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

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

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

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

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

General - Canal is involved in the management, development or sale of its real estate properties located in five Midwest states. Real estate operations, resulted in operating income of $1.3 million, while contributing $1.7 million to Canal's revenues for fiscal 2008. During fiscal 2008, Canal sold approximately 9 acres of land located in South St. Paul, Minnesota for $1.2 million generating operating income of $1.0 million.

As of October 31, 2007, there are approximately 18 acres of undeveloped land owned by Canal located in four Midwest states (see ITEM 2). Canal is continuing the program, which it started several years ago, to develop or sell this property. Additionally, Canal will continue to aggressively pursue additional tenants for its Exchange Building and undeveloped properties in fiscal 2009.

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

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

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

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

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

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

Canal intends to continue its soliciting efforts at its St. Joseph stockyards in fiscal 2009. Further, Canal tries to balance its dependence on market agencies and independent commission sales people in various ways, including: developing solicitation operations of its own; direct public relations; advertising and personal solicitation of producers on behalf of the stockyards; providing additional services at the stockyards to attract sellers and buyers; and providing incentives to market agencies and independent commission sales people for increased business.

Stockyard operations resulted in an operating loss of approximately $0.2 million while contributing approximately $2.8 million to Canal's revenues for fiscal 2008. The sharp decrease in operating results experienced in fiscal 2008 is due primarily to the general weakness of the national economy coupled with a decrease in production by the smaller livestock producers who are the primary users of the Company's stockyards and the loss of two independent commission firms at the Sioux Falls, South Dakota stockyards at the beginning of fiscal 2007.

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

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

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

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

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

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

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

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

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

Results of Operations

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

                                         Fiscal Year Ended October 31,
                                         -----------------------------
                                           2008       2007      2006
                                         -------    -------    -------
                                                 (In Thousands)
Revenues:
Real Estate Revenue                      $ 1,681    $   598    $ 1,133
Stockyard Revenue                          2,796      3,031      3,271
                                         -------    -------    -------
   Total Revenue                           4,450      3,629      4,404
                                         -------    -------    -------

Costs and Expenses:
Real Estate Expenses                         349        239        523
Stockyard Expenses                         2,959      2,923      2,796
General and Administrative Expenses        1,071      1,114      1,195
                                         -------    -------    -------
   Total Costs and Expenses                4,379      4,276      4,514
                                         -------    -------    -------

(Loss) Income from Operations                 71       (647)      (110)
Other Income                                  55        143         96
Other Expenses                              (182)      (444)      (308)
                                         -------    -------    -------

Net Loss                                 $   (56)   $  (948)   $  (322)
                                         =======    ========   =======

While the Company is currently operating as a going concern, certain significant factors raise substantial doubt about the Company's ability to continue as a going concern. The Company has suffered recurring losses from operations and is obligated to continue making substantial annual contributions to its defined benefit pension plan. The financial statements do not include any adjustments that might result from the resolution of these uncertainties (See Note 1). Additionally, the accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Canal recognized a net loss of $0.1 million for 2008 as compared to the 2007 net loss of $0.9 million and the 2006 net loss of $0.3 million. After recognition of preferred stock dividend payments (accrued or paid in additional shares of preferred stock for each of fiscal 2008, 2007 and 2006 of $85,000 in 2008, $105,000 in 2007 and $92,000 in 2006, the results attributable to common stockholders were a net loss of $0.1 million in 2008, a net loss of $1.1 million in 2007 and a net loss of $0.4 million in 2006. Canal's 2008 net loss of $0.1 million is due primarily to the $0.3 million decrease in income from stockyard operations. Canal's 2007 net loss of $1.0 million was due primarily to the $0.3 million decrease in income from stockyard operations, coupled with a $0.2 million decrease in operating income generated by the sale of real estate and a $0.1 million increase to the valuation reserve on Canal's remaining antiquities art inventory.

Canal's revenues from continuing operations consist of revenues from its real estate and stockyard operations. Revenues in 2008 increased by $0.8 million to $4.4 million as compared with 2007 revenues which had decreased by $0.8 million to $3.6 million as compared with 2006 revenues of $4.4 million. The fiscal 2008 increase in revenues is due primarily to the $1.1 million increase in sales of real estate offset to a certain extent by the $0.3 million decrease in revenues from stockyard operations. The fiscal 2007 decrease in revenues is due primarily to the $0.5 million decrease in sales of real estate, coupled with, a $0.3 million decrease in stockyard operations due primarily to the loss of two independent commission firms at the Sioux Falls, South Dakota stockyards.

Contractual Obligations

      The following table summarizes the Company's commitments as of October 31,
2008 to make future  payments under its debt  agreements  and other  contractual
obligations (in 000's):

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

Pension Plan Liability (a)       $   590     $  150    $   210   $  230   $    0
Mortgage Notes Payable (b)         1,262          0      1,262        0        0
                                 -------     ------    -------   ------   ------

                                 $ 1,852     $  150    $ 1,472   $  230   $    0
                                 -------     ------    -------   ------   ------

(a) See Note 22 and Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(b) The mortgage notes are due May 15, 2012 and are held entirely by the Company's Chief Executive Officer and members of his family. These notes carry interest at 10% per annum and are collateralized by substantially all of Canal's property, the stock of certain subsidiaries and its art inventories.

COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 2008 AND 2007

Real Estate Revenues

Real estate revenues for 2008 of $1.7 million accounted for 37.8% of the 2008 total revenues as compared to revenues of $0.6 million or 16.5% for 2007. Real estate revenues are comprised of sale of real estate (70.8% and 12.5%), rentals and other lease income from the rental of vacant land and certain structures (27.2% and 82.3%) and rental income from commercial office space in its Exchange Buildings (2.0% and 5.2%) for 2008 and 2007, respectively. The 2008 increase is due primarily to the $1.1 million increase in sales of real estate. The other percentage variations in the year to year comparisons are due primarily to the increase in real estate sales for fiscal 2008.

Real Estate Expenses

Real estate expenses for 2008 of $0.3 million increased by $0.1 million (46.3%) from $0.2 million in 2007. Real estate expenses are comprised of cost of real estate sold (50.8% and 23.8%), labor, operating and maintenance (22.6% and 33.2%), depreciation and amortization (6.4% and 9.3%), taxes other than income taxes (7.5% and 11.1%),loss on abandonment (0.0% and 4.7%), and general and administrative expenses (12.7% and 17.9%) for 2008 and 2007, respectively. The 2008 increase in the cost of real estate sold is due to the increase in real estate sales discussed above. The percentage variations in the year to year comparisons of the other real estate operating expenses is also due to the sharp increase in cost of real estate sold in fiscal 2008.

Stockyard Revenues

Stockyard revenues for 2008 of $2.8 million accounted for 62.2% of the 2008 total revenues as compared to revenues of $3.0 million or 83.5% for 2007. Stockyard revenues are comprised of yard handling and auction (87.8% and 88.5%), feed and bedding income (6.8% and 6.0%), rental and other income (5.4% and 5.5%) for 2008 and 2007, respectively. The 2008 decrease in stockyard revenues as a percent of total revenues is due to the $1.1 million increase in sales of real estate this year. There were no significant percentage variations in the year to year comparisons.

Stockyard Expenses

Stockyard expenses for 2008 of $3.0 million increased by $0.1 million (1.2%) from $2.9 million in 2007. Stockyard expenses are comprised of labor and related costs (47.3% and 48.3%), operating and maintenance (28.6% and 27.3%), feed and bedding expense (5.9% and 5.5%), depreciation and amortization (0.7% and 0.7%), taxes other than income taxes (5.7% and 6.0%) and general and administrative expenses (12.0% and 12.2%) for 2008 and 2007, respectively. The 2008 increase is due primarily to the severe weather conditions experienced throughout the mid-west this past winter. There were no significant percentage variations in the year to year comparisons.

General and Administrative

General and administrative expenses for 2008 of $1.1 million decreased by $0.1 million (3.9%) from $1.1 million in 2007. The major components of general and administrative expenses are officers salaries (46.1% and 42.9%),pension expense (10.3% and 24.0%), insurance expense (11.3% and 5.8%), office salaries
(9.7% and 8.4%), travel expense (4.3% and 3.6%), rent expense (2.1% and 1.7%)
and legal fees (5.0% and 4.7%) for 2008 and 2007, respectively. The percentage variations in the year to year comparisons are due primarily to the significant decrease in pension expense for fiscal 2008.

Interest Expense

Interest expense for 2008 of $0.2 million decreased by $0.1 million (34.3%) from $0.3 million in 2007. The 2008 decrease is due primarily to the $1.4 million decrease in long-term debt outstanding during fiscal 2008. Interest rates on Canal's variable rate mortgage notes averaged 10.00% in 2008 and 2007. At October 31, 2008 the outstanding balance of these notes was $1,262,000.

Interest and Other Income

Interest and other income of $55,000 for 2008 decreased $71,000 (56.3%) from $126,000 in fiscal 2007. Interest and other income is primarily comprised of dividend and interest income. The 2008 decrease is due primarily to the collection of the mortgage note receivable associated with the 2004 sale of the St. Paul, Minnesota Exchange Building.

Income from Art Sales

In fiscal 2008, Canal recognized a loss from art operations of $5,000 as compared to income of $17,000 for fiscal 2007. Art revenues are comprised of the proceeds from the sale of art. There were no art sales in fiscal 2008, as compared to fiscal 2007 when Canal sold its remaining 13 pieces of contemporary art, twelve of which were to a related party (See note 24) generating gross proceeds of $159,000. Art expenses are comprised of the cost of inventory sold and selling, general and administrative expenses. In fiscal 2008, Canal incurred selling, general and administrative expenses of $5,000 as compared to fiscal 2007 cost of inventory sold of $144,000 (net of a valuation allowance of $406,000) and selling, general and administrative expenses of $19,000. Additionally, in fiscal 2007, Canal recognized a $89,122 valuation allowance against its remaining art inventory to reflect management's estimate of the inventories net realizable value. It is the Company's policy to use the adjusted carrying value for sales, thereby reducing the valuation reserve proportionately as the inventory is sold.

Other Expense

Other expense of $86,000 for 2007 was primarily related to the loss incurred by the Company on the sale of its joint venture investment. There was no transaction of this nature in fiscal 2008.

COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 2007 AND 2006

Real Estate Revenues

Real estate revenues for 2007 of $0.6 million accounted for 16.5% of the 2007 total revenues as compared to revenues of $1.1 million or 25.7% for 2006. Real estate revenues are comprised of sale of real estate (12.5% and 51.2%), rentals and other lease income from the rental of vacant land and certain structures (82.3% and 45.9%), rental income from commercial office space in its Exchange Buildings (5.2% and 2.9%), and other income (0.0% and 0.0%) for 2007 and 2006, respectively. The 2007 decrease is due primarily to the $0.5 million decrease in sales of real estate. The other percentage variations in the year to year comparisons are due primarily to the decrease in real estate sales for fiscal 2007.

Real Estate Expenses

Real estate expenses for 2007 of $0.2 million decreased by $0.3 million (56.8%) from $0.5 million in 2006. Real estate expenses are comprised of cost of real estate sold (23.8% and 64.8%), labor, operating and maintenance (33.2% and 17.3%), depreciation and amortization (9.3% and 4.5%), taxes other than income taxes (11.1% and 7.1%),loss on abandonment (4.7% and 0.0%), and general and administrative expenses (17.9% and 6.3%) for 2007 and 2006, respectively. The 2007 decrease in the cost of real estate sold is due to the decrease in real estate sales discussed above. The percentage variations in the year to year comparisons of the other real estate operating expenses is also due to the sharp decrease in cost of real estate sold in fiscal 2007.

Stockyard Revenues

Stockyard revenues for 2007 of $3.0 million accounted for 83.5% of the 2007 total revenues as compared to revenues of $3.3 million or 74.3% for 2006. Stockyard revenues are comprised of yard handling and auction (88.5% and 90.2%), feed and bedding income (6.0% and 4.5%), rental and other income (5.5% and 5.3%) for 2007 and 2006, respectively. The 2007 increase in stockyard revenues as a percent of total revenues is due to the $0.5 million decrease in sales of real estate this year. There were no significant percentage variations in the year to year comparisons.

Stockyard Expenses

Stockyard expenses for 2007 of $2.9 million increased by $0.1 million (4.7%) from $2.8 million in 2006. Stockyard expenses are comprised of labor and related costs (48.3% and 48.7%), operating and maintenance (27.3% and 28.5%), feed and bedding expense (5.5% and 4.6%), depreciation and amortization (0.7% and 0.8%), taxes other than income taxes (6.0% and 5.9%) and general and administrative expenses (12.2% and 11.5%) for 2007 and 2006, respectively. The 2007 increase is due primarily to the severe weather conditions experienced throughout the mid-west this past winter. There were no significant percentage variations in the year to year comparisons.

General and Administrative

General and administrative expenses for 2007 of $1.1 million decreased by $0.1 million (6.7%) from $1.2 million in 2006. The major components of general and administrative expenses are officers salaries (42.9% and 41.4%),pension expense (24.0% and 22.4%), insurance expense (5.8% and 9.0%), office salaries
(8.4% and 8.3%), travel expense (3.6% and 3.4%), rent expense (1.7% and 1.5%)
and legal fees (4.7% and 4.7%) for 2007 and 2006, respectively. There were no significant percentage variations in the year to year comparisons.

. . .