---

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

FORM 10-Q/A

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

For the quarterly period ended******JULY
31, 2010**

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

For the transition period from __________ to __________

002-96666(Commission File Number)

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

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

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

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

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

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

Yes [  
]     No [X]

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

Yes [   ]    No [   ]

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

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

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

Yes [  
]     No [X]

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

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

---

EXPLANATORY NOTE

The purpose of this Quarterly Report on Form 10-Q for the
period ended July 31, 2010 (the 10-Q), is to provide financial statements of
Canal Capital Corporation (the Company) that have been reviewed by the
Companys independent public accounting firm that were not provided by the
Company in its original filing of the 10-Q on September 13, 2010. Where
indicated, the financial data presented in the 10-Q is as at July 31, 2010,
however, the other disclosures have been updated to reflect the Companys
operations as at the date of this filing.

2

---

CANAL CAPITAL CORPORATION

TABLE OF CONTENTS

|                |                                                                                             | PAGE
|--------------- | ------------------------------------------------------------------------------------------- | ----
|                |                                                                                             |     
|PART
      I -  | **FINANCIAL
      INFORMATION**                                                             |     
|                |                                                                                             |     
|ITEM
      1.   | INTERIM
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                   | 4   
|                |                                                                                             |     
|ITEM
      2.   | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 23  
|                |                                                                                             |     
|ITEM
      3.   | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            | 31  
|                |                                                                                             |     
|ITEM
      4.   | CONTROLS
      AND PROCEDURES                                                               | 32  
|                |                                                                                             |     
|PART
      II  | OTHER
      INFORMATION                                                                     |     
|                |                                                                                             |     
|ITEM
      1.   | LEGAL
      PROCEEDINGS                                                                     | 33  
|                |                                                                                             |     
|ITEM
      1A.  | RISK
      FACTORS                                                                          | 34  
|                |                                                                                             |     
|ITEM
      2.   | UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           | 34  
|                |                                                                                             |     
|ITEM
      3.   | DEFAULTS
      UPON SENIOR SECURITIES                                                       | 34  
|                |                                                                                             |     
|ITEM
      4.   | MINE
      SAFETY DISCLOSURES                                                               | 34  
|                |                                                                                             |     
|ITEM
      5.   | OTHER
      INFORMATION                                                                     | 34  
|                |                                                                                             |     
|ITEM
      6.   | EXHIBITS                                                                                    | 34  
|                |                                                                                             |     
|SIGNATURES      |                                                                                             | 35  

3

---

PART I

FINANCIAL INFORMATION

ITEM 1.        FINANCIAL
STATEMENTS

Consolidated Balance
      Sheets (UNAUDITED)  July 31, 2010 and October 31, 2009
    5Consolidated Statements
      of Operations and Comprehensive Income (Loss) (UNAUDITED) for the Nine and
      Three Month Periods ended July 31, 2010 and 2009
    7Consolidated Statements
      of Cash Flows (UNAUDITED) for the Nine Month Periods ended July 31, 2010
      and 2009
    11Notes to Unaudited
      Consolidated Financial Statements
    13


4

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
  JULY 31, 2010 (UNAUDITED) AND OCTOBER 31, 2009

|                                                                                                                                                                                                                                                                              |   | JULY 31,  |  |   | OCT. 31,  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- |  | - | --------- | 
|                                                                                                                                                                                                                                                                              |   | 2010      |  |   | 2009      | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|ASSETS:                                                                                                                                                                                                                                                                       |   |           |  |   |           | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|CURRENT ASSETS:                                                                                                                                                                                                                                                               |   |           |  |   |           | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                     | $ | 2,405     |  | $ | 154,624   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|RESTRICTED CASH  TRANSIT
      INSURANCE                                                                                                                                                                                                                                     |   | 37,225    |  |   | 30,690    | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|ACCOUNTS RECEIVABLE                                                                                                                                                                                                                                                           |   | 270,895   |  |   | 106,425   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|STOCKYARDS INVENTORY                                                                                                                                                                                                                                                          |   | 4,857     |  |   | 16,586    | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|PREPAID EXPENSES                                                                                                                                                                                                                                                              |   | 61,939    |  |   | 16,965    | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|TOTAL CURRENT ASSETS                                                                                                                                                                                                                                                          |   | 377,321   |  |   | 325,290   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|NON-CURRENT ASSETS:                                                                                                                                                                                                                                                           |   |           |  |   |           | 
|PROPERTY
      ON OPERATING LEASES, NET OF
      ACCUMULATED                                              
      DEPRECIATION OF $466,849 AND $450,199 AT
      JULY                                               31,
      2010 AND OCTOBER 31, 2009, RESPECTIVELY          |   | 1,681,957 |  |   | 1,358,607 | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|PROPERTY
      USED IN STOCKYARD OPERATIONS, NET
      OF                                               ACCUMULATED
      DEPRECIATION OF $188,489
      AND                                               $178,386
      AT JULY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY |   | 1,013,219 |  |   | 988,322   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|PROPERTY HELD FOR DEVELOPMENT OR
      RESALE                                                                                                                                                                                                                                 |   | 272,525   |  |   | 272,525   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|OTHER ASSETS:                                                                                                                                                                                                                                                                 |   |           |  |   |           | 
|RESTRICTED CASH  LETTER OF CREDIT                                                                                                                                                                                                                                            |   | 140,000   |  |   | 130,000   | 
|ART INVENTORY                                                                                                                                                                                                                                                                 |   | 100,000   |  |   | 100,000   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|                                                                                                                                                                                                                                                                              |   | 240,000   |  |   | 230,000   | 
|                                                                                                                                                                                                                                                                              |   |           |  |   |           | 
|                                                                                                                                                                                                                                                                              | $ | 3,585,022 |  | $ | 3,174,744 | 

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

5

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
  JULY 31, 2010 (UNAUDITED) AND OCTOBER 31, 2009

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | JULY 31,    |   |   | OCT. 31,    |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010        |   |   | 2009        |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|LIABILITIES & STOCKHOLDERS' EQUITY:                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |             |   |   |             |  
|ACCOUNTS PAYABLE
      AND ACCRUED EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                                           | $ | 108,929     |   | $ | 181,274     |  
|LINE OF CREDIT  ORDER BUYING                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 168,000     |   |   | 62,000      |  
|TRANSIT INSURANCE                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 37,225      |   |   | 30,690      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 314,154     |   |   | 273,964     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|NON-CURRENT LIABILITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |   |   |             |  
|LONG-TERM DEBT,
      RELATED PARTY                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 1,332,000   |   |   | 992,000     |  
|LONG-TERM PENSION LIABILITY                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 782,132     |   |   | 796,672     |  
|SALARIES AND
      INTEREST PAYABLE  OFFICERS                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 337,875     |   |   | 0           |  
|REAL ESTATE TAXES PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 195,400     |   |   | 222,791     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|TOTAL
      NON-CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2,647,407   |   |   | 2,011,463   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|STOCKHOLDERS' EQUITY:                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|PREFERRED STOCK, $0.01 PAR
      VALUE:                        10,000,000
      SHARES AUTHORIZED;
      9,102,655                        SHARES
      ISSUED AND OUTSTANDING AT JULY 31,
      2010                        AND
      OCTOBER 31, 2009, RESPECTIVELY AND
      AGGREGATE                        LIQUIDATION
      PREFERENCE OF $10 PER SHARE FOR $
      91,026,550                        AT
      JULY 31, 2010 AND OCTOBER 31, 2009, RESPECTIVELY |   | 91,027      |   |   | 91,027      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|COMMON STOCK, $0.01 PAR
      VALUE:                        10,000,000
      SHARES AUTHORIZED;
      5,313,794                        SHARES
      ISSUED AND 4,326,929
      SHARES                        OUTSTANDING
      AT JULY 31, 2010
      AND                        OCTOBER
      31, 2009, RESPECTIVELY                                                                                                                                                 |   | 53,138      |   |   | 53,138      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|ADDITIONAL PAID-IN CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 25,526,721  |   |   | 25,526,721  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|ACCUMULATED DEFICIT                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (12,208,895 | ) |   | (11,862,039 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|986,865 SHARES OF COMMON
      STOCK HELD IN TREASURY, AT COST                                                                                                                                                                                                                                                                                                                                                                                                        |   | (11,003,545 | ) |   | (11,003,545 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|COMPREHENSIVE INCOME: PENSION
      VALUATION RESERVE                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (1,834,985  | ) |   | (1,915,985  | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 623,461     |   |   | 889,317     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $ | 3,585,022   |   | $ | 3,174,744   |  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

6

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)FOR THE NINE
MONTHS ENDED JULY 31, 2010 AND 2009 
  (UNAUDITED)

|                                      |   | 2010      |   |   | 2009      |  
|------------------------------------- | - | --------- | - | - | --------- | -
|                                      |   |           |   |   |           |  
|REAL ESTATE OPERATIONS:               |   |           |   |   |           |  
|                                      |   |           |   |   |           |  
|REAL ESTATE REVENUES:                 |   |           |   |   |           |  
|SALE OF REAL
      ESTATE             |   | 0         |   |   | 262,720   |  
|OUTSIDE REAL ESTATE RENT              |   | 207,084   |   |   | 290,037   |  
|EXCHANGE BUILDING
      RENTAL INCOME |   | 9,693     |   |   | 22,160    |  
|                                      |   | 216,777   |   |   | 574,917   |  
|                                      |   |           |   |   |           |  
|REAL ESTATE EXPENSES:                 |   |           |   |   |           |  
|COST OF REAL
      ESTATE SOLD        |   | 0         |   |   | 69,069    |  
|LABOR, OPERATING AND MAINTENANCE      |   | 19,343    |   |   | 43,683    |  
|DEPRECIATION AND
      AMORTIZATION   |   | 16,650    |   |   | 16,650    |  
|TAXES OTHER THAN INCOME TAXES         |   | 16,550    |   |   | 18,450    |  
|GENERAL AND
      ADMINISTRATIVE      |   | 16,873    |   |   | 29,700    |  
|                                      |   | 69,416    |   |   | 177,552   |  
|                                      |   |           |   |   |           |  
|INCOME FROM REAL ESTATE OPERATIONS    |   | 147,361   |   |   | 397,365   |  
|                                      |   |           |   |   |           |  
|                                      |   |           |   |   |           |  
|STOCKYARD OPERATIONS:                 |   |           |   |   |           |  
|                                      |   |           |   |   |           |  
|STOCKYARD REVENUES:                   |   |           |   |   |           |  
|YARD HANDLING AND AUCTION             | $ | 1,353,303 |   | $ | 1,877,220 |  
|FEED AND BEDDING
      INCOME         |   | 79,836    |   |   | 150,991   |  
|RENTAL & OTHER INCOME                 |   | 214,369   |   |   | 122,446   |  
|                                      |   | 1,647,508 |   |   | 2,150,657 |  
|                                      |   |           |   |   |           |  
|STOCKYARD EXPENSES:                   |   |           |   |   |           |  
|LABOR AND RELATED COSTS               |   | 610,017   |   |   | 922,270   |  
|OTHER OPERATING
      AND MAINTENANCE |   | 386,417   |   |   | 563,524   |  
|FEED AND BEDDING EXPENSE              |   | 66,125    |   |   | 113,618   |  
|DEPRECIATION AND
      AMORTIZATION   |   | 10,103    |   |   | 14,863    |  
|TAXES OTHER THAN INCOME TAXES         |   | 116,272   |   |   | 127,085   |  
|GENERAL AND
      ADMINISTRATIVE      |   | 244,123   |   |   | 288,734   |  
|                                      |   | 1,433,057 |   |   | 2,030,094 |  
|                                      |   |           |   |   |           |  
|INCOME FROM STOCKYARD OPERATIONS      |   | 214,451   |   |   | 120,563   |  
|                                      |   |           |   |   |           |  
|                                      |   |           |   |   |           |  
|GENERAL AND ADMINISTRATIVE EXPENSE    |   | (620,896  | ) |   | (680,400  | )
|                                      |   |           |   |   |           |  
|                                      |   |           |   |   |           |  
|(LOSS) FROM OPERATIONS                |   | (259,084  | ) |   | (162,472  | )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

7

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)FOR THE NINE
MONTHS ENDED JULY 31, 2010 AND 2009 
  Continued ...

|                                                                                   |   | 2010      |   |   | 2009      |  
|---------------------------------------------------------------------------------- | - | --------- | - | - | --------- | -
|                                                                                   |   |           |   |   |           |  
|OTHER (EXPENSE) INCOME:                                                            |   |           |   |   |           |  
|                                                                                   |   |           |   |   |           |  
|INTEREST & OTHER
      INCOME                                                      |   | 407       |   |   | 7,881     |  
|                                                                                   |   |           |   |   |           |  
|INTEREST EXPENSE                                                                   |   | (88,179   | ) |   | (94,650   | )
|                                                                                   |   |           |   |   |           |  
|ART SALES AND
      OPERATIONS                                                     |   | 0         |   |   | (3,600    | )
|                                                                                   |   |           |   |   |           |  
|                                                                                   |   | (87,772   | ) |   | (90,369   | )
|                                                                                   |   |           |   |   |           |  
|(LOSS) INCOME BEFORE PROVISION FOR INCOME
      TAXES                              |   | (346,856  | ) |   | (252,841  | )
|                                                                                   |   |           |   |   |           |  
|PROVISION FOR INCOME TAXES                                                         |   | 0         |   |   | 0         |  
|                                                                                   |   |           |   |   |           |  
|NET (LOSS)                                                                         |   | (346,856  | ) |   | (252,841  | )
|                                                                                   |   |           |   |   |           |  
|OTHER COMPREHENSIVE (LOSS) INCOME:
           MINIMUM PENSION LIABILITY ADJUSTMENT |   | 81,000    |   |   | 90,000    |  
|                                                                                   |   |           |   |   |           |  
|COMPREHENSIVE (LOSS)                                                               | $ | (265,856  | ) | $ | (162,841  | )
|                                                                                   |   |           |   |   |           |  
|NET (LOSS) PER COMMON SHARE BASIC AND DILUTED                                      | $ | (0.08     | ) | $ | (0.06     | )
|                                                                                   |   |           |   |   |           |  
|AVERAGE SHARES OUTSTANDING - BASIC AND
      DILUTED                               |   | 4,326,929 |   |   | 4,326,929 |  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

8

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)FOR THE THREE
MONTHS ENDED JULY 31, 2010 AND 2009 
  (UNAUDITED)

|                                      |   | 2010     |   |   | 2009     |  
|------------------------------------- | - | -------- | - | - | -------- | -
|                                      |   |          |   |   |          |  
|REAL ESTATE OPERATIONS:               |   |          |   |   |          |  
|                                      |   |          |   |   |          |  
|REAL ESTATE REVENUES:                 |   |          |   |   |          |  
|SALE OF REAL
      ESTATE             |   | 0        |   |   | 0        |  
|OUTSIDE REAL ESTATE RENT              |   | 67,270   |   |   | 96,993   |  
|EXCHANGE BUILDING
      RENTAL INCOME |   | 2,414    |   |   | 6,773    |  
|                                      |   | 69,684   |   |   | 103,766  |  
|                                      |   |          |   |   |          |  
|REAL ESTATE EXPENSES:                 |   |          |   |   |          |  
|COST OF REAL
      ESTATE SOLD        |   | 0        |   |   | 0        |  
|LABOR, OPERATING AND MAINTENANCE      |   | 5,765    |   |   | 14,053   |  
|DEPRECIATION AND
      AMORTIZATION   |   | 5,550    |   |   | 5,550    |  
|TAXES OTHER THAN INCOME TAXES         |   | 5,550    |   |   | 6,150    |  
|GENERAL AND
      ADMINISTRATIVE      |   | 7,257    |   |   | 9,900    |  
|                                      |   | 24,122   |   |   | 35,653   |  
|                                      |   |          |   |   |          |  
|INCOME FROM REAL ESTATE OPERATIONS    |   | 45,562   |   |   | 68,113   |  
|                                      |   |          |   |   |          |  
|                                      |   |          |   |   |          |  
|STOCKYARD OPERATIONS:                 |   |          |   |   |          |  
|                                      |   |          |   |   |          |  
|STOCKYARD REVENUES:                   |   |          |   |   |          |  
|YARD HANDLING AND AUCTION             | $ | 277,142  |   | $ | 397,784  |  
|FEED AND BEDDING
      INCOME         |   | 21,817   |   |   | 35,300   |  
|RENTAL & OTHER INCOME                 |   | 34,028   |   |   | 32,771   |  
|                                      |   | 332,987  |   |   | 465,855  |  
|                                      |   |          |   |   |          |  
|STOCKYARD EXPENSES:                   |   |          |   |   |          |  
|LABOR AND RELATED COSTS               |   | 145,810  |   |   | 242,373  |  
|OTHER OPERATING
      AND MAINTENANCE |   | 111,536  |   |   | 157,902  |  
|FEED AND BEDDING EXPENSE              |   | 15,826   |   |   | 21,470   |  
|DEPRECIATION AND
      AMORTIZATION   |   | 3,368    |   |   | 4,954    |  
|TAXES OTHER THAN INCOME TAXES         |   | 35,886   |   |   | 37,064   |  
|GENERAL AND
      ADMINISTRATIVE      |   | 54,641   |   |   | 65,322   |  
|                                      |   | 367,067  |   |   | 529,085  |  
|                                      |   |          |   |   |          |  
|(LOSS) FROM STOCKYARD OPERATIONS      |   | (34,080  | ) |   | (63,230  | )
|                                      |   |          |   |   |          |  
|GENERAL AND ADMINISTRATIVE EXPENSE    |   | (208,042 | ) |   | (230,972 | )
|                                      |   |          |   |   |          |  
|(LOSS) FROM OPERATIONS                |   | (196,560 | ) |   | (226,089 | )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

9

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)FOR THE THREE
MONTHS ENDED JULY 31, 2010 AND 2009 
  Continued ...

|                                                      |   | 2010      |   |   | 2009      |  
|----------------------------------------------------- | - | --------- | - | - | --------- | -
|                                                      |   |           |   |   |           |  
|OTHER (EXPENSE) INCOME:                               |   |           |   |   |           |  
|                                                      |   |           |   |   |           |  
|INTEREST & OTHER
      INCOME                         |   | 177       |   |   | 102       |  
|                                                      |   |           |   |   |           |  
|INTEREST EXPENSE                                      |   | (33,300   | ) |   | (31,550   | )
|                                                      |   |           |   |   |           |  
|ART SALES AND
      OPERATIONS                        |   | 0         |   |   | (1,200    | )
|                                                      |   |           |   |   |           |  
|                                                      |   | (33,123   | ) |   | (32,648   | )
|                                                      |   |           |   |   |           |  
|(LOSS) INCOME BEFORE PROVISION FOR INCOME
      TAXES |   | (229,683  | ) |   | (258,737  | )
|                                                      |   |           |   |   |           |  
|PROVISION FOR INCOME TAXES                            |   | 0         |   |   | 0         |  
|                                                      |   |           |   |   |           |  
|NET (LOSS)                                            |   | (229,683  | ) |   | (258,737  | )
|                                                      |   |           |   |   |           |  
|OTHER COMPREHENSIVE (LOSS) INCOME:                    |   |           |   |   |           |  
|                                                      |   |           |   |   |           |  
|MINIMUM PENSION
      LIABILITY ADJUSTMENT            |   | 27,000    |   |   | 30,000    |  
|                                                      |   |           |   |   |           |  
|COMPREHENSIVE (LOSS)                                  | $ | (202,683  | ) | $ | (228,737  | )
|                                                      |   |           |   |   |           |  
|NET (LOSS) PER COMMON SHARE BASIC AND DILUTED         | $ | (0.05     | ) | $ | (0.06     | )
|                                                      |   |           |   |   |           |  
|AVERAGE SHARES OUTSTANDING - BASIC AND
      DILUTED  |   | 4,326,929 |   |   | 4,326,929 |  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

10

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31, 2010 AND
2009
  (UNAUDITED)

|                                                                                                |   | JULY
      2010 |   |   | JULY
      2009 |  
|----------------------------------------------------------------------------------------------- | - | --------------- | - | - | --------------- | -
|                                                                                                |   |                 |   |   |                 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |   |                 |   |   |                 |  
|                                                                                                |   |                 |   |   |                 |  
|NET (LOSS)                                                                                      | $ | (346,856        | ) | $ | (252,841        | )
|                                                                                                |   |                 |   |   |                 |  
|ADJUSTMENTS TO RECONCILE NET LOSS TO NET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: |   |                 |   |   |                 |  
|                                                                                                |   |                 |   |   |                 |  
|DEPRECIATION AND AMORTIZATION                                                                   |   | 26,753          |   |   | 31,513          |  
|GAIN ON SALES OF REAL
      ESTATE                                                              |   | 0               |   |   | (193,651        | )
|MINIMUM
      PENSION LIABILITY ADJUSTMENT                                                      |   | 81,000          |   |   | 90,000          |  
|                                                                                                |   |                 |   |   |                 |  
|DECREASE (INCREASE) IN ASSETS                                                                   |   |                 |   |   |                 |  
|                                                                                                |   |                 |   |   |                 |  
|ACCOUNTS
      RECEIVABLE                                                                       |   | (164,470        | ) |   | (47,203         | )
|                                                                                                |   |                 |   |   |                 |  
|STOCKYARDS INVENTORY                                                                            |   | 11,729          |   |   | 20,144          |  
|                                                                                                |   |                 |   |   |                 |  
|PREPAID
      EXPENSES                                                                          |   | (44,974         | ) |   | (32,294         | )
|                                                                                                |   |                 |   |   |                 |  
|RESTRICTED CASH  LETTER OF CREDIT                                                              |   | (10,000         | ) |   | (30,000         | )
|                                                                                                |   |                 |   |   |                 |  
|RESTRICTED CASH  TRANSIT INSURANCE                                                             |   | (6,535          | ) |   | (14,887         | )
|                                                                                                |   |                 |   |   |                 |  
|INCREASE (DECREASE) IN LIABILITIES:                                                             |   |                 |   |   |                 |  
|                                                                                                |   |                 |   |   |                 |  
|ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES                                                     |   | (72,345         | ) |   | (69,442         | )
|                                                                                                |   |                 |   |   |                 |  
|LINE OF
      CREDIT  ORDER BUYING                                                             |   | 106,000         |   |   | 0               |  
|                                                                                                |   |                 |   |   |                 |  
|PENSION
      PLAN PAYABLE                                                                      |   | (14,540         | ) |   | (45,024         | )
|                                                                                                |   |                 |   |   |                 |  
|SALARIES
      AND INTEREST PAYABLE - OFFICERS                                                  |   | 337,875         |   |   | 192,464         |  
|                                                                                                |   |                 |   |   |                 |  
|REAL
      ESTATE TAXES PAYABLE                                                                 |   | (27,391         | ) |   | 59,283          |  
|                                                                                                |   |                 |   |   |                 |  
|TRANSIT
      INSURANCE                                                                         |   | 6,535           |   |   | 14,887          |  
|                                                                                                |   |                 |   |   |                 |  
|TOTAL ADJUSTMENTS                                                                               |   | 229,637         |   |   | (24,210         | )
|                                                                                                |   |                 |   |   |                 |  
|NET CASH PROVIDED BY (USED IN) OPERATING
      ACTIVITIES                                       |   | (117,219        | ) |   | (277,051        | )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

11

---

CANAL CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWSFOR THE NINE MONTHS ENDED JULY 31, 2010 AND
2009
  Continued ...

|                                                             |   | JULY
      2010 |   |   | JULY
      2009 |  
|------------------------------------------------------------ | - | --------------- | - | - | --------------- | -
|                                                             |   |                 |   |   |                 |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |   |                 |   |   |                 |  
|                                                             |   |                 |   |   |                 |  
|PROCEEDS FROM SALES OF
      REAL ESTATE                     |   | 0               |   |   | 262,720         |  
|COSTS RELATING TO SALES OF REAL ESTATE                       |   | 0               |   |   | (29,809         | )
|CAPITAL EXPENDITURES                                         |   | (375,000        | ) |   | 0               |  
|                                                             |   |                 |   |   |                 |  
|NET CASH PROVIDED BY INVESTING ACTIVITIES                    |   | (375,000        | ) |   | 232,911         |  
|                                                             |   |                 |   |   |                 |  
|CASH FLOWS PROVIDED BY (USED) IN FINANCING
      ACTIVITIES: |   |                 |   |   |                 |  
|                                                             |   |                 |   |   |                 |  
|PROCEEDS
      FROM LONG-TERM DEBT OBLIGATION                |   | 340,000         |   |   | 30,000          |  
|REPAYMENT OF LONG-TERM
      DEBT OBLIGATION                 |   | 0               |   |   | 0               |  
|                                                             |   |                 |   |   |                 |  
|NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES          |   | 340,000         |   |   | 30,000          |  
|                                                             |   |                 |   |   |                 |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         |   | (152,219        | ) |   | (14,140         | )
|                                                             |   |                 |   |   |                 |  
|CASH AND CASH EQUIVALENTS AT BEGN OF YEAR                    |   | 154,624         |   |   | 21,115          |  
|                                                             |   |                 |   |   |                 |  
|                                                             |   |                 |   |   |                 |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                     | $ | 2,405           |   | $ | 6,975           |  

|                                                         |   |        |  |   | JULY
      31, | 
|-------------------------------------------------------- | - | ------ |  | - | -------------- | 
|                                                         |   | 2010   |  |   | 2009           | 
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
      INFORMATION: |   |        |  |   |                | 
|                                                         |   |        |  |   |                | 
|CASH PAID DURING THE YEAR FOR:                           |   |        |  |   |                | 
|                                                         |   |        |  |   |                | 
|INTEREST                                                 | $ | 88,179 |  | $ | 94,650         | 
|                                                         |   |        |  |   |                | 
|INCOME TAXES                                             | $ | 0      |  | $ | 0              | 

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

12

---

CANAL CAPITAL CORPORATION AND SUBSIDIARIES 
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.        DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION

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

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

Canals
cash flow position has been under significant strain under 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 antiquities art inventories to enhance current cash flows. Management is
unsure if its income from operations combined with its cost cutting program and
planned reduction of its antiquities art inventory will enable it to finance its
future business activities. There can be no assurance that Canal will be able to
effectuate its planned antiquities art inventory reductions or that its income
from operations combined with its cost cutting program in itself will be
sufficient to fund operating cash requirements. Canal may, as it has in the
past, be forced to sell incoming producing assets to raise needed cash, thereby,
further adversely impacting future revenues. As of the date of this report Canal
had previously sold its Sioux Falls, South Dakota property (formerly used in
stockyard operations); two of its three remaining rental properties and its
stockyard operations (30 acres of land and the improvements thereon) located in
St. Joseph, Missouri.

13

---

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 land and
structures leased to third parties (rail car repair shops, lumber yards and
various other commercial and retail businesses) as well as vacant land available
for development or resale. Its principal real estate operating revenues are
derived from lease income from land and structures leased to various commercial
and retail enterprises, and proceeds from the sale of real estate
properties.

Stockyard
Operations - Canal currently operates one central public stockyard located in
St. Joseph, Missouri. Canal closed the stockyard it operated in Sioux Falls,
South Dakota in December 2009 (collectively the Stockyards).

Sioux
Falls Stockyard Closure - In December 2009, after extensive efforts to
reorganize and return this stockyard to profitability, Canal ceased all
stockyard operations at its Sioux Falls, South Dakota location. Canal has listed
this property for sale with a local real estate agency. The net value of this
property was transferred to property held for development or resale as of
October 31, 2009.

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

14

---

2.        RESTATEMENT AND
RECLASSIFICATIONS

The
Company has restated its previously issued Consolidated Financial Statements to
correct the recording of the gain on sale of property and other errors. The
Company has also reclassified its recording of past preferred stock dividends as
an adjustment to accumulated deficit.

The
following tables summarize the corrections on each of the affected financial
statement line items for each period presented:

|                                    |   | As Previously |   |   | Restatement |   |   |             |  
|----------------------------------- | - | ------------- | - | - | ----------- | - | - | ----------- | -
|                                    |   | Reported      |   |   | Adjusted    |   |   | As Restated |  
|Consolidated Balance Sheet          |   |               |   |   |             |   |   |             |  
|                                    |   |               |   |   |             |   |   |             |  
|ACCOUNTS RECEIVABLE                 | $ | 237,172       |   | $ | 33,723      |   | $ | 270,895     |  
|                                    |   |               |   |   |             |   |   |             |  
|PROPERTY ON OPERATING LEASES        |   | 1,396,957     |   |   | 285,000     |   |   | 1,681,957   |  
|                                    |   |               |   |   |             |   |   |             |  
|ACCOUNTS PAYABLE & ACCR.
      EXP. |   | 307,553       |   |   | (198,624    | ) |   | 108,929     |  
|                                    |   |               |   |   |             |   |   |             |  
|LINE OF CREDIT - ORDER BUYING       |   | 0             |   |   | 168,000     |   |   | 168,000     |  
|                                    |   |               |   |   |             |   |   |             |  
|TRANSIT INSURANCE                   |   | 0             |   |   | 37,225      |   |   | 37,225      |  
|                                    |   |               |   |   |             |   |   |             |  
|ACCRUED PROFESSIONAL FEES           |   | 18,601        |   |   | (18,601     | ) |   | 0           |  
|                                    |   |               |   |   |             |   |   |             |  
|PREFERRED STOCK DIV. PAYABLE        |   | 211,735       |   |   | (211,735    | ) |   | 0           |  
|                                    |   |               |   |   |             |   |   |             |  
|INCOME TAXES PAYABLE                |   | 10,000        |   |   | (10,000     | ) |   | 0           |  
|                                    |   |               |   |   |             |   |   |             |  
|REAL ESTATE TAXES PAYABLE           |   | 114,334       |   |   | 81,066      |   |   | 195,400     |  
|                                    |   |               |   |   |             |   |   |             |  
|ADDITIONAL PAID-IN CAPITAL          |   | 28,322,341    |   |   | (2,795,620  | ) |   | 25,526,721  |  
|                                    |   |               |   |   |             |   |   |             |  
|ACCUMULATED DEFICIT                 |   | (15,475,907   | ) |   | 3,267,012   |   |   | (12,208,895 | )

|Consd. Stmt. Of Operations |  |         |  |  |        |   |  |         | 
|-------------------------- |  | ------- |  |  | ------ | - |  | ------- | 
|                           |  |         |  |  |        |   |  |         | 
|GENERAL & ADMIN. EXPENSE   |  | 627,896 |  |  | (7,000 | ) |  | 620,896 | 

15

---

3.        SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

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

B)
Recent Accounting Pronouncements - In January 2010, the FASB issued ASU
2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving
Disclosures about Fair Value Measurements (ASU 2010-06"). ASU 2010-06 requires
reporting entities to provide information about movements of assets among Levels
1 and 2 of the three-tier fair value hierarchy established by ASC 820. The
guidance is effective for any fiscal year that begins after December 15, 2010
and should be used for quarterly and annual filings. We do not believe that
adoption of ASU 2010-06 will have a significant impact on our financial
position, results of operations or cash flows.

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

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

16

---

4.        INTERIM FINANCIAL
STATEMENTS

The
interim consolidated financial statements included herein have been prepared by
Management, in accordance with accounting principles generally accepted in the
United States, and in the opinion of Management, contain all adjustments
necessary to present fairly its financial position as of July 31, 2010 and the
results of its operations and its cash flows for the nine month period ended
July 31, 2010. All of the above referenced adjustments were of a normal
recurring nature. Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial statements
should be read in conjunction with the consolidated financial statements for the
two years ended October 31, 2009 and the notes thereto which are contained in
Canals 2009 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 2010.

5.        STOCK OPTION PLAN

Under
Canal's 1984 Employee and 1985 Directors Stock Option Plans, $550,000 and
264,000 shares, respectively, of Canal's common stock have been reserved for
option grants. The purchase price of shares subject to each option granted,
under the Employee and Directors Plans, will not be less than 85% and 100%,
respectively, of their fair market value at the date of grant. Options granted
under both plans are exercisable for 10 years from the date of grant, but no
option will be exercisable earlier than one year from the date of grant. Under
the Employee Plan, stock appreciation rights may be granted in connection with
stock options, either at the time of grant of the options or at any time
thereafter. No stock appreciation rights have been granted under this plan.
There were no exercisable options outstanding under either of these plans at
July 31, 2010 or 2009.

6.        RESTRICTED
CASH

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

Transit
Insurance - Transit insurance covers livestock for the period that they are
physically at the stockyards and under the care of stockyard personnel. This
self insurance program is funded by a per head charge on all livestock received
at the stockyard. The restricted cash - transit insurance balances of
approximately $37,000 and $31,000 at July 31, 2010 and October 31, 2009,
respectively, represents the excess of per head fees charged over actual
payments made for livestock that was injured or died while at the stockyards.

17

---

7.        RELATED PARTY DEBT

The
Companys mortgage notes (originally issued in 1998) are due May 15, 2015 and
are held entirely by the Companys Chief Executive Officer. These notes carry
interest at the rate of ten percent per annum. These notes, among other things,
prohibit Canal from becoming an investment company as defined by the Investment
Company Act of 1940; require Canal to maintain minimum net worth; restricts
Canals ability to pay cash dividends or repurchase stock and require principal
prepayments to be made only out of the proceeds from the sale of certain assets.
As of July 31, 2010, the balance due under these notes was 1,332,000, all of
which is classified as long-term debt-related party. Canal has incurred interest
expense on these notes of approximately $88,000 and $95,000 for the nine month
periods ended July 31, 2010 and 2009, respectively.

At
July 31, 2010, 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:

|                                                                    |   | July 31, |  |   | October 31, | 
|------------------------------------------------------------------- | - | -------- |  | - | ----------- | 
|($ 000's Omitted)                                                   |   | 2010     |  |   | 2009        | 
|                                                                    |   |          |  |   |             | 
|Variable rate mortgage notes
      due May 15, 2015 - related party | $ | 1,332    |  | $ | 992         | 
|Less -- current maturities                                          |   | 0        |  |   | 0           | 
|Long-term debt                                                      | $ | 1,332    |  | $ | 992         | 

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

The
outstanding balances on this credit line were $168,000 and $62,000 at July 31,
2010 and October 31, 2009, respectively.

8.        ART INVENTORY

Antiquities art valued at $100,000 represented 100% of total art inventory at
both July 31, 2010 and October 31, 2009. The Company records a valuation
allowance against the current portion of its inventory to reduce it to its
estimated net realizable value based on the history of losses sustained on
inventory items sold in the current and previous years. As of July 31, 2010 the
valuation allowance is approximately $396,000.

18

---

9.        INCOME TAXES

At July
31, 2010, the Company has net operating loss carry forwards of approximately
$11,500,000 that expire through 2029. For financial statement purposes, a
valuation allowance has been provided to offset the net deferred tax assets due
to the cumulative net operating losses incurred during recent years. The
valuation allowance will be reduced when and if, in the opinion of management,
significant positive evidence exists which indicates that it is more likely than
not that the Company will be able to realize its deferred tax assets.

10.      LEASE COMMITMENTS

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

There
are no operating leases that have initial or remaining non-cancellable terms in
excess of one year as of July 31, 2010. Accordingly, Canal has no future minimum
payments due over the next five years.

11.      MINIMUM FUTURE RENTALS ON
OPERATING LEASES

Minimum
future rentals consist primarily of rental income from leased land and
structures, Exchange Building rents (commercial office space) and other rental
activities, all of which are accounted for as operating leases. The estimated
minimum future rentals on operating leases are $275,000, $270,000, $210,000,
$110,000 and $110,000 for fiscal years 2010, 2011, 2012, 2013 and 2014,
respectively.

12.      PROPERTY USED IN STOCKYARD
OPERATIONS

A
schedule of the Companys property used in stockyard operations at July 31, 2010
is as follows (000's omitted):

Current Year(Retirements)Historical Cost
    
    
    
    
    
    Additions
    
    
    
    
    
    
    
    
    CarryingBldgs. &
    
    
    
    
    
    Bldgs. &
    
    
    Accum.
    
      
    ValueDescription (1)
    
    Land
    
    
    Imprvmts.
    
    
    Land
    
    
    Imprvmts.
    
    
    Depr.
    
    
    07/31/1030 acres of land in St. Joseph, MO Acquired
      in 1942
    $
    902
    
    $
    265
    
    $
    0
    
    $
    35
    
    $
    (189
    )
    $
    1,013


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

19

---

13.      PROPERTY ON OPERATING LEASES

A
schedule of the Companys property on operating leases at July 31, 2010 is as
follows (000's omitted):

Current Year(RetirementsHistorical
    
    
    Cost
    
    
    Additions
    
    
    
    
    
    
    
    
    CarryingBldgs. &
    
    
    
    
    
    Bldgs. &
    
    
    Accum.
    
    
    ValueDescription (1)
    
    Land
    
    
    Imprvmts.
    
    
    Land
    
    
    Imprvmts.
    
    
    Depr.
    
    
    07/31/10New York office Leasehold assets
    $
    0
    
    $
    8
    
    $
    0
    
    $
    0
    
    $
    (8
    )
    $
    09 acres of land in Omaha, NE Acquired in
      1976
    
    1,150
    
    
    21
    
    
    0
    
    
    0
    
    
    (17
    )
    
    1,1543 acres of land in S. St. Paul, MN Acquired
      in 1937
    
    10
    
    
    485
    
    
    0
    
    
    0
    
    
    (442
    )
    
    534 acres of land in Sioux City, IA Acquired
      in 1937
    
    135
    
    
    0
    
    
    340
    
    
    0
    
    
    0
    
    
    475$
    1,295
    
    $
    514
    
    $
    340
    
    $
    0
    
    $
    (467
    )
    $
    1,682


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

14.      PROPERTY HELD FOR DEVELOPMENT
OR RESALE

A
schedule of the Companys property held for development or resale at July 31,
2010 is as follows (000's omitted):

Description
    
    Land02 acres of land Sioux City, IA
    $
    5335 acres of land Sioux Falls, SD
    
    220$
    273


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

20

---

15.      PENSION VALUATION RESERVE

The
Pension Valuation Reserve represents the excess of additional minimum pension
liability required under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 87 amended by SFAS 158 over the unrecognized prior
service costs of former stockyard employees. Such excess arose due to the
decline in the market value of pension assets available for pension benefits of
former employees, which benefits were frozen at the time the stockyard
operations were sold in 1989. The additional minimum pension liability will be
expensed as actuarial computations of annual pension cost recognize the
deficiency that exists.

The
components of net periodic benefit cost are as follows:

Nine Months Ended7/31/10
      
      
      7/31/09Service cost
      
      4,000
      
      
      4,000Interest cost
      
      75,000
      
      
      76,000Expected return on plan assets
      
      (80,000
      )
      
      (80,000
      )Amortization of prior service cost
      
      0
      
      
      0Recognized net actuarial loss
      
      90,000
      
      
      90,000Net periodic benefit cost
      
      89,000
      
      
      90,000


For the nine months ended July 31, 2010, amounts have been
estimated, actual amounts will be based on the discount rate and assets
available at year end.

The Companys required contribution to its pension plan for
fiscal 2010 is approximately $22,000. A contribution of $14,000 has been made to
date and the Company expects to make the full required contribution before the
end of the fiscal year.

16.      401(k) PLAN

The
Company has a defined contribution 401(k) plan covering substantially all of its
full time stockyard employees. The plan provides for employee contributions and
401(k) matching contributions of up to 2 1⁄2% of the employees annual salary by
the Company. The Company made 401(k) matching contributions of approximately
$9,000 and $13,000 for each of the nine month periods ended July 31, 2010 and
2009.

21

---

17.      LEGAL PROCEEDINGS

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

Environmental Protection Agency

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

Since
the receipt of the letter, the Company has been in periodic communications with
the other parties who received a similar letter with respect to what action,
collectively or individually, should be taken in response to the EPA assertion
of liability. The Company believes that the remediation of contamination of the
site is properly the responsibility of other parties that have occupied and used
it for waste recycling purposes since 1961, although under CERCLA the EPA is
able to assert joint and several liability against all parties who ever owned or
operated the site or generated or transported wastes to it. The EPA
investigation is in its preliminary stages and the Company intends to vigorously
defend any liability for remediation. At July 31, 2010, the liability for
remediation, if any, was not estimatable and therefore no accrual has been
recorded in the financial statements.

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

22

---

18.      RELATED PARTY TRANSACTIONS

At July
31, 2010, all of Canals Long-Term Debt is held by the companys Chief Executive
Officer. These notes which pay interest at a rate of 10% per annum and come due
May 15, 2015. Canal has incurred interest expense on these notes of
approximately $88,000 and $95,000 for the nine month periods ended July 31, 2010
and 2009, respectively. At various times during period the holder of these notes
agrees to defer interest payments. This deferred interest liability accrues
additional interest at a rate of 10% per annum, while outstanding and is repaid
as funds become available. As of July 31, 2010, the balance due under these
notes was $1,332,000 all of which is classified as long-term debt related
party.

19.      SUBSEQUENT EVENTS

In
September 2010, Canal sold approximately 35 acres of land and the improvements
thereon located in Sioux Falls, South Dakota (formerly used in stockyard
operations) for $2,000,000 generating a gain of $1,242,000.

In April
2012, Canal sold 6 acres of land and the improvements thereon located in Sioux
City, Iowa to the companys Chief Executive Officer, Michael E. Schultz for
$852,000 generating a gain of $346,000.

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

In
August 2012, Canal sold its stockyard operation (30 acres of land and the
improvements thereon) located in St. Joseph, Missouri for $500,000 generating a
loss of $577,000.

23

---

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

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

Special Note Regarding Our Financial Statements and
Forward-looking Statements

In
addition to historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
use words such as believe, expect, anticipate, project, target,
plan, optimistic, intend, aim, will or similar expressions which are
intended to identify forward-looking statements. Such statements include, among
others, any projections of sales, earnings, revenue, margins or other financial
items; any statements of the plans, strategies and objectives of management for
future operations; and any statements regarding future economic conditions or
performance, as well as all assumptions, expectations, predictions, intentions
or beliefs about future events. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, as well as assumptions, which, if they were to ever materialize
or prove incorrect, could cause the results of the Company to differ materially
from those expressed or implied by such forward-looking statements. Additional
disclosures regarding factors that could cause our results and performance to
differ from results or anticipated performance are discussed in Item 1A, Risk
Factors included herein.

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

Use of Terms

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

- Canal Capital, the Company, we, us, and our, are to Canal Capital
  Corporation and its subsidiaries, Omaha Livestock Market, Inc., Sioux Falls
  Stockyards Company and Canal Arts Corporation;
- SEC are to the United States Securities and Exchange Commission;
- Securities Act are to the Securities Act of 1933, as amended;
- Exchange Act are to the Securities Exchange Act of 1934, as amended; and
- U.S. dollar, USD, US$ and $ are to the legal currency of the United
  States.

24

---

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

Overview of the Companys Business

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

At July 31, 2010, Canal's real estate properties were located
in Sioux City, Iowa, South St Paul, Minnesota, St Joseph, Missouri, Omaha,
Nebraska and Sioux Falls, South Dakota. The properties consisted, for the most
part, of an Exchange Building (commercial office space), land and structures
leased to third parties (rail car repair shops, lumber yards and various other
commercial and retail businesses) as well as vacant land available for
development or resale. Canal owned approximately 37 acres of undeveloped land in
Sioux City, Iowa and it operated a central public stockyard located in St.
Joseph, Missouri. Canals stockyard provided various services and facilities
required to operate an independent market for the sale of livestock including
veterinary facilities, auction arenas, auctioneers, weight masters and scales,
feed and bedding facilities and security personnel. Canal also offered other
services, such as pure bred and other specialty sales for producer
organizations.

Recent Developments

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

As
a result of past financial constraints, the Companys financial statements for
the fiscal years ended October 31, 2011, 2010 and 2009, and for the interim
fiscal quarters have not been audited or reviewed by an independent auditor. In
February 2012, the Company received notice from the SEC of its obligation to
file audited and reviewed financial statements with its periodic reports and
this is another in a series of corrective filings which the Company expects to
file in order to comply with the SECs request. The Company expects to be fully
compliant on or about March 31, 2013.

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

25

---

Plan of Operations

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

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

Results of Operations

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

|                                    |   | Nine Months Ended July 31, |  
|----------------------------------- | - | -------------------------- | -
|                                    |   | 2010                       |  
|                                    |   | (In Thousands)             |  
|Revenues:                           |   |                            |  
|Real Estate Revenue                 | $ | 217                        |  
|Stockyard Revenue                   |   | 1,648                      |  
|Total
      Revenue                 |   | 1,865                      |  
|                                    |   |                            |  
|                                    |   |                            |  
|Costs and Expenses:                 |   |                            |  
|                                    |   |                            |  
|Real Estate Expenses                |   | 70                         |  
|Stockyard Expenses                  |   | 1,433                      |  
|General and Administrative Expenses |   | 621                        |  
|Total
      Costs and Expenses      |   | 2,124                      |  
|                                    |   |                            |  
|                                    |   |                            |  
|(Loss) Income from Operations       |   | (259                       | )
|Other Income                        |   | 0                          |  
|Interest Expense                    |   | (88                        | )
|Other Expenses                      |   | 0                          |  
|                                    |   |                            |  
|Net (Loss) Income                   | $ | (347                       | )

26

---

Revenues

Canal's
revenues from continuing operations consist of revenues from its real estate and
stockyard operations. Revenues for the nine month period ended July 31, 2010
decreased by $861,000 to $1,865,000 as compared with $2,726,000 for the same
period in fiscal 2009. The fiscal 2010 decrease in revenues is due primarily to
the closure of the Sioux Falls stockyard operation in the fourth quarter of
fiscal 2009 combined with a decrease of approximately $263,000 in sale of real
estate.

Revenues
for the three month period ended July 31, 2010 decreased by $167,000 to $403,000
as compared with $570,000 for the same period in fiscal 2009. The fiscal 2010
decrease in revenues is due primarily to the closure of the Sioux Falls
stockyard operation in the fourth quarter of fiscal 2009.

Real
Estate Revenues: Real estate revenues for the nine months ended July 31, 2010 of
$217,000 accounted for 11.6% of the fiscal 2010 revenues as compared to real
estate revenues of $575,000 or 21.1% for the same period in fiscal 2009. Real
estate revenues are comprised of sale of real estate (0.0% and 45.7%), rentals
and other lease income from the rental of vacant land and certain structures
(93.3% and 50.4%) and rental income from commercial office space in its Exchange
Building (6.7% and 3.9%) for the nine months ended July 31, 2010 and 2009,
respectively. The percentage variations in the year to year comparisons are due
primarily to the significant decrease in the sale of real estate during the
first nine months of fiscal 2010.

Real estate revenues for the three months ended July 31, 2010 of $70,000 accounted
  for 17.3% of the fiscal 2010 revenues as compared to real estate revenues of
  $104,000 or 18.2% for the same period in fiscal 2009. Real estate revenues are
  comprised of sale of real estate (0.0% and 0.0%), rentals and other lease income
  from the rental of vacant land and certain structures (96.5% and 93.5%) and
  rental income from commercial office space in its Exchange Building (3.5% and
  6.5%) for the three months ended July 31, 2010 and 2009, respectively. There
  were no significant percentage variations in the year to year comparisons.

Stockyard
Revenues: Stockyard revenues for the nine months ended July 31, 2010 of
$1,648,000 accounted for 88.4% of the fiscal 2010 revenues as compared to
stockyard revenues of $2,151,000 or 78.9% for the same period in fiscal 2009.
The 2010 decrease in stockyard revenues was due primarily to the closing of the
Sioux Falls stockyard operations in the fourth quarter of fiscal 2009. Stockyard
revenues are comprised of yard handling and auction (82.1% and 87.3%), feed and
bedding income (4.8% and 7.0%) and rental and other income (13.1% and 5.7%) for
the nine month periods ended July 31, 2010 and 2009, respectively. The 2010
percentage variations in the year to year comparisons are due primarily to the
closing of the Sioux Falls stockyard operations as discussed above.

Stockyard
revenues for the three months ended July 31, 2010 of $333,000 accounted for
82.7% of the fiscal 2010 revenues as compared to stockyard revenues of $466,000
or 81.8% for the same period in fiscal 2009. The 2010 decrease in stockyard
revenues was due primarily to the closing of the Sioux Falls stockyard
operations in the fourth quarter of fiscal 2009. Stockyard revenues are
comprised of yard handling and auction (83.2% and 85.4%), feed and bedding
income (6.6% and 7.6%) and rental and other income (10.2% and 7.0%) for the
three month periods ended July 31, 2010 and 2009, respectively. The 2010
percentage variations in the year to year comparisons are due primarily to the
closing of the Sioux Falls stockyard operations as discussed above.

27

---

Art Revenues: Canal had no art sales in the nine month periods
ended July 31, 2010 or 2009. Art revenues, if any, are comprised of the proceeds
from the sale of antiquities art. Art expenses were $0 and $3,600 for the nine
month periods ended July 31, 2010 and 2009, respectively. Art expenses are
comprised of the cost of inventory sold and selling, general and administrative
expenses. It is the Companys policy to use the adjusted carrying value for
sales, thereby reducing the valuation reserve proportionately as the inventory
is sold.

Canal
  had no art sales in the three month periods ended July 31, 2010 or 2009. Art
  revenues, if any, are comprised of the proceeds from the sale of antiquities
  art. Art expenses were $0 and $1,200 for the three month periods ended July
  31, 2010 and 2009, respectively. Art expenses are comprised of the cost of inventory
  sold and selling, general and administrative expenses. It is the Companys
  policy to use the adjusted carrying value for sales, thereby reducing the valuation
  reserve proportionately as the inventory is sold.

Expenses

Real
Estate Expenses: Real estate expenses for the nine months ended July 31, 2010 of
$69,000 decreased by $109,000 (60.9%) from real estate expenses of $178,000 for
the same period in fiscal 2009. The decrease in real estate expenses is
consistent with the 2010 decrease in real estate revenues. Real estate expenses
are comprised of the cost of real estate sold (0.0% and 38.9%), labor, operating
and maintenance (27.9% and 24.6%), depreciation and amortization (24.0% and
10.4%), taxes other than income taxes (23.8% and 9.4%) and general and
administrative expenses (24.3% and 16.7%) for the nine months ended July 31,
2010 and 2009, respectively. The percentage variations in the year to year
comparisons are consistent with the decrease in real estate revenues discussed
above.

Real
estate expenses for the three months ended July 31, 2010 of $24,000 decreased by
$12,000 (32.3%) from real estate expenses of $36,000 for the same period in
fiscal 2009. The decrease in real estate expenses is consistent with the 2010
decrease in real estate revenues. Real estate expenses are comprised of the cost
of real estate sold (0.0% and 0.0%), labor, operating and maintenance (23.9% and
39.4%), depreciation and amortization (23.0% and 15.6%), taxes other than income
taxes (23.0% and 17.2%) and general and administrative expenses (30.1% and
27.8%) for the three months ended July 31, 2010 and 2009, respectively. The
percentage variations in the year to year comparisons are consistent with the
decrease in real estate revenues discussed above.

Stockyard
Expenses: Stockyard expenses for the nine months ended July 31, 2010 of
$1,433,000 decreased by $597,000 (29.4%) from stockyard expenses of $2,030,000
for the same period in fiscal 2009. The decrease in stockyard expenses is
consistent with the 2010 decrease in stockyard revenues. Stockyard expenses are
comprised of labor and related costs (42.6% and 45.4%), other operating and
maintenance (27.0% and 27.8%), feed and bedding expense (4.6% and 5.6%),
depreciation and amortization (0.7% and 0.7%), taxes other than income taxes
(8.1% and 6.3%) and general and administrative expense (17.0% and 14.2%) for the
nine month periods ended July 31, 2010 and 2009, respectively. There were no
significant percentage variations in the year to year comparisons.

Stockyard
expenses for the three months ended July 31, 2010 of $367,000 decreased by
$162,000 (30.6%) from stockyard expenses of $529,000 for the same period in
fiscal 2009. The decrease in stockyard expenses is consistent with the 2010
decrease in stockyard revenues. Stockyard expenses are comprised of labor and
related costs (39.7% and 45.8%), other operating and maintenance (30.4% and
29.8%), feed and bedding expense (4.3% and 4.1%), depreciation and amortization
(0.9% and 0.9%), taxes other than income taxes (9.8% and 7.0%) and general and
administrative expense (14.9% and 12.4%) for the three month periods ended July
31, 2010 and 2009, respectively. There were no significant percentage variations
in the year to year comparisons.

28

---

General and Administrative

General
and administrative expenses for the nine months ended July 31, 2010 of $621,000
decreased by $59,000 (8.7%) as compared to $680,000 for the same period in
fiscal 2009. The major components of general and administrative expenses are
officers salaries (56.6% and 51.4%), pension expense (12.9% and 13.2%),
insurance expense (6.6% and 5.8%), office salaries (11.2% and 10.2%), travel
expense (2.8% and 4.0%) and professional fees (2.9% and 3.2%) for the nine month
periods ended July 31, 2010 and 2009, respectively. There were no significant
percentage variations in the year to year comparisons.

General
and administrative expenses for the three months ended July 31, 2010 of $208,000
decreased by $23,000 (9.9%) as compared to $231,000 for the same period in
fiscal 2009. The major components of general and administrative expenses are
officers salaries (56.5% and 48.8%), pension expense (12.9% and 13.0%),
insurance expense (6.6% and 5.7%), office salaries (11.2% and 9.8%), travel
expense (2.9% and 3.4%) and professional fees (2.9% and 3.1%) for the three
month periods ended July 31, 2010 and 2009, respectively. There were no
significant percentage variations in the year to year comparisons.

Interest Expense

Interest
expense for the nine months ended July 31, 2010 of $88,000 decreased by $7,000
(6.8%) from $95,000 for the same period in fiscal 2009. The 2010 decrease is due
primarily to Canals $300,000 partial repayment of its long-term debt in fiscal
2009. The principal balance outstanding at July 31, 2010 of $1,332,000 is
classified as long-term debt-related party.

Interest
expense for the three months ended July 31, 2010 of $33,000 increased by $1,000
(5.5%) from $32,000 for the same period in fiscal 2009. The 2010 increase is due
primarily to the fiscal 2010 increase in long-term debt. The principal balance
outstanding at July 31, 2010 of $1,332,000 is classified as long-term
debt-related party.

Net (Loss) Income

Canal
recognized a net loss of approximately $347,000 in the nine month period ended
July 31, 2010 as compared to a net loss of approximately $253,000 for the same
period in fiscal 2009. Included in the fiscal 2009 results was an approximately
$263,000 sale of real estate generating operating income of approximately
$194,000.

Canal
recognized a net loss of approximately $230,000 in the three month period ended
July 31, 2010 as compared to a net loss of approximately $259,000 for the same
period in fiscal 2009.

29

---

Liquidity and Capital Resources

Cash and
cash equivalents decreased approximately $153,000, from $155,000 at October 31,
2009, to $2,000 at July 31, 2010. At July 31, 2010 the Companys current assets
exceeded current liabilities by approximately $63,000 which was an improvement,
as compared to October 31, 2009 when the Companys current assets exceeded
current liabilities by approximately $51,000.

Net cash
  used in operating activities for the nine months ended July 31, 2010 were $117,000,
  as compared to $277,000 for the same period in fiscal 2009, for a net decrease
  of $160,000. This decrease in cash used during the nine months ended July 31,
  2010 was not significant. During fiscal 2010 the Company invested $375,000 in
  capital expenditures and increased its long-term debt by $340,000. Additionally,
  the Company made payments of interest on the long-term debt discussed at Obligations
  under Material Contracts below.

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

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

Obligations under Material Contracts

At
July 31, 2010, all of the Companys Long-Term Debt is held by the companys
Chief Executive Officer. These notes pay interest at a rate of 10% per annum and
come due May 15, 2015. At various times during fiscal 2009 the holder of these
notes agreed to defer interest payments. This deferred interest liability
accrued additional interest at a rate of 10% per annum, while outstanding, and
is repaid as funds became available. Canal has incurred interest expense on
these notes of $33,000 and $32,000 for the fiscal quarters ended July 31, 2010 and 2009, respectively. These notes, among
other things, prohibit Canal from becoming an investment company as defined by
the Investment Company Act of 1940, restrict Canals ability to pay cash
dividends or repurchase stock, and require principal prepayments to be made only
out of the proceeds from the sale of certain assets. As of July 31, 2010, the
balance due under these notes was $1,332,000 all of which was classified as
long-term debt due to related party. As of the filing of this report, the
balance due under these notes was $400,000.

30

---

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

Recent Accounting Pronouncements

In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820)  Improving Disclosures about Fair Value Measurements
(ASU 2010-06). ASU 2010-06 requires reporting entities to provide information
about movements of assets among Levels 1 and 2 of the three-tier fair value
hierarchy established by ASC 820. The guidance is effective for any fiscal year
that begins after December 15, 2010 and should be used for quarterly and annual
filings. We are currently evaluating the impact on our financial statements of
adopting the amendments in ASU 2010-06 and cannot estimate the impact of
adoption at this time.

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

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

31

---

Critical Accounting Policies and Estimates

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

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

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

Seasonality

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

Off-Balance Sheet Arrangements

For the
nine months ended July 31, 2010, we did not have any off-balance sheet
arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Not Applicable

32

---

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As
required by Rule 13a-15 under the Exchange Act, our management, including our
Chief Executive Officer, Mr. Michael E. Schultz, and Chief Financial Officer,
Mr. Reginald Schauder, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of July 31, 2010. Based upon, and
as of the date of this evaluation, Messrs. Schultz and Schauder determined that
because of the material weaknesses described below, our disclosure controls and
procedures were not effective.

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

In
an effort to remediate this material weakness, our management has appointed
qualified personnel and has engaged the Companys auditors to conduct reviews
and audits, as applicable, of its financial statements for the non-compliant
periods. The Company expects that the filing of this quarterly report on Form
10-Q for the nine months ended July 31, 2010 and 2009 will be a further step in
curing this deficiency with the SEC. Our management does not believe that this
material weakness had a material effect on our financial condition or results of
operations or caused our financial statements as of and for the nine months
ended July 31, 2010 and 2009,included in this report to contain a material
misstatement.

Changes in Internal Control over Financial Reporting

There
were no changes in our internal controls over financial reporting during the
nine month period ended July 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

33

---

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Environmental Protection Agency

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

Since
the receipt of the letter, the Company has been in periodic communications with
the other parties who received a similar letter with respect to what action,
collectively or individually, should be taken in response to the EPA assertion
of liability. The Company believes that the remediation of contamination of the
site is properly the responsibility of other parties that have occupied and used
it for waste recycling purposes since 1961, although under CERCLA the EPA is
able to assert joint and several liability against all parties who ever owned or
operated the site or generated or transported wastes to it. The EPA
investigation is in its preliminary stages and the Company intends to vigorously
defend any liability for remediation. At July 31, 2010, the liability for
remediation, if any, was not estimatable and therefore no accrual has been
recorded in the financial statements.

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

34

---

ITEM 1A. RISK FACTORS

Not applicable

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

We have
no information to disclose that was required to be disclosed in a report on Form
8-K during the nine month period ended July 31, 2010, but was not reported.

ITEM 6. EXHIBITS

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

**EXHIBIT**
        No. 31.1
      Certifications
        of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.**EXHIBIT**
        No. 31.2
      Certifications
        of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.**EXHIBIT**
        No. 32.1
      Certifications
        of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.**EXHIBIT**
        No. 32.2
      Certifications
        of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.


35

---

SIGNATURES

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

Dated: October 30, 2012

CANAL CAPITAL CORPORATION

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

36

---