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

              |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
                  For the quarterly period ended April 30, 2007

             |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
                      For the transition period from ___ to ___

                             Commission File No.002-96666

                   Canal Capital Corporation and Subsidiaries
             (Exact name of registrant as specified in its charter)

            Delaware                                 510102492
(State or other jurisdiction of                 (I.R.S. Employer
 incorporation or organization)                 Identification No.)

    490 Wheeler Road, Suite 185  Hauppauge, NY         11788
     (Address of principal executive offices)        (Zip Code)

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

--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.

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 the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practical date:

       Title of each class          Shares outstanding at May 31, 2007
------------------------------      ----------------------------------
Common stock, $0.01 par value                4,326,929

<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
                            FORM 10-Q APRIL 30, 2007

                                      INDEX

The following documents are filed as part of this report:

Part I - Financial Information ............................................    3

Item I.  Condensed Financial Statements:

     Consolidated Balance Sheets - April 30, 2007
       and October 31, 2006 ...............................................    4

     Consolidated Statements of Operations and
       Comprehensive (Loss) Income for the Six Month
       Periods ended April 30, 2007 and 2006 ..............................    6

     Consolidated Statements of Changes in Stockholders'
       Equity for the One Year and Six Month Periods
       ended October 31, 2006 and April 30, 2007 ..........................   10

     Consolidated Statements of Cash Flows for the
       Six Month Periods ended April 30, 2007 and
       2006 ...............................................................   11

     Notes to Consolidated Financial Statements ...........................   13

Item II.  Management's Discussion and Analysis of
          Financial Condition .............................................   28

     Liquidity and Capital Resources ......................................   38

     Other Factors ........................................................   39

Item III.  Quantitative and Qualitative Disclosures
           About Market Risk ..............................................   39

Item IV.   Controls and Procedures ........................................   40

Part II    Other Information ..............................................   41

     Items 1 through 6 ....................................................   42

     Signatures and Certifications ........................................   43


                                        2

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION


                                        3

<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       APRIL 30, 2007 AND OCTOBER 31, 2006

<TABLE>
<CAPTION>
                                                         APRIL 30,    OCTOBER 31,
                                                            2007          2006
                                                        (UNAUDITED)    (AUDITED)
                                                        -----------   -----------
<S>                                                     <C>           <C>
ASSETS:

CURRENT ASSETS:

       CASH AND CASH EQUIVALENTS                        $         0   $    38,121

       MORTGAGE NOTE RECEIVABLE                           1,700,000     1,750,000

       NOTES AND ACCOUNTS RECEIVABLE, NET OF AN
         ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $ZERO AT
         BOTH APRIL 30, 2007 AND OCTOBER 31, 2006,          151,536       117,128

       ART INVENTORY, NET OF A VALUATION ALLOWANCE
         OF $648,400 AND $713,000 AT APRIL 30, 2007
         AND OCTOBER 31, 2006                               310,100       333,000

       STOCKYARDS INVENTORY                                   6,184        11,270

       PREPAID EXPENSES                                      91,605        33,885
                                                        -----------   -----------

            TOTAL CURRENT ASSETS                          2,259,425     2,283,404
                                                        -----------   -----------

NON-CURRENT ASSETS:

       PROPERTY ON OPERATING LEASES, NET OF
             ACCUMULATED DEPRECIATION OF $394,724
             AND $383,624 AT APRIL 30, 2007 AND
             OCTOBER 31, 2006, RESPECTIVELY               1,752,082     1,763,182
                                                        -----------   -----------

       PROPERTY USED IN STOCKYARD OPERATIONS, NET OF
             ACCUMULATED DEPRECIATION OF $200,961 AND
             $191,052 AT APRIL 30, 2007 AND OCTOBER
             31, 2006, RESPECTIVELY                       1,089,752     1,099,661
                                                        -----------   -----------

  OTHER ASSETS:

       PROPERTY HELD FOR DEVELOPMENT OR RESALE              102,785       149,260
       RESTRICTED CASH - TRANSIT INSURANCE                   81,906        49,746
       DEPOSITS AND OTHER ASSETS                              2,700       113,720
                                                        -----------   -----------

                                                            187,391       312,726
                                                        -----------   -----------

                                                        $ 5,288,650   $ 5,458,973
                                                        ===========   ===========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                        4

<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       APRIL 30, 2007 AND OCTOBER 31, 2006

<TABLE>
<CAPTION>
                                                      APRIL 30,2007    OCTOBER 31,2006
                                                        (UNAUDITED)        (AUDITED)
                                                      --------------   ---------------
<S>                                                    <C>              <C>
LIABILITIES & STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES:
       ACCOUNTS PAYABLE AND ACCRUED EXPENSES           $    298,684     $    282,968
       PENSION PLAN PAYABLE                                  91,785          126,844
       SALARIES PAYABLE - OFFICERS                           36,000           11,873
       ACCRUED PROFESSIONAL FEES                             78,458          112,417
       COMMERCIAL RENT TAX PAYABLE                                0           61,500
       INCOME TAXES PAYABLE                                  10,000           10,000
                                                       ------------     ------------
         TOTAL CURRENT LIABILITIES                          514,927          605,602
                                                       ------------     ------------

NON-CURRENT LIABILITIES:
       LONG-TERM PENSION LIABILITY                          331,271          331,271
       REAL ESTATE TAXES PAYABLE                            129,162          104,437
                                                       ------------     ------------
         TOTAL NON-CURRENT LIABILITIES                      460,433          435,708
                                                       ------------     ------------

LONG-TERM DEBT, RELATED PARTY                             2,687,000        2,687,000
                                                       ------------     ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

  PREFERRED STOCK, $0.01 PAR VALUE:
       10,000,000 SHARES AUTHORIZED; 8,014,137 AND
       8,014,137 SHARES ISSUED AND OUTSTANDING
       AT APRIL 30, 2007 AND OCTOBER 31,
       2006, RESPECTIVELY AND AGGREGATE LIQUIDATION
       PREFERENCE OF $10 PER SHARE FOR $ 80,141,370
       AND $80,141,370 AT APRIL 30, 2007 AND
       OCTOBER 31, 2006, RESPECTIVELY                        80,141           80,141

  COMMON STOCK, $0.01 PAR VALUE:
       10,000,000 SHARES AUTHORIZED; 5,313,794
       SHARES ISSUED AND 4,326,929 SHARES OUT-
       STANDING AT APRIL 30, 2007 AND OCTOBER 31,
       2006, RESPECTIVELY                                    53,138           53,138

  ADDITIONAL PAID-IN CAPITAL                             28,269,358       28,224,358

  ACCUMULATED DEFICIT                                   (14,086,571)     (13,811,198)

  986,865 SHARES OF COMMON STOCK
       HELD IN TREASURY, AT COST                        (11,003,545)     (11,003,545)

  COMPREHENSIVE INCOME:
    PENSION VALUATION RESERVE                            (1,686,231)      (1,812,231)
                                                       ------------     ------------
                                                          1,626,290        1,730,663
                                                       ------------     ------------

                                                       $  5,288,650     $  5,458,973
                                                       ============     ============
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                        5

<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE (LOSS) INCOME
                FOR THE SIX MONTHS ENDED APRIL 30, 2007 AND 2006

                                                         2007           2006
                                                      (UNAUDITED)    (UNAUDITED)
                                                      ----------     ----------

STOCKYARD OPERATIONS:

STOCKYARD REVENUES:
    YARD HANDLING AND AUCTION                         $1,653,423     $1,775,981
    FEED AND BEDDING INCOME                              113,223         80,982
    RENTAL & OTHER INCOME                                 82,006         71,529
                                                      ----------     ----------

                                                       1,848,652      1,928,492
                                                      ----------     ----------
STOCKYARD EXPENSES:
    LABOR AND RELATED COSTS                              743,425        707,131
    OTHER OPERATING AND MAINTENANCE                      406,575        419,560
    FEED AND BEDDING EXPENSE                             101,294         72,601
    DEPRECIATION AND AMORTIZATION                          9,909         10,434
    TAXES OTHER THAN INCOME TAXES                         89,970         87,033
    GENERAL AND ADMINISTRATIVE                           215,298        195,687
                                                      ----------     ----------

                                                       1,566,471      1,492,446
                                                      ----------     ----------

INCOME FROM STOCKYARD OPERATIONS                         282,181        436,046
                                                      ----------     ----------

REAL ESTATE OPERATIONS:

 REAL ESTATE REVENUES:
    SALE OF REAL ESTATE                                   75,000        375,000
    OUTSIDE REAL ESTATE RENT                             246,320        262,228
    EXCHANGE BUILDING RENTAL INCOME                       15,435         16,703
                                                      ----------     ----------

                                                         336,755        653,931
                                                      ----------     ----------
 REAL ESTATE EXPENSES:
    COST OF REAL ESTATE SOLD                              56,711        253,244
    LABOR, OPERATING AND MAINTENANCE                      40,842         43,721
    DEPRECIATION AND AMORTIZATION                         11,100         11,100
    TAXES OTHER THAN INCOME TAXES                         13,200         18,000
    GENERAL AND ADMINISTRATIVE                            21,200         15,200
                                                      ----------     ----------

                                                         143,053        341,265
                                                      ----------     ----------

INCOME FROM REAL ESTATE OPERATIONS                       193,702        312,666
                                                      ----------     ----------

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                        6
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE (LOSS) INCOME
                FOR THE SIX MONTHS ENDED APRIL 30, 2007 AND 2006
                                  Continued ...

                                                        2007            2006
                                                    (UNAUDITED)     (UNAUDITED)
                                                    -----------     -----------
GENERAL AND ADMINISTRATIVE EXPENSE                     (549,187)       (556,255)
                                                    -----------     -----------

(LOSS) INCOME FROM OPERATIONS                           (73,304)        192,457
                                                    -----------     -----------

OTHER (EXPENSE) INCOME:

  INTEREST & OTHER INCOME                                36,000          36,000
  INTEREST EXPENSE                                     (134,642)       (135,615)
  ART SALES AND OPERATIONS                               27,593           1,112
  LOSS ON SALE OF INVESTMENT                            (86,020)              0
                                                    -----------     -----------

                                                       (157,069)        (98,503)

(LOSS) INCOME BEFORE PROVISION FOR
  INCOME TAXES                                         (230,373)         93,954
PROVISION FOR INCOME TAXES                                    0               0
                                                    -----------     -----------

NET (LOSS) INCOME                                      (230,373)         93,954

OTHER COMPREHENSIVE INCOME:

  MINIMUM PENSION LIABILITY ADJUSTMENT                  126,000         126,000
                                                    -----------     -----------

COMPREHENSIVE (LOSS)INCOME                          $  (104,373)    $   219,954
                                                    ===========     ===========

NET (LOSS) INCOME PER COMMON SHARE
  BASIC AND DILUTED                                 $     (0.06)    $      0.01
                                                    ===========     ===========

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

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                        7

<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE (LOSS) INCOME
               FOR THE THREE MONTHS ENDED APRIL 30, 2007 AND 2006

                                                          2007           2006
                                                      (UNAUDITED)    (UNAUDITED)
                                                      -----------    -----------

STOCKYARD OPERATIONS:

STOCKYARD REVENUES:
    YARD HANDLING AND AUCTION                         $   750,357    $   813,369
    FEED AND BEDDING INCOME                                58,407         37,409
    RENTAL & OTHER INCOME                                  40,335         31,266
                                                      -----------    -----------

                                                          849,099        882,044
                                                      -----------    -----------
STOCKYARD EXPENSES:
    LABOR AND RELATED COSTS                               360,141        328,892
    OTHER OPERATING AND MAINTENANCE                       207,722        203,160
    FEED AND BEDDING EXPENSE                               55,946         34,857
    DEPRECIATION AND AMORTIZATION                           4,955          5,217
    TAXES OTHER THAN INCOME TAXES                          44,892         41,555
    GENERAL AND ADMINISTRATIVE                            104,852         95,100
                                                      -----------    -----------

                                                          778,508        708,781
                                                      -----------    -----------

INCOME FROM STOCKYARD OPERATIONS                           70,591        173,263
                                                      -----------    -----------

REAL ESTATE OPERATIONS:

 REAL ESTATE REVENUES:
    SALE OF REAL ESTATE                                         0         50,000
    OUTSIDE REAL ESTATE RENT                              123,145        132,836
    EXCHANGE BUILDING RENTAL INCOME                         7,718          8,378
                                                      -----------    -----------

                                                          130,863        191,214
                                                      -----------    -----------
 REAL ESTATE EXPENSES:
    COST OF REAL ESTATE SOLD                                    0         24,336
    LABOR, OPERATING AND MAINTENANCE                       19,319         23,221
    DEPRECIATION AND AMORTIZATION                           5,550          5,550
    TAXES OTHER THAN INCOME TAXES                           6,600          9,000
    GENERAL AND ADMINISTRATIVE                             11,100          8,100
                                                      -----------    -----------

                                                           42,569         70,207
                                                      -----------    -----------

INCOME FROM REAL ESTATE OPERATIONS                         88,294        121,007
                                                      -----------    -----------

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                        8
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE (LOSS) INCOME
               FOR THE THREE MONTHS ENDED APRIL 30, 2007 AND 2006
                                  Continued ...

                                                      2007              2006
                                                  (UNAUDITED)       (UNAUDITED)
                                                  -----------       -----------

GENERAL AND ADMINISTRATIVE EXPENSE                   (277,026)         (278,282)
                                                  -----------       -----------

(LOSS) INCOME FROM OPERATIONS                        (118,141)           15,988
                                                  -----------       -----------

OTHER (EXPENSE) INCOME:

  INTEREST & OTHER INCOME                              18,000            18,000
  INTEREST EXPENSE                                    (67,467)          (68,441)
  ART SALES AND OPERATIONS                             31,526             5,156
  LOSS ON SALE OF INVESTMENT                          (86,020)                0
                                                  -----------       -----------

                                                     (103,961)          (45,285)
                                                  -----------       -----------
(LOSS) INCOME BEFORE PROVISION FOR
  INCOME TAXES                                       (222,102)          (29,297)
PROVISION FOR INCOME TAXES                                  0                 0
                                                  -----------       -----------

NET (LOSS) INCOME                                    (222,102)          (29,297)

OTHER COMPREHENSIVE INCOME:

  MINIMUM PENSION LIABILITY ADJUSTMENT                 63,000            63,000
                                                  -----------       -----------

COMPREHENSIVE (LOSS)INCOME                        $  (159,102)      $    33,703
                                                  ===========       ===========

NET (LOSS) INCOME PER COMMON SHARE
  BASIC AND DILUTED                               $     (0.06)      $     (0.01)
                                                  ===========       ===========

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

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                        9
<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEAR ENDED OCTOBER 31, 2006 (AUDITED) AND
               FOR THE SIX MONTHS ENDED APRIL 30, 2007 (UNAUDITED)

                                 COMMON STOCK             PREFERRED STOCK
                              NUMBER                    NUMBER
                                OF                        OF
                              SHARES       AMOUNT       SHARES       AMOUNT

BALANCE, OCTOBER 31, 2005    5,313,794    $  53,138    7,050,836    $  70,508
 NET LOSS                            0            0            0            0
 PREFERRED STOCK DIVIDEND            0            0      963,301        9,633
 MINIMUM PEN. LIAB. ADJ.             0            0            0            0
                             ----------------------    ----------------------

BALANCE, OCTOBER 31, 2006    5,313,794    $  53,138    8,014,137    $  80,141
 NET LOSS                            0            0            0            0
 PREFERRED STOCK DIVIDEND            0            0            0            0
 MINIMUM PEN. LIAB. ADJ.             0            0            0            0
                             ----------------------    ----------------------

BALANCE, APRIL  30, 2007     5,313,794    $  53,138    8,014,137    $  80,141
                             ======================    ======================

<TABLE>
<CAPTION>
                                              ADDITIONAL                         TREASURY
                               PAID-IN       ACCUMULATED      COMPREHENSIV        STOCK,
                               CAPITAL         DEFICIT        (LOSS)INCOME       AT COST
<S>                          <C>             <C>              <C>              <C>
BALANCE, OCTOBER 31, 2005    $ 28,137,647    ($13,396,580)    ($ 2,048,687)    ($11,003,545)
 NET LOSS                               0        (322,424)               0                0
 PREFERRED STOCK DIVIDEND          86,711         (92,194)               0                0
 MINIMUM PEN. LIAB. ADJ.                0               0          236,456                0
                             ------------    ------------     ------------     ------------

BALANCE, OCTOBER 31, 2006    $ 28,224,358    ($13,811,198)    ($ 1,812,231)    ($11,003,545)
 NET LOSS                               0        (230,373)               0                0
 PREFERRED STOCK DIVIDEND          45,000         (45,000)               0                0
 MINIMUM PEN. LIAB. ADJ.                0               0          126,000                0
                             ------------    ------------     ------------     ------------
BALANCE, APRIL 30, 2007      $ 28,269,358    ($14,086,571)    ($ 1,686,231)    ($11,003,545)
                             ============    ============     ============     ============
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       10

<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED APRIL 30, 2007 AND 2006

                                                      APRIL 2007     APRIL 2006
                                                      ----------     ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  NET (LOSS) INCOME                                   $ (230,373)    $   93,954
                                                      ----------     ----------

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

   DEPRECIATION AND AMORTIZATION                          21,009         21,534

   GAIN ON SALES OF REAL ESTATE                          (18,289)      (121,756)

   GAIN ON ART SALES (NET OF RESERVE)                    (35,600)        (9,400)

   LOSS ON SALE OF INVESTMENT                             86,020              0

   MINIMUM PENSION LIABILITY ADJUSTMENT                  126,000        126,000

DECREASE (INCREASE) IN ASSETS:

   MORTGAGE NOTE RECEIVABLE - PROCEEDS                    50,000              0

   NOTES AND ACCOUNTS RECEIVABLE                         (34,408)       (47,501)

   STOCKYARDS INVENTORY                                    5,086          2,160

   PREPAID EXPENSES                                      (57,720)       (78,488)

   RESTRICTED CASH - TRANSIT INSURANCE                   (32,160)       (60,415)

INCREASE (DECREASE) IN LIABILITIES:

   ACCOUNTS PAYABLE AND ACCRUED EXPENSES                  15,716        (48,927)

   PENSION PLAN PAYABLE                                  (35,059)      (149,040)

   SALARIES PAYABLE - OFFICERS                            24,127        (70,259)

   ACCRUED PROFESSIONAL FEES                             (33,959)       (39,486)

   COMMERCIAL RENT TAX PAYABLE                           (61,500)             0

   REAL ESTATE TAXES PAYABLE                              24,725          4,841
                                                      ----------     ----------

        TOTAL ADJUSTMENTS                                 43,988       (470,737)
                                                      ----------     ----------

NET CASH USED BY OPERATING ACTIVITIES                   (186,385)      (376,783)
                                                      ----------     ----------

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       11

<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED APRIL 30, 2007 AND 2006
                                  Continued ...

                                                   APRIL 2007      APRIL 2006
                                                   -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:

  PROCEEDS FROM SALES OF REAL ESTATE                    75,000         375,000
  PROCEEDS FROM SALES OF ART                            58,500          28,800
  PROCEEDS FROM SALE OF INVESTMENT                      25,000               0
  COSTS RELATING TO SALES OF REAL ESTATE               (10,236)        (99,690)
  CAPITAL EXPENDITURES                                       0          (6,517)
                                                   -----------     -----------

  NET CASH PROVIDED BY INVESTING
  ACTIVITIES                                           148,264         297,593
                                                   -----------     -----------

NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                          (38,121)        (79,190)

CASH AND CASH EQUIVALENTS AT BEGN OF YEAR               38,121          79,190
                                                   -----------     -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR           $         0     $         0
                                                   ===========     ===========

                                                            APRIL 30,
                                                            ---------
                                                       2007            2006
                                                       ----            ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:

CASH PAID DURING THE YEAR FOR:

  INTEREST                                         $   134,642     $   135,615
                                                   ===========     ===========

  INCOME TAXES                                     $     8,000     $     5,000
                                                   ===========     ===========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES:

  PREFERRED STOCK DIVIDENDS                        $    45,000     $    30,000

                                                   ===========     ===========

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       12

<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE SIX MONTHS ENDED APRIL 30, 2007

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.

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

      Canal continues to closely monitor and reduce where possible its operating
expenses  and plans to continue  its program to develop or sell the  property it
holds  for  development  or  resale  as well as to  reduce  the level of its art
inventories to enhance current cash flows.  Management  believes that its income
from operations  combined with its cost cutting program and planned reduction of
its art  inventory  will enable it to finance its current  business  activities.
There can,  however,  be no assurance  that Canal will be able to effectuate its
planned art  inventory  reductions or that its income from  operations  combined
with its cost cutting  program in itself will be  sufficient  to fund  operating
cash requirements.

      Canal is engaged in two  distinct  businesses - stockyard  operations  and
real estate.

      Stockyard  Operations  -  Through  an  August  1,  1999  asset  repurchase
agreement,  Canal now  operates  two central  public  stockyards  located in St.
Joseph, Missouri and Sioux Falls, South Dakota.

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


                                       13
<PAGE>

veterinary services facilities,  auction arenas, auctioneers,  weigh masters and
scales, feed and bedding,  and security personnel.  In addition,  the stockyards
provide  other  services  including  pure  bred and  other  specialty  sales for
producer  organizations.  The Company  promotes its stockyard  business  through
public relations efforts, advertising, and personal solicitation of producers.

      Actual  marketing  transactions  at a stockyard  are managed for livestock
producers by market  agencies and independent  commission  sales people to which
the livestock are consigned for sale.  These market  agencies (some of which are
owned  and  operated  by the  Company)  and  independent  sales  people  receive
commissions  from the seller upon  settlement of a transaction and the stockyard
receives a yardage fee on all livestock  using the facility which is paid within
twenty-four  hours of the sale.  Yardage  fees vary  depending  upon the type of
animal, the extent of services provided by the stockyard, and local competition.
Yardage revenues are not directly dependent upon market prices, but rather are a
function of the volume of livestock  handled.  In general,  stockyard  livestock
volume is dependent upon conditions  affecting livestock production and upon the
market  agencies and  independent  commission  sales people which operate at the
stockyards.  Stockyard  operations are seasonal,  with greater volume  generally
experienced  during the first and fourth  quarters of each fiscal  year,  during
which periods livestock is generally brought to market.

      Virtually all of the volume at Canal's  Sioux Falls  stockyards is handled
through market agencies and independent  commission sales people,  while the St.
Joseph  stockyards  has  solicitation  operations  of its own which  account for
approximately 50% of its livestock volume annually.

      Canal  intends  to  continue  its  soliciting  efforts  at its St.  Joseph
stockyards  in fiscal 2007.  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 $6,000 and
$11,000 at April 30, 2007 and October 31, 2006, respectively.

      Stockyard operations resulted in operating income of $282,000 and $436,000
for the  six  month  periods  ended  April  30,  2007  and  2006,  respectively.
Additionally,  stockyard  operations  contributed  $1,849,000  and $1,928,000 to
Canal's  revenues  for the six month  periods  ended  April  30,  2007 and 2006,
respectively.

                                       14

<PAGE>

      Real Estate  Operations  - Canal's real estate  properties  are located in
Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri, Omaha, Nebraska
and Sioux Falls, South Dakota. The properties consist,  for the most part, of an
Exchange Building (commercial office space), land and structures leased to third
parties (rail car repair shops,  lumber yards and various other  commercial  and
retail  businesses) as well as vacant land available for  development or resale.
Its principal real estate operating  revenues are derived from lease income from
land and structures leased to various commercial and retail enterprises,  rental
income from its Exchange  Building,  and  proceeds  from the sale of real estate
properties.  In  addition to selling  what was excess  stockyard  property,  the
company  entertains any offers to purchase,  develop and restructure real estate
lots surrounding its existing  operating lease properties,  stockyard  operating
properties and properties held for development or resale in order to enhance the
value of the existing properties and surrounding real estate.

      Real estate  operations  resulted  in  operating  income of  $194,000  and
$313,000 for the six month periods ended April 30, 2007 and 2006,  respectively.
Included in the 2007 real estate  operating income is a $18,000 gain on the sale
of approximately 2 acres of vacant land located in Sioux City, Iowa. Included in
the 2006 real  estate  operating  income is a $122,000  gain on the sales of six
acres of vacant  land  located in South  Saint  Paul,  Minnesota  and a one acre
parcel of land located in Sioux City, Iowa. Additionally, real estate operations
contributed  $337,000 and $654,000 to Canal's revenues for the six month periods
ended April 30, 2007 and 2006, respectively.

      As of April 30, 2007, there are approximately 18 acres of undeveloped land
owned by Canal adjacent to its stockyard properties. In addition to selling what
was excess stockyard  property,  the company  entertains any offers to purchase,
develop and  restructure  real estate lots  surrounding  its existing  operating
lease  properties,  stockyard  operating  properties  and  properties  held  for
development  or resale in order to enhance the value of the existing  properties
and surrounding real estate.

      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  in Joint  Ventures  --  Investments  in  which  ownership
interest range from 20% to 50% or less owned joint ventures are accounted


                                       15

<PAGE>

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 $0 and $111,000 at April
30,2007 and October 31, 2006, respectively, and is included in other assets. The
operating  results of joint  ventures  accounted for on the equity  method,  for
fiscal year 2007, and 2006 were not material to financial statement presentation
and were therefore included in other income from real estate operations.

      C) 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  18  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.

      D)  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.

      E) Art  Inventory  Held for Sale - Inventory of art is valued at the lower
of  cost,  including  direct  acquisition  and  restoration   expenses,  or  net
realizable value on a specific  identification basis. The nature of art makes it
difficult to determine a replacement  value.  The most compelling  evidence of a
value in most cases is an  independent  appraisal.  In fiscal  2005  independent
appraisals  covered  approximately 46% of the art inventory value at October 31,
2005.  The net  realizable  value of Canals  remaining  art  inventory  has been
estimated by management  based in part on the Company's  history of art sales in
the current and previous years and in


                                       16

<PAGE>

part on the  results  of the  independent  appraisals  done in  previous  years.
However,  because of the nature of art  inventory,  such  determination  is very
subjective and, therefore,  the estimated values could differ significantly from
the amount ultimately realized.

      F) Income Taxes -- Canal and its subsidiaries file a consolidated  Federal
income tax return.  The Company  accounts for income  taxes under the  liability
method.  Under this method,  deferred tax assets and  liabilities are determined
based on  differences  between  financial  reporting and tax bases of assets and
liabilities.

      G)  Stockyard  Inventory  -  Inventory  is  stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.

      H)  Accounting  Estimates -- The  preparation  of financial  statements in
conformity with accounting  principles  generally  accepted in the United States
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

      I) Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period  covered.  All real estate leases are accounted for as operating
leases.  Revenues from 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.

      J)  Statements  of Cash  Flows -- The  Company  considers  all  short-term
investments with a maturity of three months or less to be cash equivalents. Cash
equivalents  primarily  include bank,  broker and time deposits with an original
maturity of less than three months. These investments are carried at cost, which
approximates  market value.  Canal made federal and state income tax payments of
$8,000 and $5,000 and  interest  payments of $135,000  and  $136,000 for the six
month period ended April 30, 2007 and 2006, respectively.


                                       17

<PAGE>

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

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

      M) Recent  Accounting  Pronouncements  -- In September  2006 the Financial
Accounting  Standards  Board  issued SFAS No.  158,  Employers'  Accounting  for
Defined  Benefit Pension and Other  Postretirement  Plans - an amendment of FASB
Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires  recognition of the
funded status of a defined benefit  postretirement plan on the balance sheet and
recognition  of changes in that  funded  status in the year in which the changes
occur through comprehensive income. It also requires the measurement date of the
plan's funded status to be the same as the Company's fiscal  year-end.  SFAS No.
158 is effective at the end of fiscal 2007, except for the change in measurement
date,  which is effective for fiscal 2008. The Company  believes the adoption of
SFAS No. 158 will have minimal effect on the financial statements.

            In September  2006, the SEC staff issued Staff  Accounting  Bulletin
(SAB) Topic IN (SAB 108),  "Financial  Statements -  Considering  the Effects of
Prior Year Misstatement when Quantifying Misstatements in Current Year Financial
Statements,"  which is effective for the year ending  October 31, 2007.  SAB 108
provides  guidance  on  how  prior  year  misstatements  should  be  taken  into
consideration   when   quantifying   misstatements  in  current  year  financial
statements  for purposes of  determining  whether the financial  statements  are
materially  misstated.  Under this guidance,  companies should take into account
both the effect of a  misstatement  on the current year balance sheet as well as
the impact upon the current year income  statement in assessing the  materiality
of a current  year  misstatement.  Once a  current  year  misstatement  has been
quantified,   the  guidance  in  61  SAB  Topic  IM,  "Financial   Statements  -
Materiality,"  (SAB 99) should be applied to determine  whether the misstatement
is  material.  The  implementation  of SAB 108 did not  have any  impact  on the
Company's financial statements.


                                       18

<PAGE>

            In July 2006, the FASB issued FASB  Interpretation  No. 48 (FIN 48),
"Accounting  for  Uncertainty  in  Income  Taxes."  FIN 48  prescribes  detailed
guidance for the financial statement recognition,  measurement and disclosure of
uncertain tax positions  recognized in an enterprise's  financial  statements in
accordance  with FASB  Statement  No. 109,  "Accounting  for Income  Taxes." The
Company is required to apply the  provisions  of this  interpretation  beginning
November 1, 2007.  The Company does not believe the adoption of FIN 48 will have
a material effect on the financial statements.

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

            3. INTERIM FINANCIAL STATEMENTS

            The interim  consolidated  financial statements included herein have
been prepared by Canal and in the opinion of Management, contain all adjustments
necessary to present fairly its financial  position as of April 30, 2007 and the
results  of its  operations  and its cash flows for the six month  period  ended
April  30,  2007.  All of the  above  referenced  adjustments  were of a  normal
recurring nature. Certain information and footnote disclosures normally included
in  financial   statements   prepared  in  accordance  with  generally  accepted
accounting principles have been condensed or omitted. These financial statements
should be read in conjunction with the consolidated financial statements for the
three years ended  October 31, 2006 and the notes thereto which are contained in
Canal's  2006  Annual  Report on Form 10-K.  The results of  operations  for the
period presented is not necessarily indicative of the results to be expected for
the remainder of fiscal 2007.

4. MORTGAGE NOTE RECEIVABLE

      On November 1, 2004 Canal sold its Exchange  Building  and the  associated
five acres of land located in South Saint Paul, Minnesota on a contract for deed
for $1,750,000.  Canal accepted a mortgage note for the full sales price,  which
note  carries  interest at a rate of 4.12% per annum,  payable in equal  monthly
installments.  During  the  second  fiscal  quarter  of 2007,  Canal  received a
principal payment of $50,000 on this mortgage note. The remaining balance of the
mortgage note of $1,700,000 is due and payable in full on October 31, 2007.


                                       19

<PAGE>

5. BORROWINGS

      The Company's variable rate mortgage notes (originally issued in 1998) are
due May 15, 2009 and are held entirely by the Company's Chief Executive  Officer
and members of his family. These notes carry interest at the rate of ten percent
per annum.  These notes,  among other  things,  prohibit  Canal from becoming an
investment  company as defined by the  Investment  Company Act of 1940;  require
Canal to  maintain  minimum  net worth;  restricts  Canal's  ability to pay cash
dividends or repurchase stock and require principal  prepayments to be made only
out of the proceeds from the sale of certain  assets.  As of April 30, 2007, the
balance due under  these notes was  $2,687,000,  all of which is  classified  as
long-term debt-related party.

      At April 30, 2007, 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:

                                                   April 30,  October 31,
($ 000's Omitted)                                    2007         2006
-----------------                                    ----         ----

Variable rate mortgage notes due
  May 15, 2009 - related party ..................   $ 2,687     $  2,687
Less -- current maturities ......................         0            0
                                                    -------     --------
Long-term debt                                      $ 2,687     $  2,687
                                                    -------     --------

      The following table  summarizes the Company's  commitments as of April 30,
2007 to make future  payments under its debt  agreements  and other  contractual
obligations (in 000's):

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

Pension Plan Liability (a)   $   423   $   92      $   243    $   88    $  0
Mortgage Notes Payable (b)     2,687        0        2,687         0       0
                             -------   ------      -------    ------    ----

                             $ 3,110   $   92      $ 2,930    $   88    $  0
                             -------   ------      -------    ------    ----

      (a)   See Note 16.

      (b)   The mortgage notes are due May 15, 2009 and are held entirely by the
            Company's Chief Executive  Officer and members of his family.  These
            notes  carry  annual  interest  of 10%  and  are  collateralized  by
            substantially  all  of  Canal's  property,   the  stock  of  certain
            subsidiaries and its art inventories.


                                       20

<PAGE>

6. RESTRICTED CASH - TRANSIT INSURANCE

      Transit insurance covers livestock for the period that they are in transit
to and physically at the  stockyards and under the care of stockyard  personnel.
This self  insurance  program  is funded by a per head  charge on all  livestock
received at the stockyard.  The restricted cash - transit insurance  balances of
approximately  $82,000  and  $50,000 at April 30,  2007 and  October  31,  2006,
respectively,  represents  the  excess  of per head  fees  charged  over  actual
payments made for livestock that was injured or died while at the stockyards.

7. INCOME TAXES

      At April 30, 2007,  the Company has net operating  loss  carryforwards  of
approximately  $12,700,000  that expire  through 2026.  For financial  statement
purposes, a valuation allowance has been provided to offset the net deferred tax
assets due to the cumulative net operating  losses incurred during recent years.
The  valuation  allowance  will be  reduced  when  and  if,  in the  opinion  of
management, significant positive evidence exists which indicates that it is more
likely  than not that the  Company  will be able to  realize  its  deferred  tax
assets.

8. ART INVENTORY HELD FOR SALE

      Canal is in the process of selling,  in an orderly  manner,  its remaining
art  inventory.  This  will be  accomplished  primarily  through  direct  sales,
consignment  arrangements with various  independent art dealers and through sale
at public art auctions. The Company's ability to dispose of its art inventory is
dependent  primarily on general economic  conditions and the  competitiveness of
the art market itself. Accordingly, there can be no assurance that Canal will be
successful  in  selling  its  art  inventory.   Canal  has  sold  one  piece  of
contemporary  art in the first six  months of  fiscal  2007 as  compared  to two
pieces of contemporary  art sold in the same period of fiscal 2006.  Canal's art
operations have generated  operating income of approximately  $28,000 and $1,000
in the six month periods ended April 30, 2007 and 2006, respectively.

      Antiquities  and  contemporary  art  represented  61%  ($189,l22)  and 39%
($120,978) and 57% ($189,122) and 43% ($143,878) of total art inventory at April
30,  2007 and  October  31,  2006,  respectively.  All of the  contemporary  art
inventory held for resale is comprised of the work of Jules Olitski.

      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 2007 Canal applied $64,600 of the valuation  allowance  against
sales, thereby, decreasing the total valuation allowance to $648,400 as of April
30, 2007 as compared to $713,000 at October 31, 2006.


                                       21

<PAGE>

9. PROPERTY ON OPERATING LEASES

      Property on operating  leases  consist of  approximately  37 acres of land
located in Omaha, Nebraska; S. St. Paul, Minnesota;  Sioux City, Iowa as well as
furniture  and  equipment  used in the  Hauppauge,  New  York  office.  Land and
structures  leased to third  parties  include  vacant land,  exchange  buildings
(commercial office space), meat packing facilities, railcar repair shops, lumber
yards and various other commercial and retail businesses.

      A schedule of the Company's property on operating leases at April 30, 2007
is as follows (000's omitted):

                                          Current Year
                                          (Retirements
                      Historical Cost       Additions
                      ----------------   ---------------          Carrying
                             Bldgs. &          Bldgs. &   Accum.    Value
Description (1)        Land  Imprvmts.   Land  Imprvmts.  Depr.   04/30/07
---------------        ----  ---------   ----  ---------  -----   --------
New York office
Leasehold assets      $    0  $     8   $   0   $     0   $    (8)  $     0

9 acres of land
in Omaha, NE           1,150       21       0         0       (12)    1,159
Acquired in 1976

10 acres of land
in S. St. Paul, MN        83      485       0         0      (375)      193
Acquired in 1937

18 acres of land
in Sioux City, IA        400        0       0         0         0       400
Acquired in 1937      ------  -------   -----   -------    ------   -------
                      $1,633  $   514   $   0   $     0    $ (395)  $ 1,752
                      ======  =======   =====   =======    ======   =======

      A schedule of the Company's reconciliation of property on operating leases
carried for the six months  ended April 30, 2007 and the year ended  October 31,
2006 is as follows (000's omitted):

                                         April 30,      October 31,
                                            2007           2006
                                         ----------     ----------
        Balance at beginning of year     $    1,763     $    1,840
        Acquisitions and Improvements             0              0
        Cost of property sold                     0            (53)
        Depreciation                            (11)           (24)
        Reclassifications                         0              0
                                         ----------     ----------
        Balance at end of the period     $    1,752     $    1,763
                                         ----------     ----------

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


                                       22

<PAGE>

10. PROPERTY USED IN STOCKYARD OPERATIONS

      Property used in stockyard operations consist of approximately 60 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 used in stockyard operations at April
30, 2007 is as follows (000's omitted):

                                           Current Year
                                          (Retirements)
                       Historical Cost       Additions
                       ----------------   ---------------           Carrying
                              Bldgs. &          Bldgs. &    Accum.   Value
Description (1)         Land  Imprvmts.   Land  Imprvmts.   Depr.   04/30/07
---------------         ----  ---------   ----  ---------   -----   --------

30 acres of land
in St. Joseph, MO      $  902   $ 200     $  0    $   0    $  (148)  $   954
Acquired in 1942

30 acres of land
in Sioux Falls, SD        100      89        0        0        (53)      136
                       ------   -----     ----    -----    -------   -------
Acquired in 1937
                       $1,002   $ 289     $  0    $   0    $  (201)  $ 1,090
                       ======   =====     ====    =====    =======   =======

      A schedule of the Company's  reconciliation  of property used in stockyard
operations  carried  for the six months  ended April 30, 2007 and the year ended
October 31, 2006 is as follows (000's omitted):

                                            April 30,     October 31,
                                              2007           2006
                                           ----------     ----------

          Balance at beginning of year     $    1,100     $    1,121
          Acquisitions and Improvements             0              0
          Cost of property sold                     0              0
          Depreciation                            (10)           (21)
                                           ----------     ----------
          Balance at end of the period     $    1,090     $    1,100
                                           ----------     ----------

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


                                       23

<PAGE>

11. PROPERTY HELD FOR DEVELOPMENT OR RESALE

      Property held for development or resale consist of  approximately 18 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
April 30, 2007 is as follows (000's omitted):

                                         Current Year
                                         (Retirements)
                      Historical Cost      Additions
                      ---------------   ---------------           Carrying
                            Bldgs. &           Bldgs. &   Accum.    Value
Description (1)       Land  Imprvmts.   Land  Imprvmts.   Depr.   04/30/07
---------------       ----  ---------   ----  ---------   -----   --------

16 acres of land
in St. Joseph, MO     $ 39    N/A      $    0    N/A       N/A      $ 39
Acquired in 1942

2 acres of land
in Sioux City, IA      110    N/A      $  (46)   N/A       N/A        64
Acquired in 1937      ----    ---      -------   ---       ---      ----
                      $149    $ 0      $  (46)   $ 0       $ 0      $103
                      ====    ===      =======   ===       ===      ====

      A  schedule  of  the  Company's   reconciliation   of  property  held  for
development  or resale  carried for the six months  ended April 30, 2007 and the
year ended October 31, 2006 is as follows (000's omitted):

                                           April 30,      October 31,
                                               2007           2006
                                           ----------     ----------

          Balance at beginning of year     $      149     $      300
          Acquisitions and Improvements             0              0
          Cost of property sold                   (46)          (151)
          Reclassification of property              0              0
                                           ----------     ----------
          Balance at end of the period     $      103     $      149
                                           ----------     ----------

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


                                       24
<PAGE>


12. LEASE COMMITMENTS

      In June 2004 Canal  entered  into a lease for  approximately  1,000 square
feet of office space in Hauppauge, New York at a monthly rental of approximately
$1,400. This lease expires May 31, 2010.

      Canal's  future  minimum  payments for the next five years  required under
operating leases that have initial or remaining  noncancellable  terms in excess
of one year as of April 30, 2007 are  $12,000,  $23,000,  $24,000 and $14,000 in
fiscal  2007,  2008,  2009 and  2010,  respectively.  There  are no  commitments
extending  past five years.  Net rent  expense  under these and other  operating
leases  was $8,000 in each of the six month  periods  ended  April 30,  2006 and
2005, respectivly.

13. 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
April 30, 2007 and October 31, 2006.

14. MINIMUM FUTURE RENTALS ON OPERATING LEASES

      Minimum future rentals consist primarily of rental income from leased land
and  structures,  Exchange  Building rents  (commercial  office space) and other
rental  activities,  all of which are  accounted  for as operating  leases.  The
estimated  minimum  future rentals on operating  leases are $500,000,  $525,000,
$550,000,  $575,000 and $600,000 for fiscal  years 2007,  2008,  2009,  2010 and
2011, respectively.

15. RELATED PARTY TRANSACTIONS

      Interest  Expense  Related  Party - At  April  30,  2007,  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,  2009.  Canal has incurred  interest  expense on these notes of $135,000 and
$136,000  and  for the  six  month  periods  ended  April  30,  2007  and  2006,
respectively.  At various times during  fiscal 2007 and 2006 certain  holders of
these notes have agreed to defer  interest  payments due them to help Canal with
its cash flow. All deferred interest  liability to date plus accrued interest at
a rate of 10% per annum, has been repaid as funds became available.  As of April
30,  2007,  the balance due under  these  notes was  $2,687,000  all of which is
classified as long-term debt related party.


                                       25
<PAGE>

16. PENSION VALUATION RESERVE

      The Pension Valuation Reserve  represents the excess of additional minimum
pension  liability  required  under the  provisions  of  Statement  of Financial
Accounting  Standards  ("SFAS") No. 132(R) 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.
132(R)) recognize the deficiency that exists.

      The components of net periodic benefit cost are as follows:

                                        Six Months Ended
                                       4/30/07     4/30/06
                                       -------------------

Service cost                             2,900      2,800

Interest cost                           50,100     50,400

Expected return on plan assets         (53,500)   (53,800)

Amortization of prior service cost           0          0

Recognized net actuarial loss          134,500    127,800
                                       -------    -------

Net periodic benefit cost              134,000    127,200
                                       =======    =======

For the six months ended April 30, 2007 amounts have been estimated, actual
amounts will be based on the discount rate and assets available at year end.

In fiscal 2007 the Company has made a $35,000 contribution into the pension
plan. The Company expects to make the balance of its fiscal 2007 required
contributions of approximately $92,000 into its pension plan before the end of
fiscal 2007.


                                       26

<PAGE>

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 and  operations  of the Company.  Canal was not a party to any ongoing
litigation at April 30, 2007.

      The following situation did arise in fiscal 2005:

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

      In 1989, the Company sold its 48 acre Portland, Oregon stockyard to Oregon
Waste  Systems,  Inc. On September  29, 2003,  the United  States  Environmental
Agency  (EPA)  placed  a 4.2  acre  portion  of that  property  on the  National
Priorities   List   pursuant  to  the   Comprehensive   Environmental   Response
Compensation and Liability Act (CERCLA), commonly known as the Superfund Act. In
a letter from the EPA dated June 27, 2005 the Company,  along with approximately
13 other  parties,  including  the current  owner and operator of the site,  was
notified  that it might be  liable  to  perform  or pay for the  remediation  of
environmental  contamination  found on and around the site. Since the receipt of
the  letter,  the Company  has been in  periodic  communications  with the other
parties who received a similar letter with respect to what action,  collectively
or individually,  should be taken in response to the EPA assertion of liability.
The  Company  believes  that the  remediation  of  contamination  of the site is
properly the  responsibility of other parties that have occupied and used it for
waste  recycling  purposes since 1961,  although under CERCLA the EPA is able to
assert  joint and  several  liability  against  all  parties  who ever  owned or
operated the site or generated or transported  wastes to it. This  investigation
is in its preliminary  stages and the Company  intends to vigorously  defend any
liability for remediation.  At April 30, 2007, the liability for remediation, if
any,  is not  estimatable  and  therefore  no accrual  has been  recorded in the
financial statements.


                                       27
<PAGE>


ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
         RESULTS OF OPERATIONS AND FINANCIAL CONDITION
         FOR THE SIX MONTHS ENDED APRIL 30, 2007

      You should read the following  discussion  together with the more detailed
business  information and  consolidated  financial  statements and related notes
that appear elsewhere in this report and in the documents that we incorporate by
reference into this report.  This report may contain  certain  "forward-looking"
information within the meaning of the Private  Securities  Litigation Reform Act
of 1995. This information  involves risks and uncertainties.  Our actual results
may  differ  materially  from  the  results  discussed  in  the  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed in "Risk factors".

Company Overview

      The  Registrant,  Canal Capital  Corporation  ("Canal" or the  "Company"),
incorporated  in the state of Delaware in 1964,  commenced  business  operations
through a predecessor in 1936.

      Canal is engaged in two distinct  businesses  -- stockyard and real estate
operations.

      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
consigned  for sale at the  stockyards  and the sale of feed  and  bedding.  See
"Stockyard Operations".

      Real Estate  Operations  - Canal's real estate  properties  are located in
Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri, Omaha, Nebraska
and Sioux Falls, South Dakota. The properties consist,  for the most part, of an
Exchange Building (commercial office space), land and structures leased to third
parties  (meat  packing  facilities,  rail car repair  shops,  lumber  yards and
various other commercial and retail businesses) as well as vacant land available
for  development  or resale.  Its principal real estate  operating  revenues are
derived from lease income from land and structures leased to various  commercial
and retail enterprises,  rental income from its Exchange Building,  and proceeds
from the sale of real estate properties. In addition to selling what was excess


                                       28

<PAGE>

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".

      Stockyard Operations

      General - Through an August 1, 1999 asset repurchase agreement,  Canal now
operates two central public stockyards located in St. Joseph, Missouri and Sioux
Falls, South Dakota.

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

      Actual  marketing  transactions  at a stockyard  are managed for livestock
producers by market  agencies and independent  commission  sales people to which
the livestock are consigned for sale.  These market  agencies (some of which are
owned  and  operated  by the  Company)  and  independent  sales  people  receive
commissions  from the seller upon  settlement of a transaction and the stockyard
receives a yardage fee on all livestock  using the facility which is paid within
twenty-four  hours of the sale.  Yardage  fees vary  depending  upon the type of
animal, the extent of services provided by the stockyard, and local competition.
Yardage revenues are not directly dependent upon market prices, but rather are a
function of the volume of livestock  handled.  In general,  stockyard  livestock
volume is dependent upon conditions  affecting livestock production and upon the
market  agencies and  independent  commission  sales people which operate at the
stockyards.  Stockyard  operations are seasonal,  with greater volume  generally
experienced  during the first and fourth  quarters of each fiscal  year,  during
which periods livestock is generally brought to market.


                                       29
<PAGE>

      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 2007.  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  $0.3
million while  contributing  approximately  $1.8 million to Canal's revenues for
the first six months of fiscal 2007.

      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.

      Real Estate Operations

      General - Canal is involved in the management,  development or sale of its
real estate properties  located in five Midwest states.  Real estate operations,
resulted in operating income of $0.2 million, while contributing $0.3 million to
Canal's  revenues  for the six months  ended  April 30,  2007.  In the first six
months of fiscal  2007,  Canal sold a two acre parcel of vacant land  located in
Sioux City, Iowa for $75,000, generating operating income of $18,000.


                                       30

<PAGE>

      As of April 30, 2007, there are approximately 18 acres of undeveloped land
owned by Canal located in five Midwest states.  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 Building and undeveloped properties in fiscal 2007.

      Risk - Real estate  activities in general may involve  various  degrees of
risk,  such as the  ability to collect  receivables,  competition  for  tenants,
general  market  conditions  and interest  rates.  Furthermore,  there can be no
assurance that Canal will be successful in the development, lease or sale of its
real estate properties.

      Competition - Canal competes in the area of real estate  development  with
other  regional  developers,  some of which are  substantially  larger  and have
significantly  greater  financial  resources  than Canal.  To a certain  extent,
Canal's  real estate  revenues  are  dependent  on the ability of the  stockyard
operations and the various meat packers located  adjacent to Canal's  properties
to successfully compete in their respective businesses.

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.

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

                                       31

<PAGE>

      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 had varying percentages of its art
inventory appraised by independent appraisers in previous years. For fiscal 2007
the net realizable value of Canals remaining art inventory has been estimated by
management  based in part on the  Company's  history of art sales in the current
and previous years and in part on the results of the independent appraisals done
in previous years.

      Properties and Related  Depreciation -- Properties are stated at cost less
accumulated  depreciation.  Depreciation is provided on the straight-line method
over the estimated useful lives of the properties. Such lives are estimated from
35 to 40  years  for  buildings  and  from 5 to 20 years  for  improvements  and
equipment.

      Property held for  Development or Resale -- Property held for  development
or  resale  consist  of  approximately  18  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.


                                       32

<PAGE>

Results of Operations

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

                                                    Six Months Ended April 30,
                                                    --------------------------
                                                       2007            2006
                                                       ----            ----
                                                         (In Thousands)
Revenues:

Stockyard Revenue                                    $ 1,848         $ 1,928
Real Estate Revenue                                      337             654
                                                     -------         -------
    Total Revenue                                      2,185           2,582
                                                     -------         -------

Costs and Expenses:

Stockyard Expenses                                     1,566           1,492
Real Estate Expenses                                     143             341
General and Administrative Expenses                      549             556
                                                     -------         -------
     Total Costs and Expenses                          2,258           2,389
                                                     -------         -------

(Loss) Income from Operations                            (73)            193

Other Income                                              64              37
Other Expenses                                          (221)           (136)
                                                     -------         -------
Net (Loss)Income                                     $  (230)        $    94
                                                     -------         -------

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

      Canal  recognized  a net loss of  approximately  $230,000 in the first six
months of fiscal  2007 as  compared to net income of $94,000 for the same period
in fiscal 2006. After  recognition of preferred stock dividend payments (paid in
additional  shares of  preferred  stock for each of  fiscal  2007,  and 2006) of
$45,000 and $30,000 in 2007 and 2006, respectively.  The results attributable to
common  stockholders  were a net  loss of  $275,000  in 2007 and net  income  of
$64,000 in 2006.


                                       33

<PAGE>

      Canal's revenues from continuing  operations  consist of revenues from its
stockyard and real estate operations.  Revenues in 2007 decreased by $397,000 to
$2,185,000  as  compared  with 2006  revenues  of  $2,582,000.  The fiscal  2007
decrease in revenues is due primarily to the $317,000  decrease in sales of real
estate.

COMPARISON OF FISCAL PERIODS ENDED APRIL 30, 2007 AND 2006

Stockyard Revenues

      Stockyard  revenues for the six months ended April 30, 2007 of  $1,848,000
accounted  for 84.6% of the  fiscal  2007  revenues  as  compared  to  stockyard
revenues of  $1,928,000  or 74.7% for the same period in fiscal  2006.  The 2007
increase  in the  stockyard  revenues  as a percent  of total  revenues,  is due
primarily  to the  decrease  in sales of real estate for the first six months of
2007.  Stockyard  revenues are comprised of yard handling and auction (89.4% and
92.1%),  feed and  bedding  income  (6.1% and 4.2%) and rental and other  income
(4.5%  and  3.7%)  for the six month  periods  ended  April  30,  2007 and 2006,
respectively.  There were no  significant  percentage  variations in the year to
year comparisons.

Stockyard Revenues

      Stockyard  revenues  for the three months ended April 30, 2007 of $849,000
accounted  for 86.7% of the  fiscal  2007  revenues  as  compared  to  stockyard
revenues  of  $882,000  or 82.2% for the same  period in fiscal  2006.  The 2007
increase  in the  stockyard  revenues  as a percent  of total  revenues,  is due
primarily to the decrease in sales of real estate for the second fiscal  quarter
of 2007.  Stockyard  revenues are comprised of yard handling and auction  (88.4%
and 92.2%),  feed and bedding income (6.9% and 4.2%) and rental and other income
(4.7% and  3.6%) for the three  month  periods  ended  April 30,  2007 and 2006,
respectively.  There were no  significant  percentage  variations in the year to
year comparisons.

Stockyard Expenses

      Stockyard  expenses for the six months ended April 30, 2007 of  $1,566,000
increased by $74,000 (5.0%) from  stockyard  expenses of $1,492,000 for the same
period in fiscal 2006.  Stockyard  expenses  are  comprised of labor and related
costs (47.5% and 47.4%), other operating and maintenance (26.0% and 28.1%), feed
and bedding expense (6.5% and 4.9%),  depreciation  and  amortization  (0.6% and
0.7%),   taxes  other  than  income  taxes  (5.7%  and  5.8%)  and  general  and
administrative  expense  (13.7% and 13.1%) for the six month periods ended April
30, 2007 and 2006, respectively. There were no significant percentage variations
in the year to year comparisons.


                                       34

<PAGE>

Stockyard Expenses

      Stockyard  expenses  for the three months ended April 30, 2007 of $779,000
increased  by $70,000  (9.8%) from  stockyard  expenses of $709,000 for the same
period in fiscal 2006.  Stockyard  expenses  are  comprised of labor and related
costs (46.3% and 46.4%), other operating and maintenance (26.7% and 28.7%), feed
and bedding expense (7.2% and 4.9%),  depreciation  and  amortization  (0.6% and
0.7%),   taxes  other  than  income  taxes  (5.8%  and  5.9%)  and  general  and
administrative expense (13.4% and 13.4%) for the three month periods ended April
30, 2007 and 2006, respectively. There were no significant percentage variations
in the year to year comparisons.

Real Estate Revenues

      Real estate  revenues  for the six months ended April 30, 2007 of $337,000
accounted  for 15.4% of the fiscal  2007  revenues  as  compared  to real estate
revenues of $654,000  or 25.3% for the same  period in fiscal  2006.  The fiscal
2007 decrease in real estate  revenues as a percentage of total  revenues is due
primarily to the sharp increase in sales of real estate for the first six months
of 2006.  Real estate  revenues are  comprised of sale of real estate (22.3% and
57.4%),  rentals  and other  lease  income  from the  rental of vacant  land and
certain  structures  (73.1% and 40.1%) and rental income from commercial  office
space in its Exchange  Buildings  (4.6% and 2.5%) for the six months ended April
30, 2007 and 2006, respectively.  The increase in rentals and other lease income
from the rental of vacant land and certain  structures  as a percentage of total
revenues is due primarily to the decrease in sales of real estate.

Real Estate Revenues

      Real estate revenues for the three months ended April 30, 2007 of $131,000
accounted  for 13.3% of the fiscal  2007  revenues  as  compared  to real estate
revenues of $191,000  or 17.8% for the same  period in fiscal  2006.  The fiscal
2007 decrease in real estate  revenues as a percentage of total  revenues is due
primarily  to the sharp  increase in sales of real estate for the second  fiscal
quarter of 2006. Real estate revenues are comprised of sale of real estate (0.0%
and 26.2%),  rentals  and other lease  income from the rental of vacant land and
certain  structures  (94.1% and 69.5%) and rental income from commercial  office
space in its Exchange Buildings (5.9% and 4.3%) for the three months ended April
30, 2007 and 2006, respectively.  The increase in rentals and other lease income
from the rental of vacant land and certain  structures  as a percentage of total
revenues is due primarily to the decrease in sales of real estate.


                                       35

<PAGE>

Real Estate Expenses

      Real estate  expenses  for the six months ended April 30, 2007 of $143,000
decreased by $198,000 (58.1%) from real estate expenses of $341,000 for the same
period in fiscal 2006. The sharp decrease in real estate  expenses is due to the
2007  decrease in real estate sales.  Real estate  expenses are comprised of the
cost of real estate sold (39.6% and 74.2%),  labor,  operating  and  maintenance
(28.6% and 12.8%),  depreciation and amortization  (7.8% and 3.3%),  taxes other
than income taxes (9.2% and 5.3%) and general and administrative expenses (14.8%
and 4.4%) for the six months  ended April 30, 2007 and 2006,  respectively.  The
percentage  variations in the year to year  comparisons are due primarily to the
significant decrease in the cost of real estate sold in fiscal 2007.

Real Estate Expenses

      Real estate  expenses for the three months ended April 30, 2007 of $43,000
decreased by $27,000  (39.4%) from real estate  expenses of $70,000 for the same
period in fiscal 2006. The sharp decrease in real estate  expenses is due to the
2007  decrease in real estate sales.  Real estate  expenses are comprised of the
cost of real estate  sold (0.0% and 34.7%),  labor,  operating  and  maintenance
(45.4% and 33.1%),  depreciation and amortization  (13.0% and 7.9%), taxes other
than income  taxes  (15.5% and 12.8%) and general  and  administrative  expenses
(26.1%  and  11.5%)  for the  three  months  ended  April  30,  2007  and  2006,
respectively.  The percentage variations in the year to year comparisons are due
primarily to the significant  decrease in the cost of real estate sold in fiscal
2007.

General and Administrative

      General and  administrative  expenses  for the six months  ended April 30,
2007 of $549,000  decreased by $7,000  (1.3%) from  expenses of $556,000 for the
same period in fiscal 2006. The major  components of general and  administrative
expenses are officers  salaries  (43.2% and 41.8%),  pension  expense (22.9% and
22.7%),  insurance  expense (4.6% and 6.2%),  office  salaries  (8.6% and 8.8%),
travel expense (3.3% and 3.2%), rent (1.6% and 1.5%) and professional fees (4.8%
and 4.8%) for the six month periods ended April 30, 2007 and 2006, respectively.
There are no significant percentage variations in the year to year comparisons.

General and Administrative

      General and  administrative  expenses for the three months ended April 30,
2007 of $277,000  decreased by $1,000  (0.5%) from  expenses of $278,000 for the
same period in fiscal 2006. The major components of general and


                                       36

<PAGE>

administrative expenses are officers salaries (42.8% and 41.8%), pension expense
(22.7% and 22.6%),  insurance expense (4.5% and 6.1%), office salaries (8.5% and
8.6%),  travel  expense (2.8% and 2.7%),  rent (1.6% and 1.5%) and  professional
fees (4.8% and 4.7%) for the three month  periods ended April 30, 2007 and 2006,
respectively. There are no significant percentage variations in the year to year
comparisons.

Interest and Other Income

      Interest  and other  income for the six  months  ended  April 30,  2007 of
$36,000 was  unchanged  for the same period in fiscal  2006.  Interest and other
income  is  comprised  primarily  of  interest  income  on the  $1,700,000  note
receivable associated with the fiscal 2005 sale of the company's South St. Paul,
Minnesota  Exchange  Building.  This  property  was sold on a contract  for deed
payable in October 2007.

Interest Expense

      Interest  expense for the six months  ended April 30, 2007 of $135,000 was
unchanged for the same period in fiscal 2006. The principal balances outstanding
at April 30, 2007 and October 31, 2006 was  $2,687,000.  The interest rate (10%)
on Canal's  variable rate mortgage notes has remained  unchanged for the past 12
months.  There  are no  significant  percentage  variations  in the year to year
comparisons.

(Expense) Income from Art Sales

      Other  income  from art sales for the six months  ended  April 30, 2007 of
$28,000  increased by $27,000 from income from arts sales of $1,000 for the same
period in fiscal 2006. Canal sold one piece of contemporary art in the first six
months of fiscal 2007 as compared to two pieces of contemporary  art sold in the
same period in fiscal 2006.  Art revenues are comprised of the proceeds from the
sale of  antiquities  and  contemporary  art.  Canal  recognized  gross sales of
$59,000  and $29,000  for the six month  periods  ended April 30, 2007 and 2006,
respectively.  Art  expenses are  comprised  of the cost of  inventory  sold and
selling,  general and administrative  expenses. Canal incurred cost of inventory
sold of $23,000  and  $20,000  (net of a  valuation  allowance  of  $65,000  and
$55,000) as well as selling,  general and administrative  expenses of $8,000 and
$8,000 for the six month periods ended April 30, 2007 and 2006, respectively. It
is the Company's  policy to use the adjusted  carrying value for sales,  thereby
reducing the valuation reserve proportionately as the inventory is sold.


                                       37

<PAGE>

Liquidity and Capital Resources

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

      The Company's  variable rate mortgage notes (originally issued in 1998 and
amended  several times since then) are due May 15, 2009 and are held entirely by
the Company's  Chief  Executive  Officer and members of his family.  These notes
carry  interest at the rate of ten percent per annum.  These notes,  among other
things,  prohibit  Canal from becoming an  investment  company as defined by the
Investment  Company Act of 1940;  require  Canal to maintain  minimum net worth;
restricts  Canal's ability to pay cash dividends or repurchase stock and require
principal  prepayments  to be made  only  out of the  proceeds  from the sale of
certain  assets.  As of April 30,  2007,  the  balance due under these notes was
$2,687,000, all of which is classified as long-term debt-related party.

      Cash and cash  equivalents  of $0 at April 30, 2007  decreased  $38,000 or
100.0% from $38,000 at October 31, 2006.  Net cash used by  operations in fiscal
2007 was $161,000.  Substantially all of the 2007 net proceeds from the sales of
real  estate  of  $75,000  was used in  operations.  During  fiscal  2007  Canal
decreased the balance of its liabilities by a total of $66,000.

      At April 30, 2007 the Company's current assets exceed current  liabilities
by $1.7 million which was an increase of $0.1 million as compared to October 31,
2006 when the Company's  current  assets  exceeded  current  liabilities by $1.6
million.  The only required  principal  repayments under Canal's debt agreements
for  fiscal  2007  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


                                       38
<PAGE>

that its income from operations combined with its cost cutting program in itself
will be sufficient to fund operating cash requirements.

Other Factors

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

ITEM III. Quantitative and Qualitative Disclosures About Market Risk

      The  Securities  and  Exchange  Commission's  rule  related to market risk
disclosure  requires  that we describe and quantify  our  potential  losses from
market risk sensitive  instruments  attributable  to reasonably  possible market
changes.  Market risk sensitive  instruments  include all financial or commodity
instruments and other financial  instruments (such as investments and debt) that
are sensitive to future  changes in interest  rates,  currency  exchange  rates,
commodity  prices or other  market  factors.  We are not exposed to market risks
from changes in foreign  currency,  exchange  rates or commodity  prices.  As of
April 30, 2007, 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  April  30,  2007,  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
          April 30,         ($ US)       Interest Rate      Value
         ----------       ----------     -------------      -----
            2007           $     0            N/A
            2008                 0            N/A
            2009             2,687            10%
            2010                 0            N/A
            2011                 0            N/A
            Thereafter           0            N/A
                           -------
            Total          $ 2,687                          N/A (A)
                           -------                          -------

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


                                       39

<PAGE>

ITEM IV. Controls and Procedures

      Our  management,  which  includes  our Chief  Executive  Officer and Chief
Financial  Officer,  has  conducted an evaluation  of the  effectiveness  of our
disclosure  controls and procedures (as defined in Rule 13(a)-14(c)  promulgated
under the Securities Exchange Act of 1934) as of April 30, 2007 ("the Evaluation
Date")  within 45 days prior to the filing date of this report.  Based upon that
evaluation our Chief  Executive  Officer and Chief Financial  Officer  concluded
that our disclosure  controls and procedures are effective for timely gathering,
analyzing  and  disclosing  the  information  we are required to disclose in our
reports filed under the Securities Exchange Act of 1934, as amended.  There have
been no significant  changes made in our internal controls or other factors that
could  significantly  effect our internal controls  subsequent to the Evaluation
Date.

                                       40

<PAGE>

                                     PART II

                                OTHER INFORMATION

                                       41

<PAGE>

Item 1: Legal Proceedings:

      Also see Item 3 of Canal's October 31, 2006 Form 10-K.

      Canal and its  subsidiaries  are from time to time  involved in litigation
incidental to their normal business activities, none of which, in the opinion of
management,  will have a material adverse effect on the  consolidated  financial
condition and  operations  of the Company.  Canal was not a party to any ongoing
litigation at April 30, 2007.

The following situation did arise in fiscal 2005:

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

      In 1989, the Company sold its 48 acre Portland, Oregon stockyard to Oregon
Waste  Systems,  Inc. On September  29, 2003,  the United  States  Environmental
Agency  (EPA)  placed  a 4.2  acre  portion  of that  property  on the  National
Priorities   List   pursuant  to  the   Comprehensive   Environmental   Response
Compensation and Liability Act (CERCLA), commonly known as the Superfund Act. In
a letter from the EPA dated June 27, 2005 the Company,  along with approximately
13 other  parties,  including  the current  owner and operator of the site,  was
notified  that it might be  liable  to  perform  or pay for the  remediation  of
environmental  contamination  found on and around the site. Since the receipt of
the  letter,  the Company  has been in  periodic  communications  with the other
parties who received a similar letter with respect to what action,  collectively
or individually,  should be taken in response to the EPA assertion of liability.
The  Company  believes  that the  remediation  of  contamination  of the site is
properly the  responsibility of other parties that have occupied and used it for
waste  recycling  purposes since 1961,  although under CERCLA the EPA is able to
assert  joint and  several  liability  against  all  parties  who ever  owned or
operated the site or generated or transported  wastes to it. This  investigation
is in its preliminary  stages and the Company  intends to vigorously  defend any
liability for remediation.  At April 30, 2007, the liability for remediation, if
any,  is not  estimatable  and  therefore  no accrual  has been  recorded in the
financial statements.

Item 2 and 3: Not applicable.

Item 4: Submission of Matters to a Vote of Security Holders: None.

Item 5: Other Information: None.

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


                                       42

<PAGE>

                                   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 8th day of
June, 2007.

                                     CANAL CAPITAL CORPORATION


                                     By: /S/ Michael E. Schultz
                                         ----------------------------
                                         Michael E. Schultz
                                         President and Chief
                                         Executive Officer
                                         (Principal Executive Officer)

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

      Signature                      Title                    Date
      ---------                      -----                    ----


                             President and Chief
/S/ Michael E. Schultz   Executive Officer and Director
----------------------    (Principal Executive Officer)    June 8, 2007
Michael E. Schultz


                            Vice President-Finance
                            Secretary and Treasurer
/S/ Reginald Schauder       (Principal Financial and
----------------------        Accounting Officer)          June 8, 2007
Reginald Schauder


/S/ Asher B. Edelman          Chairman of the Board
----------------------          and Director               June 8, 2007
Asher B. Edelman


                                       43