income (5.6% and 6.6%), rental income (0.1% and 0.1%) and other
income (4.9% and 4.8%) for 2002 and 2001, respectively. The 2002 decrease is due
primarily to the closing of the Sioux City Stockyards in March 2002. There were
no significant percentage variations in the year to year comparisons.
Stockyard Expenses
Stockyard expenses for 2002 of $3.0 million decreased by $0.4 million
(11.6%) from $3.4 million in 2001. Stockyard expenses are comprised of labor and
related costs (47.6% and 45.1%), operating and maintenance (27.5% and 26.0%),
feed and bedding expense (5.3% and 5.6%), depreciation and amortization (0.8%
and 0.8%), taxes other than income taxes (7.2% and 7.2%) and general and
administrative expenses (11.6% and 15.3%) for 2002 and 2001, respectively. As
discussed above, the 2002 decrease is due primarily to the closing of the Sioux
City Stockyards in March 2002. There were no significant percentage variations
in the year to year comparisons.
Real Estate Revenues
Real estate revenues for 2002 of $1.9 million accounted for 34.2% of the
2002 revenues as compared to revenues of $1.4 million or 27.6% for 2001. Real
estate revenues are comprised of sale of real estate (44.2% and 29.5%), rental
income from commercial office space in its Exchange Buildings (26.3% and 29.8%),
rentals and other lease income from the rental of vacant land and certain
structures (29.5% and 40.6%) and other income (0.0% and 0.1%) for 2002 and 2001,
respectively. The 2002 increase is due primarily to the $0.4 million increase in
sales of real estate. The percentage variations in the year to year comparisons
are due primarily to the increase in real estate sales for fiscal 2002.
Real Estate Expenses
Real estate expenses for 2002 of $1.1 million increased by $0.1 million
(10.0%) from $1.0 million in 2001. Real estate expenses are comprised of labor,
operating and maintenance (40.4% and 42.8%), depreciation and amortization
(12.0% and 12.8%), taxes other than income taxes (10.7% and 15.2%), cost of real
estate sold (32.8% and 16.6%),and general and administrative and other expenses
(4.1% and 12.6%) for 2002 and 2001, respectively. The 2002 increase in real
estate expenses is due primarily to
18
the $0.2 million increase in cost of real estate sold in fiscal 2002. The
percentage variations in year to year comparisons is also due primarily to the
increase in the cost of real estate sold in fiscal 2002.
General and Administrative
General and administrative expenses for 2002 of $1.1 million decreased
$0.2 million (10.9%) from $1.3 million in 2001. The major components of general
and administrative expenses are officers salaries (40.4% and 36.0%), rent (4.9%
and 7.1%), legal and professional fees (2.8% and 15.0%), insurance (14.1% and
8.6%) and office salaries (6.6% and 8.4%) for 2002 and 2001, respectively. The
percentage decrease in rent reflects Canal's subletting a significant portion of
its New York office space commencing in the fourth quarter of fiscal 2002. The
percentage decrease in legal and professional fees is due to a sharp decrease in
legal fees which were associated with the fiscal 2001 Pine Valley lawsuit. The
percentage increase in insurance reflects an increase in the cost of worker's
compensation coverage for the stockyard employees. The percentage decrease in
office salaries reflects staff reductions in the third quarter of fiscal 2001.
Interest and Other Income
Interest and other income of $467,000 for 2002 increased $336,000 from
$131,000 in fiscal 2001. The 2002 interest and other income includes
approximately $350,000 received by Canal as a demutalization compensation
payment from an insurance company, from which, Canal had purchased annuity
contracts in the early 1980's for certain of its retired stockyard employees.
The balance of interest and other income is comprised of dividend and interest
income.
Interest Expense
Interest expense for 2002 of $0.3 million increased slightly (3.8%) from
$0.3 million in 2001. The 2002 increase is due primarily to a modest increase in
the outstanding debt incurred in the final quarter of fiscal 2001. Interest
rates on Canal's variable rate mortgage notes averaged 10.00% in 2002 and 2001.
At October 31, 2002 the outstanding balance of these notes was $2,667,000.
Income (Loss) from Art Sales
In fiscal 2002, Canal recognized a net gain from art sales of $207,000 as
compared to a net loss of $19,000 for fiscal 2001. The 2002 increase reflects
the overall increase in sales of art during 2002 as compared to 2001. Art
revenues are comprised of the proceeds from the sale of antiquities and
contemporary art. In fiscal 2002, Canal sold two pieces of antiquity art
generating gross proceeds of $540,000 as compared to fiscal
19
2001 sales of one piece of contemporary art generating gross proceeds of
$24,000. Art expenses are comprised of the cost of inventory sold and selling,
general and administrative expenses. In fiscal 2002, Canal incurred cost of
inventory sold of $311,000 (net of a valuation allowance of $509,000) as well as
selling, general and administrative expenses of $22,000 as compared to fiscal
2001 cost of inventory sold of $13,000 (net of a valuation allowance of $36,000)
and selling, general and administrative expenses of $30,000. It is the Company's
policy to use the adjusted carrying value for sales, thereby reducing the
valuation reserve proportionately as the inventory is sold.
Realized Loss on Investments
At October 31, 2002, 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 $14,000 in fiscal 2002. Further, Canal had
recognized a realized loss of approximately $47,000 on this investment in fiscal
2001.
Other Expense
Other expense of $113,000 for 2002 decreased $10,000 (8.1%)from $123,000
in fiscal 2001. Other expenses are primarily related to the administration of
the company's pension plans.
Related Party Transactions
Interest Expense Related Party - At October 31, 2003, all of Canal's
Long-Term Debt is held by the company's Chief Executive Officer and members of
his family. These notes pay interest at a rate of 10% per annum and come due May
15, 2006. Canal has paid interest expense on these notes of $280,000, $267,000
and $257,000 for the years ended October 31, 2003, 2002 and 2001, respectively.
As of October 31, 2003, the balance due under these notes was $2,767,000 all of
which is classified as long-term debt related party.
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. However, each of the three entities that are parties to this lease are
jointly and severally responsible for the payments required under the lease. At
October 31, 2003 the security deposit related to this lease was approximately
$260,000 of which Canal's representative share would be approximately $122,000.
In June 2002, Canal sublet for a one year period substantially all of its
New York office space at a rate of $7,000 per month. The lease is for a period
of one year with a one year renewal option (which was exercised by the
20
tenant). If the tenant continues to sublet this space, then Canal's rent expense
for fiscal 2004 will be approximately $18,000.
At October 31, 2003, Canal was current under its obligations under this
lease. However, the group as a whole was approximately $85,000 in arrears on its
rental payments. As discussed above, Canal's share of the office rent is
approximately 25%. However, should the remaining two co-tenants default on their
obligations, the balance of rental payments due under the lease would be
approximately $2.5 million.
Contractual Payments due by Period (in 000's)
Obligations
Total Less than 1 to 3 3 to 5 More than
1 year years years 5 years
----- --------- ------ ------ ---------
Long-term debt $ 2,667 $ 0 $2,667 $ 0 $ 0
Operating leases* $ 615 $ 104 $ 312 $ 199 $ 0
* For total rent due under this operating lease see Note 9.
Liquidity and Capital Resources
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has suffered recurring losses from
operations in eight of the last ten years and is obligated to continue making
substantial annual contributions to its defined benefit pension plan. In
addition, Canal has joint and several liability on its lease for commercial
space in New York City. At October 31, 2003, Canal was current under its
obligation, however, the group was approximately $85,000 in arrears on this
lease (see Note 9). 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.
21
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.
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.
On October 8, 2002, the above notes were amended to extend the maturity
date to May 15, 2006. As of October 31, 2003, the balance due under these notes
was $2,767,000, all of which is classified as long-term debt-related party.
Cash and cash equivalents of $14,000 at October 31, 2003 decreased
$125,000 or 89.8% from $139,000 at October 31, 2002. Net cash used by operations
in fiscal 2003 was $0.4 million. Substantially all of the 2003 net proceeds from
the sale of real estate of $0.2 million was used in operations.
During fiscal 2003 Canal increased the balance of its current liabilities
by a total of $0.2 million.
At October 31, 2003 the Company's current liabilities exceed current
assets by $0.3 million (which was an increase of $0.2 million) as compared to
October 31, 2002 when the Company's current liabilities exceeded current assets
by $0.1 million, which represented a decrease of $0.6 million from 2001. The
fiscal 2003 change in the Company's liquidity is due primarily to the increases
in outstanding accounts payable and accrued expenses. The only required
principal repayments under Canal's debt agreements for fiscal 2004 will be from
the proceeds (if any) of the sale of certain assets.
As discussed above, Canal's cash flow position has been under significant
strain for the past several years. Canal continues to closely monitor and reduce
where possible its operating expenses and plans to continue its program to
develop or sell the property it holds for development or resale as well as to
reduce the level of its art inventories to enhance current cash flows.
Management believes that its income from operations combined with its cost
cutting program and planned reduction of its art inventory will enable it to
finance its current business activities. There can, however, be no assurance
that Canal will be able to effectuate its planned art inventory reductions or
that its income from operations combined with its cost cutting program in itself
will be sufficient to fund operating cash requirements.
22
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly financial data for the
eight quarters ended October 31, 2003. This quarterly information is unaudited,
has been prepared on the same basis as the annual financial statements, and, our
opinion, reflects all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the information for periods presented.
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2003 2003 2003 2003
-------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES $1,458 $1,391 $825 $1,086
======= ======= ======= =======
NET INCOME (LOSS) $186 $3 ($227) ($499)
======= ======= ======= =======
NET INCOME (LOSS)
PER COMMON SHARE:
- BASIC $0.03 ($0.01) ($0.06) ($0.13)
======= ======= ======= =======
- DILUTED $0.03 ($0.01) ($0.06) ($0.13)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF SHARES:
- BASIC 4,327 4,327 4,327 4,327
======= ======= ======= =======
- DILUTED 4,327 4,327 4,327 4,327
======= ======= ======= =======
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
2002 2002 2002 2002
-------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES $1,439 $1,434 $1,283 $1,257
======= ======= ======= =======
NET INCOME (LOSS) $377 ($29) $83 ($5)
======= ======= ======= =======
NET INCOME (LOSS)
PER COMMON SHARE:
- BASIC $0.07 ($0.02) $0.04 ($0.01)
======= ======= ======= =======
- DILUTED $0.07 ($0.02) $0.04 ($0.01)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF SHARES:
- BASIC 4,327 4,327 4,327 4,327
======= ======= ======= =======
- DILUTED 4,327 4,327 4,327 4,327
======= ======= ======= =======
23
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses
from market risk sensitive instruments attributable to reasonably possible
market changes. Market risk sensitive instruments include all financial or
commodity instruments and other financial instruments (such as investments
and debt) that are sensitive to future changes in interest rates, currency
exchange rates, commodity prices or other market factors. We are not
exposed to market risks from changes in foreign currency exchange rates or
commodity prices. We do not hold derivative financial instruments nor do
we hold securities for trading or speculative purposes. Under our current
policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes.
At October 31, 2003, the following long-term debt-related party financial
instruments are sensitive to changes in interest rates by expected
maturity dates:
As of Fixed rate Average Fair
October 31, ($ US) Interest Rate Value
----------- ---------- ---1---------- -----
2004 $ 0 N/A
2005 0 N/A
2006 2,767 10%
2007 0 N/A
2008 0 N/A
Thereafter 0 N/A
-------
Total $ 2,767 N/A (A)
------- -------
(A) Long-term debt related party (See Note 6): it is not practicable to
estimate the fair value of the related party debt (See Note 18).
ITEM 8. Financial Statements and Supplemental Data
The financial statements filed as part of this Annual Report are
identified in the Index to Consolidated Financial Statements on page F-1 hereto
and are set forth on pages F-2 through F-31 included in Item 15(A) of the
report.
ITEM 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
24
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15 (e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this Annual Report.
Based on such evaluation, such officers have concluded that, as of such date,
our disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to Canal Capital Corporation (and
its consolidated subsidiaries) required to be included in our reports filed or
submitted under the Exchange Act.
Changes in Internal Control over Financial Reporting. There were no
significant changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect, our internal
control over financial reporting.
25
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The company's Board of Directors is comprised of three non-independent
directors. As such, the creation of numerous independent committees is not
feasible. However, 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 2003 the Board of
Directors held one meeting, and the Executive Committee held three 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 64, 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, Vice-Chairman
of the Board, and Chairman of the Executive Committee of The CattleSale Company
formerly known as Dynacore Holdings Corporation, ("CattleSale") since March
1985. In December 2003 Mr. Edelman resigned his position as Vice-Chairman of
CattleSale.
Michael E. Schultz, age 67, 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 57, has been a Director since 1984. Mr. Agranoff
is currently Vice President, General Counsel and Corporate Secretary of
CattleSale and has been a Director of CattleSale 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 54, 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.
26
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 2003 exceeded $100,000.
SUMMARY COMPENSATION TABLE - Annual Compensation
Name and Principal
Position Year Salary
- ------------------ ---- ---------
Michael E. Schultz 2003 $ 175,000
President and Chief 2002 $ 175,000
Executive Officer 2001 $ 175,000
Asher B. Edelman 2003 $ 175,000
Chairman of the Board 2002 $ 175,000
and Executive Committee 2001 $ 175,000
Reginald Schauder 2003 $ 115,000
Vice President, Chief 2002 $ 108,700
Financial Officer 2001 $ 108,700
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. Additionally, effective November 1, 2002 Mr. Schauder agreed to
defer $6,300 of his salary. These amounts are accrued by the Company with
payments made from time to time as cash becomes available to the Company. At
October 31, 2003, the total liability under these agreements was approximately
$60,000.
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 $18,000, $41,000 and $24,000 for fiscal years 2003, 2002 and
2001, 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
27
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, 2003.
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 0 $ -0-
Asher B. Edelman 0 $ -0-
Reginald Schauder 0 $ -0-
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 and expired (unexercised) in December 2001. 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.
28
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 (which options expired in
December 2001). The 1985 Plan is administered by the Board of Directors of the
Company.
During the 2003 fiscal year, no options under the 1985 plan were granted
and no options previously granted were exercised. At October 31, 2003, there
were no options outstanding under the 1985 Plan.
Compensation Committee - Interlocks and Insider Participation
The Board of Directors (comprised of Asher B. Edelman, Chairman of the
Board and Chairman of the Executive Committee, Michael E. Schultz, President and
Chief Executive Officer 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 The CattleSale Company (formerly known
as Dynacore Holdings Corporation). The Company has filed with the SEC Schedules
13D jointly with Plaza, Mr. Edelman, Edelman Management, Edelman Limited
Partnership, certain investment partnerships of which Mr. Edelman is sole or
controlling general partner, certain of the companies referred to in the
preceding sentence and other persons, indicating that the filing parties
constitute groups for purposes of such filings with respect to the acquisition
of securities in the companies referred to in the preceding sentence.
29
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
To the knowledge of the Company, the only beneficial owners of 5% or more
of the voting stock of the Company (other than those listed below under
"Securities Owned by Management") as of January 15, 2004 were:
SECURITIES BENEFICIALLY OWNED
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
---- ---------------------- ----------------
Asher B. Edelman 1,909,605 (c) 44.13
Michael E. Schultz 58,835 (c) 1.36
William G. Walters 234,440 (b) 5.42
(a) Under applicable regulations of the Securities and Exchange Commission
(the "SEC"), a person who has or shares the power to direct the voting or
disposition of stock is considered a "beneficial owner". Each individual
referred to in the above table has the sole power to direct the voting and
disposition of the shares shown.
(b) The number reported herein for Mr. Walters includes 117,220 shares
owned by Mr. Walters, 117,220 shares owned by Whale Securities Co., L.P., of
which Mr. Walters is Chief Executive Officer. Mr. Walters has sole power to vote
and dispose of the shares described herein.
(c) For additional information about beneficial ownership see "Securities
Owned by Management" below.
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of January 15, 2004,
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.
30
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
---- ---------------------- ---------------
Gerald Agranoff 0 0.00
Asher B. Edelman 1,909,605 (b)(c) 44.13
Reginald Schauder 100 (d) 0.01
Michael E. Schultz 58,835 (e)(f) 1.36
---------
All Directors and Officers
as a group (4 persons) 1,968,540 45.50
=========
(a) Under applicable regulations of the Securities and Exchange Commission
(the "SEC"), a person who has or shares the power to direct the voting or
disposition of stock is considered a "beneficial owner". Each director and
officer referred to in the above table has the sole power to direct the voting
and disposition of the shares shown, except as otherwise set forth in footnotes
(c), (d) and (f) below.
(b) The number reported herein for Mr. Edelman includes 31,300 shares held
in Mr. Edelman's retirement plan, 1,017,220 shares owned by A.B. Edelman Limited
Partnership ("Edelman Limited Partnership"), of which Mr. Edelman is the sole
general partner, 590,186 shares of common stock owned by the Edelman Family
Partnership, L.P. ("Edelman Family Partnership"), of which Mr. Edelman is the
general partner, 43,830 shares of common stock owned by Edelman Value Partners,
L.P. ("Value Partners"), of which Mr. Edelman is the sole stockholder of the
general partner, 26,620 shares of common stock held by Canal Capital Corporation
Retirement Plan ("Canal Retirement Plan"), of which Mr. Edelman serves as a
trustee, 8,400 shares owned by Aile Blanche, Inc., of which Mr. Edelman is the
sole stockholder and 3,399 shares owned by Felicitas Partners, L.P.
("Felicitas"), the general partner of which is Citas Partners ("Citas") of which
Mr. Edelman is the controlling general partner. Edelman Limited Partnership has
the sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the sole general partner of Edelman Limited
Partnership. Edelman Family Partnership has the sole power to vote and dispose
of the shares owned by it, which power is exercisable by Mr. Edelman as the
general partner. Value Partners has shared power to vote and dispose of the
shares owned by it. The power to dispose of such shares is exercisable by A. B.
Edelman Management Company, Inc., a corporation controlled by Mr. Edelman as the
sole stockholder. Canal Retirement Plan has the sole power to vote and dispose
of the shares owned by it, which power is exercisable by Mr. Edelman as trustee.
31
Aile Blanche, Inc. has the sole power to vote and dispose of the shares owned by
it, which power is exercisable by Mr. Edelman as President. Felicitas has the
sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the controlling general partner of Citas.
Additionally, the number reported herein for Mr. Edelman includes 188,650 shares
of common stock held in three Uniform Gifts to Minors Act accounts for the
benefit of Mr. Edelman's children of which Mr. Edelman is the custodian.
(c) The number reported herein for Mr. Edelman excludes 242,000 shares of
common stock owned by Mr. Edelman's mother and 11,100 shares of common stock
held in a trust for Mr. Edelman's son, as to which Mr. Edelman expressly
disclaims beneficial ownership.
(d) Represents 100 shares owned directly.
(e) Represents 58,835 shares owned directly.
(f) The number reported herein for Mr. Schultz excludes 26,620 shares of
common stock held by the Canal Capital Corporation Retirement Plan of which Mr.
Schultz serves as a trustee, as to which Mr. Schultz expressly disclaims
beneficial ownership.
ITEM 13. Certain Relationships and Related Transactions
See: Item 11 "Compensation Committee Interlocks and Insider
Participation"
ITEM 14. Principal Accounting Fees and Services
The following fees were billed to us by Todman & Co., CPAs, PC during
fiscal 2003 and 2002:
2003 2002
---- ----
Audit fees $ 55,000 $ 54,000
Tax fees 0 0
All other fees 3,000 2,400
-------- --------
$ 58,000 $ 56,400
======== ========
Audit-related fees include statutory audits and Sarbanes-Oxley related
consultation and assistance. Tax fees and all other fees primarily consist
of tax and advisory services.
The Board of Directors of Canal has determined that Todman & Co., CPAs, PC
provision of non-audit services is compatible with maintaining the
independence of Todman & Co., CPAs PC.
32
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements and Notes
See accompanying index to consolidated financial statements.
2. Schedules and Supplementary Note
None
3. Exhibits
See accompanying index to exhibits.
(b) 1. Reports on Form 8-K
None
33
FORM 10-K - ITEM 15(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).
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).
34
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
- -----------
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).
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).
35
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
- -----------
22 Subsidiaries of the registrant.
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
36
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 Auditors
Canal Capital Corporation common stock Todman & Co., CPAs, P.C.
is traded on the over-the-counter 120 Broadway
market through the "pink sheets". 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
37
FORM 10-K -- ITEM 15(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 --
Report of Independent Auditors .................................... F-2
Consolidated Balance Sheets as of October 31, 2003
and 2002 ...................................................... F-3
Consolidated Statements of Operations and Comprehensive
(Loss) Income for the years ended October 31, 2003,
2002 and 2001 ................................................. F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended October 31, 2003, 2002
and 2001 ....................................................... F-7
Consolidated Statements of Cash Flows for the
years ended October 31, 2003, 2002 and 2001 .................... F-8
Notes to Consolidated Financial Statements ........................ F-9
F-1
INDEPENDENT AUDITORS 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 (the "Company") as
of October 31, 2003 and 2002, and the related consolidated statements of
operations and comprehensive (loss) income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended October 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Canal Capital Corporation
and Subsidiaries as of October 31, 2003 and 2002, and the results of their
operations and its cash flows for each of the three years in the period ended
October 31, 2003, in conformity with accounting principles generally accepted in
the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 and 9 to the
financial statements, the Company has suffered recurring losses from operations
in eight of the last ten years, is obligated to continue making substantial
annual contributions to its defined benefit pension plan and has joint and
several liability on its lease for commercial space. All of these matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
/S/ Todman & Co., CPAs,P.C.
---------------------------
New York, New York TODMAN & CO., CPAs, P.C.
January 21, 2004 Certified Public Accountants (N.Y.)
F-2
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2003 AND 2002
2003 2002
---- ----
ASSETS
ASSETS:
CASH AND CASH EQUIVALENTS $ 14,191 $ 139,057
NOTES AND ACCOUNTS RECEIVABLE, NET OF AN
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
ZERO AT BOTH OCTOBER 31, 2003 AND 2002 131,836 125,227
ART INVENTORY, NET OF A VALUATION ALLOWANCE
OF $ 1,157,400 AND $1,325,000 AT
OCTOBER 31, 2003 AND 2002, RESPECTIVELY 250,000 250,000
STOCKYARDS INVENTORY 11,412 13,017
INVESTMENTS 0 7,405
PREPAID EXPENSES 69,168 100,799
---------- ----------
TOTAL CURRENT ASSETS 476,607 635,505
---------- ----------
NON-CURRENT ASSETS:
PROPERTY ON OPERATING LEASES, NET OF
ACCUMULATED DEPRECIATION OF $ 1,199,723
AND $ 1,058,219 AT OCTOBER 31, 2003
AND 2002, RESPECTIVELY 2,874,457 3,336,744
---------- ----------
PROPERTY USED IN STOCKYARD OPERATIONS, NET OF
ACCUMULATED DEPRECIATION OF $ 130,041
AND $ 285,223 AT OCTOBER 31, 2003 AND
2002, RESPECTIVELY 1,136,056 1,176,027
---------- ----------
ART INVENTORY NON-CURRENT, NET OF A
VALUATION ALLOWANCE OF $ 617,350
AND $ 858,650 AT OCTOBER 31, 2003 AND
2002, RESPECTIVELY 459,671 622,388
---------- ----------
OTHER ASSETS:
PROPERTY HELD FOR DEVELOPMENT OR RESALE 899,679 517,939
RESTRICTED CASH - TRANSIT INSURANCE 58,729 0
DEFERRED LEASING AND FINANCING COSTS 16,006 13,366
DEPOSITS AND OTHER 221,031 210,902
---------- ----------
1,195,445 742,207
---------- ----------
$6,142,236 $6,512,871
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2003 AND 2002
2003 2002
---- ----
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES ..... $ 755,110 $ 574,974
INCOME TAXES PAYABLE ............................ 10,000 9,892
------------ ------------
TOTAL CURRENT LIABILITIES ..................... 765,110 584,866
------------ ------------
NON-CURRENT LIABILITIES:
LONG-TERM PENSION LIABILITY ..................... 907,573 829,739
REAL ESTATE TAXES PAYABLE ....................... 300,000 451,958
------------ ------------
TOTAL NON-CURRENT LIABILITIES ................. 1,207,573 1,281,697
------------ ------------
LONG-TERM DEBT, RELATED PARTY .......................... 2,767,000 2,667,000
------------ ------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.01 PAR VALUE:
10,000,000 SHARES AUTHORIZED; 5,443,979 AND
5,647,993 SHARES ISSUED AND OUTSTANDING AT
OCTOBER 31, 2003 AND 2002, RESPECTIVELY AND
AGGREGATE LIQUIDATION PREFERENCE OF $10.00
PER SHARE FOR $ 54,439,790 AND $ 56,479,930
AT OCTOBER 31, 2003 AND 2002, RESPECTIVELY ...... 54,440 56,480
COMMON STOCK, $0.01 PAR VALUE:
10,000,000 SHARES AUTHORIZED; 5,313,794
SHARES ISSUED & 4,326,929 SHARES OUTSTANDING
AT OCTOBER 31, 2003 AND 2002, RESPECTIVELY ...... 53,138 53,138
ADDITIONAL PAID-IN CAPITAL ........................... 28,018,997 27,958,498
ACCUMULATED DEFICIT .................................. (13,404,934) (12,709,864)
986,865 SHARES OF COMMON STOCK
HELD IN TREASURY, AT COST ..................... (11,003,545) (11,003,545)
COMPREHENSIVE INCOME:
PENSION VALUATION RESERVE ......................... (2,315,543) (2,375,399)
------------ ------------
1,402,553 1,979,308
------------ ------------
$ 6,142,236 $ 6,512,871
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001
2003 2002 2001
---- ---- ----
REAL ESTATE OPERATIONS:
REAL ESTATE REVENUES:
SALE OF REAL ESTATE $ 428,436 $ 818,671 $ 426,240
EXCHANGE BUILDING RENT 436,573 486,678 430,175
OUTSIDE REAL ESTATE RENT 508,211 546,151 586,219
OTHER INCOME 130 0 1,000
----------- ----------- -----------
1,373,350 1,851,500 1,443,634
----------- ----------- -----------
REAL ESTATE EXPENSES:
COST OF REAL ESTATE SOLD 278,145 363,374 166,108
LABOR, OPERATING AND MAINTENANCE 406,650 447,790 427,566
DEPRECIATION AND AMORTIZATION 144,988 132,676 127,859
TAXES OTHER THAN INCOME TAXES 248,800 119,200 151,700
GENERAL AND ADMINISTRATIVE 52,253 45,903 126,123
----------- ----------- -----------
1,130,836 1,108,943 999,356
----------- ----------- -----------
INCOME FROM REAL ESTATE OPERATIONS 242,514 742,557 444,278
----------- ----------- -----------
STOCKYARD OPERATIONS:
STOCKYARD REVENUES:
YARD HANDLING AND AUCTION 3,031,552 3,181,874 3,358,554
FEED AND BEDDING INCOME 186,130 198,128 249,154
RENTAL INCOME 3,399 5,298 4,521
OTHER INCOME 165,876 176,000 182,248
----------- ----------- -----------
3,386,957 3,561,300 3,794,477
----------- ----------- -----------
STOCKYARD EXPENSES:
LABOR AND RELATED COSTS 1,328,755 1,437,778 1,542,324
OTHER OPERATING AND MAINTENANCE 755,836 832,552 889,037
FEED AND BEDDING EXPENSE 158,939 162,865 192,513
DEPRECIATION AND AMORTIZATION 19,363 24,352 26,891
TAXES OTHER THAN INCOME TAXES 172,990 216,031 246,760
GENERAL AND ADMINISTRATIVE 366,358 349,391 523,133
----------- ----------- -----------
2,802,241 3,022,969 3,420,658
----------- ----------- -----------
INCOME FROM STOCKYARD OPERATIONS 584,716 538,331 373,819
----------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSE (1,079,670) (1,134,994) (1,274,529)
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (252,440) 145,894 (456,432)
----------- ----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001
Continued ...
2003 2002 2001
---- ---- ----
OTHER (EXPENSES) INCOME:
INTEREST AND OTHER INCOME 25,207 467,341 130,737
INTEREST EXPENSE-RELATED PARTY (279,814) (266,700) (257,022)
(LOSS) INCOME FROM ART SALES (7,987) 206,669 (19,351)
REALIZED LOSS ON INVESTMENTS (7,405) (13,987) (47,249)
OTHER EXPENSE (14,902) (113,227) (123,230)
----------- ----------- -----------
(284,901) 280,096 (316,115)
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES (537,341) 425,990 (772,547)
PROVISION FOR INCOME TAXES 0 0 0
----------- ----------- -----------
NET (LOSS) INCOME (537,341) 425,990 (772,547)
OTHER COMPREHENSIVE (LOSS) INCOME:
MINIMUM PENSION LIABILITY ADJUSTMENT 59,856 (209,954) (195,824)
----------- ----------- -----------
COMPREHENSIVE (LOSS) INCOME $ (477,485) $ 216,036 $ (968,371)
=========== =========== ===========
NET (LOSS) INCOME PER COMMON SHARE:
- BASIC $ (0.16) $ 0.07 $ (0.25)
- DILUTED $ (0.16) $ 0.07 $ (0.25)
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, 2003, 2002, AND 2001
COMMON STOCK PREFERRED STOCK
NUMBER NUMBER
OF OF
SHARES AMOUNT SHARES AMOUNT
BALANCE, NOVEMBER 1, 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
----------------------- ------------------------
BALANCE, OCTOBER 31, 2001 5,313,794 $ 53,138 4,998,446 $ 49,984
NET INCOME 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 649,547 6,496
MINIMUM PEN. LIAB. ADJ 0 0 0 0
----------------------- ------------------------
BALANCE, OCTOBER 31, 2002 5,313,794 $ 53,138 5,647,993 $ 56,480
NET (LOSS) 0 0 0 0
PREFERRED STOCK REPURCHASE 0 0 (992,255) (9,922)
PREFERRED STOCK DIVIDEND 0 0 788,241 7,882
MINIMUM PEN. LIAB. ADJ 0 0 0 0
----------------------- ------------------------
BALANCE, OCTOBER 31, 2003 5,313,794 $ 53,138 5,443,979 $ 54,440
======================= ========================
ADDITIONAL TREASURY
PAID-IN ACCUMULATED COMPREHENSIVE STOCK,
CAPITAL DEFICIT (LOSS)INCOME AT COST
BALANCE, NOVEMBER 1, 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)
NET INCOME 0 425,990 0 0
PREFERRED STOCK DIVIDEND 109,937 (116,480) 0 0
MINIMUM PEN. LIAB. ADJ 0 0 (209,954) 0
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 2002 $ 27,958,498 ($12,709,864) ($ 2,375,399) ($11,003,545)
NET (LOSS) 0 (537,341) 0 0
PREFERRED STOCK REPURCHASE (89,303) 0 0 0
PREFERRED STOCK DIVIDEND 149,802 (157,729) 0 0
MINIMUM PEN. LIAB. ADJ 0 0 59,856 0
------------ ------------ ------------ ------------
BALANCE, OCTOBER 31, 2003 $ 28,018,997 ($13,404,934) ($ 2,315,543) ($11,003,545)
============ ============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENT
F-7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001
2003 2002 2001
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $(537,341) $ 425,990 $(772,547)
--------- --------- ---------
ADJUSTMENTS TO RECONCILE NET (LOSS)
INCOME TO NET CASH (USED) BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 167,052 170,352 183,576
GAIN ON SALES OF REAL ESTATE (150,291) (455,297) (260,132)
VALUATION RESERVE - ART INVENTORY (408,900) (508,500) (35,800)
REALIZED LOSS ON INVESTMENTS 7,405 13,987 47,249
REALIZED LOSS ON ART WRITE OFF 41,517 0 0
GAIN ON SIOUX CITY STOCKYARD AUCTION 0 (54,804) 0
CHANGES IN ASSETS AND LIABILITIES:
NOTES AND ACCOUNTS RECEIVABLES, NET (6,609) 2,544 608,617
ART INVENTORY, NET 162,717 311,351 (22,882)
PREPAID EXPENSES AND OTHER, NET 275,714 215,612 (254,745)
PAYABLES AND ACCRUED EXPENSES, NET 106,120 (681,523) 332,983
--------- --------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES (342,616) (560,288) (173,681)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF REAL ESTATE 428,436 818,671 426,240
PROCEEDS FROM SIOUX CITY STOCKYARD
AUCTION 0 114,307 0
CAPITAL EXPENDITURES (211,460) (247,313) (471,148)
--------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 216,976 685,665 (44,908)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM LONG-TERM DEBT-RELATED
PARTIES 100,000 0 145,000
PREFERRED STOCK REPURCHASE (99,226) 0 0
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 774 0 145,000
--------- --------- ---------
NET (DECREASE ) INCREASE IN CASH AND CASH
EQUIVALENTS (124,866) 125,377 (73,589)
CASH AND CASH EQUIVALENTS AT BEGN OF YEAR 139,057 13,680 87,269
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,191 $ 139,057 $ 13,680
========= ========= =========
NOTE: IN FISCAL 2003, 2002 AND 2001,$ 157,730, $ 116,480 AND $ 301,520,
RESPECTIVELY, OF PREFERRED STOCK DIVIDENDS WERE PAID THROUGH THE ISSUANCE
OF 740,241, 649,547 AND 590,832, 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. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Canal Capital Corporation ("Canal"), incorporated in the state of Delaware
in 1964, commenced business operations through a predecessor in 1936. 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 - real estate and stockyard
operations.
Real Estate Operations - Canal's real estate properties located in five
Midwest states are primarily associated with its current and former agribusiness
related operations. Each property is adjacent to a stockyards operation (two 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. In addition to
selling what was excess stockyard property, the company entertains any offers to
purchase, develop and restructure real estate lots surrounding its existing
operating lease properties, stockyard operating properties and properties held
for development or resale in order to enhance the value of the existing
properties and surrounding real estate.
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
F-9
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
paid within twenty-four hours of the sale. Yardage fees vary depending upon the
type of animal, the extent of services provided by the stockyard, and local
competition. Yardage revenues are not directly dependent upon market prices, but
rather are a function of the volume of livestock handled. In general, stockyard
livestock volume is dependent upon conditions affecting livestock production and
upon the market agencies and independent commission sales people which operate
at the stockyards. Stockyard operations are seasonal, with greater volume
generally experienced during the first and fourth quarters of each fiscal year,
during which periods livestock is generally brought to market.
Virtually all of the volume at Canal's Sioux Falls stockyards is handled
through market agencies and independent commission sales people, while the St.
Joseph stockyards has solicitation operations of its own which account for
approximately 50% of its livestock volume annually.
Canal intends to continue its soliciting efforts at its St. Joseph
stockyards in fiscal 2004. 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.
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 eight of the last ten years, is obligated to continue making
substantial annual contributions to its defined benefit pension plan. In
addition, Canal has joint and several liability on its lease for commercial
space in New York City. At October 3, 2003, Canal was current under its
obligation, however, the group was approximately $85,000 in arrears on this
lease (see Note 9). The financial statements do not include any adjustments that
might result from the resolution of these uncertainties. Additionally, the
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Canal continues to closely monitor and reduce where possible its operating
expenses and plans to continue its program to develop or sell the property it
holds for development or resale as well as to reduce the level of its art
inventories to enhance current cash flows. Management believes that its income
from operations combined with its cost cutting program and planned reduction of
its art inventory will enable it to finance its current business activities.
There can, however, be no assurance that Canal will be able to effectuate its
planned art inventory reductions or that its income from operations combined
with its cost cutting program in itself will be sufficient to fund operating
cash requirements.
F-10
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 3).
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 $111,000 and $101,000 at October 31,
2003 and 2002, and is included in other assets. The operating results of joint
ventures accounted for on the equity method, for fiscal year 2003, 2002 and 2001
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 71 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-11
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Long-Lived Assets - The Company reviews the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company considers historical
performance and future estimated results in its evaluation of potential
impairment and then compares the carrying amount of the assets to the estimated
future cash flows expected to result from the use of the asset. The measurement
of the loss, if any, will be calculated as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. (See Note 19).
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 Held for Sale - Inventory of art is valued at the lower
of cost, including direct acquisition and restoration expenses, or net
realizable value on a specific identification basis. Net realizable value is
determined in part by independent appraisal. Independent appraisals covered
approximately 31% and 22% of the inventory value at October 31, 2003 and 2002,
respectively. The remaining 69% and 78% at October 31, 2003 and 2002,
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 7). Antiquities and
contemporary art represented 27% ($189,122) and 73% ($520,549) and 26%
($230,639) and 74% ($641,749) of total art inventory at October 31, 2003 and
2002, respectively. Substantially all of the contemporary art inventory held for
resale is comprised of the work of Jules Olitski.
G) Income Taxes -- Canal and its subsidiaries file a consolidated Federal
income tax return. The Company accounts for income taxes under the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities.
F-12
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
H) Stockyard Inventory - Inventory is stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
I) Accounting Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
J) Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period covered. All real estate leases are accounted for as operating
leases. Revenues from real estate sales are recognized generally when title to
the property passes. Revenues from stockyard operations which consist primarily
of yardage fees (a standard per head charge for each animal sold through the
stockyards) and sale of feed and bedding are recognized at the time the service
is rendered or the feed and bedding are delivered.
Other Income (Expense) Items -- Art sales are recognized using the
specific identification method, when the piece is shipped to the purchaser. Art
owned by Canal which is on consignment, joint venture, or being examined in
contemplation of sale is not removed from inventory and not recorded as a sale
until notice of sale or acceptance has been received. The sale of investments
available for sale, if any, are recognized, on a specific identification method,
on a trade date basis.
K) 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
$17,000, $13,000 and $25,000 and interest payments of $280,000, $267,000 and
$257,000 in 2003, 2002 and 2001, respectively.
L) Comprehensive Income -- The Company's only adjustments for each
classification of the comprehensive income was for minimum pension liability.
M) Earnings (Loss) Per Share -- Basic earnings (loss) per share is
computed by dividing the net income (loss) applicable to common shares by the
weighted average of common shares outstanding during the period. Diluted
earnings (loss) per share adjusts basic earnings (loss) per share for the
F-13
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
effects of convertible securities, stock options and other potentially dilutive
financial instruments, only in the period in which such effect is dilutive.
There were no dilutive securities in any of the periods presented herein. The
shares issuable upon the exercise of stock options are excluded from the
calculation of net income (loss) per share as their effect would be
antidilutive.
N) Reclassification -- Certain prior year amounts have been reclassified
to conform to the current year presentation.
O) Recent Accounting Pronouncements -- In June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit and Disposal Activities. SFAS
No. 146 nullifies Emerging Issues Task Force ("EITF") issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). Under EITF issue
94-3, a liability for an exit cost is recognized at the date of an entity's
commitment to an exit plan. Under SFAS No. 146, the liabilities associated with
an exit or disposal activity will be measured at fair value and recognized when
the liability is incurred and meets the definition of a liability in the FASB's
conceptual framework. This statement is effective for exit or disposal
activities initiated after December 31, 2002. We believe the adoption of SFAS
No. 146 will not have a material impact on our financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. The provisions of SFAS No. 150
are effective for all financial instruments created or modified after May 31,
2003, and otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 will not have a
material impact on our consolidated financial statements.
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, and
interpretation of Accounting Research Bulletin No. 51 ("FIN 46"). FIN 46
requires the consolidation of variable interest entities in which an enterprise
absorbs a majority of the entity's expected losses, receives a majority of the
entity's expected residual returns, or both, as a result of ownership,
contractual or other financial interests in the entity. Currently, entities are
generally consolidated by an enterprise that has a controlling financial
interest through ownership of a majority of the voting interest in the entity.
We will adopt FIN 46 as of January 31, 2004. The adoption of FIN 46 will not
have a material impact on our consolidated financial statements.
F-14
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENTS AVAILABLE FOR SALE
At October 31, the investments available for sale consisted of the
following: ($ 000's Omitted)
2003 2002
---- ----
Aggregate market value..................... $ 0 $ 7
--- ---
Aggregate carrying value................... $ 0 $ 7
--- ---
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. Historically,
this investment (in which Canal's ownership interest is approximately 1%) was
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.
Accordingly, as of October 31, 2003 Canal has written off this investment
entirely. This has resulted in Canal's recognizing a realized loss on
investments in marketable securities of approximately $7,000, $14,000 and
$47,000 in fiscal 2003, 2002 and 2001, respectively.
4. STOCKYARD OPERATIONS
Through an asset repurchase agreement, 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.
F-15
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In March 2002, Canal permanently closed its stockyard operations in Sioux
City, Iowa. The Sioux City stockyard operations generated operating losses of
$-0-, $75,000 and $118,000 for the three years ended October 31, 2003, 2002 and
2001, respectively. The stockyard facility was dismantled with the equipment,
fixtures and materials going either to Canal's remaining two stockyards or sold
at a public sale held at the Sioux city location in April 2002. The auction
generated total sales of $114,000 and operating income of $58,000. Canal has
been engaged in extended negotiations to sell this property to a real estate
developer whose intention is to convert the property into a retail shopping
center. Canal will continue to pursue the sale of this property to this
developer as well as exploring any opportunities to develop or sell this
property in fiscal 2004.
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 stockyards has solicitation operations of its own
which accounts for approximately 50% of its livestock volume annually. Canal
intends to continue its soliciting efforts at its St. Joseph stockyards in
fiscal 2004. 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 maintains an inventory of feed and bedding which is comprised
primarily of hay, corn and straw. The value of this inventory was $11,000 and
$13,000 at October 31, 2003 and 2002, respectively.
F-16
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. BORROWINGS
At October 31, 2003, substantially all of Canal's real properties, the
stock of certain subsidiaries, the investments and a substantial portion of its
art inventories are pledged as collateral for the following obligations:
October 31,
-------------------
($ 000's Omitted) 2003 2002
- ----------------- ---- ----
Variable rate mortgage notes due
May 15, 2006 - related party (see Note 16) ......... $ 2,767 $ 2,667
Other Note ........................................... 0 0
------- -------
Total ................................................ 2,767 2,667
Less -- current maturities ........................... 0 0
------- -------
Long-term debt ....................................... $ 2,767 $ 2,667
------- -------
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. On October 8, 2002, the above notes were amended to extend the
maturity date to May 15, 2006. As of October 31, 2003 the balance due under
these notes was $2,767,000 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 $2,767,000 due May 15, 2006.
F-17
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES
Significant components of the Company's deferred asset/(liability) as of
October 31, 2003, 2002 and 2001 include differences in depreciation methods,
deferred rent, inventory valuation allowance and net operating loss carryforward
($ 000's Omitted):
2003 2002 2001
---- ---- ----
Total Gross Deferred Tax assets $ 3,893 $ 3,503 $ 3,422
Less - Valuation Allowance (3,893) (3,503) (3,422)
------- ------- -------
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):
2003 2002 2001
---- ---- ----
Computed Expected Tax (Benefit)Expense $ (188) $ 149 $ (270)
Change in Valuation Allowance 390 81 236
Inventory Valuation Differences (144) (178) (13)
Other (58) (52) 47
------ ------ ------
$ 0 $ 0 $ 0
------ ------ ------
At October 31, 2003, the Company has net operating loss carryforwards of
approximately $11,123,000 that expire through 2017 and a net capital loss
carryforward of approximately $1,446,000 that expires October 31, 2007. 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 by approximately
$352,000, $81,000 and $236,000 during the years ended October 31, 2003, 2002 and
2001, 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-18
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. PENSION PLANS
Canal has a defined benefit pension plan covering substantially all of its
salaried employees (the "Plan"). The benefits are based on years of service and
the employee's compensation earned each year. The Company's funding policy is to
contribute the amount that can be deducted for federal income tax purposes.
Accordingly, the Company has made contributions of approximately $0 for fiscal
2003, $149,000 for fiscal 2002 and $129,000 for fiscal 2001. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future. Assets of the plan were
invested in U.S. Government securities, common stocks and antiquities.
Assumptions used in computing the 2003, 2002 and 2001 pension cost were:
2003 2002 2001
---- ---- ----
Discount rate ................................ 6.25% 7.00% 7.00%
Rate of increase in compensation level ....... 5.50% 5.50% 5.50%
Expected long-term rate of return on assets .. 9.00% 9.00% 9.00%
Net periodic pension cost for plan years ended October 31, 2003, 2002 and
2001 included the following components:
Plan Year
---------
($ 000's Omitted) 2003 2002 2001
----------------- ---- ---- ----
Service costs - benefits earned during
the period ................................ $ 12 $ 12 $ 10
Interest cost on projected benefit
obligation ................................ 114 120 111
Net (Return) loss on assets ................. 137 94 46
Net amortization and deferral ............... (54) (54) (54)
------ ------ ------
Net period pension cost ..................... $ 209 $ 172 $ 113
------ ------ ------
F-19
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, 2003 and
2002.
Plan Year
---------
($ 000's Omitted) 2003 2002
----------------- ---- ----
Change in benefit obligation
Benefit obligation at beginning of year $ 1,770 $ 1,597
Service cost 12 12
Interest cost 114 120
Plan participants' contributions 0 0
Amendments 0 0
Actuarial gain 49 181
Benefits paid (127) (140)
------- -------
Benefit obligation at end of year $ 1,818 $ 1,770
------- -------
Change in plan assets
Fair value of plan assets at beginning of year $ 904 $ 848
Actual return on plan assets 91 (20)
Employer contribution 72 265
Plan participants' contributions 0 0
Plan expenses (68) (49)
Benefits paid (127) (140)
------- -------
Fair value of plan assets at end of year $ 872 $ 904
------- -------
(1) The vast majority of the projected benefit obligation is related to
the Company's former stockyard employees.
8. 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.
F-20
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Antiquities and contemporary art represented 27% ($189,122) and 73%
($520,549) and 26% ($230,639) and 74% ($641,749) of total art inventory at
October 31, 2003 and 2002, respectively. Substantially all of the contemporary
art inventory held for resale is comprised of the work of Jules Olitski.
The Company classified its art inventory for the two years ended October
31, 2003 and 2002 as follows ($ 000's Omitted):
Current Portion Non-Current Portion Total
------------------ ------------------- ------------------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Antiquities $ 407 $ 575 $ 89 $ 31 $ 496 $ 1,606
Contemporary 1,000 1,000 988 1,450 1,988 2,450
Valuation
Allowance (1,157) (1,325) (617) (859) (1,774) (2,184)
------- ------- ------- ------- ------- -------
Net Value $ 250 $ 250 $ 460 $ 622 $ 710 $ 872
------- ------- ------- ------- ------- -------
The Company's valuation allowance for the three years ended October 31,
2003, 2002 and 2001 is as follows:
Balance at Balance
Beginning at End of
of Period Deductions Period
--------- ---------- ---------
Year ended October 31, 2003
Deducted from art inventories:
Reserve for valuation allowance $2,184 $ (410) $1,774
Year ended October 31, 2002
Deducted from art inventories:
Reserve for valuation allowance $2,692 $ (508) $2,184
Year ended October 31, 2001
Deducted from art inventories:
Reserve for valuation allowance $2,728 $ (36) $2,692
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 2003 Canal applied against sales $408,900 of the
valuation allowance against its art inventory, thereby, decreasing the total
valuation allowance to $1,774,750 as of October 31, 2003 as compared to
$2,183,650 and $2,692,150 at October 31, 2002 and 2001, respectively. F-21
F-21
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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
2003 appraisal covered approximately 31% 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 69% 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 an operating loss of approximately
$8,000, operating income of $207,000 and an operating loss of $19,000 on
revenues of approximately $173,000, $540,000 and $24,000 for the years ended
October 31, 2003, 2002 and 2001, respectively. In fiscal 2003 Canal wrote off 11
pieces of antiquity art with a book value of approximately $42,000 due to
questions regarding authenticity.
The Company had approximately $250,000 and $175,000 of art inventory (at
original cost) on consignment with third party dealers at October 31, 2003 and
2002, respectively.
9. 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. At October 31, 2003, the
security deposit relating to this lease was approximately $260,000 of which
Canal's representative share is approximately $122,000.
At October 31, 2003, Canal was current under its obligations under this
lease. However, the group as a whole was approximately $85,000 in arrears on its
rental payments. As discussed above, Canal's share of the rent is approximately
25%. However, should the remaining two co-tenants default, the balance of rental
payments due under the lease would be approximately $2.5 million.
F-22
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 2003:
YEAR ENDED CANAL'S TOTAL LEASE
OCTOBER 31 OBLIGATION OBLIGATION
---------- ---------- -----------
2004 $104,000 $ 416,000
2005 104,000 416,000
2006 104,000 416,000
2007 104,000 416,000
2008 104,000 416,000
Thereafter 95,000 380,000
-------- ----------
$615,000 $2,460,000
======== ==========
Rent expense under these and other operating leases for the years ended
October 31, 2003, 2002 and 2001 were as follows:
($ 000's Omitted) 2003 2002 2001
----------------- ---- ---- ----
Minimum rentals ....................... $ 107 $ 97 $ 90
Less: sublease rentals .............. (89) (42) 0
----- ----- -----
$ 18 $ 55 $ 90
----- ----- -----
In June 2002, Canal sublet for a one year period substantially all of its
New York office space at a rate of $7,000 per month. The lease is for a period
of one year with a one year renewal option (which was exercised by the tenant).
If the tenant continues to sublet this space, then Canal's rent expense for
fiscal 2004 will be approximately $18,000.
10. IMPAIRMENT LOSS ON LONG-LIVED ASSETS
The Company reviews the values of its long-lived assets annually. There
was no impairment in the value of Canal's long-lived assets to be recorded as of
October 31, 2003, 2002 and 2001.
11. 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
F-23
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 2002 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, 2003, there were no exercisable options outstanding under these
plans.
Transactions under these plans are summarized as follows:
Shares Option Price Range
------ ------------------
Balance outstanding October 31, 2001.... 30,500 $0.125-$0.250
Options granted ........................ 0 - -
Options expired ........................ (25,000) $0.125-$0.250
-------- -------------
Balance outstanding October 31, 2002.... 5,500 $0.125-$0.125
Options granted 0 - -
Options expired (5,500) $0.125-$0.125
-------- -------------
Balance outstanding October 31, 2003.... 0 N/A - N/A
-------- -------------
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, 2003, 2002 and 2001.
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.
F-24
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 2003, 2002 and 2001 would
have been deminimus.
12. EARNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS PAID
During each of the fiscal years ended October 31, 2003, 2002 and 2001, the
Company had 0, 5,500 and 30,500 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, 2003, 2002
and 2001. Dividends declared on preferred stock during the years ended October
31, 2003, 2002 and 2001 were approximately $158,000, $116,000 and $302,000.
Basic earnings (loss) per share are computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common share
outstanding during the period. Diluted earnings (loss) per share reflect per
share amounts that would have resulted if dilutive potential common stock had
been reported in the financial statements.
Basic and diluted earnings (losses) available to common stockholders at
October 31, 2003, 2002 and 2001 were:
For the Year Ended October 31, 2003
--------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net (loss) $ (537,000)
Less preferred stock dividends (158,000)
----------
(Loss) available to common stock-
holders-basic earnings per share (695,000) 4,327,000 $ (0.16)
========
Effect of dilutive securities:
Options (antidilutive) N/A N/A
---------- ----------
(Loss) available to common stock-
holders-diluted earnings per share $ (695,000) 4,327,000 $ (0.16)
========== ========== ========
F-25
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Year Ended October 31, 2002
--------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Net income 426,000
Less preferred stock dividends (116,000)
----------
Income available to common stock-
holders-basic earnings per share 310,000 4,327,000 $ 0.07
========
Effect of dilutive securities:
Options (antidilutive) N/A N/A
---------- ----------
Income available to common stock-
holders-diluted earnings per share $ 310,000 4,327,000 $ 0.07
========== ========== ========
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)
=========== =========== ========
F-26
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. 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 5,449,369 shares in the form of stock dividends and in October 2003
the Company, repurchased for retirement, 992,225 shares (from an affiliate) at
$0.10 per share resulting in a total outstanding at October 31, 2003 of
5,443,979. 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, fifty-six of the sixty-eight quarterly payments have been paid in
additional stock resulting in the issuance of 5,449,369 shares recorded at their
fair value at the time of issuance.
Canal is restricted from paying cash dividends by certain of its debt
agreements (See Note 5). The last cash dividend paid on Canal's preferred stock
was in September 1989. The quarterly dividends payable September 30, 2003 and
December 31, 2003 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, 2004 at
which time a one year dividend will have accumulated. The dividend planned for
June 30, 2004 will also be paid in additional stock.
Whenever quarterly dividends payable on the Preferred Stock are in arrears
in the aggregate amount at least equal to six full quarterly dividends (which
need not be consecutive), the number of directors constituting the Board of
Directors of Canal shall be increased by two and the holders of the Preferred
Stock shall have, in addition to the rights set forth above, the special right,
voting separately as a single class, to elect two directors of Canal to fill
such newly created directorships at the next succeeding annual meeting of
shareholders (and at each succeeding annual meeting of shareholders thereafter
until such cumulative dividends have been paid in full).
VOTING RIGHTS - The holders of the Preferred Stock shall not have any
voting rights except that the following actions must be approved by holders of
66 2/3% of the shares of Preferred Stock, voting as a class: (I) any amendment
to the Certificate of Incorporation of Canal which would materially alter the
relative rights and preferences of the Preferred Stock so as to adversely affect
the holders thereof; and (ii) issuance of securities of any class of Canal's
capital stock ranking prior (as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock. The holders of the Preferred Stock shall be
entitled to specific enforcement of the foregoing covenants and to injunctive
relief against any violation thereof.
F-27
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. 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.
15. 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) 2003 2002 2001
----------------- ---- ---- ----
Identifiable assets:
Real estate ..................... $ 3,871 $ 4,007 $ 4,092
Stockyard operations ............ 1,440 1,448 1,497
Corporate .................... 931 1,058 1,389
------- ------- -------
$ 6,142 $ 6,513 $ 6,978
------- ------- -------
($ 000's Omitted) 2003 2002 2001
----------------- ---- ---- ----
Capital expenditures:
Real estate ..................... $ 171 $ 214 $ 393
Stockyard operations ............ 32 29 70
Corporate .................... 8 4 8
------- ------- -------
$ 211 $ 247 $ 471
------- ------- -------
Income from real estate operations includes gains (losses) on sales of
real estate of $0.2 million, $0.4 million and $0.4 million in 2003, 2002 and
2001, respectively. Included in corporate identifiable assets is approximately
$0.2 million and $0.2 million of art inventory in galleries or on consignment
abroad as of October 31, 2003 and 2002, respectively.
F-28
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. Related Party Transactions
Interest Expense Related Party - At October 31, 2003, all of Canal's
Long-Term Debt is held by the company's Chief Executive Officer and members of
his family. These notes pay interest at a rate of 10% per annum and come due May
15, 2006. Canal has paid interest expense on these notes of $280,000, $267,000
and $257,000 for the years ended October 31, 2003, 2002 and 2001, respectively.
As of October 31, 2003, the balance due under these notes was $2,767,000 all of
which is classified as long-term debt related party.
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. However, each of the three entities that are parties to this lease are
jointly and severally responsible for the payments required under the lease. At
October 31, 2003 the security deposit related to this lease was approximately
$260,000 of which Canal's representative share is approximately $122,000.
In June 2002, Canal sublet for a one year period substantially all of its
New York office space at a rate of $7,000 per month. The lease is for a period
of one year with a one year renewal option (which was exercised by the tenant).
If the tenant continues to sublet this space, then Canal's rent expense for
fiscal 2004 will be approximately $18,000.
At October 31, 2003, Canal was current under its obligations under this
lease. However, the group as a whole was approximately $85,000 in arrears on its
rental payments. As discussed above, Canal's share of the rent is approximately
25%. However, should the remaining two co-tenants default, the balance of rental
payments due under the lease would be approximately $2.5 million.
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.
F-29
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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
doubtful. For financial statements purposes as of October 31, 2003, Canal has
fully reserved the Pine Valley receivable.
18. Restricted Cash - Transit Insurance
Due to significant proposed increases in the premiums for transit
insurance, management decided to initiate a plan of self insurance commencing
November 1, 2002. Transit insurance covers livestock for the period that they
are physically at the stockyards and under the care of stockyard personnel. This
self insurance program is funded by a per head charge on all livestock received
at the stockyard. The October 31, 2003 balance in restricted cash- transit
insurance of approximately $59,000 represents the excess of per head fees
charged over actual payments made for livestock that was injured or died while
at the stockyards.
19. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments (all of which are held for non- trading
purposes) for which it is practicable to estimate that value.
October 31,
2003 2002
------------------- -------------------
($ 000's Omitted)
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ------ ------ ------
Cash and
cash equivalents $ 14 $ 14 $ 139 $ 139
------ ------ ------ ------
Long-Term Debt - Related
Party 2,767 (b) 2,667 (b)
------ ------ ------ ------
a) Cash and cash equivalents: The carrying amount approximates fair
market value because of the short maturities of such instruments.
b) Long-Term Debt Related Party (see Note 5): It is not practicable to
estimate the fair value of the related party debt.
F-30
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. Property on Operating Leases
Property on operating leases consist of approximately 40 acres of land
located in New York, New York; Omaha, Nebraska; S. St. Paul, Minnesota and Sioux
City, Iowa. Land and structures leased to third parties include vacant land,
exchange buildings (commercial office space), meat packing facilities, railcar
repair shops, truck stops, lumber yards and various other commercial and retail
businesses.
A schedule of the Company's property on operating leases at October 31,
2003 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. 10/31/02
- ----------------- ---- --------- ---- --------- ------ --------
New York office
Various leasehold
improvements $ 0 $ 153 $ 0 $ 31 $ (156) $ 28
11 acres of land
in Omaha, NE
Acquired in 1976 1,200 0 0 21 (4) 1,217
10 acres of land
in S. St. Paul, MN
Acquired in 1937 125 1,220 0 907 (1,039) 1,213
19 acres of land
in Sioux City, IA 416 0 0 0 0 416
------- ------- ------- ------- ------- -------
Acquired in 1937
$ 1,741 $ 1,373 $ 0 $ 959 $(1,199) $ 2,874
======= ======= ======= ======= ======= =======
A schedule of the Company's reconciliation of property on operating leases
carried for the three years ended October 31, 2003, 2002 and 2001 is as follows
(000's omitted):
2003 2002 2001
---- ---- ----
Balance at beginning of year $ 3,337 $ 3,302 $ 3,098
Acquisitions 0 0 0
Improvements 179 218 427
Cost of property sold (142) (183) (223)
Reclassification to property held
for development or resale (500) 0 0
------- ------- -------
Balance at end of year $ 2,874 $ 3,337 $ 3,302
------- ------- -------
(1) Substantially all of Canal's real property is pledged as collateral for
its debt obligations (see Note 5).
F-31
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
21. Property used in Stockyard Operations
Property used in stockyard operations consist of approximately 61 acres of
land located in St. Joseph, Missouri and Sioux Falls, South Dakota. The
Company's stockyards provide all services and facilities required to operate an
independent market for the sale of livestock. Stockyard facilities include
exchange buildings (commercial office space), auction arenas, scale houses,
veterinary facilities, barns, livestock pens and loading docks.
A schedule of the Company's property on operating leases at October 31,
2003 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. 10/31/03
- ----------------- ---- --------- ---- --------- ------ --------
31 acres of land
in St. Joseph, MO
Acquired in 1942 $ 862 $ 375 $ 40 $ (175) $ (104) $ 998
30 acres of land
in Sioux Falls, SD
Acquired in 1937 100 51 0 13 (26) 138
------- ------- ------- ------- ------- -------
$ 962 $ 426 $ 40 $ (162) $ (130) $ 1,136
======= ======= ======= ======= ======= =======
A schedule of the Company's reconciliation of property used in
stockyard operations carried for the three years ended October 31, 2003, 2002
and 2001 is as follows (000's omitted):
2003 2002 2001
---- ---- ----
Balance at beginning of year $ 1,176 $ 1,281 $ 1,237
Acquisitions 40 0 0
Improvements 32 29 44
Cost of property sold (112) (134) 0
------- ------- -------
Balance at end of year $ 1,136 $ 1,176 $ 1,281
------- ------- -------
(1) Substantially all of Canal's real property is pledged as collateral for
its debt obligations (see Note 5).
F-32
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
22. Property Held for Development or Resale
Property held for development or resale consist of approximately 113 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, 2003 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. 10/31/03
- ----------------- ---- --------- ---- --------- ------ --------
28 acres of land
in St. Joseph, MO
Acquired in 1942 $ 75 N/A N/A N/A N/A $ 75
10 acres of land
in S. St. Paul, MN
Acquired in 1937 144 N/A N/A N/A N/A 144
33 acres of land
in Sioux City, IA
Acquired in 1937 681 N/A N/A N/A N/A 681
------ ------ ------ ------ ------ ------
$ 900 $ 0 $ 0 $ 0 $ 0 $ 900
====== ====== ====== ====== ====== ======
A schedule of the Company's reconciliation of property held for
development or resale carried for the three years ended October 31, 2003, 2002
and 2001 is as follows (000's omitted):
2003 2002 2001
---- ---- ----
Balance at beginning of year $ 518 $ 620 $ 648
Acquisitions 0 0 0
Improvements 0 0 0
Cost of property sold (118) (102) (28)
Reclassification from property
on operating leases 500 0 0
----- ----- -----
Balance at end of year $ 900 $ 518 $ 620
----- ----- -----
(1) Substantially all of Canal's real property is pledged as collateral for
its debt obligations (see Note 5).
F-33
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
23. Minimum Future Rentals on Operating Leases
The following is a schedule by years of minimum future rentals on
operating leases as of October 31, 2003:
($ 000's Omitted)
-----------------
Year Ending Rental
October 31, Income (1)
----------- ----------
2004 $ 1,000
2005 1,050
2006 1,100
2007 1,150
2008 1,200
-------
$ 5,500
=======
(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-34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
January, 2004.
CANAL CAPITAL CORPORATION
By: /S/ Michael E. Schultz
----------------------------
Michael E. Schultz
President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ Michael E. Schultz President and Chief
- ---------------------- Executive Officer and Director
Michael E. Schultz (Principal Executive Officer) January 27, 2004
/S/ Reginald Schauder Vice President-Finance
- ---------------------- Secretary and Treasurer
Reginald Schauder (Principal Financial and
Accounting Officer) January 27, 2004
/S/ Asher B. Edelman Chairman of the Board
- ---------------------- and Director January 27, 2004
Asher B. Edelman
/S/ Gerald N. Agranoff Director January 27, 2004
- ----------------------
Gerald N. Agranoff
S-1