DigitalTown, Inc. - Quarter Report: 2006 August (Form 10-Q)

BDC Capital, Inc. Form 10-Q August 31, 2006

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

| X |

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: August 31, 2006

|__|

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-27225

BDC Capital, Inc.

(Name of small business issuer in its charter)

Minnesota	41-1427445
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11974 Portland Avenue, Burnsville, Minnesota	55337
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number: (952) 890-2362

Securities registered under Section 12(g) of the Exchange Act:

Title of Each Class

Common Stock

Par Value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

[ ] Yes [X] No

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

[X] Yes [ ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |___|

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

Large Accelerated Filer [ ]

Accelerated Filer [ ]

Non-Accelerated Filer [X]

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

[ ] Yes [X] No

State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: $9,312,040 based on shares held by non-affiliates as of October 11, 2006, and the closing sale price for said shares in the NASDAQ National Market as of such date.

There were 25,701,500 shares of the registrant’s common stock outstanding as of October 13, 2006.

Title of Each Class

Preferred Stock, Par Value $0.01 per share

The Series A Preferred Stock (Series A Preferred) is non-interest bearing, does not have voting rights and is not entitled to receive dividends. Each share of Series A Preferred issued can be converted into common stock on a 1:1 basis after a twelve month period. Should a liquidation event occur, the Series A Preferred automatically converts into common stock based on the foregoing formula. Further, the Series A Preferred is not affected by forward or reverse splits on the Corporation's common stock or other adjustments to the Corporation's capital structure. Finally, Series A Preferred is entitled to elect a majority of the Corporation's board of directors at all times, provided that a majority of the board of directors is, at all times, independent.

The Corporation had 20,000,000 Series A Preferred issued and outstanding as of August 31, 2006, and all were converted into common stock on October 10, 2006.

TABLE OF CONTENTS

PART I

Item 1.	Financial Statements	1-10

Item 2.	Management’s Discussion and Analysis and Plan of Operation	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12

Item 4.	Controls and Procedures	13

PART II

Item 1.	Legal Proceedings	14

Item 1A	Risk Factors	14

Item 2.	Unregistered sales of Equity Securities and Use of Proceeds	14

Item 3.	Defaults Upon Senior Securities	14

Item 4.	Submission of Matters to a Vote of Security Holders	14

Item 5.	Other Information	14

Item 6.	Exhibits and Reports on Form 8-K	14

iii

PART I

ITEM 1. FINANCIAL STATEMENTS

	Page

Financial Statements:
Balance Sheets	1
Statements of Operations	2
Statements of Cash Flows	3
Notes to Financial Statements	4-10

BDC Capital, Inc.

BALANCE SHEETS

ASSETS
	August 31, 2006			February 28, 2006
Current assets:
Cash	$	30,610		$	15,346
Prepaid expense		4,115			2,019
Advance to officer/shareholder		5,000			-

Total current assets		39,725			17,365

Property and equipment, net		-			-
Investment in securities, at fair value (cost of $663,303 and $406,303 at August 31, 2006 and February 28, 2006, respectively)		1,270,900			1,013,900

Total assets	$	1,310,625		$	1,031,265

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,181		$	4,420
Advance from stockholder		-			798
Accrued liabilities		6,676			3,876
Due to BDC Partners, Inc.		410			410

Total current liabilities		10,267			9,504

Notes payable - stockholder		70,000			70,000

Total liabilities		80,267			79,504

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized, 20,000,000 issued and outstanding		200,000			200,000
Common stock, $.01 par value, 2,000,000,000 shares authorized, 427,572,138 shares issued and outstanding		4,275,721			4,275,721
Additional paid-in-capital		5,129,389			5,149,389
Subscription receivable		(3,122,937	)		(3,550,000	)
Accumulated deficit		(5,251,815	)		(5,123,349	)

Total stockholders’ equity		1,230,358			951,761

Total liabilities and stockholders’ equity	$	1,310,625		$	1,031,265

The accompanying notes are an integral part of these financial statements.

BDC Capital, Inc.

STATEMENTS OF OPERATIONS

	Three Months Ended						Six Months Ended
	August 31, 2006 (unaudited)			August 31, 2005 (unaudited)			August 31, 2006 (unaudited)			August 31, 2005 (unaudited)

Investment income	$	3		$	16		$	5		$	819

Operating Expenses:
Professional fees		12,611			29,407			39,386			62,642
Administrative expenses		33,019			45,029			80,038			60,913
Rent		1,125			1,125			2,250			2,250
Other		1,664			2,053			3,997			3,690
Interest expense		1,400			161,651			2,800			445,840
Total Operating expenses		49,819			239,265			128,471			575,335

Net investment loss		(49,816	)		(239,249	)		(128,466	)		(574,516	)

Net change in unrealized appreciation on investment		-			-			-			-

Net decrease in net assets resulting from operations	$	(49,816	)	$	(239,249	)	$	(128,466	)	$	(574,516	)

Loss per common share - basic and diluted	$	(0.00	)	$	(.57	)	$	(0.02	)	$	(1.77	)

Weighted average common shares outstanding - basic and diluted		5,700,962			422,006			5,700,962			324,702

The accompanying notes are an integral part of these financial statements.

BDC Capital, Inc.

STATEMENTS OF CASH FLOWS

	Six months ended August 31, 2006			Six months ended August 31, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations	$	(128,466	)	$	(574,516	)
Adjustments to reconcile net assets resulting from operations and net loss to net cash used by operating activities:
Amortization of original issue discount		-			423,939
Administrative fees paid by issuance of convertible debt		-			30,000
Changes in operating assets and liabilities:
Prepaid expenses		(2,096	)		-
Accounts payable		(1,239	)		7,217
Accrued liabilities		2,800			11,995
Investment in BDC Partners, Inc.		(257,000	)		(285,900	)
Due to BDC Partners, Inc.		-			(1,690	)

Net cash used in operating activities		(386,001	)		(388,955	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net advance to officer/stockholder		(5,798	)		-
Proceeds from issuance of notes payable		-			70,000
Payments received on stockholder subscription receivable net of $20,000 in transaction costs		407,063			-
Payments on convertible debt		-			(253,313	)
Proceeds from issuance of common stock		-			109,303
Proceeds from issuance of convertible debentures		-			250,000

Net cash provided by financing activities		401,265			175,990

Net change in cash and cash equivalents for the period		15,264			(212,965	)

Cash and cash equivalents at beginning of period		15,346			260,179

Cash and cash equivalents at end of period	$	30,610		$	47,214

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest	$	-		$	9,906

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Debt to equity conversion, including accrued interest	$	-		$	205,754

The accompanying notes are an integral part of these financial statements.

BDC Capital, Inc.

SCHEDULE OF INVESTMENTS

August 31, 2006

Portfolio Company	Principal business	Investments	Cost	Fair Value
BDC Partners, Inc.	Technology	Equity	$663,303	$1,270,900

BDC Partners, Inc is a private company founded in 2004 and is located in Minneapolis, MN. It is a wholly own subsidiary of BDC Capital, Inc. that has a unique, multidisciplinary technology process paired with an intellectual property revenue-focused business model.

Note 1. Nature of Business and Summary of Significant Accounting Policies:

Nature of business

BDC Capital, Inc. (“The Company”) was formed as a Minnesota corporation on April 7, 1982. It was incorporated under the name Command Small Computer Learning Center, Inc., a computer training company. In 1987, the Company changed its name to Command Electronics, Inc. In February 1995, the Company acquired CyberStar Computer Systems, a manufacturer and marketer of microcomputers and servers, and in 1997 it changed its name to CyberStar Computer Corporation. In 2000, the Company changed its name to eNetpc, Inc. In November 2004, the Company changed its name to BDC Capital, Inc. BDC Capital, Inc. has engaged in the sale of computer components, development of software and resell of major computer brands. The names "BDC Capital, Inc." "we", "our" and "us" used in this report refer to BDC Capital, Inc.

On December 10, 2004, the Company elected to be regulated as a business development company (BDC) as outlined in the Investment Company Act of 1940 by filing a Form NT-54A. As a BDC, the Company plans to focus on current opportunities available to this attractive business model in these somewhat uncertain economic times.

On August 31, 2006, the Company filed with the SEC to withdraw their “business development company” status (see Note 2 for further information).

Investment Strategy

BDC Capital, Inc. intends to build an investment portfolio consisting of revenue generating assets and emerging companies well positioned for future growth. A BDC is a unique kind of investment company that primarily focuses on investing in or lending to small private companies and making managerial assistance available to them. A BDC may use capital provided by public stockholders and from other sources to invest in growing small businesses.

A BDC provides stockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits of investing in privately owned small and medium-sized companies.

As a BDC, the Company is required to have at least 70% of its assets in portfolio companies.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturity of three months or less when purchased to be cash equivalents.

Valuation of Investments

Value, as defined in Section 2(a)(41) of 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily available market value for the Company’s privately held investments, the Company values substantially all of its investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. At August 31, 2006, approximately 97% of the Company’s total assets represented investments of which approximately 100% are valued at fair value. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. The Company must determine the fair value of each individual investment on a quarterly basis. The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a loan or realization of an equity security is doubtful. Conversely, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, the Company’s investment has also appreciated in value, where appropriate.

As a BDC, the Company invests primarily in illiquid securities including debt and equity securities of private companies. The Company’s investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that the Company makes and the nature of its business, the Company’s valuation process requires an analysis of various factors. The Company’s fair value methodology includes the examination of, among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation.

With respect to private debt and equity securities, each investment is valued using industry valuation benchmarks, and, where appropriate, the value is assigned a discount reflecting the illiquid nature of the investment and/or the Company’s minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate the Company’s private debt or equity valuation.

Investments in equity securities

Under BDC accounting, all equity investments are carried at fair value with any adjustments recorded in the statement of operations, combined with adjustments in the fair value of investments in loans, as investment gains (losses)—unrealized.

In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments, including those in which it has a controlling interest.

Long-Lived Assets

Long-lived assets, such as property and equipment are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Income taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating losses and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment.

Stock-based compensation

Prior to March 1, 2006, the Company accounted for stock based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Effective March 1, 2006, the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No.123R”) using the modified prospective method. The adoption of SFAS No. 123R did not impact the Company’s operating expenses before investment gains and losses, net investment loss, cash flows from operations, cash flows from financing activities, or basic and diluted earnings per share during the three and six months ended August 31, 2006. During the three and six months ended August 31, 2006, the Company recognized no compensation expense related to share-based awards. The Company issued no options during the three and six months ended August 31, 2006 and all previously issued option grants were fully vested as of February 29, 2004.

At August 31, 2006 and February 28, 2006 there were 422,200 options outstanding for which forfeiture restrictions have not lapsed.

For periods prior to March 1, 2006, if compensation expense had been determined consistent with the method in SFAS No. 123, on a pro forma basis, BDC’s net investment loss and basic and diluted earnings per share would have been unchanged for the three and six months ended August 31, 2005.

Net loss per share

Basic loss per share is computed using the weighted average number of shares outstanding for the period. Diluted loss per share is computed using the weighted average number of shares outstanding per share adjusted for the incremental shares attributed to outstanding stock options under the Company's stock option plans, convertible debt and convertible preferred stock. Incremental shares attributable to the assumed exercise of stock options and conversion of debt and preferred stock for the three and six months ended August 31, 2006 and 2005 were excluded from the computation of diluted loss per share as their effect would be anti-dilutive.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”. (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Additionally, FIN 48 provides guidance on derecognition, classification, interest, penalties, accounting in interim periods and disclosure related to uncertain income tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of adopting FIN No. 48, but does not anticipate that it will have a material effect on its financial position, results of operations or cash flows.

Note 2. Withdrawal of Election to be regulated as a Business Development Company

On August 31, 2006, the Company filed a Notification Of Withdrawal Of Election To Be Subject To Sections 35 Through 65 Of The Investment Company Act Of 1940.

The Company has changed the nature of its business so as to cease to be a business development company, and such change was authorized by the vote of a majority of its outstanding voting securities or partnership interests. The shareholders approved such action at a special meeting of shareholders on May 3, 2006. 391,091,755 shares voted in favor of this action; 124,518 shares voted against and 36,335,865 shares abstained. The Company has changed its business plan to become a multiple-site online Social-Networking Community Portal through the Internet.

Note 3. Property and Equipment

Property and equipment are as follows at August 31:

	2006			2005
Office equipment and furniture	$	469,666		$	469,666
Less accumulated depreciation		(455,028	)		(455,028	)
Less impairment of equipment		(14,638	)		(14,638	)
	$			$

Depreciation expense was $0 for the three and six months ended August 31, 2006 and 2005.

Note 4. Debt Financing

The Company has entered into binding term sheets that provide for convertible debt financing bearing interest at 8.0% payable at maturity and convertible at 50% of the Company’s common stock fair value totaling $16.5 million. The Company, at its option may draw up to $50,000 weekly against the total investor commitment over a 24 month period beginning February 28, 2005, subject to certain restrictions. As of August 31, 2006, no draws have been made against this commitment.

Note 5. Notes payable - stockholder

As of August 31, 2006, the Company had advances from a stockholder in the amount of $70,000. The unsecured notes are due at various dates from June 21, 2007 to August 1, 2007 with an interest rate of 8%. Accrued interest at August 31, 2006 totaled $6,676.

Note 6. Related Party Transactions

The Company sub-leases from a director of the Company approximately 1,000 square feet of space used for offices and operations equipment storage at 11974 Portland Avenue, Burnsville, Minnesota at a monthly rent of $750 renewable monthly which is split equally between BDC Capital, Inc. and BDC Partners, Inc. The Company’s lease payments made to the director for the three and six months ended August 31, 2006 and 2005 was $1,125 and $2,250, respectively.

Note 7. Commitments and Contingencies

The Company is exposed to asserted and unasserted claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations.

Note 8. Subsequent Event

On October 4, 2006, BDC initiated a reverse stock split of 75 to 1. The earnings/loss per common share calculations and the financial highlight calculations have been adjusted for both years presented to reflect this split. On October 10, 2006, all 20,000,000 shares of preferred stock were converted into common stock on a 1-for-1 basis.

Note 9. Financial Highlights - as a business development company:

Following is a schedule of financial highlights for the six months ended August 31, 2006 and 2005:

	2006			2005
Per Share Data:
Net asset value, beginning of period	$	0.17		$	8.68

Income from investment operations:
Net investment loss		(0.02	)		(1.77	)
Net realized gains on investments		-			-
Net unrealized appreciation on investments		-			-
Net increase (decrease) in net assets resulting from operations		(0.02	)		(1.77	)
Net collections on subscriptions receivable		0.07			-
Dividends		-			-
Issuance of shares common stock		-			0.75
Dilutive effect of share issuances		-			(6.79	)
Increase in stockholders' equity (deficit) from OID on convertible debentures		-			0.77
Increase (decrease) in stockholder's equity relating to equity issuances		0.07			(5.27	)

Net asset value, end of period (a)	$	0.22		$	1.64

Per share market value at end of period, as adjusted for the reverse to stock split		2.02			2.25
Total return		35	%		50	%
Common shares outstanding at end of period, adjusted for the reverse stock split, as adjusted for the reverse stock split		5,700,962			505,313

Ratio/Supplemental Data:
Net assets end of period	$	1,230,358		$	828,922
Ratio of operating expenses to average net assets (annualized)		21	%		139	%
Ratio of net investment loss to average assets (annualized)		21	%		138	%

(a)	Based on total common shares outstanding, as adjusted for the reverse stock split.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following is a discussion of the financial condition and results of operations of the Company for the three and six months ended August 31, 2006 and 2005, which should be read in conjunction with, and is qualified in its entirety by, the financial statements and notes thereto included elsewhere in this report.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED AUGUST 31, 2006 AND AUGUST 31, 2005

For the three and six months ended August 31, 2006, the Company incurred an investment loss of $49,816 and $128,466, respectively. The main components of this loss related to $33,019 and $80,038, respectively, of administrative fees with a majority of these fees relating to the management of the Company and $12,611 and $39,386, respectively, of professional fees primarily related to audit fees.

For the three and six months ended August 31, 2005, the Company incurred an investment loss of $239,249 and $574,516, respectively. The main components of this loss related to $29,407 and $62,642, respectively, of professional fees with a majority of these fees relate to setting up the Company as a business development company and $161,651 and $445,840 respectively, for interest expense on convertible debt. On the interest expense, $151,669 and $423,938 relates to the amortization of original debt discount which originated from the beneficial conversion feature related to the debt.

LIQUIDITY AND CAPITAL RESOURCES

As a business development company

BDC Capital, Inc.’s cash position at August 31, 2006 was $30,610, an increase of $15,264 from $15,346 at February 28, 2006. During the six months ended August 31, 2006, net cash used in operating activities was $386,001 of which $257,000 was an additional investment into BDC Partners, Inc. Net cash provided by financing activities of $401,265 for the six months ended August 31, 2006 consisted primarily of payments received on stockholder subscriptions receivable during the six month period.

BDC Capital, Inc.’s cash position at August 31, 2005 was $47,214, a decrease of $212,965 from $260,179 at February 28, 2005. During the six months ended August 31, 2005, net cash used in operating activities was $388,955 of which $285,900 was an additional investment into BDC Partners, Inc. Net cash provided by financing activities of $175,990 for the six months ended August 31, 2005 consisted of issuance of convertible debentures and common stock during the six month period.

Our current monthly operating expenses are approximately $25,000 per month. We anticipate that any additional financing would be through the collection of subscriptions receivable, sales of our common stock or other equity-based securities. We do have in place a $16.5 million equity line commitment from new and existing investors. BDC Capital, Inc. signed agreements for the equity line in February 2005. Under the terms of the agreement, BDC Capital may elect to receive as much as $16.5 million from the investors in common stock purchases over the next two years.

Recent Developments — Portfolio Companies

During the quarter ended August 31, 2006, BDC Capital, Inc. invested $257,000 equity in BDC Partners, Inc. bringing the total investment in BDC Partners, Inc. to $643,303 as of August 31, 2006. The additional investment was funded by proceeds received from the stock subscription receivable.

Critical Accounting Policies

Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and those that require management’s most difficult, complex or subjective judgments. Our critical accounting policies are those applicable to the valuation of investments.

Valuation of Portfolio Investments

As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The investments are generally subject to restrictions on resale and generally have no established trading market. We value substantially all of our equity investments at fair value as determined in good faith by our valuation committee on a quarterly basis. The valuation committee, comprised of three or more non-interested board members, reviews and approves the valuation of our investments within the guidelines established by the board of directors. Fair value is generally defined as the amount that an investment could be sold for in an orderly disposition over a reasonable time. Generally, to increase objectivity in valuing our assets, external measures of value, such as public markets or third party transactions, are utilized whenever possible. Valuation is not based on long term work-out value, nor immediate liquidation value, nor incremental value for potential changes that may take place in the future.

Recently issued accounting pronouncements

FORWARD-LOOKING INFORMATION

Any statements contained herein related to future events are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on forward-looking statements. BDC Capital, Inc. undertakes no obligation to update any such statements to reflect actual events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company’s investment activities contain elements of risk. The portion of the Company’s investment portfolio consisting of equity or equity-linked debt securities in private companies is subject to valuation risk. Because there is typically no public market for the equity and equity-linked debt securities in which it invests, the valuation of the equity interest in the portfolio is stated at “fair value” and determined in good faith by the Board of Directors on a quarterly basis in accordance with the Company’s investment valuation policy.

In the absence of a readily ascertainable market value, the estimated value of the Company’s portfolio may differ significantly from the value that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded in the Company’s consolidated statement of operations as “Net unrealized appreciation (depreciation) on investment”.

At times a portion of the Company’s portfolio may include marketable securities traded in the over-the-counter market. In addition, there may be a portion of the Company’s portfolio for which no regular trading market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other event occur that would not allow the markets to trade in an orderly fashion the Company may not be able to realize the fair value of its marketable investments or other investments in a timely manner.

As of August 31, 2006, the Company did not have any off-balance sheet investments or hedging investments.

Impact of Inflation

The Company does not believe that its business is materially affected by inflation, other than the impact inflation may have on the securities markets, the valuations of business enterprises and the relationship of such valuation to underlying earnings, all of which will influence the value of the Company’s investments.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

An evaluation made at the end of the period covered by this report was performed under the supervision and with the participation of the Company's president, chief executive officer ("CEO") and the chief financial officer ("CFO") of the effectiveness of the design and operation of the Company's disclosure controls and procedures to insure that the Company records, processes, summarizes and reports in a timely and effective manner the information required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective in timely bringing to their attention material information related to the Company required to be included in the Company's periodic Securities and Exchange Commission filings. Since the date of this evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls.

However, due to the limited number of Company employees engaged in the authorization, recording, processing and reporting of transactions, there is inherently a lack of segregation of duties. The Company periodically assesses the cost versus benefit of adding the resources that would remedy or mitigate this situation, and currently does not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions related to the Company's operations.

(b) Changes in Internal Controls Over Financial Reporting.

There have been no significant changes in internal control over financial reporting that occurred during the fiscal period covered by this report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

BDC Capital, Inc. is, from time to time, a party to litigation arising in the normal course of its business. BDC believes that none of these actions will have a material adverse effect on its financial condition or results of operations.

ITEM 1A. RISK FACTORS

We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

(a)

All information required to be disclosed on a report on Form 8-K during the period ended August 31, 2006 has previously been reported.

(b)

There have been no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

3.1	Articles of Incorporation, as amended (1)	Previously Filed
3.2	Bylaws (1)	Previously Filed
31	Certifications of Chief Executive Officer and Chief Financial Officer under Rule 13a-14(a)/15d-14(a)	Included
32	Certifications under Section 1350	Included

(1) Incorporated by reference to exhibit filed as a part of Registration Statement on Form 10-SB (Commission File No. 000-27225).

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BDC CAPITAL, INC.


Date: October 13, 2006	/s/ Richard A. Pomije
	Richard A. Pomije, CEO