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EX-32.1 - EXHIBIT 32.1 - INVENT Ventures, Inc.scap10qex321063010.htm
EX-31.1 - EXHIBIT 31.1 - INVENT Ventures, Inc.scap10qex311063010.htm


 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For Quarter Ended:  June 30, 2010


Commission File Number:  814-00720


SMALL CAP STRATEGIES, INC.
(Exact name of registrant as specified in its charter)

 
Nevada
20-5655532
 
 
(State or Jurisdiction of
(IRS Employer ID No)
 
 
Incorporation or Organization)
 

3651 Lindell Road, Suite D #146, Las Vegas, NV  89103
(Address of principal executive office) (zip code)


(702) 943-0330
(Issuer’s telephone number)


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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
 
  Large accelerated filer o Accelerated filer o Non-accelerated filer x   Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

The number of shares outstanding of registrant’s common stock, par value $.001 per share, as of August 13, 2010, was 1,407,770 shares.
 

 
 

 



SMALL CAP STRATEGIES, INC.

              INDEX                      

   
Page
No.
Part I  Financial Information (unaudited)   
     
Item 1:
Condensed Financial Statements
 
     
 
Statements of Net Liabilities as of June 30, 2010 and December 31, 2009
3
 
Statements of Operations – For the Three Months Ended June 30, 2010 and 2009
4
 
    Statements of Operations – For the Six Months Ended June 30, 2010 and 2009
 5
 
Statements of Cash Flows – For the Six Months Ended June 30, 2010 and 2009
6
 
Statements of Changes in Net Liabilities – For the Six Months Ended June 30, 2010 and 2009
7
 
Financial Highlights – For the Six Months Ended June 30, 2010 and 2009
8
 
Schedule of Investments as of June 30, 2010
9
 
Schedule of Investments as of December 31, 2009
10
 
Notes to Condensed Financial Statements
11
Item 2:
Managements' Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3:
Quantitative and Qualitative Disclosure about Market Risk
25
Item 4:
Controls and Procedures
25
     
Part II
Other Information
26
     
Item 1:
Legal Proceedings
 
Item 1A:
Risk Factors
 
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3:
Defaults Upon Senior Securities
 
Item 4:
Submission of Matters to a Vote of Security Holders
 
Item 5:
Other Information
 
Item 6:
Exhibits
 
Signatures
 
Exhibits
 


 
2

 
 

SMALL CAP STRATEGIES, INC.
 
Condensed Statements of Net Liabilities
 
June 30, 2010 (unaudited) and December 31, 2009
 
             
   
2010
   
2009
 
   
(Unaudited)
       
ASSETS
           
Non-affiliate investments in portfolio companies
           
  (cost $393 at June 30, 2010 and December 31, 2009)
  $ 599     $ 723  
     Total investments
    599       723  
Cash and cash equivalents
    4,199       15,808  
Office furniture and equipment, net
    12,625       6,251  
Deposit
    4,600       -  
  TOTAL ASSETS
    22,023       22,782  
                 
LIABILITIES
               
  Accounts payable, trade
    900       -  
  Amounts due related parties
    278,702       199,897  
  TOTAL LIABILITIES
    279,602       199,897  
NET LIABILITIES
  $ (257,579 )   $ (177,115 )
                 
Commitments and contingencies (Note 7)
               
                 
COMPOSITION OF NET LIABILITIES:
               
  Common stock, $.001 par value, authorized 100,000,000 shares;
               
     1,224,776 shares issued and outstanding at June 30, 2010 and
               
     December 31, 2009
    1,225       1,225  
  Additional paid in capital
    2,848,726       2,848,726  
  Accumulated deficit:
               
    Accumulated net operating loss
    (2,763,984 )     (2,683,644 )
    Net realized gain (loss) on investments
    (343,752 )     (343,752 )
    Net unrealized appreciation (depreciation) of investments
    206       330  
NET LIABILITIES
  $ (257,579 )   $ (177,115 )
NET LIABILITY VALUE PER SHARE
  $ (0.2103 )   $ (0.1446 )
                 
See accompanying notes to condensed financial statements.
               

 
 
 
3

 
 
SMALL CAP STRATEGIES, INC.
 
Condensed Statements of Operations
 
Three Months Ended June 30, 2010 and 2009
 
(Unaudited)
 
             
   
2010
   
2009
 
Revenues
           
Interest income
  $ -     $ -  
     Total revenues
    -       -  
Expenses:
               
  Officer and employee compensation
    15,000       15,000  
  Professional fees
    10,096       12,962  
  Rent
    7,622       7,795  
  Other general and administrative expense
    2,380       1,907  
     Total expenses
    35,098       37,664  
Earnings (loss) before income taxes
    (35,098 )     (37,664 )
Income tax expense (benefit)
    -       (15,887 )
Net earnings (loss) from operations
    (35,098 )     (21,777 )
                 
Net realized and unrealized gains (losses):
               
  Net realized loss on investments, net of income taxes
               
     of none
    -       -  
  Change in unrealized appreciation (depreciation) of investments,
               
     net of deferred tax of none
    (124 )     -  
          Net realized and unrealized gains (losses)
    (124 )     -  
Net increase (decrease) in net liabilities from operations
  $ (35,222 )   $ (21,777 )
                 
Net increase (decrease) in net liabilities from operations
               
     per share, basic and diluted
  $ (0.0288 )   $ (0.0178 )
Weighted average common shares outstanding,
               
     basic and diluted
    1,224,776       1,224,776  
                 
                 
See accompanying notes to condensed financial statements.
               
 
 
 
4

 
 
SMALL CAP STRATEGIES, INC.
 
Condensed Statements of Operations
 
Six Months Ended June 30, 2010 and 2009
 
(Unaudited)
 
             
   
2010
   
2009
 
Revenues
           
Interest income
  $ -     $ -  
     Total revenues
    -       -  
Expenses:
               
  Officer and employee compensation
    30,000       30,000  
  Professional fees
    25,428       32,261  
  Director fees
    2,000       -  
  Website expense
    3,623       -  
  Rent
    15,392       10,806  
 Non-cash consulting fees
            222,873  
  Other general and administrative expense
    3,897       2,930  
     Total expenses
    80,340       298,870  
Earnings (loss) before income taxes
    (80,340 )     (298,870 )
Income tax expense (benefit)
    -       (15,887 )
Net earnings (loss) from operations
    (80,340 )     (282,983 )
                 
Net realized and unrealized gains (losses):
               
  Net realized loss on investments, net of income taxes
               
     of none
    -       (8,994 )
  Change in unrealized appreciation (depreciation) of investments,
               
     net of deferred tax of none
    (124 )     6,900  
          Net realized and unrealized gains (losses)
    (124 )     (2,094 )
Net increase (decrease) in net liabilities from operations
  $ (80,464 )   $ (285,077 )
                 
Net increase (decrease) in net liabilities from operations
               
     per share, basic and diluted
  $ (0.0657 )   $ (0.2355 )
Weighted average common shares outstanding,
               
     basic and diluted
    1,224,776       1,210,290  
                 
                 
See accompanying notes to condensed financial statements.
               
 
 
 
5

 
 
SMALL CAP STRATEGIES, INC.
 
Condensed Statements of Cash Flows
 
Six Months Ended June 30, 2010 and 2009
 
(Unaudited)
 
             
   
2010
   
2009
 
Cash flows from operating activities:
           
Net (increase) decrease in net liabilities from operations
  $ (80,464 )   $ (285,077 )
Adjustments to reconcile net (increase) decrease in net liabilities
               
  from operations to net cash used by operating activities:
               
     Change in net unrealized depreciation (appreciation)
               
        of investments
    124       (6,900 )
     Common stock issued for services
    -       222,873  
     Loss on sale of investments
    -       8,994  
     Depreciation and amortization
    1,047       186  
     Changes in operating assets and liabilities:
               
        Deposits and prepaid expenses
    (4,600 )     -  
        IRS refund paid to related party
    -       (15,887 )
        Advance from one related party paid to another related party
    -       (10,000 )
        Increase (decrease) in accounts payable
    900       10,145  
        Amounts due related parties
    78,805       74,245  
          Net cash used by operating activities
    (4,188 )     (1,421 )
Cash flows from investing activities:
               
     Proceeds from sale of investments
    -       2,255  
     Purchase of furniture and equipment
    (7,421 )     -  
          Net cash provided by investing activities
    (7,421 )     2,255  
Cash flows from financing activities:
               
          Net cash provided by (used in) financing activities
    -       -  
Net increase (decrease) in cash and cash equivalents
    (11,609 )     834  
Cash and cash equivalents, beginning of period
    15,808       928  
Cash and cash equivalents, end of period
  $ 4,199     $ 1,762  
                 
Supplemental Cash Flow Information:
               
     Interest paid
  $ -     $ -  
     Income taxes paid
    -       -  
                 
                 
                 
See accompanying notes to condensed financial statements.
               
 
 
 
6

 
 
SMALL CAP STRATEGIES, INC.
 
Condensed Statements of Changes in Net Liabilities
 
Six Months Ended June 30, 2010 and 2009
 
(Unaudited)
 
             
   
2010
   
2009
 
Changes in net liabilities from operations:
           
  Net earnings (loss) from operations
  $ (80,340 )   $ (282,983 )
  Net realized gain (loss) on sale of investments
    -       (8,994 )
  Change in net unrealized appreciation (depreciation) of
               
       investments, net
    (124 )     6,900  
    Net increase (decrease) in net liabilities from operations
    (80,464 )     (285,077 )
                 
Capital stock transactions:
               
  Common stock issued:
               
     For services
    -       222,873  
         Net increase in net assets from stock transactions
    -       222,873  
Net increase (decrease) in net liabilities
    (80,464 )     (62,204 )
Net liabilities, beginning of period
    (177,115 )     (54,047 )
Net liabilities, end of period
  $ (257,579 )   $ (116,251 )
                 
                 
See accompanying notes to condensed financial statements.
               
 
 
 
7

 
 
SMALL CAP STRATEGIES, INC.
 
Financial Highlights
 
Six Months Ended June 30, 2010 and 2009
 
(Unaudited)
 
             
   
2010
   
2009
 
PER SHARE INFORMATION
           
 Net (liability) value, beginning of period
  $ (0.1446 )   $ (0.0686 )
 Net (increase) decrease from operations
    (0.0656 )     (0.2338 )
 Net change in realized gains (losses) and unrealized appreciation
               
  (depreciation) of investments
    (0.0001     (0.0017 )
 Net increase from stock transactions (2)
    -       0.2092  
     Net (liability) value, end of period
  $ (0.2103 )   $ (0.0949 )
                 
Per share market value:
               
  Beginning of period
  $ 0.1000     $ 0.4400  
  End of period
  $ 0.1000     $ 0.7500  
                 
Investment return, based on market price at beginning of period (1)
    0.0 %     70.5 %
                 
RATIOS/SUPPLEMENTAL DATA
               
 Net liabilities, end of period
  $ (257,579 )   $ (116,251 )
 Average net liabilities
    (253,773 )     (84,777 )
 Annualized expenses
    160,680       597,740  
 Annualized ratio of net increase (decrease) in net liabilities from
               
     operations
    (160,928 )     (565,966 )
 Annualized ratio of expenses to average net liabilities
    -63.3 %     -705.1 %
 Annualized ratio of net increase (decrease) in net liabilities from
               
     operations to average net liabilities
    63.4 %     667.6 %
 Shares outstanding at end of period
    1,224,776       1,224,776  
 Weighted average shares outstanding during period
    1,224,776       1,210,290  
                 
(1) Periods of less than one year are not annualized.
               
(2) Includes the effect of using weighted average shares outstanding
during the period for components of net liability and using acutal shares
outstanding at the end of the period for net liability at the end of the period.
 
                 
See accompanying notes to condensed financial statements.
               
 
 
 
8

 
 
SMALL CAP STRATEGIES, INC.
 
Schedule of Investments
 
June 30, 2010
 
                 
Percent/
               
shares
Date of
   
Historical
   
Fair
 
owned
acquisition
   
cost
   
value
 
                 
Investments in non-controlled portfolio companies:
           
              100
Jan-06
Chanticleer Holdings, Inc. (CCLR.OB); a holding
           
   
company providing management services, insurance
           
   
and specialty financial products, and ownership of
           
   
Hooters restaurants in South Africa
  $ -     $ 400  
           2,485
Dec-04
DC Brands International, Inc. (DCBR.PK);
               
   
presently specializes in and manufactures health
               
   
products.
    -       199  
 
Various
Other
    393       -  
   
     Total investments
  $ 393       599  
   
          Cash and other assets, less liabilities
            (258,178 )
   
Net liabilities at June 30, 2010
          $ (257,579 )
                     
See accompanying notes to financial statements.
               
 
 
 
 
9

 
 
SMALL CAP STRATEGIES, INC.
 
Schedule of Investments
 
December 31, 2009
 
                 
Percent/
               
shares
Date of
   
Historical
   
Fair
 
owned
acquisition
   
cost
   
value
 
                 
Investments in non-controlled portfolio companies:
           
              100
Jan-06
Chanticleer Holdings, Inc. (CCLR.OB); a holding
           
   
company providing management services, insurance
           
   
and specialty financial products, and ownership of
           
   
Hooters restaurants in South Africa
  $ -     $ 400  
           2,485
Dec-04
DC Brands International, Inc. (DCBR.PK);
               
   
presently specializes in and manufactures health
               
   
products.
    -       323  
 
Various
Other
    393       -  
   
     Total investments
  $ 393       723  
   
          Cash and other assets, less liabilities
            (177,838 )
   
Net liabilities at December 31, 2009
          $ (177,115 )
                     
See accompanying notes to financial statements.
               
 
 
 
 
10

 
 
SMALL CAP STRATEGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 1:      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business and Operations

Small Cap Strategies, Inc. is a Business Development Company (BDC, as defined by the Securities & Exchange Commission, Investment Company Act of 1940) with a targeted focus on incubating (funding, developing, & advising) next generation biomedical and technology companies with world class, distinctive IP and well-defined near-term applications that address significant and quantifiable markets.

The Company, formerly Photonics Corporation (“Photonics”), was re-domiciled in Nevada through a reverse merger effective on September 30, 2006 where Photonics, a California corporation, merged into Small Cap Strategies, Inc. (“SMCA”, the “Company”, “we” or “us”), a Nevada corporation, with SMCA being the surviving entity.  The effect of this corporate action was to change the Company’s state of incorporation from the State of California to the State of Nevada.

On March 7, 2006 we filed a notification under Form N54a with the SEC indicating our election to be regulated as a business development company under the 1940 Act.  In connection with this election, we adopted corporate resolutions and operated as a closed-end management investment company known as a BDC.

On November 24, 2008, we filed Form N-54C with the Securities and Exchange Commission (“SEC”) to notify the SEC of the withdrawal of our previous election to be regulated as a Business Development Company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).  This action was taken to best facilitate our planned business model of developing and producing oil and natural gas.  The Company entered into a letter of intent to acquire all the major oil and gas properties of Xtreme Oil & Gas, Inc. (XTOG.PK), which was a major shareholder of the Company.  After several attempts to reach a deal to purchase the properties of Xtreme, it became evident that a deal could not be reached by the 4th Quarter of 2009.

The Board of Directors resolved on November 15, 2009 that the Company would again pursue the business model of an investment and management company. On April 12, 2010, we filed Form N-54a with the SEC to elect to be treated as a BDC governed under the Investment Act of 1940. The Company currently operates as an internally managed closed-end non-diversified Business Development Company and is traded on the OTCBB under the symbol SMCA.OB.
 
Small Cap operates as a publicly held venture capital fund.  We provide shareholders the opportunity to invest in emerging biomedical and technology companies; sharing the risks and potential benefits over a portfolio of companies while retaining the liquidity of a publicly traded stock.
 
 

 
11

 
 
 
We have chosen to operate in a BDC structure primarily because it is the regulatory framework for publicly held companies specifically created to facilitate making venture capital investments in early stage companies.  Moreover, it allows for non-accredited investors to take part in the emerging companies growth prospects formerly permitted only to accredited investors.
 
We provide shareholders the ability to retain the liquidity of a publicly traded stock, while sharing in the potential benefits of investing in primarily smaller emerging companies.  Our investment objectives are to achieve a high level of return and increased shareholder value by investing in emerging start-up and growth stage biomedical and technology companies.  Our intention is to invest in companies that we believe have significant upside potential and we participate in the strategy and operations of such companies.

Pursuant to Regulation S-X, Rule 6, the Company operates on a non-consolidated basis.  Operations of portfolio companies are reported at the portfolio company level and only the appreciation or impairment of these investments is included in the Company’s financial statements.  Pursuant to FASB Topic 250, the Company had a change in accounting principle when it re-elected to BDC status.  Topic 250 requires retroactive restatement of the company’s financial statements to conform to the current presentation for all periods presented.

Unaudited Condensed Interim Financial Statements Basis of Presentation

Interim financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. The interim unaudited financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission.

The accompanying financial statements reflect the accounts of SMCA and the related results of its operations. 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 in which the Company has a controlling interest.

GOING CONCERN

At June 30, 2010 and December 31, 2009, the Company had current assets excluding investments of $4,199 and $15,808; current liabilities of $279,602 and $199,897; and a working capital deficit, excluding investments, of $275,409 and $184,089 at June 30, 2010 and December 31, 2009, respectively.  The Company incurred a loss of $80,464 during the six months ended June 30, 2010.  The Company’s only source of cash flow has been from sales of investments, loans from the CEO and loans from Xtreme Oil & Gas, Inc.
 
 
 
12

 

The majority of the investment in marketable securities has been sold; accordingly, the Company’s only current source of funds will be from loans from the CEO.  It is unknown how long the CEO will be able to continue to fund the Company and it is unknown how long the Company can continue without other sources of funds.

The financial statements do not include any adjustments that may result from the outcome of these uncertainties.

NOTE 2:      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Conversion to an Investment/Business Development Company
The operating results for the three and six months ended June 30, 2010 and 2009 reflect the Company’s results as an investment/business development company under the Investment Company Act of 1940, as amended.  The June 30, 2009 periods were reclassified to conform to the BDC format.

Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Income Taxes
The Company has not elected to be a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Accordingly, the Company will be subject to U.S. federal income taxes on sales of investments for which the sales prices are in excess of their tax basis.

Income taxes are accounted for using an asset and liability approach for financial reporting. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities and net operating loss and tax credit carry forwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.  Interest and penalties when incurred are charged to current operations.
 
Valuation of Investments as an Investment Company
As an investment company under the 1940 Act, all of the Company’s investments must be carried at market value or fair value.  The value is determined by management for investments that do not have readily determinable market values. Prior to this conversion, only marketable debt and equity securities and certain derivative securities were required to be carried at market value.
 
 
 
13

 

Portfolio assets for which market prices are available are valued at those prices. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date.  However, some of the Company’s current investments were acquired in privately negotiated transactions and may have no readily determinable market values. These securities are carried at fair value as determined by management, the Company’s board of directors and outside professionals as necessary under the Company’s valuation policy. Currently, the valuation policy provides for management’s review of the management team, financial conditions, and products and services of the portfolio company.

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 management. 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 will record unrealized depreciation on investments when it believes that an investment has become impaired, including where realization of an equity security is doubtful. Conversely, the Company will record unrealized appreciation if the Company believes that the underlying portfolio company has appreciated in value and, therefore, its investment has also appreciated in value, where appropriate.

As an investment company, the Company will invest in illiquid securities including equity securities of private companies. The structure of each equity security is specifically negotiated to enable the Company to protect its investment and maximize its returns. The Company generally includes many terms governing ownership parameters, dilution parameters, liquidation preferences, voting rights, and put or call rights. The Company’s investments are generally subject to some restrictions on resale and some 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 investment performance, financial condition and market changing events that impact valuation.

Comprehensive Income
All items required to be recognized under accounting standards as components of comprehensive income are required to be reported in a financial statement that is displayed with the same prominence as other financial statements. Standards require that an enterprise (a) classify items of other comprehensive income by their nature in financial statements and (b) display the accumulated balance of other comprehensive income separately in the equity section of the balance sheet for all periods presented. The Company’s comprehensive income (loss) does not differ from its reported net income (loss).

As an investment company, the Company must report changes in the fair value of its investments outside of its operating income on its statement of operations and reflect the accumulated appreciation or depreciation in the fair value of its investments as a separate component of its stockholders’ deficit. This treatment is similar to the treatment discussed above.
 
 
 
14

 

Net Increase (Decrease) in Net Assets From Operations Per Share (EPS)
The Company is required to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potentially dilutive shares outstanding.  At June 30, 2010 and 2009, there are no potentially dilutive common stock equivalents.  Accordingly, no common stock equivalents are included in the earnings (loss) per share calculations and basic and diluted earnings per share are the same for all periods presented.

Reclassifications
Certain reclassifications have been made to the 2009 balances to conform to the 2010 financial statement presentation.

Fair Value
 
Disclosure of fair value information about financial instruments is required when it is practicable to estimate that value.  The carrying amounts of the Company’s cash, marketable equity securities, accounts receivable and accounts payable approximate their estimated fair value due to the short-term maturities of these financial instruments and because related interest rates offered to the Company approximate current rates.  At this time, management has determined it will not adopt fair value accounting for its non-financial assets and liabilities.

Fixed Assets
 
Fixed assets are stated at cost, less accumulated depreciation.  Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets (generally five and seven years).  The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted.  Based upon its most recent analysis, the Company believes that no impairment of property and equipment exists at June 30, 2010.  Maintenance and repairs are charged to operations when incurred.  Betterments and renewals are capitalized.  When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
 
Stock Based Compensation
 
The compensation cost relating to share-based payment transactions (including the cost of all employee stock options) is required to be recognized in the financial statements.  That cost will be measured based on the estimated fair value of the equity or liability instruments issued. The Company’s financial statements reflect an expense for all share-based compensation arrangements granted on or after January 1, 2006 and for any such arrangements that are modified, cancelled or repurchased after that date, based on the grant-date estimated fair value.

As of June 30, 2010 and 2009, there were options outstanding for 21,698 shares from the 1997 Plan.  These options expire in 2011.
 

 
 
15

 
 
Concentration of Credit Risk
 
Cash is maintained at financial institutions.  The Federal Deposit Insurance Corporation (“FDIC”) insures accounts at each institution for up to $250,000.  At times, cash balances may exceed the FDIC insurance limit of $250,000.
 
Accounting Standards Codification
 
The Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") during 2009.  The ASC does not alter current accounting principles generally accepted in the United States of America ("GAAP"), but rather integrates existing accounting standards with other authoritative guidance.  The ASC provides a single source of authoritative GAAP for nongovernmental entities and supersedes all other previously issued non-public accounting and reporting guidance.  The adoption of the ASC has no effect on the Company's financial statements.
 
Recent Accounting Pronouncements
 
During 2009, the Company adopted the FASB ASC Topic 105 (previously FASB Statement No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles."  ASC Topic 105 establishes the ASC as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America.

Below is a listing of the most recent accounting standards and their effect on the Company, as issued by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASU").  We have evaluated all recent accounting pronouncements through August 2, 2010 and find none that would have a material impact on the financial statements of the Company, except for those detailed below.

In February 2010, the FASB issued ASU 2010-09, "Subsequent Events (Topic 855)."  The amendments remove the requirements for an SEC filer to disclose a date, in both issued and revised financial statements through which subsequent events have been reviewed.  Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP.  We adopted ASU 2010-09 effective June 30, 2010 with no effect on our financial statements or results of operations.
 
 
 
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NOTE 3:      CHANGE IN ACCOUNTING PRINCIPLE

From December 15, 2005 until November 24, 2008, the Company operated as a BDC under the 1940 Act.  As such, the Company was subject to different reporting requirements and methods of accounting for its investments.  With the change to being an operating company, the Company was no longer subject to the requirements of a BDC and the Company was required to retroactively modify its financial statements as if it were not subject to the requirements of a BDC during all periods presented at the end of 2008.  With the re-election to be regulated as a BDC, the Company is required to again recast its prior financial statements as a BDC.

During the first three quarters of 2009, the Company originally filed its financial statements as an operating company.  The net loss of $21,777 and $285,077 originally filed for the three and six months ended June 30, 2009, respectively, are the same as the net decreases in net assets from operations in the statements of operations utilizing BDC accounting.

NOTE 4:      INVESTMENTS AND VALUATION

The Company’s investment securities are summarized as follows at June 30, 2010 and December 31, 2009, the valuation of which are all based on Level 1 inputs:
 
   
2010
   
2009
 
             
Cost
  $ 393     $ 393  
Unrealized appreciation (depreciation)
    206       330  
     Fair market value
  $ 599     $ 723  

The fair value of securities listed in the Investment Schedules as of June 30, 2010 and December 31, 2009 is based on the posted price for each security as of the end of each period.  The majority of these investments were originally acquired by ACL Consulting Corp (“ACL”) before it was acquired by the Company and are not representative of the Company's current business focus.  The group of other securities included in the investment schedules includes investments received by ACL for prior services or acquired by ACL and which no longer have an active market.  These securities are all carried with no value.

At January 1, 2009, SMCA owned 7,500 HSPO shares which were valued at $4,350.  These shares were sold in the first quarter of 2009.  The Company's investment in Shocker 200 is carried at zero; which is its cost less the impairment.
 
 

 
 
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NOTE 5:      COMPOSITION OF NET ASSETS (STOCKHOLDERS’ EQUITY)

Common Stock
The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.001 with each share having one voting right.  There are 1,224,776 common shares outstanding at June 30, 2010 and December 31, 2009, respectively.

NOTE 6:      RELATED PARTY TRANSACTIONS

The officer and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities as they become available. The officer and directors may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.

On November 24, 2008, the Company amended its Letter of Intent dated October 1, 2008, in which the Company agreed to acquire working interests in certain oil and gas properties and two operating companies from a shareholder, Xtreme Oil & Gas, Inc.  The parties agreed to extend the closing date until March 30, 2009, in exchange for issuance of 2,500,000 shares of the Company’s common stock to Xtreme as an extension fee.  The total purchase price was to be reduced by the extension fee.  The shares were originally valued at $1,275,000, the amount at which the stock was trading on the date of the amendment and the total was initially expensed as an extension fee.  On April 6, 2009, the Company and Xtreme agreed to rescind the extension agreement and the 2,500,000 shares were returned to the Company and cancelled.  The LOI expired under its original terms on December 31, 2008, therefore the extension fee is not reflected in the financial statements.  Xtreme owned 32.66% of the Company's common stock as of December 31, 2009.  On May 10, 2010, Xtreme entered into a stock purchase agreement with the Company's CEO and the Company's CEO acquired the 400,000 shares previously owned by Xtreme.

At June 30, 2010 and December 31, 2009, the Company owed its CEO $238,702 and $159,897, respectively, for loans, accrued compensation and expense reimbursements, which is included in due to related parties.  The amount owed at June 30, 2010 and December 31, 2009 includes a non-interest bearing convertible note in the amount of $133,807 which is convertible at $0.01 per share or NAV per share, whichever is greater (13,380,700 shares at June 30, 2010 and December 31, 2009).  NAV at June 30, 2010 is ($0.2103) per share and at December 31, 2009 is ($0.1446) per share.

Officer’s compensation and director’s fees related to the services provided by Bryce Knight, President and Director of the Company, are paid directly to Knight Inc. (formerly Knight Enterprises, Inc.), a Nevada corporation 100% owned by Bryce Knight.

At December 31, 2009, the Company has received advances from Xtreme and owed $40,000, which was included in due to related parties.  As a part of the transaction discussed above, the Company's CEO acquired the obligation owed to Xtreme.

On May 10, 2010, Knight Inc., pursuant to an Asset Purchase Agreement, sold $40,000 of receivables due to Knight by the Company to a third party for $40,000 in cash and other mutually agreed upon consideration.
 
 
 
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NOTE 7:      COMMITMENTS AND CONTINGENCIES

General
From time-to-time, some of the Company’s portfolio companies may receive correspondence or other notices of alleged breach of license agreement or other contract. Some of these notifications provide a period of time in which to cure an alleged breach or default. The failure of the Company’s portfolio companies to cure an alleged breach or default may have a material adverse impact on the Company’s results of operations and financial position.
 
Leases
 
The Company currently maintains its corporate office at 3651 Lindell Road, Suite D #146, Las Vegas, Nevada 89103 on a month-to-month basis.  In addition, we have maintained an operations office on a month-to-month basis in Santa Monica, California at a cost of $9,520 in 2010 and 2009.  (Four months in both 2010 and 2009).  In March 2010, the Company leased a second operations office at a rate of $2,300 per month in anticipation of expanding operations as a BDC.  The lease commences April 1, 2010 for a period of two years.


NOTE 8:      SUBSEQUENT EVENTS

As a result of the Xtreme merger not being completed and effective July 1, 2010, officers and employees of Xtreme returned 290,000 shares of the Company's common stock to be cancelled.  Mr, Knight also returned 27,006 shares to be cancelled.  The 317,006 shares were cancelled by the transfer agent on July 19, 2010.  The cancellation of the shares will be recorded as a contribution to capital by the shareholders on July 1, 2010.  
 
Effective July 11, 2010, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, acquired 500,000 newly issued shares of the Company's common stock in exchange for $5,000 in cash previously paid to the Company.  Mr. Knight owned 900,000 shares of the Company's issued and outstanding common stock as of July 11, 2010.

Effective July 20, 2010, pursuant to a majority consent of shareholders and the unanimous consent of the board of directors, the following resolutions were approved:
 
Change of the name of the Company to Bay Street Capital, Inc. to be effective when filed with the Nevada Secretary of State and deemed effective by FINRA;
Authorized a one for fifty reverse-split of the Company's common stock to be effective when deemed effective by FINRA; and
Approved the executive compensation plan which provides executive compensation in the range of $5,000 to $20,000 per month for the chief executive officer, chief financial officer, chief investment officer, chief technology officer and chief legal officer and provides for an executive profit sharing plan of 20% of the Company's net income after taxes.
 
 
 
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·  
ITEM 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information statement contains forward-looking statements.  For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will",  "should",  "expects",  "plans", "anticipates", "believes", "estimates", "predicts",  "potential",  "continue" or  the  negative  of such terms or other comparable  terminology. These statements are only predictions. Actual events or results may differ materially. There are a number of factors that could cause our actual results to  differ  materially  from  those  indicated  by  such forward-looking  statements.

Although we believe  that  the  expectations  reflected in the forward-looking statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of activity, performance or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this information statement to conform such statements to actual results. Management's discussion and  analysis should be read in conjunction with  our  financial  statements  and  the  notes  herein.
 
Small Cap operates as a publicly held venture capital fund.  We provide shareholders the opportunity to invest in emerging biomedical and technology companies; sharing the risks and potential benefits over a portfolio of companies while retaining the liquidity of a publicly traded stock.
 
We have chosen to operate in a BDC structure primarily because it is the regulatory framework for publicly held companies specifically created to facilitate making venture capital investments in early stage companies.  Moreover, it allows for non-accredited investors to take part in the emerging companies growth prospects formerly permitted only to accredited investors.
 
We provide shareholders the ability to retain the liquidity of a publicly traded stock, while sharing in the potential benefits of investing in primarily smaller emerging companies.  Our investment objectives are to achieve a high level of return and increased shareholder value by investing in emerging start-up and growth stage biomedical and technology companies.  Our intention is to invest in companies that we believe have significant upside potential and we participate in the strategy and operations of such companies.

Critical Accounting Policies and Estimates

Management's  Discussion  and  Analysis  of  Financial  Condition and Results of Operations section discusses our financial statements, which have been prepared  in  accordance  with  accounting  principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we will evaluate our estimates and judgments, including those related to revenue recognition, valuation of investments in portfolio companies, accrued expenses, financing operations, contingencies and litigation. We will base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.  We became a non-diversified internally managed, closed-end investment company under the Investment Company Act of 1940, as amended, in November 2009.  Accordingly, the most significant  accounting  estimates  inherent  in  the preparation  of our financial statements include estimates as to the appropriate carrying  value of certain assets and liabilities which are not readily apparent from other sources, such as the investments in portfolio companies.  These accounting policies  are  described  at relevant sections  in  this  discussion  and  analysis  and  in  the  "Notes to Financial Statements" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
 
 
 
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Results of Operations
 
 
Comparison of the three months ended June 30, 2010 and 2009

Revenues - The Company had no revenues in either 2010 or 2009.

Expenses for the three months ended June 30, 2010 and 2009 are as follows:
 
   
2010
   
2009
 
Expenses:
           
  Officer and employee compensation
  $ 15,000     $ 15,000  
  Professional fees
    10,096       12,962  
  Rent
    7,622       7,795  
  Other general and administrative expense
    2,380       1,907  
     Total expenses
  $ 35,098     $ 37,664  
 
Professional fees declined in 2010 from 2009, primarily as a result of a decline in audit costs.

Comparison of the six months ended June 30, 2010 and 2009

Revenues - The Company had no revenues in either 2010 or 2009.

Expenses for the six months ended June 30, 2010 and 2009 are as follows:
 
 
 
 
21

 
 
Professional fees declined in 2010 from 2009, primarily as a result of a decline in audit costs.  The 2009 audit included disclosures related to the potential purchase of Xtreme.  Rent expense has increased in 2010 as compared to 2009, primarily due to including six months in 2010 and four month in 2009.  During the 2009 period, the Company retained consultants to help it in connection with the Xtreme transaction.  These consultants were compensated with shares of the Company's common stock.

Liquidity and Capital Resources

At June 30, 2010 and December 31, 2009, the Company had current assets of $4,199 and $15,808, exclusive of investments; current liabilities of $279,602 and $199,897; and a working capital deficit, exclusive of investments, of $275,409 and $184,089 at June 30, 2010 and December 31, 2009, respectively.  The Company incurred a loss of $80,464 during the six months ended June 30, 2010.  The Company’s only source of cash flow has been from sales of investments, loans from the CEO and loans from Xtreme.

The majority of the investment in marketable securities has been sold; accordingly, the Company’s only current source of funds will be from loans from the CEO.  It is unknown how long the CEO will be able to continue to fund the Company and it is unknown how long the Company can continue without other sources of funds.

Net Asset Value

As a BDC, certain of our activities and disclosures are made in reference to Net Asset (Liability) Value (“NAV”) which is the value of our portfolio assets less debt and preferred stock.  This may be viewed, simply and generalized, as the value of our assets available to our common stock holders.  As of the date of the financial information in this report, the value of our portfolio of assets including investments and securities in portfolio companies, other assets and cash is $22,023 and from this, are subtracted liabilities and debts of $279,602.  There are no shares of preferred stock outstanding but the rights of preferred stockholders would be included if there were.  The NAV is therefore $(257,579).  The Net Asset Value per Share (“NAV/S”) is calculated by dividing the NAV by the number of common shares outstanding (1,224,776).  The NAV/S is $(0.2103).
 
 
 
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Management’s Analysis of Business

New Business Model

We intend to seek out investments in the following areas:
 
o  
Drug development and Biotechnology
o  
Medical devices, including biosensors
o  
Specialty pharmaceuticals
o  
Healthcare information management
o  
Personalized Medicine
o  
Technology

We believe that a short-term, trading-focused investment approach to healthcare companies, whose products often require many years of development, has a time-proven flaw: it exposes the investor to the full measure of downside risk while not capturing the full value creation of success.  Given the vagaries of medical product development, a more long-term perspective is therefore better suited to capture full value creation and weather setbacks as a medical technology matures.  A “trading” mentality would not therefore be expected to generate consistently strong returns, as risk mitigation through diversification is an ineffective tool in this high-beta space.  Instead, we plan to mitigate risk through more detailed due diligence of a company’s technology, its management team and strategic plan, and a deep understanding of end-market demand.

Small Cap will make thesis-based investments, taking concentrated positions in a small number of companies, and exercise patience as the technologies mature – a venture approach to public investing. However, relative to private investments, public equities offer several attractive features, chiefly 1) greater liquidity, 2) a long reporting history, 3) the ability to time our entries and exits, and 4) the ability to add or sell fractions of positions, and 5) highly depressed valuations at the present time.

Given the many similarities and challenges shared by public and private companies, the fund will also invest in private companies/assets that have capital-efficient development plans for value creation and a high-return exit. The product development timelines, paradigm of milestone-drive value creation, and risk-adjusted return potentials overlap greatly between private and early-stage public companies.  Additionally, the due diligence process and post-investment practices for private and public healthcare companies have become very similar. As such, the fundamental goals of 1) assessing the quality of an emerging technology, 2) sourcing and under-discovered assets, and 3) defining an appropriate risk/reward profile for early-stage products are aspects of private company investing that are similar to investing in public healthcare companies.

We expect that our due diligence on publicly held assets will lead to a detailed understanding of investable, privately held assets, and we believe that efficiencies are created by crossing over into this space.  Additionally, management’s exposure to cutting-edge technologies and early-stage companies, particularly in the areas of drug development and medical devices, will facilitate sourcing private-company opportunities.
 
 
 
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There are more than 300+ small and micro-cap healthcare companies trading on U.S. public markets, almost all of which are pre-profit and must refinance in order to continue operations. The recent maelstrom in the global public markets has only exaggerated the long-standing aversion to technically and fundamentally high-risk industries, such as biotechnology and medical devices.  This has led to unnaturally depressed valuations and created an environment where long-term, venture-style investing in public equities is a highly attractive opportunity.

Clearly, current valuations are largely beholden to macro-market dynamics, and we cannot expect to precisely time the occurrence of an upswing in the public markets.  However, we believe that the indiscriminant selling in today’s environment overlooks the fact that a handful of companies will create enormous value by executing successfully on the development of their products. Should markets continue to languish, careful stock picking will still be rewarded with value creation, but now off of a historically low cost basis.  With the eventual return of a more favorable market, these high-beta stocks will appreciate most strongly. Thus, the opportunity exists today to invest at deminimus valuations and enjoy the returns created by the return of stock more favorable market, and even despite one. Furthermore, an increasingly unfavorable financing environment creates greater price dislocation and the opportunity to invest through PIPEs and secondary financings under highly favorable terms.

Late-Stage Private Investing

Management has developed a deep knowledge of how early-stage healthcare companies develop into more mature and successful organizations, creating value and providing high absolute returns for the investor. The Corporation has also cultivated a robust network of professionals in the healthcare industry, including investors, entrepreneurs, scientists, business development professionals, and others.  We believe that we can leverage our experiences and network to source, fund, develop and sell the technologies that are highly valued by the public markets and corporate acquirers alike.

We intend to target companies that represent the best-in-breed for their given technologies and have clearly defined paths to market, so that technology and regulatory risks are lower and a realistic assessment of value can be made. We intend to be highly engaged with our private investments, taking Board seats as necessary, adding assets to a company’s portfolio as appropriate, and working with management to maximize value. Clearly, the hurdle to investing in a private company will scale with the human/time resources required by the Corporation to achieve the expected outcomes.

The Corporation operates as an internally managed investment company whereby its officers and employees conduct its operations under the general supervision of its Board of Directors. It has not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
 
 
 
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ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from changes in market rates and prices.  We are primarily exposed to equity price risk, which arises from exposure to securities that represent an ownership interest in our portfolio companies.  The value of our equity securities and our other investments are based on quoted market prices or our Board of Directors’ good faith determination of their fair value (which is based, in part, on quoted market prices).  Market prices of common equity securities, in general, are subject to fluctuations, which could cause the amount to be realized upon the sale or exercise of the instruments to differ significantly from the current reported value.  The fluctuations may result from perceived changes in the underlying economic characteristics of our portfolio companies, the relative price of alternative investments, general market conditions and supply and demand imbalances for a particular security.


ITEM 4:
CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of June 30, 2010.  Based on that review and evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including insuring that such information is accumulated and communicated to the Company’s management, including the CEO, as appropriate to allow timely decisions regarding required disclosure.

(b)  Changes in Internal Controls

There have been no changes in internal controls or in other factors that could materially affect these controls during the quarter ended June 30, 2010, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
 
 
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PART II:      OTHER INFORMATION

 
ITEM 1:       LEGAL PROCEEDINGS

Not Applicable.

ITEM 1A:     RISK FACTORS

Not Applicable.
 
ITEM 2:
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.
 
ITEM 3:       DEFAULTS UPON SENIOR SECURITIES

Not Applicable.
 
ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Not applicable
 
ITEM 5:       OTHER INFORMATION
 
Mr. Bryce Knight, CEO, assumed the duties of Chief Financial Officer on September 19, 2006, upon the resignation of the former CFO.
 
 
ITEM 6:       EXHIBITS

The following exhibits are filed with this report on Form 10-Q.

Exhibit 31                      Certifications pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32                      Certifications pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
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SIGNATURE
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  SMALL CAP STRATEGIES, INC.  
       
Date:    August 13, 2010
By:
 /s/ Bryce Knight                                  
    Bryce Knight   
    Chief Executive Officer and   
    Chief Financial Officer   

 
 
 
 
 
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