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

            |X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended April 30, 2008

            |_|  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the transition period from   to

               Commission File Number 002-96666

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

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

      490 WHEELER ROAD SUITE 185 HAUPPAUGE, NY            11788
    (Address of principal executive offices)            (Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes |X| No |_|

      Indicate  by check mark  whether  the  Registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act. (Check one):

Large accelerated filer |_|   Accelerated filer |_|    Non-accelerated filer |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|

      The number of shares of Common Stock,  $.01 par value,  outstanding at May
31, 2008 was 4,326,929.

<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
                            FORM 10-Q APRIL 30, 2008

                                      INDEX

The following documents are filed as part of this report:

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

Item I. Condensed Financial Statements:

         Consolidated Balance Sheets - April 30, 2008
            and October 31, 2007 .......................................       4

         Consolidated Statements of Operations and
            Comprehensive Loss for the Six Month
            Periods ended April 30, 2008 and 2007 ......................       6

         Consolidated Statements of Changes in Stockholders'
            Equity for the One Year and Six Month Periods
            ended October 31, 2007 and April 30, 2008 ..................      10

         Consolidated Statements of Cash Flows for the
            Six Month Periods ended April 30, 2008 and
            2007 .......................................................      11

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

Item II. Management's Discussion and Analysis of Financial Condition ...      29

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

         Other Factors .................................................      40

Item III. Quantitative and Qualitative Disclosures About Market Risk ...      40

Item IV. Controls and Procedures .......................................      41

Part II Other Information ..............................................      42

         Items 1 through 6 .............................................      43

         Signatures and Certifications .................................      44


                                       2
<PAGE>

                                     PART I

                              FINANCIAL INFORMATION


                                       3
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       APRIL 30, 2008 AND OCTOBER 31, 2007

<TABLE>
<CAPTION>
                                                            APRIL 30,       OCTOBER 31,
                                                              2008             2007
                                                           (UNAUDITED)       (AUDITED)
                                                           -----------       ---------
ASSETS:
<S>                                                        <C>              <C>
CURRENT ASSETS:
       CASH AND CASH EQUIVALENTS                           $     5,261      $    27,925

       MORTGAGE NOTE RECEIVABLE                                      0        1,600,000

       NOTES AND ACCOUNTS RECEIVABLE, NET OF AN
         ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $ZERO AT
         BOTH APRIL 30, 2008 AND OCTOBER 31, 2007,             126,711           75,879

       ART INVENTORY, NET OF A VALUATION ALLOWANCE
         OF $396,522 AT APRIL 30, 2008 AND
         OCTOBER 31, 2007                                      100,000          100,000

       STOCKYARDS INVENTORY                                      8,962           16,761

       PREPAID EXPENSES                                         80,904           28,839
                                                           -----------      -----------

            TOTAL CURRENT ASSETS                               321,838        1,849,404
                                                           -----------      -----------

NON-CURRENT ASSETS:

       PROPERTY ON OPERATING LEASES, NET OF
             ACCUMULATED DEPRECIATION OF $416,899
             AND $405,799 AT APRIL 30, 2008 AND
             OCTOBER 31, 2007, RESPECTIVELY                  1,714,646        1,741,007
                                                           -----------      -----------

       PROPERTY USED IN STOCKYARD OPERATIONS, NET OF
             ACCUMULATED DEPRECIATION OF $220,778 AND
             $210,872 AT JANUARY 31, 2008 AND OCTOBER
             31, 2007, RESPECTIVELY                          1,069,935        1,079,843
                                                           -----------      -----------

OTHER ASSETS:

       PROPERTY HELD FOR DEVELOPMENT OR RESALE                  91,510           91,510
       RESTRICTED CASH - TRANSIT INSURANCE                      49,791           44,952
       DEPOSITS AND OTHER ASSETS                                 2,700            2,700
                                                           -----------      -----------

                                                               144,001          139,162
                                                           -----------      -----------

                                                           $ 3,250,420      $ 4,809,416
                                                           ===========      ===========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       4
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       APRIL 30, 2008 AND OCTOBER 31, 2007

<TABLE>
<CAPTION>
                                                       APRIL 30, 2008    OCTOBER 31, 2007
                                                         (UNAUDITED)        (AUDITED)
                                                       --------------    ----------------
<S>                                                     <C>                <C>
LIABILITIES & STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES:
       ACCOUNTS PAYABLE AND ACCRUED EXPENSES            $    188,137       $    269,105
       PENSION PLAN PAYABLE                                        0             94,677
       SALARIES AND INTEREST PAYABLE - OFFICERS               10,000            223,916
       ACCRUED PROFESSIONAL FEES                              56,541            110,000
       INCOME TAXES PAYABLE                                   10,000             10,000
                                                        ------------       ------------
         TOTAL CURRENT LIABILITIES                           264,678            707,698
                                                        ------------       ------------

NON-CURRENT LIABILITIES:
       LONG-TERM PENSION LIABILITY                           320,140            320,140
       REAL ESTATE TAXES PAYABLE                              65,485            108,982
                                                        ------------       ------------
         TOTAL NON-CURRENT LIABILITIES                       385,625            429,122
                                                        ------------       ------------

LONG-TERM DEBT, RELATED PARTY                              1,687,000          2,687,000
                                                        ------------       ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

  PREFERRED STOCK, $0.01 PAR VALUE:
       10,000,000 SHARES AUTHORIZED; 9,102,655
       SHARES ISSUED AND OUTSTANDING AT APRIL 30,
       2008 AND OCTOBER 31, 2007, RESPECTIVELY AND
       AGGREGATE LIQUIDATION PREFERENCE OF $10 PER
       SHARE FOR $ 91,026,550 AT APRIL 30, 2008
       AND OCTOBER 31, 2007, 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 OUT-
       STANDING AT APRIL 30, 2008 AND OCTOBER 31,
       2007, RESPECTIVELY                                     53,138             53,138

  ADDITIONAL PAID-IN CAPITAL                              28,376,341         28,322,341

  ACCUMULATED DEFICIT                                    (15,137,582)       (14,885,103)

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

  COMPREHENSIVE INCOME:
    PENSION VALUATION RESERVE                             (1,466,262)        (1,592,262)
                                                        ------------       ------------
                                                             913,117            985,596
                                                        ------------       ------------

                                                        $  3,250,420       $  4,809,416
                                                        ============       ============
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       5
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE LOSS
                FOR THE SIX MONTHS ENDED APRIL 30, 2008 AND 2007

                                                        2008            2007
                                                    (UNAUDITED)      (UNAUDITED)
                                                    -----------      -----------
STOCKYARD OPERATIONS:

STOCKYARD REVENUES:
    YARD HANDLING AND AUCTION                       $ 1,526,329      $ 1,653,423
    FEED AND BEDDING INCOME                             111,067          113,223
    RENTAL & OTHER INCOME                                88,132           82,006
                                                    -----------      -----------

                                                      1,725,528        1,848,652
                                                    -----------      -----------

STOCKYARD EXPENSES:
    LABOR AND RELATED COSTS                             733,725          743,425
    OTHER OPERATING AND MAINTENANCE                     444,988          406,575
    FEED AND BEDDING EXPENSE                            103,540          101,294
    DEPRECIATION AND AMORTIZATION                         9,909            9,909
    TAXES OTHER THAN INCOME TAXES                        87,363           89,970
    GENERAL AND ADMINISTRATIVE                          221,110          215,298
                                                    -----------      -----------

                                                      1,600,635        1,566,471
                                                    -----------      -----------

INCOME FROM STOCKYARD OPERATIONS                        124,893          282,181
                                                    -----------      -----------

REAL ESTATE OPERATIONS:

 REAL ESTATE REVENUES:
    SALE OF REAL ESTATE                                 200,000           75,000
    OUTSIDE REAL ESTATE RENT                            247,288          246,320
    EXCHANGE BUILDING RENTAL INCOME                      16,635           15,435
                                                    -----------      -----------

                                                        463,923          336,755
                                                    -----------      -----------
 REAL ESTATE EXPENSES:
    COST OF REAL ESTATE SOLD                             72,567           56,711
    LABOR, OPERATING AND MAINTENANCE                     37,971           40,842
    DEPRECIATION AND AMORTIZATION                        11,100           11,100
    TAXES OTHER THAN INCOME TAXES                        10,800           13,200
    GENERAL AND ADMINISTRATIVE                           22,040           21,200
                                                    -----------      -----------

                                                        154,478          143,053
                                                    -----------      -----------

INCOME FROM REAL ESTATE OPERATIONS                      309,445          193,702
                                                    -----------      -----------

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       6
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE LOSS
                FOR THE SIX MONTHS ENDED APRIL 30, 2008 AND 2007
                                  Continued ...

                                                     2008               2007
                                                 (UNAUDITED)        (UNAUDITED)
                                                 -----------        -----------

GENERAL AND ADMINISTRATIVE EXPENSE                  (551,360)          (549,187)
                                                 -----------        -----------

LOSS FROM OPERATIONS                                (117,022)           (73,304)
                                                 -----------        -----------

OTHER (EXPENSE) INCOME:

  INTEREST & OTHER INCOME                             26,784             36,000
  INTEREST EXPENSE                                  (105,841)          (134,642)
  ART SALES AND OPERATIONS                            (2,400)            27,593
  LOSS ON SALE OF INVESTMENT                               0            (86,020)
                                                 -----------        -----------

                                                     (81,457)          (157,069)
                                                 -----------        -----------
LOSS BEFORE PROVISION FOR INCOME
  TAXES                                             (198,479)          (230,373)
PROVISION FOR INCOME TAXES                                 0                  0
                                                 -----------        -----------

NET LOSS                                            (198,479)          (230,373)

OTHER COMPREHENSIVE INCOME:

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

COMPREHENSIVE LOSS                               $   (72,479)       $  (104,373)
                                                 ===========        ===========

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

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

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       7
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE LOSS
               FOR THE THREE MONTHS ENDED APRIL 30, 2008 AND 2007

                                                        2008            2007
                                                    (UNAUDITED)      (UNAUDITED)
                                                    -----------      -----------
STOCKYARD OPERATIONS:

STOCKYARD REVENUES:
    YARD HANDLING AND AUCTION                       $   725,898      $   750,357
    FEED AND BEDDING INCOME                              53,373           58,407
    RENTAL & OTHER INCOME                                45,323           40,335
                                                    -----------      -----------

                                                        824,594          849,099
                                                    -----------      -----------

STOCKYARD EXPENSES:
    LABOR AND RELATED COSTS                             358,943          360,141
    OTHER OPERATING AND MAINTENANCE                     228,567          207,722
    FEED AND BEDDING EXPENSE                             47,324           55,946
    DEPRECIATION AND AMORTIZATION                         4,955            4,955
    TAXES OTHER THAN INCOME TAXES                        45,663           44,892
    GENERAL AND ADMINISTRATIVE                          112,979          104,852
                                                    -----------      -----------

                                                        798,431          778,508
                                                    -----------      -----------

INCOME FROM STOCKYARD OPERATIONS                         26,163           70,591
                                                    -----------      -----------

REAL ESTATE OPERATIONS:

 REAL ESTATE REVENUES:
    SALE OF REAL ESTATE                                       0                0
    OUTSIDE REAL ESTATE RENT                            124,727          123,145
    EXCHANGE BUILDING RENTAL INCOME                       8,917            7,718
                                                    -----------      -----------

                                                        133,644          130,863
                                                    -----------      -----------

REAL ESTATE EXPENSES:
    COST OF REAL ESTATE SOLD                                  0                0
    LABOR, OPERATING AND MAINTENANCE                     20,202           19,319
    DEPRECIATION AND AMORTIZATION                         5,550            5,550
    TAXES OTHER THAN INCOME TAXES                         5,400            6,600
    GENERAL AND ADMINISTRATIVE                           11,100           11,100
                                                    -----------      -----------

                                                         42,252           42,569
                                                    -----------      -----------

INCOME FROM REAL ESTATE OPERATIONS                       91,392           88,294
                                                    -----------      -----------

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       8
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE LOSS
               FOR THE THREE MONTHS ENDED APRIL 30, 2008 AND 2007
                                  Continued ...

                                                     2008               2007
                                                 (UNAUDITED)        (UNAUDITED)
                                                 -----------        -----------

GENERAL AND ADMINISTRATIVE EXPENSE                  (267,510)          (277,026)
                                                 -----------        -----------

LOSS FROM OPERATIONS                                (149,955)          (118,141)
                                                 -----------        -----------

OTHER (EXPENSE) INCOME:

  INTEREST & OTHER INCOME                              3,182             18,000
  INTEREST EXPENSE                                   (42,312)           (67,467)
  ART SALES AND OPERATIONS                            (1,200)            31,526
  LOSS ON SALE OF INVESTMENT                               0            (86,020)
                                                 -----------        -----------

                                                     (40,330)          (103,961)
                                                 -----------        -----------

LOSS BEFORE PROVISION FOR INCOME
  TAXES                                             (190,285)          (222,102)
PROVISION FOR INCOME TAXES                                 0                  0
                                                 -----------        -----------

NET LOSS                                            (190,285)          (222,102)

OTHER COMPREHENSIVE INCOME:

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

COMPREHENSIVE LOSS                               $  (127,285)       $  (159,102)
                                                 ===========        ===========

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.


                                       9
<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE YEAR ENDED OCTOBER 31, 2007 (AUDITED) AND
               FOR THE SIX MONTHS ENDED APRIL 30, 2008 (UNAUDITED)

<TABLE>
<CAPTION>
                                       COMMON STOCK                    PREFERRED STOCK
                                   NUMBER                           NUMBER
                                     OF                               OF
                                   SHARES           AMOUNT          SHARES          AMOUNT
<S>                              <C>            <C>                <C>            <C>
BALANCE, OCTOBER 31, 2006        5,313,794      $    53,138        8,014,137      $    80,141
 NET LOSS                                0                0                0                0
 PREFERRED STOCK DIVIDEND                0                0        1,088,518           10,886
 MINIMUM PEN. LIAB. ADJ.                 0                0                0                0
                                 --------------------------      ----------------------------

BALANCE, OCTOBER 31, 2007        5,313,794      $    53,138        9,102,655      $    91,027
 NET LOSS                                0                0                0                0
 PREFERRED STOCK DIVIDEND                0                0                0                0
 MINIMUM PEN. LIAB. ADJ.                 0                0                0                0
                                 --------------------------      ----------------------------

BALANCE, APRIL 30, 2008          5,313,794      $    53,138        9,102,655      $    91,027
                                 ==========================      ============================

<CAPTION>
                                ADDITIONAL                                            TREASURY
                                 PAID-IN         ACCUMULATED      COMPREHENSIVE        STOCK,
                                 CAPITAL           DEFICIT             LOSS            AT COST
<S>                            <C>              <C>                <C>               <C>
BALANCE, OCTOBER 31, 2006      $28,224,358      ($13,811,198)      ($1,812,231)      ($11,003,545)
 NET LOSS                                0          (948,210)                0                  0
 PREFERRED STOCK DIVIDEND           97,983          (104,717)                0                  0
 DISTRIBUTION                            0           (20,978)                0                  0
 MINIMUM PEN. LIAB. ADJ.                 0                 0           219,969                  0
                               -----------      ------------       -----------       ------------

BALANCE, OCTOBER 31, 2007      $28,322,341      ($14,885,103)      ($1,592,262)      ($11,003,545)
 NET LOSS                                0          (198,479)                0                  0
 PREFERRED STOCK DIVIDEND           54,000           (54,000)                0                  0
 MINIMUM PEN. LIAB. ADJ.                 0                 0           126,000                  0
                               -----------      ------------       -----------       ------------
BALANCE, APRIL 30, 2008        $28,376,341      ($15,137,582)      ($1,466,262)      ($11,003,545)
                               ===========      ============       ===========       ============
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       10
<PAGE>

                  CANAL CAPITAL CORPORATION & SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTHS ENDED APRIL 30, 2008 AND 2007

                                                     APRIL 2008       APRIL 2007
                                                     ----------       ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  NET LOSS                                          $  (198,479)      $(230,373)
                                                    -----------       ---------

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

   DEPRECIATION AND AMORTIZATION                         21,009          21,009

   GAIN ON SALES OF REAL ESTATE                        (127,433)        (18,289)

   GAIN ON ART SALES (NET OF RESERVE)                         0         (35,600)

   LOSS ON SALE OF INVESTMENT                                 0          86,020

   MINIMUM PENSION LIABILITY ADJUSTMENT                 126,000         126,000

DECREASE (INCREASE) IN ASSETS:

   MORTGAGE NOTE RECEIVABLE - PROCEEDS                1,600,000          50,000

   NOTES AND ACCOUNTS RECEIVABLE                        (50,832)        (34,408)

   STOCKYARDS INVENTORY                                   7,799           5,086

   PREPAID EXPENSES                                     (52,065)        (57,720)

   RESTRICTED CASH - TRANSIT INSURANCE                   (4,839)        (32,160)

INCREASE (DECREASE) IN LIABILITIES:

   ACCOUNTS PAYABLE AND ACCRUED EXPENSES                (80,968)         15,716

   PENSION PLAN PAYABLE                                 (94,677)        (35,059)

   SALARIES AND INTEREST PAYABLE - OFFICERS            (213,916)         24,127

   ACCRUED PROFESSIONAL FEES                            (53,459)        (33,959)

   COMMERCIAL RENT TAX PAYABLE                                0         (61,500)

   REAL ESTATE TAXES PAYABLE                            (43,497)         24,725
                                                    -----------       ---------
        TOTAL ADJUSTMENTS                             1,033,122          43,988
                                                    -----------       ---------

NET CASH PROVIDED BY (USED IN) OPERATING
  ACTIVITIES                                            834,643        (186,385)
                                                    -----------       ---------

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       11
<PAGE>

                    CANAL CAPITAL CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED APRIL 30, 2008 AND 2007
                                  Continued ...

                                                     APRIL 2008       APRIL 2007
                                                     ----------       ----------
CASH FLOWS FROM INVESTING ACTIVITIES:

  PROCEEDS FROM SALES OF REAL ESTATE                    200,000          75,000
  POOCEEDS FRON SALE OF ART                                   0          58,500
  PROCEEDS FROM SALE OF INVESTMENT                            0          25,000
  COSTS RELATING TO SALES OF REAL ESTATE                (52,567)        (10,236)
  CAPITAL EXPENDITURES                                   (4,740)              0
                                                    -----------       ---------

NET CASH PROVIDED BY INVESTING ACTIVITIES               142,693         148,264
                                                    -----------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

   REPAYMENT OF LONG-TERM DEBT OBLIGATION            (1,000,000)              0
                                                    -----------       ---------

NET CASH USED BY FINANCING ACTIVITIES                (1,000,000)              0
                                                    -----------       ---------

NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                           (22,664)        (38,121)

CASH AND CASH EQUIVALENTS AT BEGN OF YEAR                27,925          38,121
                                                    -----------       ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR            $     5,261       $       0
                                                    ===========       =========

                                                              APRIL 30,
                                                              ---------
                                                       2008              2007
                                                       ----              ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:

CASH PAID DURING THE YEAR FOR:

  INTEREST                                          $   105,841       $ 134,642
                                                    ===========       =========
  INCOME TAXES                                      $         0       $   8,000
                                                    ===========       =========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES:

  PREFERRED STOCK DIVIDENDS                         $    54,000       $  45,000
                                                    ===========       =========

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


                                       12
<PAGE>

                   CANAL CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE SIX MONTHS ENDED APRIL 30, 2008

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

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

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


                                       13
<PAGE>

      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.

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

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

      Canal  intends  to  continue  its  soliciting  efforts  at its St.  Joseph
stockyards  in fiscal 2008.  Further,  Canal tries to balance its  dependence on
market  agencies  and  independent  commission  sales  people in  various  ways,
including:   developing  solicitation  operations  of  its  own;  direct  public
relations;  advertising and personal  solicitation of producers on behalf of the
stockyards;  providing  additional services at the stockyards to attract sellers
and  buyers;  and  providing  incentives  to  market  agencies  and  independent
commission sales people for increased business.


                                       14
<PAGE>

      Canal  maintains  an  inventory  of feed and  bedding  which is  comprised
primarily of hay,  corn and straw.  The value of this  inventory  was $9,000 and
$17,000 at April 30, 2008 and October 31, 2007, respectively.

      Stockyard operations resulted in operating income of $125,000 and $282,000
for the  six  month  periods  ended  April  30,  2008  and  2007,  respectively.
Additionally,  stockyard  operations  contributed  $1,726,000  and $1,849,000 to
Canal's  revenues  for the six month  periods  ended  April  30,  2008 and 2007,
respectively.

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

      Real estate  operations  resulted  in  operating  income of  $309,000  and
$194,000 for the six month periods ended April 30, 2008 and 2007,  respectively.
Included in the 2008 real estate operating income is a $127,000 gain on the sale
of approximately 1 acre of land and the associated improvements located in South
Saint Paul,  Minnesota.  Included in the 2007 real estate  operating income is a
$18,000  gain on the sale of  approximately  2 acres of vacant  land  located in
Sioux City, Iowa. Additionally,  real estate operations contributed $464,000 and
$337,000 to Canal's  revenues for the six month periods ended April 30, 2008 and
2007, respectively.

      As of April 30, 2008, there are approximately 18 acres of undeveloped land
owned by Canal adjacent to its stockyard properties. In addition to selling what
was excess stockyard  property,  the company  entertains any offers to purchase,
develop and  restructure  real estate lots  surrounding  its existing  operating
lease  properties,  stockyard  operating  properties  and  properties  held  for
development  or resale in order to enhance the value of the existing  properties
and surrounding real estate.


                                       15
<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

      B) Investment in Joint Ventures -- Investment in which ownership  interest
range from 20% to 50% or less owned joint  venture are  accounted  for under the
equity method. The joint venture is not, in the aggregate,  material in relation
to the financial position or results of operations of Canal. The carrying amount
of such  investment  was  $111,000 at January  31,2007 and was included in other
assets.  During the 2007 fiscal year the Company sold its investment back to the
Joint Venture at the Company's original purchase price of $25,000 and recorded a
loss of  approximately  $86,000  on the sale.  The  operating  results  of joint
ventures  accounted  for on the  equity  method,  for  fiscal  year 2007 was not
material to financial  statement  presentation  and were  therefore  included in
other income from real estate operations.

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

      Property held for  Development or Resale -- Property held for  development
or  resale  consist  of  approximately  18  acres  located  in  the  Midwest  of
undeveloped land not currently  utilized for corporate  purposes nor included in
any of the present operating leases. The Company constantly  evaluates proposals
received for the purchase,  leasing or  development  of this asset.  The land is
valued at cost which does not exceed the net realizable value.

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


                                       16
<PAGE>

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

      E) Art  Inventory  Held for Sale - Inventory of art is valued at the lower
of  cost,  including  direct  acquisition  and  restoration   expenses,  or  net
realizable value on a specific  identification basis. The nature of art makes it
difficult to determine a replacement  value.  The most compelling  evidence of a
value in most cases is an independent  appraisal.  The net  realizable  value of
Canals remaining art inventory has been estimated by management based in part on
the Company's history of art sales in the current and previous years and in part
on the results of the independent  appraisals  done in previous years.  However,
because of the nature of art inventory,  such  determination  is very subjective
and, therefore,  the estimated values could differ significantly from the amount
ultimately realized.

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

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

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

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


                                       17
<PAGE>

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

      J)  Statements  of Cash  Flows -- The  Company  considers  all  short-term
investments with a maturity of three months or less to be cash equivalents. Cash
equivalents  primarily  include bank,  broker and time deposits with an original
maturity of less than three months. These investments are carried at cost, which
approximates  market value.  Canal made federal and state income tax payments of
$0 and $8,000 and  interest  payments of $106,000 and $135,000 for the six month
period ended April 30, 2008 and 2007, respectively.

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

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

      M) Recent Accounting  Pronouncements -- In September 2006, the FASB issued
SFAS No. 157,  "Fair Value  Measurements,"  which is effective  for fiscal years
beginning after November 15, 2007. The Statement defines fair value, establishes
a frame work for measuring  fair value in  accordance  with  Generally  Accepted
Accounting  Principles,  and expands  disclosures about fair value measurements.
The Statement  codifies the  definition of fair value as the price that would be
received  to sell  an  asset  or paid to  transfer  a  liability  in an  orderly
transaction  between market  participants at the measurement  date. The standard
clarifies  the  principle  that fair  value  should be based on the  assumptions
market   participants  would  use  when  pricing  the  asset  or  liability  and
establishes


                                       18
<PAGE>

a fair value hierarchy that  prioritizes  the information  used to develop those
assumptions.  The  Company  is  currently  assessing  the  potential  impacts of
implementing this standard, yet believes it will not have any material impact on
the Company's Financial Statements.

      In September  2006, the SEC staff issued Staff  Accounting  Bulletin (SAB)
Topic 1M (SAB 108),  "Financial  Statements -  Considering  the Effects of Prior
Year  Misstatements  when  Quantifying  Misstatements  in Current Year Financial
Statements,"  which is effective for the 2007 year. SAB 108 provides guidance on
how prior year misstatements should be taken into consideration when quantifying
misstatements   in  current  year  financial   statements  for  the  purpose  of
determining  whether the financial  statements are materially  misstated.  Under
this  guidance,  companies  should  take  into  account  both  the  effect  of a
misstatement  on the current year  balance  sheet as well as the impact upon the
current year income  statement in assessing  the  materiality  of a current year
misstatement. Once a current year misstatement has been quantified, the guidance
in SAB  Topic 1M,  "Financial  Statements  -  Materiality,"  (SAB 99)  should be
applied to determine whether the misstatement is material. The implementation of
SAB 108 did not have any impact on the Company's financial statements.

      In July  2006,  the FASB  issued  FASB  Interpretation  No.  48 (FIN  48),
"Accounting  for  Uncertainty  in  Income  Taxes."  FIN 48  prescribes  detailed
guidance for the financial statement recognition,  measurement and disclosure of
uncertain tax positions  recognized in an enterprise's  financial  statements in
accordance  with FASB  Statement  No. 109,  "Accounting  for Income  Taxes." The
Company is required to apply the provisions of this interpretation  beginning on
November  1, 2007.  The  provisions  of FIN 48 will be  applied to all  existing
uncertain  income tax provisions on the effective date. Upon the  implementation
of  FIN  48,  the   cumulative   effect  of  applying  the  provisions  of  this
Interpretation  will be reported  as an  adjustment  to the  opening  balance of
retained earnings.  The Company is currently  assessing the potential impacts of
implementing this standard, yet believes it will not have any material impact on
the Company's Financial Statements.

      3. INTERIM FINANCIAL STATEMENTS

      The interim  consolidated  financial  statements included herein have been
prepared by Canal and in the  opinion of  Management,  contain  all  adjustments
necessary to present fairly its financial  position as of April 30, 2008 and the
results  of its  operations  and its cash flows for the six month  period  ended
April 30, 2008. All of the above


                                       19
<PAGE>

referenced  adjustments were of a normal recurring nature.  Certain  information
and footnote  disclosures  normally included in financial statements prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted.  These  financial  statements  should be read in  conjunction  with the
consolidated financial statements for the three years ended October 31, 2007 and
the notes  thereto  which are  contained in Canal's  2007 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 2008.

4. MORTGAGE NOTE RECEIVABLE

      On November 1, 2004 Canal sold its Exchange  Building  and the  associated
five acres of land located in South Saint Paul, Minnesota on a contract for deed
for $1,750,000,  generating  operating income of approximately  $850,000.  Canal
issued a mortgage note for the full sales price,  which note carries interest at
a rate of 4.12% per annum, payable in equal monthly  installments.  The mortgage
note was due and payable in full on October 31, 2007.

      In March, 2007 Canal received a $50,000 payment on this note as the result
of the mortgagee having sold a small piece (0.1 acres of land) of the underlying
collateral.  On October 31, 2007 Canal received a $100,000 payment on this note,
at which time Canal  extended  the due date to December  17, 2007 at an interest
rate of 10% per annum. On December 17, 2007 Canal received a $1,400,000  payment
on this note and  issued a 90 day note for the  balance  due of  $200,000  at an
interest rate of 12% per annum. This note was paid in full in March 2008.

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
April 30, 2008 or 2007.


                                       20
<PAGE>

6. BORROWINGS

      The Company's variable rate mortgage notes (originally issued in 1998) are
due May 15, 2009 and are held entirely by the Company's Chief Executive  Officer
and members of his family. These notes carry interest at the rate of ten percent
per annum.  These notes,  among other  things,  prohibit  Canal from becoming an
investment  company as defined by the  Investment  Company Act of 1940;  require
Canal to  maintain  minimum  net worth;  restricts  Canal's  ability to pay cash
dividends or repurchase stock and require principal  prepayments to be made only
out of the proceeds from the sale of certain  assets.  As of April 30, 2008, the
balance due under  these notes was  $1,687,000,  all of which is  classified  as
long-term debt-related party.

      At April 30, 2008, substantially all of Canal's real properties, the stock
of certain  subsidiaries,  the investments and a substantial  portion of its art
inventories are pledged as collateral for the following obligations:

                                                         April 30,   October 31,
($ 000's Omitted)                                          2008         2007
-----------------                                          ----         ----

Variable rate mortgage notes due
  May 15, 2009 - related party ...................       $  1,687     $  2,687
Less -- current maturities .......................              0            0
                                                         --------     --------
Long-term debt ...................................       $  1,687     $  2,687
                                                         --------     --------

      The following table  summarizes the Company's  commitments as of April 30,
2008 to make future  payments under its debt  agreements  and other  contractual
obligations (in 000's):

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

Pension Plan Liability (a)   $   320    $    0     $   232    $   88    $  0
Mortgage Notes Payable (b)     1,687         0       1,687         0       0
                             -------    ------     -------    ------    ----

                             $ 2,007    $    0     $ 1,919    $   88    $  0
                             -------    ------     -------    ------    ----

      (a)   See Note 16.

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


                                       21
<PAGE>

7.    RESTRICTED CASH - TRANSIT INSURANCE

      Transit insurance covers livestock for the period that they are in transit
to and physically at the  stockyards and under the care of stockyard  personnel.
This self  insurance  program  is funded by a per head  charge on all  livestock
received at the stockyard.  The restricted cash - transit insurance  balances of
approximately  $50,000  and  $45,000 at April 30,  2008 and  October  31,  2007,
respectively,  represents  the  excess  of per head  fees  charged  over  actual
payments made for livestock that was injured or died while at the stockyards.

8.    INCOME TAXES

      At April 30, 2008,  the Company has net operating  loss  carryforwards  of
approximately  $11,000,000  that expire  through 2027.  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.

9.    ART INVENTORY HELD FOR SALE

      Canal is in the process of selling,  in an orderly  manner,  its remaining
art  inventory.  This  will be  accomplished  primarily  through  direct  sales,
consignment  arrangements with various  independent art dealers and through sale
at public art auctions. The Company's ability to dispose of its art inventory is
dependent  primarily on general economic  conditions and the  competitiveness of
the art market itself. Accordingly, there can be no assurance that Canal will be
successful in selling its art inventory.  Canal had no sales of art in the first
six months of fiscal 2008 as  compared to the sale of one piece of  contemporary
art in fiscal 2007.  Canal's art operations have generated an operating loss and
operating  income of  approximately  $2,000 and $28,000 in the six month periods
ended April 30, 2008 and 2007, respectively.

      Antiquities art represented 100% ($100,000) of total art inventory at both
April 30, 2008 and October 31, 2007.

      The Company recorded a valuation  allowance against the current portion of
its inventory to reduce it to its estimated  net  realizable  value based on the
history of losses  sustained on inventory items sold in the current and previous
years. In fiscal 2007 Canal recognized a $89,122 valuation allowance against its
remaining art inventory to reflect management's  estimate of the inventories net
realizable value at October 31, 2007.


                                       22
<PAGE>

10.   PROPERTY ON OPERATING LEASES

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

      A schedule of the Company's property on operating leases at April 30, 2008
is as follows (000's omitted):

<TABLE>
<CAPTION>
                                                     Current Year
                                                     (Retirements
                          Historical Cost              Additions                             Carrying
                          ---------------             ------------                           --------
                                      Bldgs. &                   Bldgs. &       Accum.        Value
------------------------------------------------------------------------------------------------------
Description (1)          Land        Imprvmts.      Land         Imprvmts.      Depr.        04/30/08
---------------          ----        ---------      ----         ---------      -----        --------
<S>                     <C>          <C>           <C>           <C>           <C>           <C>
New York office
Leasehold assets        $     0      $     8       $     0       $     5       $    (8)      $     5

9 acres of land
in Omaha, NE              1,150           21             0             0           (13)        1,158
Acquired in 1976

10 acres of land
in S. St. Paul, MN           83          485           (20)            0          (396)          152
Acquired in 1937

18 acres of land
in Sioux City, IA           400            0             0             0             0           400
                        -------      -------       -------       -------       -------       -------
Acquired in 1937
                        $ 1,633      $   514       $   (20)      $     5       $  (417)      $ 1,715
                        =======      =======       =======       =======       =======       =======
</TABLE>

      A schedule of the Company's reconciliation of property on operating leases
carried for the six months  ended April 30, 2008 and the year ended  October 31,
2007 is as follows (000's omitted):

                                         April 30,     October 31,
                                           2008            2007
                                           ----            ----

      Balance at beginning of year       $   1,741       $   1,763
      Acquisitions and Improvements              5               0
      Cost of property sold                    (20)              0
      Depreciation                             (11)            (22)
      Reclassifications                          0               0
                                         ---------       ---------
      Balance at end of the period       $   1,715       $   1,741
                                         ---------       ---------

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


                                       23
<PAGE>

11.   PROPERTY USED IN STOCKYARD OPERATIONS

      Property used in stockyard operations consist of approximately 60 acres of
land  located  in St.  Joseph,  Missouri  and Sioux  Falls,  South  Dakota.  The
Company's  stockyards provide all services and facilities required to operate an
independent  market  for the sale of  livestock.  Stockyard  facilities  include
exchange  buildings  (commercial  office space),  auction arenas,  scale houses,
veterinary facilities, barns, livestock pens and loading docks.

      A schedule of the Company's property used in stockyard operations at April
30, 2008 is as follows (000's omitted):

<TABLE>
<CAPTION>
                                                        Current Year
                                                        (Retirements)
                          Historical Cost                 Additions
                          ---------------              --------------                           Carrying
                                     Bldgs. &                     Bldgs. &         Accum.         Value
Description (1)            Land      Imprvmts.        Land        Imprvmts.        Depr.        04/30/08
---------------            ----      ---------        ----        ---------        -----        --------
<S>                     <C>           <C>           <C>           <C>            <C>            <C>
30 acres of land
in St. Joseph, MO       $    902      $    200      $      0      $      0       $   (160)      $    942
Acquired in 1942

30 acres of land
in Sioux Falls, SD           100            89             0             0            (61)           128
                        --------      --------      --------      --------       --------       --------
Acquired in 1937
                        $  1,002      $    289      $      0      $      0       $   (221)      $  1,070
                        ========      ========      ========      ========       ========       ========
</TABLE>

         A schedule of the Company's reconciliation of property used in
stockyard operations carried for the six months ended April 30, 2008 and the
year ended October 31, 2007 is as follows (000's omitted):

                                         April 30,      October 31,
                                           2008            2007
                                           ----            ----

      Balance at beginning of year       $   1,080       $   1,100
      Acquisitions and Improvements              0               0
      Cost of property sold                      0               0
      Depreciation                             (10)            (20)
                                         ---------       ---------
      Balance at end of the period       $   1,070          $1,080
                                         ---------       ---------

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


                                       24
<PAGE>

12.   PROPERTY HELD FOR DEVELOPMENT OR RESALE

      Property held for development or resale consist of  approximately 18 acres
of land located in the Midwest of  undeveloped  land not currently  utilized for
corporate  purposes and not included in any of the present operating leases. The
Company constantly  evaluates  proposals  received for the purchase,  leasing or
development of this asset.  The land is valued at cost which does not exceed the
net realizable value.

      A schedule of the  Company's  property held for  development  or resale at
April 30, 2008 is as follows (000's omitted):

                                          Current Year
                                         (Retirements)
                      Historical Cost      Additions
                      ---------------    -------------                Carrying
                              Bldgs. &            Bldgs. &    Accum.    Value
Description (1)       Land    Imprvmts.   Land    Imprvmts.   Depr.   04/30/08
---------------       ----    ---------   ----    ---------   -----   --------

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

2 acres of land
in Sioux City, IA        53       N/A     $   0       N/A       N/A        53
                      -----     -----     -----     -----     -----     -----
Acquired in 1937
                      $  92     $   0     $   0     $   0     $   0     $  92
                      =====     =====     =====     =====     =====     =====

      A  schedule  of  the  Company's   reconciliation   of  property  held  for
development  or resale  carried for the six months  ended April 30, 2008 and the
year ended October 31, 2007 is as follows (000's omitted):

                                       April 30,   October 31,
                                         2008          2007
                                         ----          ----

      Balance at beginning of year      $     92     $    149
      Acquisitions and Improvements            0            0
      Cost of property sold                    0          (57)
      Reclassification of property             0            0
                                        --------     --------
      Balance at end of the period      $     92     $     92
                                        --------     --------

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


                                       25
<PAGE>

13.   LEASE COMMITMENTS

      In June 2004 Canal  entered  into a lease for  approximately  1,000 square
feet of office space in Hauppauge, New York at a monthly rental of approximately
$1,800. This lease expires May 31, 2010.

      Canal's  future  minimum  payments for the next five years  required under
operating leases that have initial or remaining  noncancellable  terms in excess
of one year as of April 30,  2008 are  $16,000,  $24,000  and  $18,000 in fiscal
2008, 2009 and 2010, respectively.  There are no commitments extending past five
years.  Net rent expense under these and other operating  leases was $11,000 and
$9,000 for the six month periods ended April 30, 2008 and 2007, respectively.

14.   IMPAIRMENT LOSS ON LONG-LIVED ASSETS

      The Company reviews the values of its long-lived  assets  annually.  There
was no impairment in the value of Canal's long-lived assets to be recorded as of
April 30, 2008 and October 31, 2007.

15.   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 $525,000,  $550,000,
$575,000,  $600,000 and $625,000 for fiscal  years 2008,  2009,  2010,  2011 and
2012, respectively.

16.   RELATED PARTY TRANSACTIONS

      Interest  Expense  Related  Party - At  April  30,  2008,  all of  Canal's
Long-Term Debt is held by the company's Chief  Executive  Officer and members of
his family. These notes pay interest at a rate of 10% per annum and come due May
15,  2009.  Canal has incurred  interest  expense on these notes of $106,000 and
$135,000  and  for the  six  month  periods  ended  April  30,  2008  and  2007,
respectively.  At various times during  fiscal 2008 and 2007 certain  holders of
these notes have agreed to defer  interest  payments due them to help Canal with
its cash flow.  All deferred  interest  liability  for fiscal 2008 and 2007 plus
accrued  interest at a rate of 10% per annum,  has been  repaid as funds  became
available.  As of April  30,  2008,  the  balance  due  under  these  notes  was
$1,687,000 all of which is classified as long-term debt related party.


                                       26
<PAGE>

17.   PENSION VALUATION RESERVE

      The Pension Valuation Reserve  represents the excess of additional minimum
pension  liability  required  under the  provisions  of  Statement  of Financial
Accounting  Standards  ("SFAS") No. 132(R) over the  unrecognized  prior service
costs of former stockyard employees. Such excess arose due to the decline in the
market  value of  pension  assets  available  for  pension  benefits  of  former
employees,  which benefits were frozen at the time the stockyard operations were
sold in 1989.  The  additional  minimum  pension  liability  will be expensed as
actuarial  computations of annual pension cost (made in accordance with SFAS No.
132(R)) recognize the deficiency that exists.

      The components of net periodic benefit cost are as follows:

                                        Six Months Ended
                                       4/30/08     4/30/07
                                       -------------------

Service cost                             3,000      2,900

Interest cost                           50,000     50,100

Expected return on plan assets         (54,000)   (53,500)

Amortization of prior service cost           0          0

Recognized net actuarial loss          135,000    134,500
                                       -------    -------

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

For the six months  ended April 30, 2008  amounts  have been  estimated,  actual
amounts will be based on the discount rate and assets available at year end.

The Company  has made its fiscal 2008  required  contribution  of  approximately
$95,000 into its pension plan.


                                       27
<PAGE>

18.   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  $10,000 for each of the six month periods ended
April 30, 2008 and 2007.

19.   LITIGATION

      Canal and its  subsidiaries  are from time to time  involved in litigation
incidental to their normal business activities, none of which, in the opinion of
management,  will have a material adverse effect on the  consolidated  financial
condition and  operations  of the Company.  Canal was not a party to any ongoing
litigation at April 30, 2008.

      The following situation did arise in fiscal 2005:

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

      In 1989, the Company sold its 48 acre Portland, Oregon stockyard to Oregon
Waste  Systems,  Inc. On September  29, 2003,  the United  States  Environmental
Agency  (EPA)  placed  a 4.2  acre  portion  of that  property  on the  National
Priorities   List   pursuant  to  the   Comprehensive   Environmental   Response
Compensation and Liability Act (CERCLA), commonly known as the Superfund Act. In
a letter from the EPA dated June 27, 2005 the Company,  along with approximately
13 other  parties,  including  the current  owner and operator of the site,  was
notified  that it might be  liable  to  perform  or pay for the  remediation  of
environmental  contamination  found on and around the site. Since the receipt of
the  letter,  the Company  has been in  periodic  communications  with the other
parties who received a similar letter with respect to what action,  collectively
or individually,  should be taken in response to the EPA assertion of liability.
The  Company  believes  that the  remediation  of  contamination  of the site is
properly the  responsibility of other parties that have occupied and used it for
waste  recycling  purposes since 1961,  although under CERCLA the EPA is able to
assert  joint and  several  liability  against  all  parties  who ever  owned or
operated the site or generated or transported  wastes to it. This  investigation
is in its preliminary  stages and the Company  intends to vigorously  defend any
liability for remediation.  At April 30, 2008, the liability for remediation, if
any,  is not  estimatable  and  therefore  no accrual  has been  recorded in the
financial statements.


                                       28
<PAGE>

ITEM II.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
          FINANCIAL CONDITION FOR THE SIX MONTHS ENDED APRIL 30, 2008

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

Company Overview

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

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

      Stockyard  Operations  - As a result of an August 1, 1999  asset  purchase
agreement,  Canal now  operates  two central  public  stockyards  located in St.
Joseph,  Missouri and Sioux Falls, South Dakota (collectively the "Stockyards").
Public stockyards act much like a securities exchange, providing markets for all
categories  of livestock  and  fulfilling  the  economic  functions of assembly,
grading,  and price discovery.  The Company's  principal  stockyard revenues are
derived  from a per head  charge  ("yardage  charge")  imposed on all  livestock
consigned  for sale at the  stockyards  and the sale of feed  and  bedding.  See
"Stockyard Operations".

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


                                       29
<PAGE>

stockyard property,  the company entertains any offers to purchase,  develop and
restructure   real  estate  lots   surrounding  its  existing   operating  lease
properties,  stockyard operating  properties and properties held for development
or  resale  in  order  to  enhance  the  value of the  existing  properties  and
surrounding real estate. See "Real Estate Operations".

      Stockyard Operations

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

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

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


                                       30
<PAGE>

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

      Canal  intends  to  continue  its  soliciting  efforts  at its St.  Joseph
stockyards  in fiscal 2008.  Further,  Canal tries to balance its  dependence on
market  agencies  and  independent  commission  sales  people in  various  ways,
including:   developing  solicitation  operations  of  its  own;  direct  public
relations;  advertising and personal  solicitation of producers on behalf of the
stockyards;  providing  additional services at the stockyards to attract sellers
and  buyers;  and  providing  incentives  to  market  agencies  and  independent
commission sales people for increased business.

      Stockyard  operations  resulted in operating income of approximately  $0.1
million while  contributing  approximately  $1.7 million to Canal's revenues for
the first six months of fiscal 2008.

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

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

      Real Estate Operations

      General - Canal is involved in the management,  development or sale of its
real estate properties  located in five Midwest states.  Real estate operations,
resulted in operating income of $0.3 million, while contributing $0.5 million to
Canal's  revenues  for the six months  ended  April 30,  2008.  In the first six
months of fiscal 2008,  Canal sold a one acre parcel of land with the associated
improvements  located in South Saint Paul,  Minnesota for  $200,000,  generating
operating income of $127,000.


                                       31
<PAGE>

      As of April 30, 2008, there are approximately 18 acres of undeveloped land
owned by Canal located in five Midwest states.  Canal is continuing the program,
which  it  started  several  years  ago,  to  develop  or  sell  this  property.
Additionally,  Canal will continue to aggressively pursue additional tenants for
its Exchange Building and undeveloped properties in fiscal 2008.

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

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

CRITICAL ACCOUNTING POLICIES 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
Quarterly Report.


                                       32
<PAGE>

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

      Art  Inventory  Held for Sale -- The nature of art makes it  difficult  to
determine a replacement  value. The most compelling  evidence of a value in most
cases is an independent appraisal.  Canal has had varying percentages of its art
inventory appraised by independent appraisers in previous years. For fiscal 2008
the net realizable value of Canals remaining art inventory has been estimated by
management  based in part on the  Company's  history of art sales in the current
and previous years and in part on the results of the independent appraisals done
in previous years.

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

      Property held for  Development or Resale -- Property held for  development
or  resale  consist  of  approximately  18  acres  located  in  the  Midwest  of
undeveloped land not currently  utilized for corporate  purposes nor included in
any of the present operating leases. The Company constantly  evaluates proposals
received for the purchase,  leasing or  development  of this asset.  The land is
valued at cost which does not exceed the net realizable value.

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


                                       33
<PAGE>

Results of Operations

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

                                          Six Months Ended April 30,
                                          --------------------------
                                             2008         2007
                                             ----         ----
                                                (In Thousands)
Revenues:

Stockyard Revenue                           $ 1,725      $ 1,848
Real Estate Revenue                             464          337
                                            -------      -------
    Total Revenue                             2,189        2,185
                                            -------      -------

Costs and Expenses:

Stockyard Expenses                            1,601        1,566
Real Estate Expenses                            154          143
General and Administrative Expenses             551          549
                                            -------      -------
     Total Costs and Expenses                 2,306        2,258
                                            -------      -------

Income from Operations                         (117)         (73)

Other Income                                     27           64
Other Expenses                                 (108)        (221)
                                            -------      -------

Net Loss                                    $  (198)     $  (230)
                                            =======      =======

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

      Canal  recognized  a net loss of  approximately  $198,000 in the first six
months of fiscal 2008 as compared to a net loss of $230,000  for the same period
in fiscal 2007. After  recognition of preferred stock dividend payments (paid in
additional  shares of  preferred  stock for each of  fiscal  2008,  and 2007) of
$54,000 and $45,000 in 2008 and 2007, respectively.  The results attributable to
common  stockholders  were a net  loss of  $252,000  in 2008  and a net  loss of
$275,000 in 2007.


                                       34
<PAGE>

      Canal's revenues from continuing  operations  consist of revenues from its
stockyard  and real  estate  operations.  Revenues  for the first six  months of
fiscal 2008  increased by $4,000 to $2,189,000 as compared with 2007 revenues of
$2,185,000.  The fiscal 2008 increase in revenues is due primarily to a $125,000
increase  in sales of real  estate  off set to a certain  extent  by a  $123,000
decrease in stockyard  revenues due to the loss of two  commission  firms at our
Sioux Falls, South Dakota location.

COMPARISON OF FISCAL PERIODS ENDED APRIL 30, 2008 AND 2007

Stockyard Revenues

      Stockyard  revenues for the six months ended April 30, 2008 of  $1,726,000
accounted  for 78.8% of the  fiscal  2008  revenues  as  compared  to  stockyard
revenues of  $1,848,000  or 84.6% for the same period in fiscal  2007.  The 2008
decrease in stockyard  revenues was due primarily to the severity of the weather
experienced in the mid-west in December,  2008. Stockyard revenues are comprised
of yard handling and auction  (88.5% and 89.4%),  feed and bedding  income (6.4%
and 6.1%) and rental and other income (5.1% and 4.5%) for the six month  periods
ended April 30, 2008 and 2007, respectively.  The 2008 decrease in the stockyard
revenues  as a percent  of total  revenues,  is due  primarily  to the  $125,000
increase in sales of real estate in the first fiscal quarter of 2008.

Stockyard  revenues  for the  three  months  ended  April 30,  2008 of  $825,000
accounted  for 86.1% of the  fiscal  2008  revenues  as  compared  to  stockyard
revenues  of  $849,000  or 86.7% for the same  period in fiscal  2007.  The 2008
decrease in stockyard  revenues was due primarily to the severity of the weather
experienced in the mid-west in December,  2008. Stockyard revenues are comprised
of yard handling and auction  (88.0% and 88.4%),  feed and bedding  income (6.5%
and  6.9%)  and  rental  and other  income  (5.5% and 4.7%) for the three  month
periods ended April 30, 2008 and 2007,  respectively.  There were no significant
percentage variations in the year to year comparisons.

Stockyard Expenses

      Stockyard  expenses for the six months ended April 30, 2008 of  $1,601,000
increased by $35,000 (2.2%) from  stockyard  expenses of $1,566,000 for the same
period in fiscal 2007.  Stockyard  expenses  are  comprised of labor and related
costs (45.8% and 47.5%), other operating and maintenance (27.8% and 26.0%), feed
and bedding expense (6.5% and 6.5%),  depreciation  and  amortization  (0.6% and
0.6%),   taxes  other  than  income  taxes  (5.5%  and  5.7%)  and  general  and
administrative  expense  (13.8% and 13.7%) for the six month periods ended April
30, 2008 and 2007, respectively. There were no significant percentage variations
in the year to year comparisons.


                                       35
<PAGE>

      Stockyard  expenses  for the three months ended April 30, 2008 of $798,000
increased  by $19,000  (2.6%) from  stockyard  expenses of $779,000 for the same
period in fiscal 2007.  Stockyard  expenses  are  comprised of labor and related
costs (45.0% and 46.3%), other operating and maintenance (28.6% and 26.7%), feed
and bedding expense (5.9% and 7.2%),  depreciation  and  amortization  (0.6% and
0.6%),   taxes  other  than  income  taxes  (5.7%  and  5.8%)  and  general  and
administrative expense (14.2% and 13.4%) for the three month periods ended April
30, 2008 and 2007, respectively. There were no significant percentage variations
in the year to year comparisons.

Real Estate Revenues

      Real estate  revenues  for the six months ended April 30, 2008 of $464,000
accounted  for 21.2% of the fiscal  2008  revenues  as  compared  to real estate
revenues of $337,000  or 15.4% for the same  period in fiscal  2007.  The fiscal
2008 increase in real estate revenues is due primarily to the $125,000  increase
in sales of real  estate  in the  first  fiscal  quarter  of 2008.  Real  estate
revenues  are  comprised of sale of real estate  (43.1% and 22.3%),  rentals and
other lease income from the rental of vacant land and certain  structures (53.3%
and  73.1%) and rental  income  from  commercial  office  space in its  Exchange
Buildings  (3.6% and 4.6%) for the six  months  ended  April 30,  2008 and 2007,
respectively.  The percentage variations in the year to year comparisons are due
to the  increase  in sales of real  estate in the first  fiscal  quarter of 2008
discussed above.

      Real estate revenues for the three months ended April 30, 2008 of $134,000
accounted  for 13.9% of the fiscal  2008  revenues  as  compared  to real estate
revenues of $131,000  or 13.3% for the same period in fiscal  2007.  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  (93.3% and
94.1%) and rental income from commercial office space in its Exchange  Buildings
(6.7%  and  5.9%)  for  the  three   months  ended  April  30,  2008  and  2007,
respectively.  There were no  significant  percentage  variations in the year to
year comparisons.

Real Estate Expenses

      Real estate  expenses  for the six months ended April 30, 2008 of $154,000
increased by $11,000  (8.0%) from real estate  expenses of $143,000 for the same
period in fiscal 2007. The increase in real estate  expenses is consistent  with
the 2008 increase in real estate revenues. Real estate expenses are comprised of
the cost of real estate sold (47.0% and 39.6%), labor, operating and maintenance
(24.6% and 28.6%), depreciation and


                                       36
<PAGE>

amortization  (7.2% and 7.8%), taxes other than income taxes (7.0% and 9.2%) and
general and  administrative  expenses (14.2% and 14.8%) for the six months ended
April 30, 2008 and 2007, respectively.  The percentage variations in the year to
year  comparisons  are  consistent  with the increase in the cost of real estate
sold in the first fiscal quarter of 2008.

      Real estate  expenses for the three months ended April 30, 2008 of $42,000
were  generally  unchanged  from real  estate  expenses  of $43,000 for the same
period in fiscal 2007.  Real estate  expenses are  comprised of the cost of real
estate sold (0.0% and 0.0%), labor, operating and maintenance (47.8% and 45.4%),
depreciation and amortization  (13.1% and 13.0%),  taxes other than income taxes
(12.8% and 15.5%) and general and administrative  expenses (26.3% and 26.1%) for
the three  months  ended  April 30, 2008 and 2007,  respectively.  There were no
significant percentage variations in the year to year comparisons.

General and Administrative

      General and  administrative  expenses  for the six months  ended April 30,
2008 of $551,000 increased by $2,000 (4.0%) as compared to $549,000 for the same
period in fiscal  2007.  The major  components  of  general  and  administrative
expenses are officers  salaries  (43.0% and 43.2%),  pension  expense (22.9% and
22.9%),  insurance  expense (6.5% and 4.6%),  office  salaries  (8.5% and 8.6%),
travel expense (3.5% and 3.3%), rent (2.0% and 1.6%) and professional fees (2.6%
and 4.8%) for the six month periods ended April 30, 2008 and 2007, respectively.
There are no significant percentage variations in the year to year comparisons.

      General and  administrative  expenses for the three months ended April 30,
2008 of $268,000 decreased by $9,000 (3.4%) as compared to $277,000 for the same
period in fiscal  2007.  The major  components  of  general  and  administrative
expenses are officers  salaries  (44.3% and 42.8%),  pension  expense (23.6% and
22.7%),  insurance  expense (6.7% and 4.5%),  office  salaries  (8.8% and 8.5%),
travel expense (3.1% and 2.8%), rent (2.1% and 1.6%) and professional fees (2.7%
and  4.8%)  for  the  three  month  periods  ended  April  30,  2008  and  2007,
respectively. There are no significant percentage variations in the year to year
comparisons.


                                       37
<PAGE>

Interest and Other Income

      Interest  and other  income for the six  months  ended  April 30,  2008 of
$27,000  decreased by $9,000  (25.6%) from $36,000 for the same period in fiscal
2007. Interest and other income is comprised primarily of interest income on the
$1,600,000 note receivable associated with the fiscal 2005 sale of the company's
South St. Paul,  Minnesota Exchange Building.  As more fully described in note 4
the terms of this mortgage note were amended,  including an increase of the rate
of interest to 12% per annum.  The 2008 decrease in interest and other income is
due primarily to the principal reduction of this mortgage note receivable, which
was repaid in full in March, 2008.

Interest Expense

      Interest  expense  for the six months  ended  April 30,  2008 of  $106,000
decreased by $29,000  (21.4%) from  $135,000 for the same period in fiscal 2007.
The 2008 decrease is due primarily to Canal's  $1,000,000  partial  repayment of
this debt in December 2007. The principal balances outstanding at April 30, 2008
and October 31, 2007 was $1,687,000 and $2,687,000,  respectively.  The interest
rate (10%) on Canal's  variable rate mortgage  notes has remained  unchanged for
the past 12 months.

(Expense) Income from Art Sales

      Other  expense  from art sales for the six months ended April 30, 2008 was
$2,000,  while the same period in fiscal 2007 generated income from art sales of
$28,000.  Canal  had no art sales in the  first  six  months  of fiscal  2008 as
compared  to the sale of one  piece of  contemporary  art in the same  period of
fiscal 2007.  Art revenues,  if any, are comprised of the proceeds from the sale
of antiquities and  contemporary  art. Art expenses are comprised of the cost of
inventory sold and selling,  general and administrative expenses. Canal incurred
selling,  general and  administrative  expenses of $2,000 and $8,000 for the six
month periods ended April 30, 2008 and 2007,  respectively.  It is the Company's
policy to use the  adjusted  carrying  value for  sales,  thereby  reducing  the
valuation reserve proportionately as the inventory is sold.

Liquidity and Capital Resources

      While the  Company is  currently  operating  as a going  concern,  certain
significant  factors  raise  substantial  doubt about the  Company's  ability to
continue as a going  concern.  The Company has  suffered  recurring  losses from
operations and is obligated to continue making substantial annual


                                       38
<PAGE>

contributions  to its defined benefit pension plan. The financial  statements do
not include any  adjustments  that might  result  from the  resolution  of these
uncertainties.  Additionally,  the  accompanying  financial  statements  do  not
include any adjustments  relating to the  recoverability  and  classification of
recorded asset amounts or the amounts and  classification  of  liabilities  that
might be necessary should the Company be unable to continue as a going concern.

      The Company's  variable rate mortgage notes (originally issued in 1998 and
amended  several times since then) are due May 15, 2009 and are held entirely by
the Company's  Chief  Executive  Officer and members of his family.  These notes
carry  interest at the rate of ten percent per annum.  These notes,  among other
things, prohibit Canal from becoming an investment company as this is defined by
the  Investment  Company  Act of  1940;restricts  Canal's  ability  to pay  cash
dividends or repurchase stock and require principal  prepayments to be made only
out of the proceeds from the sale of certain  assets.  As of April 30, 2008, the
balance due under  these notes was  $1,687,000,  all of which is  classified  as
long-term debt-related party.

      Cash and cash equivalents of $5,000 at April 30, 2008 decreased $23,000 or
81.2% from $28,000 at October 31, 2007.  Net cash used by  operations  in fiscal
2008 was $765,000.  Substantially all of the 2008 net proceeds from the sales of
real  estate of  $200,000  was used in  operations.  During  fiscal  2008  Canal
decreased the balance of its liabilities by a total of $1,487,000.

      At April 30, 2008 the Company's current assets exceed current  liabilities
by $0.1 million  which was a decrease of $1.0 million as compared to October 31,
2007 when the Company's  current  assets  exceeded  current  liabilities by $1.1
million.  The only required  principal  repayments under Canal's debt agreements
for  fiscal  2008  will be from the  proceeds  (if  any) of the sale of  certain
assets.

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


                                       39
<PAGE>

Other Factors

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

ITEM III. Quantitative and Qualitative Disclosures About Market Risk

      The  Securities  and  Exchange  Commission's  rule  related to market risk
disclosure  requires  that we describe and quantify  our  potential  losses from
market risk sensitive  instruments  attributable  to reasonably  possible market
changes.  Market risk sensitive  instruments  include all financial or commodity
instruments and other financial  instruments (such as investments and debt) that
are sensitive to future  changes in interest  rates,  currency  exchange  rates,
commodity  prices or other  market  factors.  We are not exposed to market risks
from changes in foreign  currency,  exchange  rates or commodity  prices.  As of
April 30, 2008, we do not hold derivative  financial  instruments nor do we hold
securities for trading or speculative  purposes.  Under our current policies, we
do not use  interest  rate  derivative  instruments  to manage our  exposure  to
interest rate changes.

At  April  30,  2008,  the  following  long-term  debt-related  party  financial
instruments  are  sensitive  to changes in interest  rates by expected  maturity
dates:

            As of         Fixed rate        Average         Fair
          April 30,         ($ US)       Interest Rate      Value
        -----------       ----------     -------------      -----
            2007           $     0            N/A
            2008                 0            N/A
            2009             1,687            10%
            2010                 0            N/A
            2011                 0            N/A
            Thereafter           0            N/A
                           -------
            Total          $ 1,687                          N/A (A)
                           -------                          -------

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


                                       40
<PAGE>

ITEM IV. Controls and Procedures

      Our  management,  which  includes  our Chief  Executive  Officer and Chief
Financial  Officer,  has  conducted an evaluation  of the  effectiveness  of our
disclosure  controls and procedures (as defined in Rule 13(a)-14(c)  promulgated
under the Securities Exchange Act of 1934) as of April 30, 2008 ("the Evaluation
Date")  within 45 days prior to the filing date of this report.  Based upon that
evaluation our Chief  Executive  Officer and Chief Financial  Officer  concluded
that our disclosure  controls and procedures are effective for timely gathering,
analyzing  and  disclosing  the  information  we are required to disclose in our
reports filed under the Securities Exchange Act of 1934, as amended.  There have
been no significant  changes made in our internal controls or other factors that
could  significantly  effect our internal controls  subsequent to the Evaluation
Date.


                                       41
<PAGE>

                                     PART II

                                OTHER INFORMATION


                                       42
<PAGE>

Item 1: Legal Proceedings:

      Also see Item 3 of Canal's October 31, 2007 Form 10-K.

      Canal and its  subsidiaries  are from time to time  involved in litigation
incidental to their normal business activities, none of which, in the opinion of
management,  will have a material adverse effect on the  consolidated  financial
condition and  operations  of the Company.  Canal was not a party to any ongoing
litigation at April 30, 2008.

The following situation did arise in fiscal 2005:

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

      In 1989, the Company sold its 48 acre Portland, Oregon stockyard to Oregon
Waste  Systems,  Inc. On September  29, 2003,  the United  States  Environmental
Agency  (EPA)  placed  a 4.2  acre  portion  of that  property  on the  National
Priorities   List   pursuant  to  the   Comprehensive   Environmental   Response
Compensation and Liability Act (CERCLA), commonly known as the Superfund Act. In
a letter from the EPA dated June 27, 2005 the Company,  along with approximately
13 other  parties,  including  the current  owner and operator of the site,  was
notified  that it might be  liable  to  perform  or pay for the  remediation  of
environmental  contamination  found on and around the site. Since the receipt of
the  letter,  the Company  has been in  periodic  communications  with the other
parties who received a similar letter with respect to what action,  collectively
or individually,  should be taken in response to the EPA assertion of liability.
The  Company  believes  that the  remediation  of  contamination  of the site is
properly the  responsibility of other parties that have occupied and used it for
waste  recycling  purposes since 1961,  although under CERCLA the EPA is able to
assert  joint and  several  liability  against  all  parties  who ever  owned or
operated the site or generated or transported  wastes to it. This  investigation
is in its preliminary  stages and the Company  intends to vigorously  defend any
liability for remediation.  At April 30, 2008, the liability for remediation, if
any,  is not  estimatable  and  therefore  no accrual  has been  recorded in the
financial statements.

Item 2 and 3: Not applicable.

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

Item 5: Other Information: None.

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


                                       43
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 10th day of
June, 2008.

                                     CANAL CAPITAL CORPORATION


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

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

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

                             President and Chief
/S/ Michael E. Schultz   Executive Officer and Director
----------------------    (Principal Executive Officer)     June 10, 2008
Michael E. Schultz


                            Vice President-Finance
/S/ Reginald Schauder       Secretary and Treasurer
----------------------      (Principal Financial and
Reginald Schauder             Accounting Officer)           June 10, 2008


/S/ Asher B. Edelman          Chairman of the Board
----------------------          and Director                June 10, 2008
Asher B. Edelman


                                       44