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, 2005

              |_| 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                                          51-0102492
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

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

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

                         717 Fifth Avenue, New York, NY
               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, 2005
Common stock, $0.01 par value                             4,326,929

(This document contains 45 pages)

<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
                            FORM 10-Q APRIL 30, 2005

                                      INDEX

The following documents are filed as part of this report:

Accountants' Review Report .................................................   3

Part I - Financial Information .............................................   4

Item I.  Condensed Financial Statements:

     Consolidated Balance Sheets - April 30, 2005
       and October 31, 2004 ................................................   5

     Consolidated Statements of Operations and
       Comprehensive Income (Loss) for the Six and Three
       Month Periods ended April 30, 2005 and 2004..........................   7

     Consolidated Statements of Changes in
       Stockholders' Equity for the One Year and
       Six Month Periods ended October 31, 2004 and
       April 30, 2005 ......................................................  11

     Consolidated Statements of Cash Flows for the
       Six Month Periods ended April 30, 2005 and
       2004 ................................................................  12

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

Item II.  Management's Discussion and Analysis of
          Financial Condition ..............................................  26

     Liquidity and Capital Resources .......................................  35

     Other Factors .........................................................  36

Item III. Quantitative and Qualitative Disclosures
          About Market Risk ................................................  37

Item IV.  Controls and Procedures ..........................................  37

Part II - Other Information ................................................  38

     Items 1 through 6 .....................................................  39

     Signatures and Certifications .........................................  40


                                       2
<PAGE>

                           ACCOUNTANTS' REVIEW REPORT

To the Stockholders of Canal Capital Corporation:

We have reviewed the consolidated balance sheet of Canal Capital Corporation and
subsidiaries  as of April 30,  2005,  the  related  consolidated  statements  of
operations and  comprehensive  income (loss) for the three and six month periods
ended April 30, 2005 and the consolidated statements of changes in stockholders'
equity and cash  flows for the six month  period  ended  April 30,  2005.  These
consolidated  financial  statements  are  the  responsibility  of the  company's
management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and making  inquiries of persons  responsible  for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion regarding the consolidated  financial  statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the  consolidated  financial  statements for them to be in conformity
with generally accepted accounting principles.

The  financial  statements  have been  prepared  assuming  that the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has suffered  recurring  losses from operations in eight of the last
ten years and is obligated to continue making substantial  annual  contributions
to its defined  benefit  pension plan.  All of these  matters raise  substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard to these matters are also described in Note 1. The  accompanying
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification of recorded asset amounts or the amounts and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going concern.


New York, N.Y.                               /S/ Todman & Co., CPA's,P.C.
June 9, 2005                                 ----------------------------
                                             TODMAN & CO., CPA's,P.C.
                                             Certified Public Accountants (N.Y.)


                                       3
<PAGE>

                                     PART I

                              FINANCIAL INFORMATION


                                       4
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       APRIL 30, 2005 AND OCTOBER 31, 2004

                                                        APRIL 30,    OCTOBER 31,
                                                          2005          2004
                                                       (UNAUDITED)    (AUDITED)
                                                       -----------   -----------

ASSETS:

CURRENT ASSETS:

     CASH AND CASH EQUIVALENTS                         $         0   $    86,158
     NOTES AND ACCOUNTS RECEIVABLE, NET OF AN
       ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $ZERO AT
       BOTH APRIL 30, 2005 AND OCTOBER 31, 2004,           138,972       281,533
     ART INVENTORY, NET OF A VALUATION ALLOWANCE OF
       $913,900 AND $938,300 AT APRIL 30, 2005
       AND OCTOBER 31, 2004, RESPECTIVELY                  375,900       413,200
     STOCKYARDS INVENTORY                                    6,829        10,122
     PREPAID EXPENSES                                       76,629        32,985
                                                       -----------   -----------

          TOTAL CURRENT ASSETS                             598,330       823,998
                                                       -----------   -----------

NON-CURRENT ASSETS:

     PROPERTY ON OPERATING LEASES, NET OF
          ACCUMULATED DEPRECIATION OF $346,848
          AND $1,176,248 AT APRIL 30, 2005 AND
          OCTOBER 31, 2004, RESPECTIVELY                 1,853,139     2,715,485
                                                       -----------   -----------

     PROPERTY USED IN STOCKYARD OPERATIONS, NET OF
          ACCUMULATED DEPRECIATION OF $158,982 AND
          $148,508 AT APRIL 30, 2005 AND OCTOBER
          31, 2004, RESPECTIVELY                         1,131,731     1,142,205
                                                       -----------   -----------

     LONG-TERM MORTGAGE NOTE RECEIVABLE                  1,750,000             0
                                                       -----------   -----------

OTHER ASSETS:

     PROPERTY HELD FOR DEVELOPMENT OR RESALE               817,435       817,435
     RESTRICTED CASH - TRANSIT INSURANCE                    53,544        50,000
     DEFERRED LEASING AND FINANCING COSTS                        0        12,075
     DEPOSITS AND OTHER                                    113,720       120,220
                                                       -----------   -----------

                                                           984,699       999,730
                                                       -----------   -----------

                                                       $ 6,317,899   $ 5,681,418
                                                       ===========   ===========


                                       5
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       APRIL 30, 2005 AND OCTOBER 31, 2004

<TABLE>
<CAPTION>
                                                        APRIL 30,      OCTOBER 31,
                                                           2005           2004
                                                       (UNAUDITED)      (AUDITED)
                                                      ------------    ------------
<S>                                                   <C>             <C>
LIABILITIES & STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES:

       ACCOUNTS PAYABLE AND ACCRUED EXPENSES          $    500,987    $    770,564
       INCOME TAXES PAYABLE                                  5,000          10,000
                                                      ------------    ------------

         TOTAL CURRENT LIABILITIES                         505,987         780,564
                                                      ------------    ------------

NON-CURRENT LIABILITIES:

       LONG-TERM PENSION LIABILITY                         934,976         934,976
       REAL ESTATE TAXES PAYABLE                           324,340         308,116
                                                      ------------    ------------

         TOTAL NON-CURRENT LIABILITIES                   1,259,316       1,243,092
                                                      ------------    ------------

LONG-TERM DEBT, RELATED PARTY                            2,767,000       2,767,000
                                                      ------------    ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

  PREFERRED STOCK, $0.01 PAR VALUE:
       10,000,000 SHARES AUTHORIZED; 6,198,367 AND
       6,198,367 SHARES ISSUED AND OUTSTANDING
       AT APRIL 30, 2005 AND OCTOBER 31, 2004,
       RESPECTIVELY AND AGGREGATE LIQUIDATION
       PREFERENCE OF $10 PER SHARE FOR $ 61,983,670
       AND $61,983,670 AT APRIL 30, 2005 AND
       OCTOBER 31, 2004, RESPECTIVELY                       61,984          61,984

  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, 2005 AND OCTOBER 31,
       2004, RESPECTIVELY                                   53,138          53,138

  ADDITIONAL PAID-IN CAPITAL                            28,090,908      28,060,908

  ACCUMULATED DEFICIT                                  (13,166,800)    (14,031,634)

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

  COMPREHENSIVE INCOME:
    PENSION VALUATION RESERVE                           (2,250,089)     (2,250,089)
                                                      ------------    ------------

                                                         1,785,596         890,762
                                                      ------------    ------------

                                                      $  6,317,899    $  5,681,418
                                                      ============    ============
</TABLE>


                                       6
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME
                FOR THE SIX MONTHS ENDED APRIL 30, 2005 AND 2004

                                                         2005           2004
                                                      (UNAUDITED)    (UNAUDITED)
                                                      -----------    -----------

STOCKYARD OPERATIONS:

 STOCKYARD REVENUES:
    YARD HANDLING AND AUCTION                         $ 1,647,455    $ 1,595,655
    FEED AND BEDDING INCOME                                90,526         88,199
    RENTAL INCOME                                           1,685          2,336
    OTHER INCOME                                           59,566         68,732
                                                      -----------    -----------

                                                        1,799,232      1,754,922
                                                      -----------    -----------

STOCKYARD EXPENSES:
    LABOR AND RELATED COSTS                               743,917        677,057
    OTHER OPERATING AND MAINTENANCE                       355,245        400,160
    FEED AND BEDDING EXPENSE                               68,865         71,051
    DEPRECIATION AND AMORTIZATION                          10,473         10,272
    TAXES OTHER THAN INCOME TAXES                          84,891         86,950
    GENERAL AND ADMINISTRATIVE                            179,903        189,363
                                                      -----------    -----------

                                                        1,443,294      1,434,853
                                                      -----------    -----------

INCOME FROM STOCKYARD OPERATIONS                          355,938        320,069
                                                      -----------    -----------

REAL ESTATE OPERATIONS:

 REAL ESTATE REVENUES:
    SALE OF REAL ESTATE                                 1,750,000        132,905
    EXCHANGE BUILDING RENTAL INCOME                        15,302        206,780
    OUTSIDE REAL ESTATE RENT                              269,233        278,905
    OTHER INCOME                                                0            500
                                                      -----------    -----------

                                                        2,034,535        619,090
                                                      -----------    -----------

 REAL ESTATE EXPENSES:
    COST OF REAL ESTATE SOLD                              900,255         68,814
    LABOR, OPERATING AND MAINTENANCE                       37,983        162,530
    DEPRECIATION AND AMORTIZATION                          11,100         65,501
    TAXES OTHER THAN INCOME TAXES                          36,000         75,000
    GENERAL AND ADMINISTRATIVE                             13,000         26,526
                                                      -----------    -----------

                                                          998,338        398,371
                                                      -----------    -----------

INCOME FROM REAL ESTATE OPERATIONS                      1,036,197        220,719
                                                      -----------    -----------


                                       7
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME
                FOR THE SIX MONTHS ENDED APRIL 30, 2005 AND 2004
                                  Continued ...

                                                       2005            2004
                                                    (UNAUDITED)     (UNAUDITED)
                                                    -----------     -----------

GENERAL AND ADMINISTRATIVE EXPENSE                     (409,238)       (422,102)
                                                    -----------     -----------

INCOME FROM OPERATIONS                                  982,897         118,686
                                                    -----------     -----------

OTHER (EXPENSE) INCOME:

  INTEREST & OTHER INCOME                                36,000              37
  INTEREST EXPENSE                                     (141,312)       (138,508)
  INCOME FROM ART SALES                                  17,249          (1,109)
  OTHER EXPENSE                                               0        (101,297)
                                                    -----------     -----------

                                                        (88,063)       (240,958)
                                                    -----------     -----------

INCOME (LOSS) BEFORE PROVISION FOR
  INCOME TAXES                                          894,834        (122,272)

PROVISION FOR INCOME TAXES                                    0               0
                                                    -----------     -----------

NET INCOME (LOSS)                                       894,834        (122,272)
                                                    -----------     -----------

OTHER COMPREHENSIVE INCOME (LOSS):

  MINIMUM PENSION LIABILITY ADJUSTMENT                        0               0
                                                    -----------     -----------

COMPREHENSIVE INCOME (LOSS)                         $   894,834     $  (122,272)
                                                    ===========     ===========

INCOME (LOSS) PER COMMON SHARE - BASIC
  AND DILUTED                                       $      0.20     $     (0.04)
                                                    ===========     ===========

AVERAGE SHARES OUTSTANDING - BASIC
  AND DILUTED                                         4,327,000       4,327,000
                                                    ===========     ===========


                                       8
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME
               FOR THE THREE MONTHS ENDED APRIL 30, 2005 AND 2004

                                                          2005          2004
                                                       (UNAUDITED)   (UNAUDITED)
                                                       -----------   -----------

STOCKYARD OPERATIONS:

 STOCKYARD REVENUES:
    YARD HANDLING AND AUCTION                          $  754,481    $  807,960
    FEED AND BEDDING INCOME                                42,770        45,047
    RENTAL INCOME                                             650           835
    OTHER INCOME                                           29,253        36,018
                                                       ----------    ----------

                                                          827,154       889,860
                                                       ----------    ----------

STOCKYARD EXPENSES:
    LABOR AND RELATED COSTS                               367,670       334,105
    OTHER OPERATING AND MAINTENANCE                       172,741       201,898
    FEED AND BEDDING EXPENSE                               31,800        36,408
    DEPRECIATION AND AMORTIZATION                           5,236         5,136
    TAXES OTHER THAN INCOME TAXES                          42,221        43,822
    GENERAL AND ADMINISTRATIVE                             86,412        97,613
                                                       ----------    ----------

                                                          706,080       718,982
                                                       ----------    ----------

INCOME FROM STOCKYARD OPERATIONS                          121,074       170,878
                                                       ----------    ----------

REAL ESTATE OPERATIONS:

 REAL ESTATE REVENUES:
    SALE OF REAL ESTATE                                         0        74,032
    EXCHANGE BUILDING RENTAL INCOME                         7,631       104,455
    OUTSIDE REAL ESTATE RENT                              136,916       151,304
    OTHER INCOME                                                0           500
                                                       ----------    ----------

                                                          144,547       330,291
                                                       ----------    ----------

 REAL ESTATE EXPENSES:
    COST OF REAL ESTATE SOLD                                    0        30,432
    LABOR, OPERATING AND MAINTENANCE                       19,147        74,153
    DEPRECIATION AND AMORTIZATION                           5,550        32,951
    TAXES OTHER THAN INCOME TAXES                          18,000        37,500
    GENERAL AND ADMINISTRATIVE                              6,500        13,532
                                                       ----------    ----------

                                                           49,197       188,568
                                                       ----------    ----------

INCOME FROM REAL ESTATE OPERATIONS                         95,350       141,723
                                                       ----------    ----------


                                       9
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME
               FOR THE THREE MONTHS ENDED APRIL 30, 2005 AND 2004
                                  Continued ...

                                                       2005            2004
                                                    (UNAUDITED)     (UNAUDITED)
                                                    -----------     -----------

GENERAL AND ADMINISTRATIVE EXPENSE                     (202,133)       (217,885)
                                                    -----------     -----------

INCOME FROM OPERATIONS                                   14,291          94,716
                                                    -----------     -----------

OTHER (EXPENSE) INCOME:

  INTEREST & OTHER INCOME                                18,000              21
  INTEREST EXPENSE                                      (70,256)        (69,175)
  INCOME FROM ART SALES                                  (4,739)         (5,792)
  OTHER EXPENSE                                               0        (101,297)
                                                    -----------     -----------

                                                        (56,995)       (176,243)
                                                    -----------     -----------

(LOSS) BEFORE PROVISION FOR
  INCOME TAXES                                          (42,704)        (81,527)

PROVISION FOR INCOME TAXES                                    0               0
                                                    -----------     -----------

NET (LOSS)                                              (42,704)        (81,527)

OTHER COMPREHENSIVE INCOME (LOSS):

  MINIMUM PENSION LIABILITY ADJUSTMENT                        0               0
                                                    -----------     -----------

COMPREHENSIVE (LOSS)                                $   (42,704)    $   (81,527)
                                                    ===========     ===========

(LOSS) PER COMMON SHARE - BASIC
  AND DILUTED                                       $     (0.01)    $     (0.02)
                                                    ===========     ===========

AVERAGE SHARES OUTSTANDING - BASIC
  AND DILUTED                                         4,327,000       4,327,000
                                                    ===========     ===========


                                       10
<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEAR ENDED OCTOBER 31, 2004 (AUDITED) AND
               FOR THE SIX MONTHS ENDED APRIL 30, 2005 (UNAUDITED)

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

BALANCE, OCTOBER 31, 2003           5,313,794    $53,138    5,443,979    $54,440
 NET (LOSS)                                 0          0            0          0
 PREFERRED STOCK DIVIDEND                   0          0      754,388      7,544
 MINIMUM PEN. LIAB. ADJ                     0          0            0          0
                                   ---------------------   ---------------------

BALANCE, OCTOBER 31, 2004           5,313,794    $53,138    6,198,367    $61,984
 NET INCOME                                 0          0            0          0
 PREFERRED STOCK DIVIDEND                   0          0            0          0
 MINIMUM PEN. LIAB. ADJ                     0          0            0          0
                                   ---------------------   ---------------------

BALANCE, APRIL 30, 2005             5,313,794    $53,138    6,198,367    $61,984
                                   =====================   =====================

<TABLE>
<CAPTION>
                              ADDITIONAL                                    TREASURY
                               PAID-IN      ACCUMULATED   COMPREHENSIVE       STOCK,
                               CAPITAL        DEFICIT     (LOSS)INCOME       AT COST
<S>                          <C>           <C>             <C>            <C>
BALANCE, OCTOBER 31, 2003    $28,018,997   ($13,404,934)   ($2,315,543)   ($11,003,545)
 NET (LOSS)                            0       (577,227)             0               0
 PREFERRED STOCK DIVIDEND         41,911        (49,473)             0               0
 MINIMUM PEN. LIAB. ADJ                0              0         65,454               0
                             -----------   ------------    -----------    ------------

BALANCE, OCTOBER 31, 2004    $28,060,908   ($14,031,634)   ($2,250,089)   ($11,003,545)
 NET INCOME                            0        894,834              0               0
 PREFERRED STOCK DIVIDEND         30,000        (30,000)             0               0
 MINIMUM PEN. LIAB. ADJ                0              0              0               0
                             -----------   ------------    -----------    ------------
BALANCE, APRIL 30, 2005      $28,090,908   ($13,166,800)   ($2,250,089)   ($11,003,545)
                             ===========   ============    ===========    ============
</TABLE>


                                       11
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED APRIL 30, 2005 AND 2004
                                   (UNAUDITED)

                                                         2005           2004
                                                         ----           ----

CASH FLOWS FROM OPERATING ACTIVITIES:
  NET INCOME (LOSS)                                   $  894,834     $ (122,272)
                                                      ----------     ----------

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

   DEPRECIATION AND AMORTIZATION                          24,574         84,900
   GAIN ON SALES OF REAL ESTATE                         (849,745)       (64,091)
   GAIN ON ART SALES (NET OF RESERVE)                    (17,249)       (27,700)

CHANGES IN ASSETS AND LIABILITIES:

   NOTES AND ACCOUNTS RECEIVABLES, NET                   142,561         41,374
   ART INVENTORY, NET                                     37,300          9,833
   PREPAID EXPENSES AND OTHER, NET                      (124,180)       (34,534)
   PAYABLES AND ACCRUED EXPENSES, NET                   (258,353)       (27,797)
                                                      ----------     ----------

NET CASH (USED) BY OPERATING
   ACTIVITIES                                           (150,258)      (140,287)
                                                      ----------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES:

  PROCEEDS FROM SALES OF REAL ESTATE                           0        132,905
  PROCEEDS FROM SALES OF ART                              64,100         20,000
  CAPITAL EXPENDITURES                                         0         (7,660)
                                                      ----------     ----------

NET CASH PROVIDED BY INVESTING
  ACTIVITIES                                              64,100        145,245
                                                      ----------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES:

  PROCEEDS FROM LONG-TERM DEBT-RELATED
    PARTIES                                                    0              0
  REPAYMENT OF SHORT-TERM BORROWINGS                           0              0
  REPAYMENT OF LONG-TERM DEBT OBLIGATIONS                      0              0
                                                      ----------     ----------
NET CASH (USED) BY FINANCING ACTIVITIES                        0              0
                                                      ----------     ----------

NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                            (86,158)         4,958

CASH AND CASH EQUIVALENTS AT BEGN OF YEAR                 86,158         14,191
                                                      ----------     ----------

CASH AND CASH EQUIVALENTS AT END OF YEAR              $        0     $   19,149
                                                      ==========     ==========

NOTE: CANAL MADE  FEDERAL AND STATE INCOME TAX PAYMENTS OF $5,000 AND $7,000 AND
      INTEREST  PAYMENTS OF $141,000 AND $139,000 IN THE SIX MONTH PERIODS ENDED
      APRIL 30, 2005 AND 2004, RESPECTIVELY.


                                       12
<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE SIX MONTHS ENDED APRIL 30, 2005
                                   (UNAUDITED)

1.    DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

      Canal 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 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.

      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.


                                       13
<PAGE>

      Canal  intends  to  continue  its  soliciting  efforts  at its St.  Joseph
stockyards  in fiscal 2005.  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.

      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
Exchange  Buildings  (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 Buildings, 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.

      General - While the Company is  currently  operating  as a going  concern,
certain  significant factors raise substantial doubt about the Company's ability
to continue as a going concern.  The Company has suffered  recurring losses from
operations  in eight of the last ten years and is obligated  to continue  making
substantial  annual  contributions  to its defined  benefit  pension  plan.  The
financial  statements do not include any adjustments  that might result from the
resolution of these  uncertainties.  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.


                                       14
<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      A) Principles of Consolidation -- The  consolidated  financial  statements
include the  accounts of Canal  Capital  Corporation  ("Canal")  and its wholly-
owned  subsidiaries  ("the  Company").  All material  intercompany  balances and
transactions have been eliminated in consolidation.

      B)  Investments  Available  for Sale -- During  fiscal 2004,  Canal had an
investment in a company in which it,  together with other  affiliated  entities,
comprised a reporting  group for  regulatory  purposes.  It is important to note
that it was the group (as  defined)  that  could  exercise  influence  over this
company,   not  Canal.   Accordingly,   this  investment  did  not  qualify  for
consolidation  as a  method  of  reporting.  Certain  of  Canal's  officers  and
directors  also  served as  officers  and/or  directors  of this  company.  This
investment  (in which  Canal's  ownership  interest  was  approximately  1%) was
carried  at  market  value  and the  realized  gains  or  losses,  if any,  were
recognized in operating results.

      Investments in Joint Ventures -- Investments in which  ownership  interest
range from 20% to 50% or less owned joint  ventures are  accounted for under the
equity  method.  These joint  ventures  are not, in the  aggregate,  material in
relation  to the  financial  position  or results of  operations  of Canal.  The
carrying  amount of such  investments  was  $111,000  at both APRIL 30, 2005 and
October 31, 2004,  and is included in other  assets.  The  operating  results of
joint  ventures  accounted for on the equity  method,  for the six month periods
ended  April  30,  2005  and 2004  were  not  material  to  financial  statement
presentation  and were  therefore  included  in other  income  from real  estate
operations.

      C) Deferred Leasing and Financing Costs -- Costs incurred in obtaining new
leases and long-term  financing are deferred and amortized over the terms of the
related leases or debt agreements, as applicable.

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

      Property held for  Development or Resale -- Property held for  development
or  resale  consist  of  approximately  59  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


                                       15
<PAGE>

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.

      E)  Expenditures  for maintenance and repairs are charged to operations as
incurred.  Significant renewals and betterments are capitalized. When properties
are sold or otherwise disposed of, the cost and related accumulated depreciation
are  removed  from the  accounts  and any gain or loss is  reflected  in current
income.

      F) Art  Inventory  Held for Sale - Inventory of art is valued at the lower
of  cost,  including  direct  acquisition  and  restoration   expenses,  or  net
realizable value on a specific  identification basis. 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  prior to
fiscal 2004.  For fiscal 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 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.

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

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

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

      J) Revenue Recognition -- Lease and rental revenues are recognized ratably
over the period  covered.  All real estate leases are accounted for as operating
leases.  Revenues from real estate sales are recognized  generally when title to
the property passes.  Revenues from stockyard operations which consist primarily
of yardage  fees (a standard  per head  charge for each animal sold  through the
stockyards)  and sale of feed and bedding are recognized at the time the service
is rendered or the feed and bedding are delivered.

      Other  Income  (Expense)  Items -- Art  sales  are  recognized  using  the
specific identification method, when the piece is shipped to the purchaser.  Art
owned by Canal which is on  consignment,  joint  venture,  or being  examined in
contemplation of sale is not removed from inventory and not recorded as a


                                       16
<PAGE>

sale  until  notice  of  sale or  acceptance  has  been  received.  The  sale of
investments  available  for  sale,  if  any,  are  recognized,   on  a  specific
identification method, on a trade date basis.

      K)  Statements  of Cash  Flows -- The  company  considers  all  short-term
investments with a maturity of three months or less to be cash equivalents. Cash
equivalents  primarily  include bank,  broker and time deposits with an original
maturity of less than three months. These investments are carried at cost, which
approximates  market value.  Canal made federal and state income tax payments of
$5,000 and $7,000 and  interest  payments of $141,000  and  $139,000 for the six
month periods ended April 30, 2005 and 2004, respectively.

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

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

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

      O) Recent  Accounting  Pronouncements -- In May 2003, the FASB issued SFAS
No. 150,  Accounting for Certain Financial  Instruments with  Characteristics of
both  Liabilities  and  Equity.   This  Statement   establishes   standards  for
classifying  and measuring as liabilities  certain  financial  instruments  that
embody  obligations of the issuer and have  characteristics  of both liabilities
and equity.  The  provisions  of SFAS No. 150 are  effective  for all  financial
instruments  created or modified after May 31, 2003, and otherwise  effective at
the beginning of the first interim  period  beginning  after June 15, 2003.  The
adoption  of SFAS No.  150 did not have a  material  impact on our  consolidated
financial statements.

      In  January  2003,  the  Financial   Accounting   Standards  Board  issued
Interpretation  No.  46,  Consolidation  of  Variable  Interest  Entities,   and
interpretation  of  Accounting  Research  Bulletin  No.  51 ("FIN  46").  FIN 46
requires the  consolidation of variable interest entities in which an enterprise
absorbs a majority of the entity's  expected losses,  receives a majority of the
entity's  expected  residual  returns,  or  both,  as  a  result  of  ownership,
contractual or other financial interests in the entity. Currently,  entities are
generally  consolidated  by  an  enterprise  that  has a  controlling  financial
interest  through  ownership of a majority of the voting interest in the entity.
We will adopt FIN 46 as of January 31, 2004. The adoption of FIN 46 did not have
a material impact on our consolidated financial statements.


                                       17
<PAGE>

3.    INTERIM FINANCIAL STATEMENTS

      The interim  consolidated  financial  statements included herein have been
prepared by Canal and reviewed by our independent accountants. In the opinion of
Management, the accompanying unaudited financial statements of Canal contain all
adjustments  necessary to present fairly its financial  position as of April 30,
2005 and the  results  of its  operations  and its cash  flows for the six month
period ended April 30, 2005. 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, 2004 and the notes thereto which are contained in
Canal's  2004  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 2005.

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

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


                                       18
<PAGE>

seasonal,  with greater volume generally experienced during the first and fourth
quarters of each fiscal  year,  during  which  periods  livestock  is  generally
brought to market.

      As discussed  above,  virtually  all of the volume at Canal's  Sioux Falls
stockyards is handled  through market agencies or independent  commission  sales
people,  while the St. Joseph stockyards has solicitation  operations of its own
which accounts for  approximately  50% of its livestock volume  annually.  Canal
intends to continue  its  soliciting  efforts at its St.  Joseph  stockyards  in
fiscal 2005.  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 $7,000 and
$10,000 at April 30, 2005 and October 31, 2004, respectively.

      Stockyard operations resulted in operating income of $356,000 and $320,000
for the  six  month  periods  ended  April  30,  2005  and  2004,  respectively.
Additionally,  stockyard  operations  contributed  $1,799,000  and $1,755,000 to
Canal's  revenues  for the six month  periods  ended  April  30,  2005 and 2004,
respectively.

5.    REAL ESTATE OPERATIONS

      Canal's  real  estate  properties  located  in  five  Midwest  states  are
primarily   associated  with  its  current  and  former   agribusiness   related
operations.  Each property is adjacent to a stockyards  operation  (two of which
are  operated by the Company)  and  consist,  for the most part,  of an Exchange
Building  (commercial office space), land and structures leased to third parties
(meat packing  facilities,  railcar 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  rental  income from its  Exchange  Buildings,  lease  income from land and
structures leased to various commercial and retail enterprises and proceeds from
the sale of real estate properties.

      Real estate  operations  resulted in operating  income of  $1,036,000  and
$221,000 for the six month periods ended April 30, 2005 and 2004,  respectively.
Included  in the 2005  income is a  $850,000  gain on the sale of the  company's
South St. Paul,  Minnesota  Exchange  Building and the associated  five acres of
land.  Additionally,  real estate operations contributed $2,035,000 and $619,000
to Canal's  revenues  for the six month  periods  ended April 30, 2005 and 2004,
respectively.


                                       19
<PAGE>

      As of April 30, 2005, there are approximately 59 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.

6.    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.

      In fiscal  2005,  Canal sold 3 pieces of  contemporary  art.  Canal's  art
operations have generated income of approximately  $17,000, and a loss of $1,000
on gross sales of  approximately  $64,000 and $20,000 for the six month  periods
ended April 30, 2005 and 2004, respectively.

      Antiquities  and  contemporary  art  represented  50%  ($189,122)  and 50%
($186,778) and 46% ($189,122) and 54% ($224,078) of total art inventory at April
30,  2005 and  October  31,  2004,  respectively.  All of the  contemporary  art
inventory held for resale is comprised of the work of Jules Olitski.

      The amount  recorded as the current  portion of art  inventory  represents
management's  estimate  of the  inventory  expected  to be sold  during the next
twelve months.  The Company recorded a valuation  allowance  against the current
portion of its  inventory to reduce it to its  estimated  net  realizable  value
based on the history of losses  sustained on inventory items sold in the current
and previous  years.  In fiscal 2005 Canal applied  against sales $24,400 of the
valuation  allowance  against its art inventory,  thereby,  decreasing the total
valuation  allowance to $913,900 as of April 30, 2005 as compared to $938,300 at
October 31, 2004.

      The Company had approximately $250,000 of art inventory (at original cost)
on  consignment  with third party dealers at both April 30, 2005 and October 31,
2004.

7.    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, which space serves as its headquarters operations.


                                       20
<PAGE>

      Former Lease  Obligations - On March 4, 2004, WHGA Fifth Avenue Investors,
LP (the  "Landlord")  commenced an action against Canal Capital  Corporation and
its two co-tenants (the "Tenants") of its New York City commercial office space.
The Landlord  was seeking the  eviction of the Tenants as well as judgement  for
unpaid back and holdover rental amounts of approximately $175,000.

      In  April  2004  Canal  and  its  co-tenants  entered  into a  stipulation
agreement  with the  landlord  requiring  the  tenants  to pay two  months  rent
(approximately  $85,000),  forfeit  the entire  security  deposit and vacate the
leased  premises as of May 31, 2004 in  exchange  for a release  from all future
obligations under the lease. All requirements of the stipulation  agreement have
been met.

8.    BORROWINGS

      The Company's  variable rate mortgage notes (originally issued in 1998 and
amended  several times since then) are due May 15, 2006 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,  2005,  the  balance due under these notes was
$2,767,000, all of which is classified as long-term debt-related party.

      At April 30, 2005, 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)                                         2005          2004
-----------------                                         ----          ----
Variable rate mortgage notes due
  May 15, 2006 - related party                           $ 2,767      $ 2,767
                                                         -------      -------

9.    Income Taxes

      At October 31, 2004, the company had net operating loss  carryforwards  of
approximately  $12,613,000  that expire  through 2018.  For financial  statement
purposes, a valuation allowance has been provided to offset the net deferred tax
assets due to the cumulative  operating losses incurred during recent years. The
valuation  allowance at October 31, 2004 is $4,415,000  and 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.


                                       21
<PAGE>

10.   PROPERTY AND EQUIPMENT

      A)    Property on Operating Leases

      Property on operating  leases  consist of  approximately  34 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, 2005
is as follows (000's omitted):

                     Carrying                                           Carrying
                      Value                                               Value
Description (1)      10/31/04    Additions   Retirements     Deprec.     4/30/05
---------------      --------    ---------   -----------     -------     -------
Headquarters office
Various leasehold     $     5     $     0      $     0      $    (3)     $     2
improvements

11 acres of land
in Omaha, NE            1,215           0            0           (1)       1,214
Acquired in 1976

5 acres of land
in S. St. Paul, MN      1,092           0         (848)         (10)         234
Acquired in 1937

18 acres of land
in Sioux City, IA         403           0            0            0          403
                      -------     -------      -------      -------      -------
Acquired in 1937
                      $ 2,715     $     0      $  (848)     $   (14)     $ 1,853
                      =======     =======      =======      =======      =======

      A schedule of the Company's reconciliation of property on operating leases
carried for the fiscal years 2005, 2004 and 2003 is as follows (000's omitted):

                                                  2005        2004        2003
                                                  ----        ----        ----

Balance at beginning of year                    $ 2,715     $ 2,874     $ 3,337
Acquisitions                                          0           0           0
Improvements                                          0           8         179
Cost of property sold & depreciation               (862)       (167)       (142)
Reclassification to property held
  for development or resale                           0           0        (500)
                                                -------     -------     -------
Balance at end of year                          $ 1,853     $ 2,715     $ 2,874
                                                -------     -------     -------

(1)   Substantially  all of Canal's real property is pledged as  collateral  for
      its debt obligations (see Note 8).


                                       22
<PAGE>

      B)    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 on operating leases at April 30, 2005
is as follows (000's omitted):

                      Carrying                                          Carrying
                       Value                                              Value
Description (1)       10/31/04    Additions  Retirements     Deprec.     4/30/05
---------------       --------    ---------  -----------     -------     -------

30 acres of land
in St. Joseph, MO      $   984     $     0     $     0      $    (6)     $   978
Acquired in 1942

30 acres of land
in Sioux Falls, SD         158           0           0           (5)         153
                       -------     -------     -------      -------      -------
Acquired in 1937

                       $ 1,142     $     0     $     0      $   (11)     $ 1,131
                       =======     =======     =======      =======      =======

      A schedule of the Company's  reconciliation  of property used in stockyard
operations  carried for fiscal  years 2005,  2004 and 2003 is as follows  (000's
omitted):

                                                  2005        2004        2003
                                                  ----        ----        ----

Balance at beginning of year                    $ 1,142     $ 1,136     $ 1,176
Acquisitions                                          0           0          40
Improvements                                          0          25          32
Cost of property sold & depreciation                (11)        (19)       (112)
                                                -------     -------     -------
Balance at end of year                          $ 1,131     $ 1,142     $ 1,136
                                                -------     -------     -------

(1)   Substantially  all of Canal's real property is pledged as  collateral  for
      its debt obligations (see Note 8).


                                       23
<PAGE>

      C)    Property Held for Development or Resale

      Property held for development or resale consist of  approximately 59 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, 2005 is as follows (000's omitted):

                        Carrying                                        Carrying
                          Value                                           Value
Description (1)         10/31/04   Additions   Retirements    Deprec.    4/30/05
---------------         --------   ---------   -----------    -------    -------
19 acres of land
in St. Joseph, MO        $   47      $    0       $    0      $    0      $   47
Acquired in 1942

10 acres of land
in S. St. Paul, MN          144           0            0           0         144
Acquired in 1937

30 acres of land
in Sioux City, IA           626           0            0           0         626
                         ------      ------       ------      ------      ------
Acquired in 1937
                         $  817      $    0       $    0      $    0      $  817
                         ======      ======       ======      ======      ======

      A  schedule  of  the  Company's   reconciliation   of  property  held  for
development or resale carried for fiscal years 2005, 2004 and 2003 is as follows
(000's omitted):

                                                     2005      2004       2003
                                                     ----      ----       ----

Balance at beginning of year                        $  817    $  900     $  518
Acquisitions                                             0         0          0
Improvements                                             0         0          0
Cost of property sold                                    0       (83)      (118)
Reclassification from property
  on operating leases                                    0         0        500
                                                    ------    ------     ------

Balance at end of year                              $  817    $  817     $  900
                                                    ------    ------     ------

(1)   Substantially  all of Canal's real property is pledged as  collateral  for
      its debt obligations (see Note 8).


                                       24
<PAGE>

11.   PENSION VALUATION RESERVE

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

12.   LITIGATION

      Canal and its  subsidiaries  are from time to time  involved in litigation
incidental to their normal business activities, none of which, in the opinion of
management,  will have a material adverse effect on the  consolidated  financial
condition of the Company.  Canal or its  subsidiaries are party to the following
litigations:

      WHGA Fifth Avenue Investors, LP v. Canal Capital Corporation etal

      On March  4,  2004,  WHGA  Fifth  Avenue  Investors,  LP (the  "Landlord")
commenced an action  against Canal Capital  Corporation  and its two  co-tenants
(the "Tenants") of its New York City commercial  office space.  The Landlord was
seeking the  eviction of the  Tenants as well as  judgement  for unpaid back and
holdover rental amounts of approximately $175,000.

      In  April  2004  Canal  and  its  co-tenants  entered  into a  stipulation
agreement  with the  landlord  requiring  the  tenants  to pay two  months  rent
(approximately  $85,000),  forfeit  the entire  security  deposit and vacate the
leased  premises as of May 31, 2004 in  exchange  for a release  from all future
obligations under the lease. All requirements of the stipulation  agreement have
been met.

13.   Restricted Cash - Transit Insurance

      Due  to  significant  proposed  increases  in  the  premiums  for  transit
insurance,  management  decided to initiate a plan of self insurance  commencing
November 1, 2002.  Transit  insurance  covers livestock for the period that they
are physically at the stockyards and under the care of stockyard personnel. This
self insurance program is funded by a per head charge on all livestock  received
at  the  stockyard.   The  restricted  cash  -  transit  insurance  balances  of
approximately  $54,000  and  $50,000 at April 30,  2005 and  October  31,  2004,
respectively,  represents  the  excess  of per head  fees  charged  over  actual
payments made for livestock that was injured or died while at the stockyards.


                                       25
<PAGE>

ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
         RESULTS OF OPERATIONS AND FINANCIAL CONDITION
         FOR THE SIX MONTHS ENDED APRIL 30, 2005

      The following  discussion should be read in conjunction with our financial
statements and notes thereto included elsewhere in this report.

                    FORWARD-LOOKING AND CAUTIONARY STATEMENTS

      We may from time to time make written or oral forward-looking  statements,
including  those  contained  in the  following  section.  These  forward-looking
statements  involve  risks and  uncertainties  and actual  results  could differ
materially  from those  discussed in the  forward-looking  statements.  For this
purpose,  any  statements  contained in this section that are not  statements of
historical fact may be deemed to be  forward-looking  statements.  Factors which
may effect our  results  include,  but are not limited to, our ability to expand
our customer base,  our ability to develop  additional and leverage our existing
distribution  channels for our products and  solutions,  dependance on strategic
and channel partners including their ability to distribute our products and meet
or renew  their  financial  commitments,  our  ability to address  international
markets, the effectiveness of our sales and marketing activities, the acceptance
of our products in the market place,  the timing and scope of deployments of our
products by customers, fluctuations in customer sales cycles, customers' ability
to  obtain  additional  funding,   the  emergence  of  new  competitors  in  the
marketplace, our ability to compete successfully against established competitors
with greater resources, the uncertainty of future governmental  regulation,  our
ability  to  manage  growth,  and  obtain  additional  funds,  general  economic
conditions  and other risks  discussed  in this report and in our other  filings
with the Securities and Exchange Commission. All forward- looking statements and
risk factors included in this document are made as of the date hereof,  based on
information  available to us as of the date thereof, and we assume no obligation
to update any forward-looking statement or risk factors.

                                Company Overview

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

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

      Real Estate  Operations  - Canal's real estate  properties  are located in
Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri, Omaha, Nebraska
and Sioux Falls, South Dakota. The properties consist,  for the most part, of an
Exchange Building (commercial office space), land and structures leased to third
parties (meat packing facilities, rail car repair shops,


                                       26
<PAGE>

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
Buildings, and proceeds from the sale of real estate properties.  In addition to
selling what was excess stockyard property, the company entertains any offers to
purchase,  develop and  restructure  real estate lots  surrounding  its existing
operating lease properties,  stockyard operating  properties and properties held
for  development  or  resale  in  order to  enhance  the  value of the  existing
properties and surrounding real estate. See "Real Estate Operations".

      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

      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 $1.0 million, while contributing $2.0 million to
Canal's  revenues for the first six months of fiscal 2005.  In the first quarter
of fiscal 2005,  Canal sold its Exchange  Building and the associated five acres
of land  located in South Saint Paul,  Minnesota on a contract for deed for $1.8
million, generating operating income of $0.9 million.

      As of April 30, 2005, there are approximately 59 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 Buildings and undeveloped properties in fiscal 2005.

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


                                       27
<PAGE>

      Stockyard Operations

      General - Through an asset repurchase agreement, Canal commenced stockyard
operations  August 1, 1999 in Sioux City,  Iowa; St. Joseph,  Missouri and Sioux
Falls, South Dakota.

      Canal permanently  closed its stockyard  operations in Sioux City, Iowa in
March 2002. The stockyard  facility was dismantled with the equipment,  fixtures
and  materials  going either to Canal's  remaining  two  stockyards or sold at a
public sale held at the Sioux City location in April 2002.  The property is a 30
acre parcel  located in the downtown area of Sioux City.  Canal has been engaged
in extended  negotiations to sell this property to a real estate developer whose
intention is to convert the property  into a retail  shopping  center.  Canal is
continuing  to pursue the sale of this  property  to this  developer  as well as
exploring  any other  opportunities  to develop or sell this  property in fiscal
2005.

      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.

      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.


                                       28
<PAGE>

      Canal is continuing its soliciting efforts at its St. Joseph stockyards in
fiscal 2005.  Further,  Canal tries to balance its dependence on market agencies
and independent  commission sales people in various ways, including:  developing
solicitation  operations of its own;  direct public  relations;  advertising and
personal  solicitation  of  producers  on  behalf of the  stockyards;  providing
additional  services  at the  stockyards  to attract  sellers  and  buyers;  and
providing incentives to market agencies and independent  commission sales people
for increased business.

      Stockyard  operations  resulted in operating income of approximately  $0.4
million while  contributing  approximately  $1.8 million to Canal's revenues for
the first six months of fiscal 2005.

      Risk -  Stockyard  activities  face a variety  of risks and  uncertainties
related to the  safeguarding  of the  national  food supply which are beyond our
control.  Public  confidence in the  government's  efforts to safeguard the food
supply is essential for the success of our stockyard operations.  An outbreak of
a disease such as bovine spongiform encephalopathy (BSE) better known as Mad Cow
Disease  could  have a  devastating  impact  on  stockyard  operations.  For the
company's part we strictly  follow all USDA  regulations to ensure to the extent
we can the  safety of the food  supply.  Furthermore,  stockyard  activities  in
general may involve  various  degrees of risk,  such as  competition  from other
regional  stockyards and sale barns,  general market  conditions and to a lesser
extent interest rates.

      Competition - Canal competes in the area of public  stockyards  with other
regional  public  stockyards  and sale  barns,  some of which are  substantially
larger and have greater  financial  resources than Canal.  To a certain  extent,
Canal's  stockyard  revenues are dependent on the ability of the market agencies
and independent  commission sales people at each of Canal's stockyard  locations
to compete within the region.

                          CRITICAL ACCOUNTING POLICIES

      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


                                       29
<PAGE>

make estimates about the effect of matters that are inherently uncertain.  For a
further discussion of these and other accounting policies,  please see Note 2 of
the Notes to Consolidated Financial Statements included elsewhere in this Annual
Report.

      Revenue  Recognition -- Lease and rental  revenues are recognized  ratably
over the period  covered.  All real estate leases are accounted for as operating
leases.  Revenues from real estate sales are recognized  generally when title to
the property passes.  Revenues from stockyard operations which consist primarily
of yardage  fees (a standard  per head  charge for each animal sold  through the
stockyards)  and sale of feed and bedding are recognized at the time the service
is rendered or the feed and bedding are delivered.

      Art Inventory  Held for Sale -- 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. Canal has had varying percentages of its
art inventory appraised by independent  appraisers in previous years. For fiscal
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 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.

      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  59  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.


                                       30
<PAGE>

Results of Operations - General

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

                                                      Six Months Ended April 30,
                                                      --------------------------
                                                          2005          2004
                                                          ----          ----
                                                            (In Thousands)

Revenues:
Stockyard Revenues                                      $ 1,799       $ 1,755
Real Estate Revenues                                      2,034           619
                                                        -------       -------
    Total Revenues                                        3,833         2,374
                                                        -------       -------

Costs and Expenses:
Stockyard Expenses                                        1,443         1,435
Real Estate Expenses                                        998           398
General and Administrative Expenses                         409           422
                                                        -------       -------
     Total Costs and Expenses                             2,850         2,255
                                                        -------       -------

Income from Operations                                      983           119
Other Income                                                 53             0
Other Expenses                                             (141)         (241)
                                                        -------       -------

Net Income (Loss)                                       $   895       $  (122)
                                                        =======       =======

      While the  Company is  currently  operating  as a going  concern,  certain
significant  factors  raise  substantial  doubt about the  Company's  ability to
continue as a going  concern.  The Company has  suffered  recurring  losses from
operations  in eight of the last ten years and is obligated  to continue  making
substantial  annual  contributions  to its defined  benefit  pension  plan.  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  net income of  approximately  $985,000 in the first six
months of 2005 as  compared  to a net loss of  $122,000  for the same  period in
fiscal 2004.  After  recognition of preferred  stock dividend  payments (paid in
additional  shares of  preferred  stock for each of  fiscal  2005,  and 2004) of
$30,000  in 2005 and  $45,000  in  2004,  the  results  attributable  to  common
stockholders  were net income of  $865,000 in 2005 and a net loss of $167,000 in
2004. Canal's 2005 net income of $895,000 is due primarily to a $850,000 gain on
the sale of the Company's South Saint Paul,  Minnesota Exchange Building and the
associated  five acres of land.  This  property  was sold on a contract for deed
payable in October 2007.


                                       31
<PAGE>

      Canal's revenues from continuing  operations  consist of revenues from its
stockyard and real estate  operations.  Revenues in 2005 increased by $1,459,000
to  $3,833,000 as compared  with 2004  revenues of  $2,374,000.  The fiscal 2005
increase in revenues is due  primarily  to a  $1,750,000  sale of the  Company's
South Saint Paul,  Minnesota  Exchange Building and the associated five acres of
land. This property was sold on a contract for deed payable in October 2007.

COMPARISON OF FISCAL PERIODS ENDED APRIL 30, 2005 AND 2004

Stockyard Revenues

      Stockyard  revenues for the six months ended April 30, 2005 of  $1,799,000
accounted  for 46.9% of the  fiscal  2005  revenues  as  compared  to  stockyard
revenues of  $1,755,000  or 73.9% for the same period in fiscal  2004.  The 2005
decrease in the stockyard revenues as a percent of total revenues, is due to the
significant increase in sales of real estate for fiscal 2005. Stockyard revenues
are comprised of yard handling and auction  (91.6% and 90.9%),  feed and bedding
income (5.0% and 5.1%), rental income (0.1% and 0.1%) and other income (3.3% and
3.9%) for the six month  periods  ended April 30,  2005 and 2004,  respectively.
There were no significant percentage variations in the year to year comparisons.

      Stockyard  revenues  for the three months ended April 30, 2005 of $827,000
accounted  for 85.1% of the  fiscal  2005  revenues  as  compared  to  stockyard
revenues  of  $890,000  or 72.9% for the same  period in fiscal  2004.  The 2005
increase  in the  stockyard  revenues  as a percent  of total  revenues,  is due
primarily to the significant  reduction in exchange  building rental income as a
result  of the  Company's  sale of its  South  Saint  Paul,  Minnesota  Exchange
Building in the first quarter of fiscal 2005.  Stockyard  revenues are comprised
of yard handling and auction  (91.2% and 90.8%),  feed and bedding  income (5.2%
and 5.1%),  rental  income  (0.1% and 0.1%) and other income (3.5% and 4.0%) for
the three month periods ended April 30, 2005 and 2004, respectively.  There were
no significant percentage variations in the year to year comparisons.

Stockyard Expenses

      Stockyard  expenses for the six months ended April 30, 2005 of  $1,443,000
increased by $8,000 (5.9%) from  stockyard  expenses of $1,435,000  for the same
period in fiscal 2004.  Stockyard  expenses  are  comprised of labor and related
costs (51.5% and 47.2%), other operating and maintenance (24.6% and 27.9%), feed
and bedding expense (4.8% and 5.0%),  depreciation  and  amortization  (0.7% and
0.7%),   taxes  other  than  income  taxes  (5.9%  and  6.1%)  and  general  and
administrative  expense  (12.5% and 13.1%) for the six month periods ended April
30, 2005 and 2004,  respectively.  The 2005  increase in stockyard  expenses was
consistent  with the increase in stockyard  revenues.  There were no significant
percentage variations in the year to year comparisons.


                                       32
<PAGE>

      Stockyard  expenses  for the three months ended April 30, 2005 of $706,000
decreased  by $13,000  (1.8%) from  stockyard  expenses of $719,000 for the same
period in fiscal 2004.  Stockyard  expenses  are  comprised of labor and related
costs (52.1% and 46.5%), other operating and maintenance (24.5% and 28.1%), feed
and bedding expense (4.5% and 5.1%),  depreciation  and  amortization  (0.7% and
0.7%),   taxes  other  than  income  taxes  (6.0%  and  6.1%)  and  general  and
administrative expense (12.2% and 13.5%) for the three month periods ended April
30, 2005 and 2004,  respectively.  The 2005  decrease in stockyard  expenses was
consistent  with the decrease in stockyard  revenues.  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, 2005 of $2,035,000
accounted  for 53.1% of the fiscal  2005  revenues  as  compared  to real estate
revenues of $619,000  or 26.1% for the same  period in fiscal  2004.  The fiscal
2005 increase in real estate  revenues is due primarily to a $1,750,000  sale of
the Company's South Saint Paul,  Minnesota  Exchange Building and the associated
five acres of land.  This  property  was sold on a contract  for deed payable in
October 2007.  Real estate  revenues are comprised of sale of real estate (86.0%
and 21.5%), rental income from commercial office space in its Exchange Buildings
(0.8% and 33.4%),  rentals and other lease income from the rental of vacant land
and certain  structures  (13.2% and 45.1%) and other  income (0.0% and 0.0%) for
the six months ended April 30, 2005 and 2004,  respectively.  The sharp decrease
(92.6%) in Exchange  Building  Rental  Income is also due to the  property  sale
discussed above.  The percentage  variations in the year to year comparisons are
due primarily to increased sales of real estate for fiscal 2005.

      Real estate revenues for the three months ended April 30, 2005 of $145,000
accounted  for 14.9% of the fiscal  2005  revenues  as  compared  to real estate
revenues of $330,000  or 27.1% for the same  period in fiscal  2004.  The fiscal
2005  decrease  in real  estate  revenues  is due  primarily  to the sale of the
Company's South Saint Paul,  Minnesota Exchange Building in the first quarter of
fiscal 2005. Real estate revenues are comprised of sale of real estate (0.0% and
22.4%),  rental income from  commercial  office space in its Exchange  Buildings
(5.3% and 31.6%),  rentals and other lease income from the rental of vacant land
and certain  structures  (94.7% and 45.8%) and other  income (0.0% and 0.2%) for
the three months ended April 30, 2005 and 2004, respectively. The sharp decrease
(92.7%) in Exchange  Building  Rental  Income is also due to the  property  sale
discussed  above. 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 sharp decrease in Exchange Building Rental Income.


                                       33
<PAGE>

Real Estate Expenses

      Real estate  expenses  for the six months ended April 30, 2005 of $998,000
increased  by $600,000  (150.6%)  from real estate  expenses of $398,000 for the
same period in fiscal 2004. The sharp increase in real estate expenses is due to
the property sale  discussed  above.  Real estate  expenses are comprised of the
cost of real estate sold (90.2% and 17.3%),  labor,  operating  and  maintenance
(3.8% and 40.8%),  depreciation and amortization  (1.1% and 16.4%),  taxes other
than income taxes (3.6% and 18.8%) and general and administrative expenses (1.3%
and 6.7%) for the six months  ended April 30, 2005 and 2004,  respectively.  The
percentage  variations in the year to year  comparisons are due primarily to the
increased cost of real estate sold for fiscal 2005.

      Real estate  expenses for the three months ended April 30, 2005 of $49,000
decreased by $140,000 (73.9%) from real estate expenses of $189,000 for the same
period in fiscal 2004. The sharp decrease in real estate  expenses is due to the
2005  decrease  in cost of real  estate  sold,  coupled  with the  decreases  in
operating  expenses  associated  with the first quarter  property sale discussed
above.  Real estate expenses are comprised of the cost of real estate sold (0.0%
and 16.1%), labor, operating and maintenance (38.9% and 39.3%), depreciation and
amortization (11.3% and 17.5%),  taxes other than income taxes (36.6% and 19.9%)
and general and  administrative  expenses  (13.2% and 7.2%) for the three months
ended April 30, 2005 and 2004,  respectively.  The percentage  variations in the
year to year  comparisons  are due primarily to the decrease in the cost of real
estate sold as well as the decreases in operating  expenses  associated with the
first quarter property sale discussed above.

General and Administrative

      General and  administrative  expenses  for the six months  ended April 30,
2005 of $409,000  decreased by $13,000  (3.0%) from expenses of $422,000 for the
same period in fiscal 2004. The major  components of general and  administrative
expenses are officers  salaries (56.8% and 55.1%),  insurance expense (10.0% and
11.2%),  office salaries (11.6% and 8.8%),  travel expense (4.1% and 4.0%), rent
(2.0% and 2.3%) and professional  fees (1.3% and 2.0%) for the six month periods
ended  April  30,  2005  and  2004,  respectively.  There  were  no  significant
percentage variations in the year to year comparisons.

      General and  administrative  expenses for the three months ended April 30,
2005 of $202,000  decreased by $16,000  (7.2%) from expenses of $218,000 for the
same period in fiscal 2004. The major  components of general and  administrative
expenses are officers  salaries (57.5% and 53.4%),  insurance expense (10.2% and
10.8%),  office salaries (12.0% and 8.1%),  travel expense (3.3% and 3.6%), rent
(2.0% and  4.3%)  and  professional  fees  (2.2%  and 2.1%) for the three  month
periods ended April 30, 2005 and 2004,  respectively.  There were no significant
percentage variations in the year to year comparisons.


                                       34
<PAGE>

Interest and Other Income

      Interest  and other  income for the six  months  ended  April 30,  2005 of
$36,000  increased  $36,000 (100.0%) from $0 for the same period in fiscal 2004.
Interest  and other  income is  comprised  primarily  of interest  income on the
$1,750,000  note  receivable  associated  with  the  first  quarter  sale of the
company's South St. Paul, Minnesota Exchange Building. This property was sold on
a contract  for deed  payable in October  2007.  There was no similar  income in
fiscal 2004.

Interest Expense

      Interest  expense  for the six months  ended  April 30,  2005 of  $141,000
increased  $2,000 (2.0%) from  $139,000 for the same period in fiscal 2004.  The
principal  balances  outstanding  at April 30,  2005 and  October  31, 2004 were
$2,767,000  and  $2,767,000,  respectively.  The interest  rate (10%) on Canal's
variable rate mortgage notes has remained  unchanged for the past 12 months. The
slight  increase  in  the  2005  interest  expense  reflects  Canal's  repayment
(including  additional  accrued interest on the unpaid balance due) of a portion
of the  interest  deferred  by  certain  noteholders  to help ease the cash flow
strain experienced by Canal in fiscal 2004.

Income from Art Sales

      Other  income  from art sales for the six months  ended  April 30, 2005 of
$17,000 increased by $18,000 from a loss of $1,000 for the same period in fiscal
2004.  Art revenues are comprised of the proceeds  from the sale of  antiquities
and  contemporary  art. Canal  recognized gross sales of $64,000 and $20,000 for
the six month periods ended April 30, 2005 and 2004, respectively.  Art expenses
are  comprised  of  the  cost  of  inventory  sold  and  selling,   general  and
administrative  expenses.  Canal  incurred cost of inventory sold of $37,000 and
$38,000  (net of a  valuation  allowance  of  $24,000  and  $28,000)  as well as
selling,  general and administrative expenses of $10,000 and $12,000 for the six
month periods ended April 30, 2005 and 2004,  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.

Liquidity and Capital Resources

      While the  Company is  currently  operating  as a going  concern,  certain
significant  factors  raise  substantial  doubt about the  Company's  ability to
continue as a going  concern.  The Company has  suffered  recurring  losses from
operations  in eight of the last ten years and is obligated  to continue  making
substantial  annual  contributions  to its defined  benefit  pension  plan.  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


                                       35
<PAGE>

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, 2006 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,  2005,  the  balance due under these notes was
$2,767,000, all of which is classified as long-term debt-related party.

      Cash and cash  equivalents  of $0 at April 30, 2005  decreased  $86,000 or
100.0% from $86,000 at October 31, 2004.  Net cash used by  operations in fiscal
2005 was $150,000.  Substantially all of the 2005 net proceeds from the sales of
real estate and art of $64,000 was used in operations.  During fiscal 2005 Canal
decreased the balance of its current liabilities by a total of $275,000.

      At April 30, 2005 the Company's current assets exceed current  liabilities
by $0.1 million  which was  unchanged as compared to October 31, 2004.  The only
required principal repayments under Canal's debt agreements for fiscal 2005 will
be from the proceeds (if any) of the sale of certain assets.

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

Other Factors

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


                                       36
<PAGE>

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, 2005, 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, 2005, 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
            ---------        ----------     -------------      -----
              2005            $     0            N/A
              2006              2,767            10%
              2007                  0            N/A
              2008                  0            N/A
              2009                  0            N/A
              Thereafter            0            N/A
                              -------
              Total           $ 2,767                          N/A (A)
                              -------                          -------

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

ITEM IV. Controls and Procedures

      Our  management,  which  includes  our Chief  Executive  Officer and Chief
Financial  Officer,  has  conducted an evaluation  of the  effectiveness  of our
disclosure  controls and procedures (as defined in Rule 13(a)-14(c)  promulgated
under the Securities Exchange Act of 1934) as of April 30, 2005 ("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.


                                       37
<PAGE>

                                     PART II

                                OTHER INFORMATION


                                       38
<PAGE>

Item 1: Legal Proceedings:

      See Item 3 of Canal's October 31, 2004 Form 10-K.

      WHGA Fifth Avenue Investors, LP v. Canal Capital Corporation etal

      On March 4,  2004,  WHGA  Fifth  Avenue  Investors,  LP "(the  "Landlord")
commenced an action  against Canal Capital  Corporation  and its two  co-tenants
(the "Tenants") of its New York City commercial  office space.  The Landlord was
seeking the  eviction of the  Tenants as well as  judgement  for unpaid back and
holdover rental amounts of approximately $175,000.

      In  April  2004  Canal  and  its  co-tenants  entered  into a  stipulation
agreement  with the  landlord  requiring  the  tenants  to pay two  months  rent
(approximately  $85,000),  forfeit  the entire  security  deposit and vacate the
leased  premises as of May 31, 2004 in  exchange  for a release  from all future
obligations under the lease. All requirements of the stipulation  agreement have
been met.

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.


                                       39
<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 14th day of
June, 2005.

                                          CANAL CAPITAL CORPORATION


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

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

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


/S/ Michael E. Schultz            President and Chief
----------------------      Executive Officer and Director
Michael E. Schultz           (Principal Executive Officer)        June 14, 2005


/S/ Reginald Schauder           Vice President-Finance
----------------------          Secretary and Treasurer
Reginald Schauder              (Principal Financial and
                                  Accounting Officer)             June 14, 2005


/S/ Asher B. Edelman             Chairman of the Board
----------------------               and Director                 June 14, 2005
Asher B. Edelman


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