UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549







FORM
10-Q




QUARTERLY
REPORT UNDER SECTION 13 OR 15 (d)


OF
THE SECURITIES EXCHANGE ACT OF 1934


FOR
THE FISCAL QUARTER ENDED MARCH 31, 2009




COMMISSION
FILE NO.: 0-52356




SEAWAY
VALLEY CAPITAL CORPORATION





(Exact
name of registrant as specified in its charter)





Delaware
                20-5996486(State
      of other jurisdiction of
                (IRS
      Employerincorporation
      or organization
                Identification
      No.)10-18
      Park Street, 2nd Floor,  Gouverneur, N.Y. 13642
                13642(Address
      of principal executive offices)
                (Zip
      Code)
 
 (315)
      287-1122(Registrant's
      telephone number including area
code)


Check
mark whether the issuer (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant as 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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files.)  Yes  No
___




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)




Large
accelerated filer Accelerated filer  Non-accelerated filer Smaller reporting companyX




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 outstanding shares of common stock as of May 19, 2009 was:353,411,426













PART
I - FINANCIAL INFORMATION


ITEM
1. FINANCIAL STATEMENTS (UNAUDITED)




SEAWAY
VALLEY CAPITAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


AS
OF MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008





ASSETS
                  
                  March
      31, 2009
                  
                  
                  December
      31, 2008Current
      assets:Cash
                  
                  $
                  158,678
                  
                  
                  $
                  590,859Accounts
      receivable
                  
                  
                  290,583
                  
                  
                  
                  401,157Inventories
                  
                  
                  5,435,924
                  
                  
                  
                  7,416,788Notes
      receivable
                  
                  
                  1,695,675
                  
                  
                  
                  1,749,092Marketable
      securities, trading
                  
                  
                  -
                  
                  
                  
                  -Prepaid
      expenses and other assets
                  
                  
                  56,127
                  
                  
                  
                  104,852Refundable
      income taxes
                  
                  
                  205,213
                  
                  
                  
                  205,213Total
      current assets
                  
                  
                  7,842,200
                  
                  
                  
                  10,467,961Property
      and equipment, net
                  
                  
                  10,546,305
                  
                  
                  
                  10,783,578Other
      Assets:Deferred
      financing fees
                  
                  
                  224,400
                  
                  
                  
                  246,597Investments
                  
                  
                  465,973
                  
                  
                  
                  465,973Other
      assets
                  
                  
                  265,500
                  
                  
                  
                  265,500Excess
      purchase price
                  
                  
                  3,284,193
                  
                  
                  
                  3,284,193Security
      deposits
                  
                  
                  32,300
                  
                  
                  
                  32,300Total
      other assets
                  
                  
                  4,272,366
                  
                  
                  
                  4,294,563TOTAL
      ASSETS
                  
                  $
                  22,660,871
                  
                  
                  $
                  25,546,102LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      liabilities:Line
      of credit
                  
                  $
                  1,510,334
                  
                  
                  $
                  3,065,117Accounts
      payable
                  
                  
                  8,511,093
                  
                  
                  
                  7,454,894Accrued
      expenses
                  
                  
                  3,040,574
                  
                  
                  
                  2,907,020Current
      portion of long term debt
                  
                  
                  3,344,354
                  
                  
                  
                  3,344,799Convertible
      debentures
                  
                  
                  3,117,839
                  
                  
                  
                  1,735,638Liabilities
      of discontinued operations
                  
                  
                  1,136,848
                  
                  
                  
                  -Total
      current liabilities
                  
                  
                  20,661,042
                  
                  
                  
                  18,507,468Long
      term debt, net of current
                  
                  
                  4,720,064
                  
                  
                  
                  4,834,594Convertible
      debentures, net of current
                  
                  
                  2,813,378
                  
                  
                  
                  3,785,171Other
      liabilities
                  
                  
                  164,041
                  
                  
                  
                  184,719Due
      to related party
                  
                  
                  8,000
                  
                  
                  
                  -Total
      liabilities
                  
                  
                  28,366,525
                  
                  
                  
                  27,311,952Commitments
      and contingencies
                  
                  
                  -
                  
                  
                  
                  -STOCKHOLDERS'
      EQUITYSeries
      A voting preferred stock, $.0001 par value; 100,000shares
      authorized; 0 and 0 shares issued and outstanding,
      respectively
                  
                  
                  -
                  
                  
                  
                  -Series
      B voting preferred stock, $.0001 par value; 100,000shares
      authorized; 0 and 100,000 shares issued and outstanding,
      respectively
                  
                  
                  -
                  
                  
                  
                  -Series
      C voting preferred stock, $.0001 par value; 1,600,000shares
      authorized; 1,391,746 and 1,407,736 shares issued and outstanding,
      respectively
                  
                  
                  139
                  
                  
                  
                  141Series
      D voting preferred stock, $.0001 par value; 1,250,000shares
      authorized; 881,065 and 881,065 shares issued and outstanding,
      respectively
                  
                  
                  88
                  
                  
                  
                  88Series
      E voting preferred stock, $.0001 par value; 100,000shares
      authorized; 100,000 and 100,000 shares issued and outstanding,
      respectively
                  
                  
                  10
                  
                  
                  
                  10Common
      stock, $0.0001 par value, 10,005,000,000 authorized;3,454,123
      and 2,744,523 shares issued and outstanding, respectively
                  
                  
                  345
                  
                  
                  
                  274Additional
      paid-in capital
                  
                  
                  15,277,263
                  
                  
                  
                  15,265,333Accumulated
      deficit
                  
                  
                  (20,519,013
                  )
                  
                  
                  (17,034,508
                  )Noncontrolling
      interest
                  
                  
                  (464,486
                  )
                  
                  
                  2,812Total
      stockholders' equity (deficit)
                  
                  
                  (5,705,654
                  )
                  
                  
                  (1,765,850
                  )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                  
                  $
                  22,660,871
                  
                  
                  $
                  25,546,102





The notes
to the consolidated financial statements are an integral part of these
statements.





2





SEAWAY VALLEY CAPITAL CORPORATION AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)





2009
                                                                                      
                                                                                      
                                                                                      2008Revenue
                                                                                      
                                                                                      $
                                                                                      2,988,148
                                                                                      
                                                                                      
                                                                                      $
                                                                                      2,653,041Cost
      of revenue
                                                                                      
                                                                                      
                                                                                      2,574,153
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,973,836Gross
      profit
                                                                                      
                                                                                      
                                                                                      413,995
                                                                                      
                                                                                      
                                                                                      
                                                                                      679,205Gain
      on sale of securities, net
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      52,932Operating
      expenses:Selling,
      general and administrative expenses(including
      stock based compensation of$12,000
      and $0 respectively)
                                                                                      
                                                                                      
                                                                                      2,026,055
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,869,863Total
      operating expenses
                                                                                      
                                                                                      
                                                                                      2,026,055
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,869,863Operating
      loss
                                                                                      
                                                                                      
                                                                                      (1,612,060
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,137,726
                                                                                      )Other
      income (expense):Unrealized
      gain (loss) on derivative instruments
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      (932,069
                                                                                      )Interest
      expense
                                                                                      
                                                                                      
                                                                                      (934,766
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (497,919
                                                                                      )Interest
      income
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      37,392Other
      income (expense)
                                                                                      
                                                                                      
                                                                                      16,738
                                                                                      
                                                                                      
                                                                                      
                                                                                      (53,251
                                                                                      )Total
      other income (expense)
                                                                                      
                                                                                      
                                                                                      (918,028
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,445,847
                                                                                      )Loss
      from continuing operations
                                                                                      
                                                                                      
                                                                                      (2,530,088
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (2,583,573
                                                                                      )Discontinued
      operationsLoss
      on disposal of discontinued operations
                                                                                      
                                                                                      
                                                                                      (682,414
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -Loss
      from discontinued operations
                                                                                      
                                                                                      
                                                                                      (186,488
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (211,783
                                                                                      )Total
      discontinued operations, net of tax
                                                                                      
                                                                                      
                                                                                      (868,902
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (211,783
                                                                                      )Loss
      before provision for income taxes
                                                                                      
                                                                                      
                                                                                      (3,398,990
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (2,795,356
                                                                                      )Provision
      for (benefit from) income taxes
                                                                                      
                                                                                      
                                                                                      550,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      135,000Net
      loss
                                                                                      
                                                                                      
                                                                                      (3,948,990
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (2,930,356
                                                                                      )Less:
      Net loss attributable to the noncontrolling interest
                                                                                      
                                                                                      
                                                                                      (467,298
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -Net
      loss attributable to Parent Company
                                                                                      
                                                                                      $
                                                                                      (3,481,692
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      (2,930,356
                                                                                      )Basic
      and diluted loss per share - continuing
                                                                                      
                                                                                      $
                                                                                      (0.84
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      (14.30
                                                                                      )Basic
      and diluted loss per share - discontinued
                                                                                      
                                                                                      
                                                                                      (0.24
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1.11
                                                                                      )Basic
      and diluted loss per share
                                                                                      
                                                                                      $
                                                                                      (1.08
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      (15.41
                                                                                      )Weighted
      average of shares of common stockOutstanding,
      basic
                                                                                      
                                                                                      
                                                                                      3,215,702
                                                                                      
                                                                                      
                                                                                      
                                                                                      190,220





The notes
to the consolidated financial statements are an integral part of these
statements.





3





SEAWAY VALLEY CAPITAL CORPORATION AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)





2009
                                                                
                                                                
                                                                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Continuing
      OperationsNet
      loss from continuing operations
                                                                
                                                                $
                                                                (3,080,088
                                                                )
                                                                
                                                                $
                                                                (2,718,573
                                                                )Adjustments
      to reconcile net loss to net cash providedby
      continuing operating activities:Deferred
      taxes
                                                                
                                                                
                                                                550,000
                                                                
                                                                
                                                                
                                                                135,000Depreciation
      and amortization
                                                                
                                                                
                                                                184,859
                                                                
                                                                
                                                                
                                                                90,629Gain
      on marketable securities
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (52,434
                                                                )Unrealized
      gain on derivatives
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                932,069Amortization
      of deferred financing fees
                                                                
                                                                
                                                                22,197
                                                                
                                                                
                                                                
                                                                35,496Stock
      based compensation
                                                                
                                                                
                                                                12,000
                                                                
                                                                
                                                                
                                                                -Amortization
      of debt discount
                                                                
                                                                
                                                                410,408
                                                                
                                                                
                                                                
                                                                236,008Accrued
      interest
                                                                
                                                                
                                                                136,182
                                                                
                                                                
                                                                
                                                                -Change
      in assets and liabilities:Accounts
      receivable
                                                                
                                                                
                                                                110,574
                                                                
                                                                
                                                                
                                                                110,774Inventory
                                                                
                                                                
                                                                1,980,864
                                                                
                                                                
                                                                
                                                                653,299Prepaid
      expenses and other assets
                                                                
                                                                
                                                                48,725
                                                                
                                                                
                                                                
                                                                86,231Related
      party
                                                                
                                                                
                                                                8,000
                                                                
                                                                
                                                                
                                                                -Security
      deposits
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (12,011
                                                                )Accounts
      payable
                                                                
                                                                
                                                                1,056,199
                                                                
                                                                
                                                                
                                                                (1,457,754
                                                                )Accrued
      expenses
                                                                
                                                                
                                                                47,975
                                                                
                                                                
                                                                
                                                                102,790Other
      liabilities
                                                                
                                                                
                                                                (20,678
                                                                )
                                                                
                                                                
                                                                -Cash
      Used in (Provided by) Continuing Operating Activities
                                                                
                                                                
                                                                1,467,217
                                                                
                                                                
                                                                
                                                                (1,858,476
                                                                )Discontinued
      operationsNet
      loss from discontinued operations
                                                                
                                                                
                                                                (868,902
                                                                )
                                                                
                                                                
                                                                (211,783
                                                                )Adjustments
      to reconcile net loss to net cashprovided
      by discontinued operating activities:Deferred
      taxes
                                                                
                                                                
                                                                (550,000
                                                                )
                                                                
                                                                
                                                                (135,000
                                                                )Depreciation
      and amortization
                                                                
                                                                
                                                                72,097
                                                                
                                                                
                                                                
                                                                18,273Change
      in assets and liabilitiesAccrued
      expenses
                                                                
                                                                
                                                                1,136,848
                                                                
                                                                
                                                                
                                                                -Cash
      Used in Discontinued Operating Activities
                                                                
                                                                
                                                                (209,957
                                                                )
                                                                
                                                                
                                                                (328,510
                                                                )Cash
      Provided By (Used in) Operating Activities
                                                                
                                                                $
                                                                1,257,260
                                                                
                                                                
                                                                $
                                                                (2,186,986
                                                                )





The notes
to the consolidated financial statements are an integral part of these
statements.





4





SEAWAY
VALLEY CAPITAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)





2009
                                          
                                          
                                          2008CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
                                          
                                          $
                                          (19,683
                                          )
                                          
                                          $
                                          (42,879
                                          )Cash
      Used in investing activities
                                          
                                          
                                          (19,683
                                          )
                                          
                                          
                                          (42,879
                                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Deferred
      financing fees
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (260,000
                                          )Borrowings
      on (repayments of) line of credit
                                          
                                          
                                          (1,554,783
                                          )
                                          
                                          
                                          2,392,169Proceeds
      from convertible debentures
                                          
                                          
                                          -
                                          
                                          
                                          
                                          175,000Repayment
      of long term debt
                                          
                                          
                                          (114,975
                                          )
                                          
                                          
                                          (205,142
                                          )Cash
      Provided (Used in) by financing activities
                                          
                                          
                                          (1,669,758
                                          )
                                          
                                          
                                          2,102,027Net
      Decrease in Cash
                                          
                                          
                                          (432,181
                                          )
                                          
                                          
                                          (127,838
                                          )Cash
      at Beginning of Period
                                          
                                          
                                          590,859
                                          
                                          
                                          
                                          1,116,003Cash
      at End of Period
                                          
                                          $
                                          158,678
                                          
                                          
                                          $
                                          988,165Cash
      paid during the period for:Interest
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          226,415Income taxes
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -SUPPLEMENTAL
      STATEMENT OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion
      of convertible debt and accrued interest into common stock
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          158,322Warrants
      issued with debt
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          728,170Conversion
      of preferred stock into common stock
                                          
                                          $
                                          2
                                          
                                          
                                          $
                                          -Convertible
      debentures issued in exchange for notes payable
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          2,299,662Discount
      issued upon issuance of derivative
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          2,049,957





The notes
to the consolidated financial statements are an integral part of these
statements.





5





SEAWAY VALLEY CAPITAL
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2009


(UNAUDITED)




NOTE
1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q.  Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all normal recurring adjustments considered necessary for a fair
statement of the results of operations have been included. The results of
operations for the three months ended March 31, 2009 are not necessarily
indicative of the results of operations for the full year. When reading the
financial information contained in this Quarterly Report, reference should be
made to the financial statements, schedule and notes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2008.





NOTE
2- GOING CONCERN




The financial statements have been prepared using accounting
principles generally accepted in the United States of America applicable for a
going concern, which assumes that the Company will realize its assets and
discharge its liabilities in the ordinary course of business. As of March 31,
2009, the Company has generated revenues of $3 million but has incurred a net
loss of approximately $4.0 million. The Company also has a working capital
deficit and is in default on its credit facility. Its ability to continue as a
going concern is dependent upon achieving sales growth, reduction of operation
expenses and ability of the Company to obtain the necessary financing to meet
its obligations and pay its liabilities arising from normal business operations
when they come due, and upon profitable operations. The outcome of these matters
cannot be predicted with any certainty at this time and raise substantial doubt
that the Company will be able to continue as a going concern. These financial
statements do not include any adjustments to the amounts and classification of
assets and liabilities that may be necessary should the Company be unable to
continue as a going concern.




The
Company intends to overcome the circumstances that impact its ability to remain
a going concern through an increase of revenues, with interim cash flow
deficiencies being addressed through additional equity and debt financing. The
Company's ability to obtain additional funding will determine its ability to
continue as a going concern. There can be no assurances that these plans for
additional financing will be successful. Failure to secure additional financing
in a timely manner and on favorable terms if and when needed in the future could
have a material adverse effect on the Company's financial performance, results
of operations and stock price and require the Company to implement cost
reduction initiatives and curtail operations. Furthermore, additional equity
financing may be dilutive to the holders of the Company's common stock, and debt
financing, if available, may involve restrictive covenants, and may require the
Company to relinquish valuable rights.




NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Deferred
Financing Fees and Debt Discounts





Deferred
finance costs represent costs which may include direct costs paid to or warrants
issued to third parties in order to obtain long-term financing and have been
reflected as other assets. Costs incurred with parties who are providing the
actual long-term financing, which generally may  include  the value of
warrants,  fair value of the  derivative  conversion
 feature,  or the intrinsic value of beneficial conversion features
associated with the underlying debt, are reflected as a debt discount.
 These costs and discounts are generally amortized over the life of the
related debt.  In connection with debt issued during the three months ended
March 31, 2009, the Company recorded no debt discounts. Amortization expense
related to these costs and discounts were $432,605 for the three months ended
March 31, 2009, including $410,408 in debt discount amortization included in
interest expense on the Statement of Operations.




Derivative
Financial Instruments




Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended and EITF Issue No. 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock" require all derivatives to be recorded on the
balance sheet at fair value. The beneficial conversion features of the
convertible debentures are embedded derivatives and are separately valued and
accounted for on our balance sheet with changes in fair value recognized during
the period of change as a separate component of other income/expense. Fair
values for exchange-traded securities and derivatives are based on quoted market
prices. The pricing model we use for determining fair value of our derivatives
is the Black-Scholes Pricing Model. Valuations derived from this model are
subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities.
Selection of these inputs involves management's judgment and may impact net
income.





6







Income
Taxes




Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. At
March 31, 2009, the Company had a full valuation allowance against its deferred
tax assets.




Estimated
Fair Value of Financial Instruments




The
Company's financial instruments include cash, accounts payable, long term debt,
line of credit, convertible debt and due to related parties. Management believes
the estimated fair value of cash, accounts payable and debt instruments at March
31, 2009 approximate their carrying value as reflected in the balance sheets due
to the short-term nature of these instruments or the use of market interest
rates for debt instruments. Fair value of due to related parties cannot be
determined due to lack of similar instruments available to the
Company.




Use of Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles 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 revenue and expenses during the reporting period. Actual
results could differ from these estimates.




Net
Income (Loss) per Common Share




In
accordance with SFAS No. 128, "Earnings Per Share," Basic income (loss) per
share is computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during the period. Diluted earnings per
share is computed by dividing net income (loss) adjusted for income or loss that
would result from the assumed conversion of potential common shares from
contracts that may be settled in stock or cash by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. The Company had 35,247 warrants
outstanding at March 31, 2009 and 2008, respectively. The inclusion of the
warrants and potential common shares to be issued in connection with convertible
debt have an anti-dilutive effect on diluted loss per share because under the
treasury stock method the average market price of the Company's common stock was
less than the exercise prices of the warrants, and therefore they are not
included in the calculation.




Recent
Accounting Pronouncements




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133” (SFAS 161). SFAS
161 requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. SFAS
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
The adoption of SFAS 161 is not expected to have a material impact on our
financial position, results of operations or cash flows.





NOTE
4 -SEGMENT INFORMATION





The
Company has three reportable segments in 2009: retail sales, hospitality and
investment portfolio management.





Three
      Months Ended March 31, 2009Retail
                                      
                                      
                                      Hospitality
                                      
                                      
                                      Investing
                                      
                                      
                                      TotalRevenueMerchandise
      sales and third party income
                                      
                                      $
                                      2,200,021
                                      
                                      
                                      $
                                      788,127
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      2,988,148Realized
      and unrealized gain on securities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Total
      revenue
                                      
                                      
                                      2,200,021
                                      
                                      
                                      
                                      788,127
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      2,988,148Cost
      and expensesCost
      of revenue
                                      
                                      
                                      2,236,846
                                      
                                      
                                      
                                      337,307
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,574,153Selling
      and administrative
                                      
                                      
                                      1,469,025
                                      
                                      
                                      
                                      557,030
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,026,055Interest
      expense
                                      
                                      
                                      733,329
                                      
                                      
                                      
                                      201,437
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      934,766Other
      income
                                      
                                      
                                      (16,738
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (16,738
                                      )Total
      costs and expenses
                                      
                                      
                                      4,422,462
                                      
                                      
                                      
                                      1,095,774
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      5,518,236Loss
      from continuing operations
                                      
                                      $
                                      (2,222,441
                                      )
                                      
                                      $
                                      (307,647
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (2,530,088
                                      )Total
      assets
                                      
                                      $
                                      14,697,962
                                      
                                      
                                      $
                                      7,962,909
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      22,660,871Capital
      expenditures
                                      
                                      $
                                      19,683
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      19,683




7








Three
      Months Ended March 31, 2008Retail
                                            
                                            
                                            Investing
                                            
                                            TotalRevenueMerchandise
      sales and third party income
                                            
                                            $
                                            2,653,041
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            2,653,041Realized
      and unrealized gain on securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            52,932
                                            
                                            
                                            
                                            52,932Total
      revenue
                                            
                                            
                                            2,653,041
                                            
                                            
                                            
                                            52,932
                                            
                                            
                                            
                                            2,705,973Cost
      and expensesCost
      of revenue
                                            
                                            
                                            1,973,836
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,973,836Selling
      and administrative
                                            
                                            
                                            1,869,863
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,869,863Share
      based compensation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Interest
      expense
                                            
                                            
                                            497,919
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            497,919Unrealized
      loss on derivative instruments
                                            
                                            
                                            932,069
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            932,069Other
      expense
                                            
                                            
                                            15,859
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            15,859Total
      costs and expenses
                                            
                                            
                                            5,289,546
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            5,289,546Income
      (loss) from continuing operations
                                            
                                            $
                                            (2,636,505
                                            )
                                            
                                            $
                                            52,932
                                            
                                            
                                            $
                                            (2,583,573
                                            )Total
      assets
                                            
                                            $
                                            19,033,566
                                            
                                            
                                            $
                                            210,787
                                            
                                            
                                            $
                                            19,244,353Capital
      expenditures
                                            
                                            $
                                            42,879
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            42,879





NOTE
5 - STOCKHOLDERS' EQUITY




The
Company has 10,005,000,000 shares of capital stock authorized, consisting of
10,000,000,000 shares of Common Stock, par value $0.0001, 100,000 shares of
Series A Preferred Stock, par value $0.0001 per share, 100,000 shares of Series
B Preferred Stock, 1,600,000 shares of Series C Preferred Stock, 1,250,000
Shares of Series D Preferred Stock, 100,000 Shares of Series E Preferred Stock,
and 1,850,000 shares of undesignated Preferred Stock, $0.0001 par
value.





On March
14, 2008 the Company established the 2008 Stock and Stock Option Plan. The
number of Shares available for grant under the Plan shall not exceed three
thousand two hundred (3,200) Shares. The Shares granted under this Plan may be
either authorized but unissued or reacquired Shares. A total of 3,200 shares
were outstanding at March 31, 2009 under the plan. On July 16, 2008, the Company
established the 2008 Equity Incentive Plan.  The number of shares
available for issuance under the 2008 Equity Incentive Plan is
10,000.  A total of 10,000 shares were outstanding at March 31, 2009
under the 2008 Equity Incentive Plan.  On September 26, 2008, the
Company established the 2008 Employee Equity Plan.  The number of
shares available for issuance under the 2008 Employee Equity Plan is
200,000.  A total of 135,000 shares were outstanding at March 31, 2009
under the 2008 Employee Equity Plan.




During
the three months ended March 31, 2009 holders of Series C Preferred Stock
converted 15,990 shares into 589,600 shares of common stock.




STOCK
BASED COMPENSATION





During
the three months ended March 31, 2009, the Company issued 120,000 shares of
common stock to a consultant in exchange for services. The shares were valued at
$12,000 based on the value of the shares on the date of the grant.




NOTE
6 – DISCONTINUED OPERATIONS




In March
2009, the Company decided to close two of its retail stores.  These
reporting units and their operating results have been shown as discontinued
operations.  The loss on discontinued operations represents the
accrual of the remaining lease liability related to these stores.




All
assets that will not be utilized in other locations have been written down to
their fair value or are fully depreciated at March 31, 2009.





NOTE
7 - LINE OF CREDIT





On
March 4, 2008, Seaway Valley Capital Corporation and its wholly owned
subsidiaries, WiseBuys Stores, Inc. and Patrick Hackett Hardware Company,
consummated a five million dollar ($5,000,000) credit and security agreement
with Wells Fargo Bank, National Association, acting through its Wells Fargo
Business Credit operating division (the "Line of Credit"). The funds available
under Line of Credit were based on an advance rate of 55% of the Company's
current inventory. The initial term of the Line of Credit was three
years.  These funds were used for general working capital at the
Company.  In early January 2009, Wells Fargo initiated an advance rate
reduction (from the original 55% of inventory) by 1% per week.  In
mid-January, Wells Fargo agreed to temporarily suspend the rate reduction in the
event that Patrick Hackett Hardware Company raise an additional $2 million in
equity capital or subordinated debt.  The Company was not successful
in these capital raising efforts, and in February 2009 Wells Fargo again
commenced the reduction of the advance rate.  On March 9th, March
18th
and April 2nd, Wells
Fargo issued default notices under the credit agreement, citing various default
events such as failure to reach Tangible Net Worth, Net Cash Flow and Net Income
milestones, as well as citing a change of control event as it related to the
ALRN transaction.  Additionally, Wells Fargo continued to reduce the
advance rate, and the loan balance had been reduced from a peak of $4.7 million
in December 2008 to approximately $1.2 million at this time.





By April
13, 2009, The Company and Wells Fargo had substantially agreed on a Forbearance
Agreement whereby the Company would pursue business activities in an effort to
eliminate the Wells Fargo line of credit within 13 weeks.  These
measures included, among others, the closure of certain Hackett’s
stores.  This agreement was signed on May 18, 2009.




8




NOTE
8 - CONVERTIBLE DEBENTURES




Following
is a summary of convertible debentures as of March 31, 2009:


2009Convertible
      debentures
                                      
                                      $
                                      9,468,282Less
      note discounts
                                      
                                      
                                      (3,537,065
                                      )Total
      convertible debentures, net of discounts
                                      
                                      $
                                      5,931,217Convertible
      debentures, current portion
                                      
                                      $
                                      3,989,440Less
      note discounts
                                      
                                      
                                      (871,601
                                      )Total
      current portion of convertible debentures
                                      
                                      
                                      3,117,839Convertible
      debentures, net of current portion
                                      
                                      
                                      5,478,842Less
      note discounts
                                      
                                      
                                      (2,665,464
                                      )Total
      convertible debentures, net of current maturities
                                      
                                      
                                      2,813,378Total
      convertible debentures, net of discounts
                                      
                                      $
                                      5,931,217





NOTE 9 – FAIR VALUE
MEASUREMENTS





Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value
Measurements (SFAS 157), which provides a framework for measuring fair
value under GAAP. SFAS 157 defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157
requires that valuation techniques maximize the use of observable inputs and
minimize the use of unobservable inputs. SFAS 157 also establishes a fair value
hierarchy, which prioritizes the valuation inputs into three broad
levels.





Financial
assets and liabilities valued using level 1 inputs are based on unadjusted
quoted market prices within active markets. Financial assets and liabilities
valued using level 2 inputs are based primarily on quoted prices for similar
assets or liabilities in active or inactive markets.  For certain
long-term debt, the fair value was based on present value techniques using
inputs derived principally or corroborated from market data. Financial assets
and liabilities using level 3 inputs were primarily valued using management’s
assumptions about the assumptions market participants would utilize in pricing
the asset or liability. Valuation techniques utilized to determine fair value
are consistently applied.





The table
below presents a reconciliation for liabilities measured at fair value on a
recurring basis:





Fair Value Measurements Using
      SignificantUnobservable Inputs (Level
      3)Derivative
      Liability2009
                              
                              
                              
                              2008Balance at January
      1,
                              
                              $
                              -
                              
                              
                              $
                              878,499Total unrealized(gains) lossesincluded in
      earnings
                              
                              
                              -
                              
                              
                              
                              932,069Debt
    discounts
                              
                              
                              -
                              
                              
                              
                              1,481,338Balance atMarch 31,
                              
                              $
                              -
                              
                              
                              $
                              3,291,906




Financial
instruments are considered Level 3 when their values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is input is
unobservable.  Level 3 financial instruments also include those for
which the determination of fair value requires significant management judgment
or estimation.  The Company had no Level 1 or Level 2 financial
assets.





9





NOTE
10- NONCONTROLLING INTEREST





The
Company has a noncontrolling interest related to its ownership of 88% of
Hackett’s Stores, Inc. which occurred in December 2008.  In accordance
with Financial Accounting Standards No. 160 “Noncontrolling Interests in
Consolidated Financial Statements” the following represents the amounts
attributable to the noncontrolling interest for the results of operations and
changes in equity for the quarter ended March 31, 2009.





Amounts
      attributable to:NoncontrollingCompany
                                            
                                            
                                            Interest
                                            
                                            
                                            TotalLoss
      from continuing operations
                                            
                                            $
                                            (2,717,058
                                            )
                                            
                                            $
                                            (363,030
                                            )
                                            
                                            $
                                            (3,080,088
                                            )Loss
      from discontinued operations
                                            
                                            
                                            (764,634
                                            )
                                            
                                            
                                            (104,268
                                            )
                                            
                                            
                                            (868,902
                                            )Net
      loss
                                            
                                            $
                                            (3,481,692
                                            )
                                            
                                            $
                                            (467,298
                                            )
                                            
                                            $
                                            (3,948,990
                                            )NoncontrollingCompany
                                            
                                            
                                            Interest
                                            
                                            
                                            TotalStockholders'
      Deficit at January 1, 2009
                                            
                                            $
                                            (1,768,662
                                            )
                                            
                                            $
                                            2,812
                                            
                                            
                                            $
                                            (1,765,850
                                            )Net
      loss for the quarter
                                            
                                            
                                            (3,481,692
                                            )
                                            
                                            
                                            (467,298
                                            )
                                            
                                            
                                            (3,948,990
                                            )Equity
      transactions, net
                                            
                                            
                                            9,186
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            9,186Stockholders'
      Deficit at March 31, 2009
                                            
                                            $
                                            (5,241,168
                                            )
                                            
                                            $
                                            (464,486
                                            )
                                            
                                            $
                                            (5,705,654
                                            )





NOTE
11 - SUBSEQUENT EVENTS




In
January 2009 the Board of Directors of Hackett’s Stores, Inc. (HCKE.PK) approved
the issuance of up to 20 million shares of HCKE pursuant to a Regulation S stock
offering. In April 2009, this offering commenced raising proceeds of
approximately $50,000 in net proceeds to Hackett’s Stores,
Inc.


Since
March 31, 2009 the Company and its affiliates have made additional payments to
the sellers of ALRN of $77,000, with total proceeds made to the ALRN sellers of
$120,000.





On April
1, 2009, the Company issued Clark E. Collins a $100,000 13 1/3% Convertible
Promissory Note for proceeds of $100,000.  The Note, which is due
January 1, 2010, is convertible into shares of the Company at a 15% discount to
the market price of the share price at the time of conversion and is personally
guaranteed by Thomas W. Scozzafava and secured with real property owned by Mr.
Scozzafava.





On April
3, 2009 Chris Swartz resigned from The Board of Directors of the Company and
from his position as Chief Operations Officer.





On April
13, 2009, six of the vendors of Patrick Hackett Hardware Company filed a
petition with the United States Bankruptcy Court of the Northern District of New
York for relief under Chapter 7 of the US Bankruptcy Code.  On April
15th, the
petitioning creditors agreed to file a request for a motion to dismiss the case
as a result of a Letter Agreement and a Security Agreement between Hackett’s and
the trade vendors.




On May 2,
2009 the United States Bankruptcy Court of the Northern District of New York
dismissed the involuntary petition filed against Hackett’s.





On April
19, 2009 the Company sold to NCH Partners, LLC the restaurant operations of Good
Fello’s Brick Oven Pizza and Wine Bar and Sackets Harbor Brewing Company for the
assumption a certain debts and agreements to lease the respective facilities for
a minimum of five years.  The Company retained ownership of the
respective real properties and business assets, and NCH Partners, LLC has the
right to acquire the business assets at the end of the tenth
year.  NCH Partners, LLC does not have an option to acquire the real
property of either business.  Additionally, Seaway Valley Capital
Corporation retained ownership of the intellectual property (name, recipes,
trademarks, etc) of Sackets Harbor Brewing Company, Inc., and agreed to license
these assets to NCH Partners, LLC for a minimal annual fee for use in restaurant
operations only.  The beer production and third-party beer marketing
business was not part of the transaction.





On May 2,
2009, the Company sold its interest in North Country Farms, LLC for $30,000,
which represented neither a gain nor loss on the investment.





On May
19, 2009 Seaway Capital, Inc., a holding company 100% owned by Thomas W.
Scozzafava, the Company’s CEO and Chairman, was issued 350,000,000 shares of
restricted stock for an agreement to exchange its 100,000 Series E Convertible
Preferred shares for a $1,500,000 Series F Redeemable Preferred Stock that is
non-convertible into common stock of the Company.








10





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




FORWARD
LOOKING STATEMENTS




In
addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
"believes," "expects," "intends," "anticipates," "plans to," "estimates,"
"projects," or similar expressions. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Business Risk Factors." Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's opinions only as of the date hereof. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements.




OVERVIEW




Seaway
Valley Capital Corporation (“Seaway Valley” or the “Company”) is a venture
capital and investment company.  Seaway Valley focuses on equity and
equity-related investments in companies that require expansion capital and in
companies pursuing acquisition strategies.   Seaway Valley will
consider investment opportunities in a number of different industries, including
retail, consumer products, restaurants, media, business services, and
manufacturing. The Company will also consider select technology investments.
 Returns are intended to be in the form of the eventual share appreciation
and dispossession of those equity stakes and income from loans made to
businesses.





RETAIL
HOLDINGS





On
October 23, 2007, Seaway Valley acquired all of the capital stock of WiseBuys
Stores, Inc. (“WiseBuys”).  WiseBuys Stores, Inc. owns and operates five
retail stores in central and northern New York.  WiseBuys Stores, Inc. was
formed and began operations in 2003 as a direct result of the closing of
small-town retailer, Ames Department Stores.  Founded primarily by lifelong
“north country” residents, WiseBuys initially focused its efforts on serving the
“discount” retail needs of rural communities throughout northern and central New
York.





On
November 7, 2007, Seaway Valley purchased all of the outstanding capital stock
of Patrick Hackett Hardware Company, a New York corporation (“Hackett’s”).
 Hackett’s, one of the nation’s oldest retailers, with roots dating back to
1830, is a full line department store specializing in name brand merchandise and
full service hardware.  At the time of the acquisition, Hackett’s had
locations in five towns in upstate New York:  Ogdensburg, Potsdam,
Watertown, Massena and Canton.  Each store features brand name clothing for
men, women, and children, and a large selection of athletic, casual, and work
footwear.  Hackett’s also carries domestics, home décor, gifts, seasonal
merchandise and sporting goods.  Hackett’s full service hardware department
features traditional hardware, tool, plumbing, paint and electrical
departments.


Subsequent
to the acquisition, WiseBuys has contributed its retail assets to Hackett’s, and
management intends to convert the five WiseBuys stores into Hackett’s brand
stores.  During 2008, the Company operated ten Hackett’s locations -
Canton, Gouverneur, Hamilton, Massena, Ogdensburg, Potsdam, Pulaski, Sackets
Harbor, Tupper Lake, and Watertown – all in New York.





HOSPITALITY
HOLDINGS





On June
1, 2008, Seaway Valley acquired the assets and companies of North Country
Hospitality, Inc.  “North Country” was formed in 2005 and acquired and
developed hospitality assets such as restaurants, lodging and other consumer
product companies in northern New York.   At the time of the acquisition,
North Country owned the following businesses:





Alteri
Bakery, Inc.





Alteri
Bakery has serviced the North Country region with quality baked goods since
1971.  Alteri’s is located in a state of the art baking facility in
the heart of Watertown’s business district, and is one of the last traditional
Italian bakeries in the area.  Alteri's produces the area’s only
"true" Italian breads and specialty pastry items, such as cakes, cookies,
muffins, bagels, and specialty gift baskets.  Alteri’s products can be
found at local restaurants, grocery stores, schools, and its own
store.  In addition, Alteri’s recently assumed the production of sub
rolls for the entire Jreck Subs franchise chain of 47 locations, which alone
includes approximately two million five hundred thousand rolls baked and shipped
annually.





Sackets
Harbor Brewing Company, Inc.





Sackets
Harbor Brewing Company (“SHBC”) develops, produces, and markets micro brewed
beers such as the award winning “War of 1812 Amber Ale” and “Railroad Red Ale”
as well as “Thousand Island Pale Ale”, “1812 Amber Ale Light” and “Harbor Wheat”
premium craft beers.  Its “1812 Amber Ale” is the company’s flagship
brand and was the winner of a Silver Award at the 1998 World Beer Championship
and has been aggressively marketed to command a significant retail presence in
the regional market place.  Management estimates 1812 Ale is
distributed to over 3,000 retail locations in New York and
Florida.  The company has also developed complementary products such
Sackets Harbor Coffee and Sackets Harbor Brewing Co. Root Beer.





11





Seaway
Restaurant Group





Seaway
Restaurant Group ("SRG") is comprised of a dynamic and developing roster of
upscale casual- and fine-dining restaurants. Each of the SRG restaurants is
unique and memorable, which allows our guests to visit any among them multiple
nights during the week to discover something new and exciting upon each visit.
The common thread uniting all SRG restaurants is an emphasis on excellent food,
superior service, and genuine value. We have been fortunate to receive
acknowledgements for our restaurants from both our customers and within the
industry.





INVESTMENT
FUND





On July
1, 2007, Seaway Valley Capital Corporation assumed the role of Fund Manager of
the Seaway Valley Fund, LLC, which is a wholly owned subsidiary of WiseBuys
Stores, Inc. As the sole investment manager of the Fund, the Company makes
exclusive investment decisions regarding acquisition and dispossession of
various securities in the Fund.  At the time the Company assumed the
management of the Fund on July 1, 2007, its assets totaled approximately $1.83
million.  During 2007, the Company successfully negotiated and sold
securities on behalf of the Fund that generated gross proceeds of $1.52 million
with realized profits of approximately $1.0 million.  There was no material
activity or assets in the Fund during 2008.




Result
of Operations




Three Months Ended March 30,
2009 Compared with Three Months Ended March 30, 2008




The
Company’s net sales increased to $2,988,148 for the three month period ended
March 30, 2009 from $2,653,041 for the three month period ended March 30, 2008,
an increase of $ $335,107.  The increase in sales was the result of the
acquisition of North Country Hospitality which took place on June 1, 2008.




The
Company’s cost of goods sold also increased from $1,973,836 for the three months
ended March 30, 2008 to $2,574,153 during the same period in 2009. This led to a
$265,210 decrease in our gross margin to $413,995 for the three month period
ended March 30, 2009 from $679,205 for the three month period ended March 30,
2008.




Net
realized and unrealized loss on the sale of securities was $0 during the three
month period ended March 30, 2009 versus $52,932 for the same period ended March
30, 2008.




General
and administrative expenses during the three months ended March 30, 2009 were
$2,026,055 versus $1,869,863for the same period in
2008. The increase of $ $156,192 was driven by the acquisition of North Country
Hospitality.




Seaway
Valley Capital Corporation had an operating loss from continuing operations of
$2,530,088 for the three months ended March 30, 2009 versus $2,583,573 for the
same period ended March 30, 2008. This is related to the fact that the Company
had no operations of North Country in the first quarter of 2008 while it had a
full three months of operations in 2009.




The
Company recognized a loss from discontinued operations of $868,902 for the
three months ended March 30, 2009, compared to a net loss of $211,783 for the
same period in 2008.  The primary driver of the 2009 increase in losses was
the recognition of the totality of lease obligations remaining on the life of
closed Hackett’s stores.




Net
losses for the periods ended March 30, 2009 and March 30, 2008 were $3,948,990
and $2,930,356, respectively.  The primary drivers for the losses were
losses from discontinued operations, increased SG&A expenses, a seasonal ebb
in our hospitality holdings, and margin compression at Hackett’s.




Liquidity
and Capital Resources




Operations
have been funded to date primarily by loans (both bank loans and more recently
convertible debentures), contributions by our founders and their associates, and
profitable securities sales at Seaway Valley Fund, LLC.  The net amount of
the bank loans is reflected on our March 30, 2009 balance sheet in the aggregate
amount of $9,574,752. The net amount of the convertible debentures is reflected
on our March 30, 2009 balance sheet in the aggregate amount of $5,931,217.




On March
4, 2008, Seaway Valley Capital Corporation and its wholly owned subsidiaries,
WiseBuys Stores, Inc. and Patrick Hackett Hardware Company (collectively
"Seaway" or the "Company"), consummated a five million dollar ($5,000,000)
credit and security agreement with Wells Fargo Bank, National Association,
acting through its Wells Fargo Business Credit operating division (the "Line of
Credit"). The funds available under Line of Credit are based on the Company's
current inventory with adjustments based on items such as accounts payable. The
term of the Line of Credit is three years. The interest rate on the Line of
Credit is equal to the sum of the Wells Fargo prime rate plus one and
one-quarter percent (1.25%), which interest rate shall change when and as the
Wells Fargo prime rate changes. These funds will be used for general working
capital at the Company. Under the terms of the agreement, the subsidiaries are
required to maintain certain financial covenants including tangible net worth,
net income and net cash flow amounts. At December 31, 2008 these covenants were
not met.





The bank
has declared the line of credit to be in default and has restricted certain cash
receipts and disbursements of the Company until the line is
repaid.  The balance outstanding on the line of credit was $1,469,081
and $3,023,864 at March 31, 2009 and December 31, 2008,
respectively.  Due to the default, certain other long term obligations
that may be callable by the holders have been classified as current in the
accompanying financial statements.





12




In early
January 2009, Wells Fargo initiated an advance rate reduction (from the original
55% of inventory) by 1% per week.  In mid-January, Wells Fargo agreed
to temporarily suspend the rate reduction in the event that Patrick Hackett
Hardware Company raised an additional $2 million in equity capital or
subordinated debt.  The Company was not successful in these capital
raising efforts, and in February 2009 Wells Fargo again commenced the reduction
of the advance rate.  On March 9th, March
18th
and April 2nd, Wells
Fargo issued default notices under the credit agreement, citing various default
events such as failure to reach Tangible Net Worth, Net Cash Flow and Net Income
milestones, as well as citing a change of control event as it related to the
ALRN transaction.  Additionally, Wells Fargo continued to reduce the
advance rate, and the loan balance had been reduced from a peak of $4.7 million
in December 2008 to approximately $1.2 million at this time.




By April
13, 2009, The Company and Wells Fargo had substantially agreed on a Forbearance
Agreement whereby the Company would pursue business activities in an effort to
eliminate the Wells Fargo line of credit within 13 weeks.  These
measures included, among others, the closure of certain Hackett’s
stores.  This agreement was executed on May 18, 2009.







ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
Applicable






ITEM
4. CONTROLS AND PROCEDURES




Our chief
executive officer and chief financial officer participated in and supervised the
evaluation of our disclosure controls and procedures (as defined in Rules
13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) that are designed to ensure that information
required to be disclosed by us in the reports that we file is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that the information required to be disclosed by us in the reports that
we file or submit under the Act is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
to allow timely decisions regarding required disclosure. The Company's chief
executive officer and chief financial officer determined that, as of the end of
the period covered by this report, these controls and procedures are adequate
and effective in alerting him in a timely manner to material information
relating to the Company that are required to be included in the Company's
periodic SEC filings.




There was
no change in internal controls over financial reporting (as defined in Rule
13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in
connection with the evaluation described in the preceding paragraph that
occurred during the Company’s first fiscal quarter that has materially affected
or is reasonably likely to materially affect the Company’s internal control over
financial reporting.






PART
II - OTHER INFORMATION




ITEM
1. LEGAL PROCEEDINGS





The
Company's WiseBuys subsidiary is party to the matter entitled Einar J. Sjuve vs.
WiseBuys Stores, Inc. et al, which action was filed in the Supreme Court of
Oswego County, New York in January 2008. The complaint involves an alleged slip
and fall that occurred at WiseBuys’ Pulaski, NY store in 2005.  The
Plaintiff is alleging damages in the amount of $125,000.  WiseBuys has
answered the complaint denying the majority of the claims.  WiseBuys
believes that it has adequate insurance coverage to protect it against any
potential liability for the claim. This matter is still pending.





On
January 21, 2009 the Company received the complaint “Golden Gate Equity
Investors, Inc. v Seaway Valley Capital Corporation.” for monetary damages from
an alleged breach of contract.  The complaint was filed in the
Superior Court of California in San Diego County.  On March 2, 2009,
Paul and Anaflor Graham acquired from Golden Gate the Company’s $1,132,000
Convertible Debenture issued to Golden Gate and Paul & Anaflor Graham
assumed Golden Gate’s $912,500 Secured Promissory Note issued to the
Company.   Golden Gate is no longer a debenture holder of the
Company.  On March 20, 2009 the case was dismissed.





ITEM
1A.  RISK FACTORS




There has
been no material change to the risk factors set forth in Item 1A of the Annual
Report on Form 10-K for the year ended December 31, 2008.





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





None
during the three months ended March 31, 2009




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




On March
9th,
March 18th and
April 2nd, Wells
Fargo issued default notices under the credit agreement, citing various default
events such as failure to reach Tangible Net Worth, Net Cash Flow and Net Income
milestones, as well as citing a change of control event as it related to the
ALRN transaction.  Additionally, Wells Fargo continued to reduce the
advance rate, and the loan balance had been reduced from a peak of $4.7 million
in December 2008 to approximately $1.2 million at this time.




By April
13, 2009, The Company and Wells Fargo had substantially agreed on a Forbearance
Agreement whereby the Company would pursue business activities in an effort to
eliminate the Wells Fargo line of credit within 13 weeks.  These
measures included, among others, the closure of certain Hackett’s
stores.  This agreement was executed on May 18, 2009.





13





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





ITEM
5. OTHER INFORMATION





None.





ITEM
6. EXHIBITS





The
following are exhibits filed as part of the Company's Form 10-Q for the period
ended March 30, 2009:




Exhibit
Number Description




31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.




32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of
2002.








14





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 date indicated.




SEAWAY
VALLEY CAPITAL CORPORATION




By:
                                    /s/
                                    THOMAS
      SCOZZAFAVATHOMAS
      SCOZZAFAVAChairman,
      Chief Executive Officerand
      Chief Financial OfficerDate:
                                    
                                    May
      20, 2009






15