U.S.
        SECURITIES AND EXCHANGE COMMISSION
 Washington,
        D.C. 20549
 
 Form
        10-QSB
 
 (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, 2005
  
 |__|
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
 
 For
        the
        transition period from _______________
 
 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)Issuer's
                  telephone number:(952)
                  890-2362
 
 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.
 
 Yes
              X
              
              No
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
  Yes
                
                
                No
                X
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date 37,898,473 shares of Common Stock, as of
        September 30, 2005.
 
 Transitional
        Small Business Disclosure Format?  Yes
                  
                  
                  No
                  X
 
 
 
 Preferred
        Stock
 (Title
        of
        Class)
  The
        Series A Preferred Stock (Series A Preferred) is non-interest bearing, does
        not
        have voting rights and is not entitled to receive dividend. 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 has currently 10,000,000 Series A Preferred issued and outstanding
        as of September 30, 2005.
                 
  
 
  **TABLE
        OF CONTENTS**
 
  PART
                  I
              
              1Item
                  1.
              Financial
                  Statements
              1Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of Operation
              2Item
                  3.
              Controls
                  and Procedures
              2PART
                  II
              
              2Item
                  1.
              Legal
                  Proceedings
              2Item
                  2.
              Unregistered
                  sales of Equity Securities and Use of Proceeds
              3Item
                  3.
              Defaults
                  Upon Senior Securities
              6Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              6Item
                  5.
              Other
                  Information
              7Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              7
 
 
 
 iii
 
 
 
 
 PART
        I
 
 ITEM
        1.  FINANCIAL STATEMENTS
 
 PageFinancial
                  Statements
              1Balance
                  Sheets
              2Statements
                  of Operations
              3Statements
                  of Cash Flows
              5Notes
                  to Financial Statements
              7
 
         
 1
 
 BDC
        Capital, Inc.
 (formerly
        eNetpc, Inc.)
  BALANCE
        SHEETS
 August
        31, 2005 and February 28, 2005
 (unaudited)
  **ASSETS**August
                  31,
                2005
              
              February
                  28,
                2005**Assets**Cash
              
              $
              47,214
              
              $
              260,179Investment
                  in securities, at fair value (costs $353,303 and $67,403at
                  August 31, 2005 and February 28, 2005 respectively)
              
              
              960,900
              
              
              675,000Property
                  and equipment
              
              
              -
              
              
              -Total
                  Assets
              
              $
              1,008,114
              
              $
              935,179**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Liabilities**Accounts
                  payable
              
              $
              7,217
              
              $
              -Related
                  party convertible debentures, net of original issue discount of
                  $35,484
                  and $166,874
              
              
              17,440
              
              
              18,675Convertible
                  debentures, net of original issue discount of $226,484 and
                  $269,032
              
              
              65,435
              
              
              99,330Accrued
                  liabilities
              
              
              18,690
              
              
              7,038Due
                  to BDC Partners, Inc.
              
              
              410
              
              
              2,100Total
                  Current Liabilities
              
              
              109,192
              
              
              127,143Related
                  party notes payable
              
              
              70,000
              
              
              -Total
                  Liabilities
              
              
              179,192
              
              
              127,143**Stockholders’
                  Equity**Preferred
                  stock, $.01 par value, 20,000,000 shares authorized 10,000,000
                  and
                  3,939,000 issued and outstanding
              
              
              104,390
              
              
              39,390Common
                  stock, $.01 par value, 2,020,000,000 shares authorized 37,898,473
                  and
                  6,980,117 shares issued and outstanding
              
              
              378,985
              
              
              69,801Subscription
                  receivable
              
              
              (58,782
              )
              
              -Additional
                  paid-in-capital
              
              
              5,042,773
              
              
              4,762,773Accumulated
                  deficit
              
              
              (4,638,444
              )
              
              (4,063,928
              )Total
                  Stockholders’ Equity
              
              
              828,922
              
              
              808,036Total
                  Liabilities and Stockholders’ Equity
              
              $
              1,008,114
              
              $
              935,179
  The
        accompanying notes are an integral part of these financial
        statements
 
 
 2
  BDC
        Capital, Inc.
 (formerly
        eNetpc, Inc.)
 STATEMENT
        OF OPERATIONS
 (unaudited)
 
 As
                  a Business Development Company
              
              As
                  a Business Development
                CompanyThree
                  months endedAugust
                  31, 2005
              
              Six
                  months endedAugust
                  31, 2005**Investment
                  income**
              
              $
              16
              
              $
              819**Operating
                  Expenses:**Professional
                  fees
              
              
              29,407
              
              
              62,642Administrative
                  expenses
              
              
              45,029
              
              
              60,913Rent
              
              
              1,125
              
              
              2,250Printing
                  and reproduction
              
              
              -
              
              
              51Other
              
              
              2,053
              
              
              3,639Interest
                  expense
              
              
              161,651
              
              
              445,840Total
                  Operating expenses
              
              
              239,265
              
              
              575,335**Net
                  investment loss**
              
              
              (239,249
              )
              
              (574,516
              )**Net
                  change in unrealized appreciation on investment**
              
              
              -
              
              
              -**Net
                  decrease in net assets resulting from operation**
              
              $
              (239,249
              )
              $
              (574,516
              )Loss
                  per common share - basic and diluted
              
              $
              (.01
              )
              $
              (.02
              )Weighted
                  average shares outstanding - basic and diluted
              
              
              31,650,486
              
              
              24,352,669
  The
        accompanying notes are an integral part of these financial
        statements.
 
 
 3
  BDC
        Capital, Inc.
 (formerly
        eNetpc, Inc.)
  STATEMENTS
        OF OPERATIONS
 (unaudited)
  Prior
                    to becoming a
                  Business
                    Development CompanyThree
                    months ended August 31, 2004
                
                Six
                    months ended August 31, 2004Revenues
                
                $
                46,238
                
                $
                100,968Cost
                    of sales
                
                
                25,219
                
                
                67,806Gross
                    profit
                
                
                21,019
                
                
                33,162Operating
                    ExpensesSelling,
                    general and administrative expenses
                
                
                41,611
                
                
                65,900Loss
                    from operations
                
                
                (20,592
                )
                
                (32,738
                )Interest
                    expense
                
                
                (4,791
                )
                
                (4,791
                )Net
                    loss
                
                $
                (25,383
                )
                $
                (37,529
                )Loss
                    per common share - basic and diluted
                
                $
                (.02
                )
                $
                (.02
                )Weighted
                    average shares outstanding - basic and diluted
                
                
                1,671,675
                
                
                1,671,675
 
 The
        accompanying notes are an integral part of these financial
        statements
 
 
 
 
 4
  **BDC
        Capital, Inc.**
 **(formerly
        eNetpc, Inc.)**
 
 **STATEMENTS
        OF CASH FLOWS**
  **As
                    a Business Development****Company**
                
                **Prior
                    to becoming a Business Development****Company****Six
                    months ended August 31, 2005**
                
                **Six
                    months ended August 31, 2004****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                $
                -
                
                $
                (37,529
                )Net
                    decrease in net assets resulting from operations as a business
                    development
                    company
                
                
                (574,516
                )Adjustments
                    to reconcile net assets resulting from operations and net loss
                    to net cash
                    used by operating activities:Depreciation
                    and amortization
                
                
                -
                
                
                -Amortization
                    of original issue discount
                
                
                423,939
                
                
                -Administrative
                    fees paid by issuance of convertible debt
                
                
                30,000
                
                
                -Accounts
                    receivable
                
                
                -
                
                
                3,150Inventories
                
                
                -
                
                
                (564
                )Prepaid
                    expenses
                
                
                -
                
                
                (804
                )Accounts
                    payable
                
                
                7,217
                
                
                38,340Accrued
                    liabilities
                
                
                11,995
                
                
                (27
                )Investment
                    in BDC Partners, Inc.
                
                
                (285,900
                )
                
                -Due
                    to BDC Partners, Inc.
                
                
                (1,690
                )
                
                -Net
                    cash provide by (used in) operating activities
                
                
                (388,955
                )
                
                2,566**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    from issuance of common stock
                
                
                109,303
                
                
                -Net
                    proceeds (payments) from due to stockholder
                
                
                -
                
                
                (16,977
                )Net
                    proceeds (payments) from due to stockholder
                
                
                -
                
                
                7,500Payments
                    made on convertible debentures
                
                
                (253,313
                )
                
                -Proceeds
                    from issuance of notes payable
                
                
                70,000
                
                
                -Proceeds
                    from issuance of convertible debentures
                
                
                250,000
                
                
                -Net
                    cash provided by (used in) financing activities
                
                
                175,990
                
                
                (9,477
                )**Net
                    change in cash and cash equivalents for the
                    period**
                
                
                (212,965
                )
                
                (6,911
                )**Cash
                    and cash equivalents at beginning of period**
                
                
                260,179
                
                
                9,683**Cash
                    and cash equivalents at end of period**
                
                $
                47,214
                
                $
                2,772**SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION**:Cash
                    payments for interest
                
                $
                9,906
                
                
                -**SUPPLEMENTAL
                    SCHEDULE OF NONCASH INVESTING****AND
                    FINANCING ACTIVITIES:**Administrative
                    expenses paid via increase in convertible debt
                
                $
                30,000
                
                
                -Debt
                    to equity conversion
                
                $
                205,754
                
                
                -
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 
 5
  **BDC
        Capital, Inc.**
 **(formerly
        eNetpc, Inc.)**
 
 **SCHEDULE
        OF INVESTMENTS**
 **August
        31, 2005**
 
 
 **Portfolio
                  Company**
              **Principal
                  business**
              **Investments**
              **Cost**
              **Fair
                  Value**BDC
                  Partners, Inc.
              Technology
              Equity
              $353,303
              $960,900
 
 
 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 6
  **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 of 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.
  ***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
        business development company 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 business development company
        may use capital provided by public stockholders and from other sources to
        invest
        in growing small businesses.
 
 A
        business development company 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.
 
 **A
        summary of the Company's significant accounting policies
        follows:**
 
 ***Conversion
        to Business Development Company***
 
 The
        financial statements include the statement of operations as a business
        development company under the Investment Company Act of 1940, as amended
        as well
        as the statement of operations for the comparable period as an operating
        company. BDC Capital converted to a business development company in December
        2004.
 
 7
  ***Cash
        and cash equivalents:***
 
 The
        Company considers all highly liquid debt instruments purchased with a maturity
        of three months or less to be cash equivalents. Cash on deposit in excess
        of
        FDIC and similar insurance coverage is subject to the usual banking risks
        of
        funds in excess of those limits.
  ***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, 2005, approximately 95% 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 record
        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
        business development company, 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.
 
 
 8
  ***Investments
        in equity securities:***
 
 Under
        business development company 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.
 
 ***Income
        taxes:***
 
 Deferred
        taxes are provided on a liability method whereby deferred tax assets are
        recognized for deductible temporary differences and operating loss 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
        employee compensation:***
 
 The
        Company follows Accounting Principles Board Opinion No. 25, Accounting for
        Stock
        Issued to Employees ("APB 25") and related interpretations in accounting
        for its
        stock options. Under APB 25, when the exercise price of stock options equals
        the
        market price of the underlying stock on the date of grant, no compensation
        expense is recognized. The Company has elected to follow the disclosure only
        provisions of Statement of Financial Accounting Standards No. 123, Accounting
        for Stock-Based Compensation ("Statement 123").
  Prior
        to
        February 29, 2004, all stock options issued to employees had vested. Since
        February 29, 2004 there have been no issuances of employee stock options.
 
 ***Net
        loss per share:***
 
 Basic
        loss per share is computed using the weighted average number of shares
        outstanding for the period, including preferred stock (note 5). 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 and stock purchase warrants
        and
        convertible debt. Incremental shares attributable to the assumed exercise
        of
        stock options and stock purchase warrants for the three and six months ended
        August 31, 2005, the three months and six months ended August 31, 2004 were
        excluded from the computation of diluted earnings per share as their effect
        would be anti-dilutive. The diluted loss per share computation does include
        the
        adjusted incremental shares for the convertible debentures for the three
        and six
        months ended August 31, 2005.
 
 9
  ***Carrying
        value of financial instruments:***
 
 The
        carrying value of the Company's financial instruments approximates fair value
        at
        August 31, 2005 and February 28, 2005.
 
 ***Recently
        issued accounting pronouncements***
 
 In
        December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment”.
        SFAS 123(R) requires the recognition of compensation cost relating
        to
        share-based payment transactions in financial statements. That cost will
        be
        measured based on the fair value of the equity or liability instruments issued
        as of the grant date, based on the estimated number of awards that are expected
        to vest. SFAS 123(R) covers a wide range of share-based compensation
        arrangements including share options, restricted share plans, performance-based
        awards, share appreciation rights, and employee share purchase plans.
        Statement 123(R) replaces FASB Statement No. 123, “Accounting for
        Stock-Based compensation,” and supersedes APB Opinion No. 25, “Accounting
        for Stock Issued to Employees”. Statement 123(R) is effective for us
        beginning March 1, 2006. We are in the process of evaluating the impact of
        SFAS 123(R) on our financial position and results of
        operations.
 
 ***Estimates
        and assumptions:***
 
 The
        preparation of the 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.
        Significant estimates include the lives of patent rights and equipment and
        the
        valuation of stock issued. Actual results could differ from these
        estimates.
  ***Reclassifications***
 
 Certain
        accounts in the prior quarter financial statements have been reclassified
        for
        comparative purposes to conform with the presentation in the current financial
        statements. These reclassifications had no effect on net loss or stockholders'
        equity.
 
 
 10
  **Note
        2. Property and Equipment:**
  **August
                  31,**
                **2005**
              
              **February
                  28,**
                **2004**Office
                  equipment and furniture
              
              $
              469,666
              
              $
              469,666Leasehold
                  improvements
              
              
              -
              
              
              37,270Production
                  equipment
              
              
              -
              
              
              61,515469,666
              
              
              568,451Less
                  accumulated depreciation
              
              
              455,028
              
              
              553,813Less
                  impairment of equipment
              
              
              14,638
              
              
              14,638$
              -
              
              $
              -
 
 Depreciation
        expense was $0 for the three and six months ended August 31, 2005 and
        2004.
 
 **Note
        3. Convertible debentures:**
  The
        Company issued convertible debentures totaling $799,322 and $519,322 as of
        August 31, 2005 and February 28, 2005, bearing interest at 8.0% payable at
        maturity and are convertible at the Company’s current stock offering price which
        has been $.01 since December 1, 2004.  The debentures mature at various
        dates from April 1, 2005 through August 31, 2007. These debentures plus any
        accrued interest are convertible as of the date of issuance at the option
        of the
        Company or the debt holder. These debentures are subordinated to any bank
        financing. The application of the provisions of EITF 98-5, “Accounting for
        Convertible Securities with Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratios,” and EITF 00-27, “Application of Issue 98-5 to
        Certain Convertible Instruments” resulted in the calculation of an embedded
        beneficial conversion feature which is required to be treated as an additional
        discount to the debt. The value of the beneficial conversion feature was
        $799,322 and $519,322 as of August 31, 2005 and February 28, 2005. $273,544
        and
        $423,939 of the beneficial conversion feature was amortized into interest
        expense for the three and six months ended August 31, 2005 respectively.
        As of
        August 31, 2005 $581,886 of the discount remained to be amortized into interest
        expense due the life of the debt.
  
 Future
        maturities of these convertible debentures are as follows for the years ending
        August 31:
 
 2006
              
              $
              -2007
              
              
              374,842Total
              
              $
              374,842
 
 
 11
  The
        Company has also issued long-term convertible preferred debentures with a
        majority stockholder totaling $65,000, net of original issue discount of
        $58,085
        as of February 28, 2005, bearing interest at 8.0% payable at maturity. This
        debenture plus any accrued interest is convertible as of the date of issuance
        at
        the option of the Company or the debt holder. These debentures are subordinated
        to any bank financing. The application of the provisions of EITF 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of
        Issue 98-5 to Certain Convertible Instruments” resulted in the calculation of an
        embedded beneficial conversion feature which is required to be treated as
        an
        additional discount to the debt. The value of the beneficial conversion feature
        was $65,000. This debenture was converted into preferred stock on April 2005.
        During the three months ended August 31, 2005, the Company issued long term
        convertible preferred debentures with a majority shareholder for services
        provided to the Company totaling $30,000, net of original issue discount
        of
        $28,726 as of August 31, 2005, bearing interest at 8% at maturity. The
        debentures mature in August 2007. This debenture plus any accrued interest
        is
        convertible as of the date of issuance at the option of the Company or the
        debt
        holder. These debentures are subordinated to any bank financing. The application
        of the provisions of EITF 98-5, “Accounting for Convertible Securities with
        Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,”
        and EITF 00-27, “Application of Issue 98-5 to Certain Convertible Instruments”
        resulted in the calculation of an embedded beneficial conversion feature
        which
        is required to be treated as an additional discount to the debt. The value
        of
        the beneficial conversion feature was $30,000. $1,274 of the beneficial
        conversion feature was amortized into interest expense for the three months
        ended August 31, 2005.
 
 The
        convertible debentures are issued with binding term sheets that require the
        following terms upon the sale of the converted stock by the
        purchaser:
 
 A)
              Purchaser
                  shall first be entitled to an amount equal to 200% of the face
                  amount of
                  each debenture attributable to the sale of common stock acquired
                  from the
                  conversion of the associated debt.
  B)
              After
                  the Purchaser receives the amount in A above, the Company shall
                  be
                  entitled to 50% of any additional Net Sales Proceeds of the stock.
                  Net
                  Sales Proceeds shall mean the gross proceeds received from the
                  sale of the
                  stock, less reasonable brokerage
                  commissions.
  C)
              Final
                  adjusted Net Sales Proceeds are to be wired to the Company within
                  7 days
                  from the date of the final settlement of the sale of stock from
                  the
                  conversion of all of the outstanding
                  debentures.
  As
        of
        February 28, 2005, the Company entered into binding term sheets also provide
        for
        convertible debt financing similar to the terms above 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, 2005, the Company has not utilized
        this financing.
  **Note
        4. Related Party Note Payable:**
 During
        the three months ended August 31, 2005, the Company entered into a $70,000
        note
        payable agreement with a stockholder of the Company. Terms of the agreement
        include 8% interest payable on the due date in July 2007.
 
 12
  **Note
        5 Stockholders' Equity (Deficit):**
 
 During
        the six months ended August 31, 2005, the Company has issued 14,109,901 shares
        of common stock in the amount of $141,099 and 6,061,000 shares of preferred
        stock in the amount of $65,000 through debt to equity conversions. The Company
        has also issued 16,808,456 shares of common stock for cash of
        $168,085.
 
 ***Preferred
        Stock***
 
 On
        February 4, 2005, the Corporation's board of directors designated 10,000,000
        shares of preferred stock as Series A Preferred Stock to be issued out of
        the
        20,000,000 authorized.
 
 The
        Series A Preferred Stock ("Series A Preferred") is non-interest bearing,
        does
        not have voting rights and is not entitled to receive dividend. Each share
        of
        Series A Preferred issued is automatically 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 has currently 10,000,000 and 3,939,000 Series A Preferred issued
        and
        outstanding as ofAugust 31, 2005 and February 28, 2005.
 
 ***Stock
        Dividend***
 
 On
        February 4, 2005 the board of directors of BDC Capital, Inc. ("Corporation")
        authorized the issuance of 3,939,000 shares of Class A Preferred Stock in
        a
        stock dividend to each shareholder of record as of November 30, 2004. For
        each
        share of common stock held as of the Record Date, the Company issued one
        share
        of Preferred Series A stock. The Corporation relied on exemptions provided
        by
        Section 4(2) of the Securities Act of 1933, as amended.
 
 **Note
        6. Related Party Transactions**
 
 As
        a
        business development company, the Company has issued convertible debentures
        with
        an aggregate principal balance of $454,322 to family members of the majority
        stockholder. As of August 31, 2005 the remaining principal balance on the
        convertible debentures was $52,923, reduced by original issue discount of
        $36,757.
 
 The
        Company issued a convertible debenture to its majority stockholder with a
        principal balance $65,000. This debenture was converted in 6,061,000 shares
        of
        Series A Preferred Stock in April 2005. During the three months ended August
        31,
        2005, the Company issued a convertible debenture to its majority stockholder
        with a principal balance of $30,000. This debenture bears interest at 8%
        and
        matures in August 2007.
 
 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.
 
 13
  **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. Financial Highlights** ***-
        as a business development company***
 
 Following
        is a schedule of financial highlights for the three months ended August 31,
        2005
 
 Per
                  Share Data:Net
                  asset value, at conversion to a BDCNet
                  asset value beginning of period
              
              
              0.07Income
                  from investment operations:Net
                  Investment loss
              
              
              (0.02
              )Net
                  realized gains on investments
              
              
              -Net
                  unrealized appreciation on investments
              
              
              -Net
                  decrease in net assets resulting from operations
              
              
              (0.02
              )Dividends
              
              
              -Issuance
                  of shares
              
              
              0.01Issuance
                  of preferred shares
              
              
              0.01Dilutive
                  effect of share insurances
              
              
              (0.06
              )Decrease
                  in stockholders' equity (deficit) from OID on convertible
                  debentures
              
              
              0.01Decrease
                  in stockholder's equity relating to equity issuances
              
              
              (0.03
              )Net
                  asset value, end of period
              
              $
              0.02Per
                  share market value at end of period
              
              
              0.03Total
                  Return
              
              
              (33
              )%Shares
                  outstanding at end of period
              
              
              47,898,494Ratio/Supplemental
                  Data:Net
                  assets end of period
              
              
              828,922Ratio
                  of operating expenses to average net assets (annualized)
              
              
              139
              %Ratio
                  of net investment loss to average assets (annualized)
              
              
              138
              %
  
 14
 
 
 ITEM
        2.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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, 2005 and 2004,
        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.
 
 The
        results of operations for 2005 are divided into two periods. The three and
        six-month period, representing the period March 1, 2004 through August 31,
        2004,
        reflects the Company's results prior to operating as a business development
        company under the Investment Company Act of 1940, as amended. The three and
        six-month period ended August 31, 2005, reflects the Company's results as
        a
        business development company under the Investment Company Act of 1940, as
        amended. Accounting principles used in the preparation of the financial
        statements beginning December 1, 2004 are different than those of prior periods
        and, therefore, the financial position and results of operations of these
        periods are not directly comparable. The primary differences in accounting
        principles relate to the carrying value of investments and consolidations.
 
 Changes
        in unrealized gains (losses) on the change in value of portfolio investments
        for
        business development companies are recognized each period. Prior to becoming
        a
        business development company, unrealized gains (losses) on the change in
        value
        of investments were recorded as accumulated comprehensive income in the
        statement of stockholders equity. Gains (losses) on investment would only
        be
        recognized when realized or when an investment was permanently
        impaired.
 
 As
        a
        business development company, consolidation of portfolio companies is not
        required in which the Company has a controlling interest. In contrast, prior
        to
        operating as a business development corporation, entities in which the Company
        had controlling interest would have been required to be
        consolidated.
 
 RESULTS
        OF OPERATIONS
 
 THREE
        MONTHS ENDED AUGUST 31, 2005 AND AUGUST 31, 2004
 
 The
        results of operations are divided into two periods. The three-month period,
        representing the period June 1, 2004 through August 31, 2004 reflects the
        Company’s results prior to operating as a business development company under the
        Investment Company Act of 1940. The three-month period ended August 31, 2005
        reflects the Company’s results as a business development company under the
        Investment Company Act of 1940.
 
 For
        the
        three months ended August 31, 2005, the Company incurred an operating loss
        of
        $239,249. The main components of this loss related to $29,407 of professional
        fees with a majority of these fees relate to setting up the Company as a
        business development company and $161,651 for interest expense on convertible
        debt. On the interest expense, $151,669 relates to the amortization of original
        debt discount with originated from the beneficial conversion feature related
        to
        the debt.
 
 15
  For
        the
        three months ended August 31, 2004, the Company incurred loss from operations
        of
        $(25,383). The net assets and operations of the computer sales division was
        transferred to the BDC Partners, Inc. when the Company became a business
        development company.
 
 SIX
        MONTHS ENDED AUGUST 31, 2005 AND AUGUST 31, 2004
 
 The
        results of operations are divided into two periods. The six-month period,
        representing the period March 1, 2004 through August 31, 2004 reflects the
        Company’s results prior to operating as a business development company under the
        Investment Company Act of 1940. The six-month period ended August 31, 2005
        reflects the Company’s results as a business development company under the
        Investment Company Act of 1940.
 
 For
        the
        six months ended August 31, 2005, the Company incurred an operating loss
        of
        $574,516. The main components of this loss related to $62,642 of professional
        fees with a majority of these fees relate to setting up the Company as a
        business development company and $445,840 for interest expense on convertible
        debt. On the interest expense, $423,938 relates to the amortization of original
        debt discount with originated from the beneficial conversion feature related
        to
        the debt.
 
 For
        the
        six months ended August 31, 2004, the Company incurred loss from operations
        of
        $(37,529). The net assets and operations of the computer sales division was
        transferred to the BDC Partners, Inc. when the Company became a business
        development company.
 
 LIQUIDITY
        AND CAPITAL RESOURCES
 
 ***As
        a business development company***
 
 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 by operating activities was $(388,955). Net cash
        provided by financing activities of $175,990 for the six months ended August
        31,
        2005 consisted of issuance of common stock and notes payable during the 6
        month
        period.
 
 Our
        current monthly operating expenses are approximately $16,270 per month. Our
        current cash reserves are sufficient to enable us to operate for the next
        12
        months. We anticipate that any additional financing would be through the
        sales
        of our common stock or other equity-based securities. We do have in place
        a
        $16.5 million equity line from new and exciting investors. BDC Capital, Inc.
        signed agreements for the equity line in February. 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.
 
 ***Prior
        to becoming a business development company***
 
 BDC
        Capital, Inc.’s cash position at August 31, 2004 was $2,772, a decrease of
        $6,911 from $9,683 at February 29, 2004. During the six months ended August
        31,
        2004, net cash provided by operating activities was $2,566.
  Net
        cash
        used by financing activities of $(9,477) for the six months ended August
        31,
        2004.
 
 16
  **Recent
        Developments — Portfolio Companies**
 
 During
        the quarter ended August 31, 2005, BDC Capital, Inc. invested $10,000 equity
        in
        BDC Partners, Inc bringing the total investment in BDC Partners, Inc. to
        $353,303 as of August 31, 2005. The additional investment was funded by issuance
        of convertible debentures.
 
 **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:***
 
 In
        December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment”.
        SFAS 123(R) requires the recognition of compensation cost relating
        to
        share-based payment transactions in financial statements. That cost will
        be
        measured based on the fair value of the equity or liability instruments issued
        as of the grant date, based on the estimated number of awards that are expected
        to vest. SFAS 123(R) covers a wide range of share-based compensation
        arrangements including share options, restricted share plans, performance-based
        awards, share appreciation rights, and employee share purchase plans.
        Statement 123(R) replaces FASB Statement No. 123, “Accounting for
        Stock-Based compensation,” and supersedes APB Opinion No. 25, “Accounting
        for Stock Issued to Employees”. Statement 123(R) is effective for us
        beginning March 1, 2006. We are in the process of evaluating the impact of
        SFAS 123(R) on our financial position and results of
        operations.
 
 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.
 
 17
  ITEM
        3.
        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.
 
 18
  **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
        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, 2005 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 K-K
  3.1
              Articles
                  of Incorporation, as amended (1)
              Previously
                  Filed3.2
              Bylaws
                  (1)
              Previously
                  Filed31
              Certifications
                  of Chief Executive Officer and Chief Financial Officer under Rule
                  13a-14(a)/15d-14(a)
              Included32
              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.Dated: October 17, 2005
                By:  /s/ Richard A.
                  PomijeRichard
                    A. Pomije, Chief Executive Officer
    19