UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   For the Fiscal Year ended December 31, 2007

                        Commission file number 814-00720

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

             NEVADA                                            20-5655532
             ------                                            ----------
 (State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                            Identification No.)

              3651 Lindell Road, Suite D #146, Las Vegas, NV 89103
                    (Address of Principal Executive Offices)

       520 South Fourth Avenue, Suite 400, Louisville, Kentucky 40202-2577
                 (Former Address of Principal Executive Offices)

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

       Securities Registered under Section 12(b) of the Exchange Act: None

         Securities Registered under Section 12(g) of the Exchange Act:
                         Common Stock, $.001 par value

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate  by check mark  whether the issuer (1) filed all reports 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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. [ ]

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


<PAGE>


Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State issuer's revenues for the most recent fiscal year: $231,954.

The estimated  aggregate market value of the voting stock held by non-affiliates
of the  registrant  as  reported  on the OTC  Electronic  Bulletin  Board  as of
December  31, 2007 was  $56,364.  The market value is based upon the average bid
price of the Common Stock of $0.017 per share on December  31, 2007.  The shares
outstanding  are  reduced  by shares of voting  stock held by each  officer  and
director and by each person who owns 5% or more of the outstanding voting stock.
This determination of affiliate status is not necessarily conclusive.

The number of shares  outstanding of the issuer's Common Stock, $.001 par value,
as of January 31, 2008 was 687,770 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

No  documents  are  incorporated  by  reference  into this report  except  those
Exhibits so incorporated as set forth in the Exhibit Index.


























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                           SMALL CAP STRATEGIES, INC.

                                      INDEX


                                                                            Page

PART I


ITEM 1:           BUSINESS                                                     4
ITEM 1A:          RISK FACTORS                                                15
ITEM 2:           PROPERTIES                                                  38
ITEM 3:           LEGAL PROCEEDINGS                                           38
ITEM 4:           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         38

PART II

ITEM 5:           MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
                  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
                  SECURITIES                                                  39
ITEM 6:           SELECTED FINANCIAL DATA                                     42
ITEM 7:           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS                         43
ITEM 7A:          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK                                                 53
ITEM 8:           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                  SCHEDULES OF FINANCIAL RATIOS                               57
ITEM 9:           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE                         77
ITEM 9A:          CONTROLS AND PROCEDURES                                     77
ITEM 9B:          OTHER INFORMATION                                           77

PART III

ITEM 10:          DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
                  GOVERNANCE                                                  78
ITEM 11:          EXECUTIVE COMPENSATION                                      80
ITEM 12:          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  83
ITEM 13:          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
                  DIRECTOR INDEPENDENCE                                       84
ITEM 14:          PRINCIPAL ACCOUNTANT FEES AND SERVICES                      85

PART IV

ITEM 15:          EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                  86





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INTRODUCTION

This report contains forward-looking statements and the Company's actual results
could  differ  materially  from  those  anticipated  in  these  forward  looking
statements as a result of numerous factors,  including those set forth below and
elsewhere in this report.

                                     PART I

ITEM 1:           BUSINESS

Business History

Effective September 30, 2006, Photonics Corporation ("Photonics"),  a California
corporation, merged into Small Cap Strategies, Inc. ("SCPS", the "Company", "we"
or "us"), a Nevada corporation, with SCPS 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 and to  increase  the number of
shares of common stock authorized from 200,000,000 to 2,000,000,000.  All common
shares of Photonics were exchanged on a one-for-one  basis for stock in SCPS. As
discussed  below,  Photonics had 50,000,000  shares of $.001 par value preferred
stock  authorized,  of  which  400,000  shares  had  been  designated  Series  A
Convertible  Preferred  Stock. At September 30, 2006,  immediately  prior to the
merger,  Photonics had no preferred  stock issued or  outstanding.  SCPS did not
authorize  any  preferred  stock in its  articles  of  incorporation  in Nevada.
Accordingly, there is no preferred stock authorized, issued or outstanding after
the merger on September 30, 2006. In addition,  the shareholders  authorized the
board of  directors  to effect a reverse  stock  split  with-in  the next twelve
months.  On December 5, 2006, the board of directors  authorized a reverse stock
split of one share for each twenty shares outstanding,  to be effective December
21, 2006. On May 15, 2007,  the board of directors  authorized a second  reverse
stock split of one share for each twenty shares outstanding, to be effective the
dated filed with the Nevada Secretary of State, May 21, 2007.  Accordingly,  all
share  transactions  and disclosures  have been restated as if the reverse stock
split occurred before all periods presented.

Photonics,  d/b/a DTC Data  Technology,  was formed  from a merger of  Photonics
Corporation  with DTC Data  Technology in March of 1996.  The Company  designed,
developed,  and marketed  Integrated Device Electronics (IDE) and Small Computer
Systems  Interface (SCSI) disk controller cards and Input/Output  (I/O) products
for personal computers.  However, as a result of recurring significant operating
losses,  in June  1999,  the  board of  directors  voted to shut  down  business
operations  and attempt to sell the Company or its assets.  Since that date, the
Company had been inactive in its original business operations.

Consequently,  during late January and into the first few days of February 2000,
days before the Company planned to file Chapter 11, the Company was contacted by
and reached an initial,  non-binding  agreement  to acquire  RealEstate4Sale.com
(RE4S).  Since  this  acquisition  agreement  is  superior  to the  filing  of a
bankruptcy  proceeding,  the Company  deferred  the  Chapter 11 filing;  and was
actively pursuing the acquisition of RE4S and, following the termination of that
transaction, the acquisition of REpipeline.com, Inc.



                                  Page 4 of 90
<PAGE>

The initial,  non-binding agreement to acquire RE4S was terminated as of May 31,
2000. The Agreement,  executed as of June 30, 2000, was executed with a majority
of the same group of principals who represented RE4S but with their newly formed
company REpipeline.com, Inc. (Texas).

On  November  28,  2000,  the  Company  approved  the  merger  and  merged  with
REpipeline.com,  a Texas  Corporation,  an Internet vertical service provider to
the  commercial  real estate  industry,  by issuing  45,320  common stock shares
valued  at  $18,128  in  exchange  for all of the  outstanding  common  stock of
REpipeline.com, Inc. ("REP").

The  transaction was accounted for as a reverse merger using the purchase method
of accounting with REP acquiring Photonics for financial reporting purposes. The
purchase  price of Photonics was  allocated  among its net assets based on their
relative  fair  market  values.  Because  Photonics  did not have any  assets or
business operations, no portion of the purchase price was allocated to goodwill.
Instead,  the  excess of the  purchase  price  over the fair value of net assets
acquired was charged against operations.

REpipeline.com,  Inc. was incorporated in the state of Texas on June 8, 2000. On
July 10, 2000, the REpipeline.com, Inc., a Texas corporation, agreed to purchase
the  assets and  assume  certain  liabilities  and the  shareholder's  equity of
RealEstate4Sale.com.  RealEstate4Sale.com  ("RE4S") was incorporated in Colorado
on August 17,  1999,  and its  purpose  was to provide  commercial  real  estate
listings on the Internet. Subsequent to the acquisition of RealEstate4Sales.com,
the Company reincorporated REpipeline.com,  Inc. into a Delaware corporation and
made it a wholly  owned  subsidiary.  However,  the concept was deemed to be too
narrow for the marketplace and was subsequently abandoned.

In the fourth  quarter of 2001, we purchased all the  outstanding  shares of The
Sarasota Group, Inc. ("SGI"), a Florida Corporation,  and made it a wholly owned
subsidiary.  The Company's  then current  board  resigned  while  simultaneously
electing new officers and directors for the Company.

In the fourth quarter of 2005 we went through another change in management.  The
new management team is currently  implementing the new business strategy that is
outlined below.

On  March  7,  2006 we  filed a  notification  under  Form  N54a  with  the U.S.
Securities and Exchange  Commission,  (the "SEC")  indicating our election to be
regulated as a business  development company under the Investment Company Act of
1940 (the  "1940  Act").  In  connection  with this  election,  we have  adopted
corporate   resolutions  and  intend  to  operate  as  a  closed-end  management
investment company as such a business development company (a "BDC").

As of December 31, 2007 we had 1 employee.  Various  aspects of due diligence of
prospective  portfolio  companies  and  monitoring  the  activities of portfolio
companies  will be  subcontracted  to  consultants.  We may  require  additional
employees  in the areas of  administration,  sales and  marketing,  etc.  in the
future  and as  additional  portfolio  companies  are  added.  There is  intense
competition for capable, experienced personnel and there is no assurance we will
be able to  obtain  new  qualified  employees  when  required.  We  believe  our
relationship with our employee is good.




                                  Page 5 of 90
<PAGE>

Business Summary

Under the recent election to be governed as a business development company under
the 1940 Act, we have been organized to provide  investors with the  opportunity
to participate, with a modest amount in venture capital, in investments that are
generally not available to the public and that typically  require  substantially
larger  financial  commitments.   In  addition,  we  will  provide  professional
management and  administration  that might otherwise be unavailable to investors
if they were to engage directly in venture capital investing. We have decided to
be  regulated  as a business  development  company  under the 1940 Act, and will
operate as a non-diversified  company as that term is defined in Section 5(b)(2)
of the 1940 Act. We will, at all times, conduct our business so as to retain our
status as a BDC. We may not change the nature of our  business so as to cease to
be, or withdraw  our election as, a BDC without the approval of the holders of a
majority of our outstanding voting stock as defined under the 1940 Act.

As a business development company, we are required to invest at least 70% of our
total assets in qualifying assets, which,  generally,  are securities of private
companies or securities of public  companies  whose  securities are not eligible
for  purchase on margin  (which  includes  many  companies  with  thinly  traded
securities that are quoted in the pink sheets or the NASD  Electronic  Quotation
Service.) We must also offer to provide  significant  managerial  assistance  to
these portfolio companies. Qualifying assets may also include:

     o    cash,
     o    cash equivalents,
     o    U.S. Government securities, or
     o    high-quality  debt  investments  maturing in one year or less from the
          date of investment.

We may invest a portion of the  remaining 30% of our total assets in debt and/or
equity securities of companies that may be larger or more stabilized than target
portfolio companies.

Nature of a BDC

The 1940 Act defines a BDC as a closed-end  management  investment  company that
provides small  businesses  that qualify as an eligible  portfolio  company with
investment capital and also significant managerial assistance. A BDC is required
under the 1940 Act to invest  at least  70% of its  total  assets in  qualifying
assets consisting of eligible portfolio companies as defined in the 1940 Act and
certain other assets including cash and cash equivalents.

An eligible  portfolio  company generally is a United States company that is not
an investment company and that:

     o    does not have a class  of  securities  registered  on an  exchange  or
          included in the Federal Reserve Board's over-the-counter margin list;
     o    is actively  controlled  by a BDC and has an affiliate of a BDC on its
          board of directors; or
     o    meets such other criteria as may be established by the SEC.



                                  Page 6 of 90
<PAGE>

Control  under the 1940 Act is  presumed to exist where a BDC owns more than 25%
of the outstanding voting securities of the eligible  portfolio company.  We may
or may not control our portfolio companies.

An  example  of an  eligible  portfolio  company  is a new start up company or a
privately  owned  company  that has not yet gone public by selling its shares in
the open market and has not applied for having its shares listed on a nationally
recognized  exchange  such as the NYSE the  American  Stock  Exchange,  National
Association of Securities  Dealers' Automated  Quotation System, or the National
Market System. An eligible portfolio company can also be one which is subject to
filing, has filed, or has recently emerged from reorganization  protection under
Chapter 11 of the Bankruptcy Act.

A BDC may invest the remaining 30% of its total assets in non-qualifying assets,
including  companies that are not eligible  portfolio  companies.  The foregoing
percentages will be determined, in the case of financings in which a BDC commits
to provide financing prior to funding the commitment, by the amount of the BDC's
total assets  represented by the value of the maximum amount of securities to be
issued by the  borrower or lessee to the BDC pursuant to such  commitment.  As a
BDC, we must invest at least 70% of our total  assets in  qualifying  assets but
may invest more in such qualifying assets.

Primary Strategy

We will have significant  relative  flexibility in selecting and structuring our
investments.  We will not be subject to many of the regulatory  limitations that
govern traditional lending institutions such as banks. We will seek to structure
our  investments  so as to take  into  account  the  uncertain  and  potentially
variable financial  performance of our portfolio  companies.  This should enable
our  portfolio  companies  to retain  access to  committed  capital at different
stages in their  development and eliminate some of the  uncertainty  surrounding
their  capital  allocation  decisions.  We will  calculate  rates of  return  on
invested capital based on a combination of up-front commitment fees, current and
deferred  interest rates and residual values,  which may take the form of common
stock,  warrants,  equity  appreciation  rights or future contract payments.  We
believe that this flexible  approach to structuring  investments will facilitate
positive,  long-term relationships with our portfolio companies and enable us to
become a  preferred  source of capital to them.  We also  believe  our  approach
should enable debt financing to develop into a viable alternative capital source
for  funding  the  growth of target  companies  that wish to avoid the  dilutive
effects of equity financings for existing equity holders.

Longer  Investment  Horizon - We will not be subject to periodic  capital return
requirements. These requirements, which are standard for most private equity and
venture  capital funds,  typically  require that these funds return to investors
the initial  capital  investment  after a  pre-agreed  time,  together  with any
capital  gains on such capital  investment.  These  provisions  often force such
funds to seek the return of their  investments  in portfolio  companies  through
mergers,  public equity  offerings or other  liquidity  events more quickly than
they  otherwise  might,  which can result in a lower overall return to investors
and adversely affect the ultimate viability of the affected portfolio companies.
Because we may invest in the same  portfolio  companies as these  funds,  we are
subject to these risks if these funds  demand a return on their  investments  in
the portfolio  companies.  We believe that our flexibility to take a longer-term



                                  Page 7 of 90
<PAGE>

view should  help us to maximize  returns on our  invested  capital  while still
meeting the needs of our portfolio companies.

Established Deal Sourcing Network - We believe that,  through our management and
directors,  we have solid contacts and sources from which to generate investment
opportunities. These contacts and sources include:

     o    public and private companies,
     o    investment bankers ,
     o    attorneys,
     o    accountants,
     o    consultants, and
     o    commercial bankers.
However,  we  cannot  assure  you  that  such  relationships  will  lead  to the
origination of debt or other investments.

Investment Criteria

As a matter of policy,  we will not purchase or sell real estate or interests in
real estate or real estate investment trusts except that we may:

     o    purchase  and  sell  real  estate  or  interests  in  real  estate  in
          connection  with  the  orderly  liquidation  of  investments,   or  in
          connection with foreclosure on collateral;
     o    own the  securities  of companies  that are in the business of buying,
          selling or developing real estate; or
     o    finance the purchase of real estate by our portfolio companies.

We will limit our  investments in more  traditional  securities  (stock and debt
instruments) and will not, as a matter of policy:

     o    sell  securities  short  except  with  regard  to  managing  the risks
          associated  with  publicly-traded  securities  issued by our portfolio
          companies;
     o    Purchase  securities  on  margin  (except  to the  extent  that we may
          purchase securities with borrowed money); or
     o    engage in the purchase or sale of commodities or commodity  contracts,
          including  futures  contracts  except  where  necessary in working out
          distressed loan; or
     o    investment situations or in hedging the risks associated with interest
          rate  fluctuations,  and,  in such  cases,  only  after all  necessary
          registrations  or  exemptions  from  registration  with the  Commodity
          Futures Trading Commission have been obtained.

Prospective  Portfolio  Company  Characteristics  - We have  identified  several
criteria  that we  believe  will  prove  important  in  seeking  our  investment
objective with respect to target companies.  These criteria will provide general
guidelines for our investment  decisions;  however,  we caution readers that not
all of these criteria will be met by each prospective portfolio company in which
we choose to invest.



                                  Page 8 of 90
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Experienced  Management - We will generally require that our portfolio companies
have an  experienced  president  or  management  team.  We will also require the
portfolio  companies to have in place proper  incentives to induce management to
succeed and to act in concert with our interests as investors,  including having
significant  equity  interests.  We intend to  provide  assistance  in this area
either  supervising   management  or  providing  management  for  our  portfolio
companies.

Products or Services - We will seek  companies  that are involved in products or
services  that  do  not  require  significant  additional  capital  or  research
expenditures. In general, we will seek target companies that make innovative use
of proven technologies or methods.

Proprietary  Advantage - We expect to favor companies that can demonstrate  some
kind of proprietary  sustainable  advantage  with respect to their  competition.
Proprietary advantages include, but are not limited to:

     o    patents or trade secrets with respect to owning or  manufacturing  its
          products, and
     o    a  demonstrable   and   sustainable   marketing   advantage  over  its
          competition

Marketing  strategies  impose unusual  burdens on management to be  continuously
ahead of its competition, either through some kind of technological advantage or
by being continuously more creative than its competition.

Profitable or Nearly Profitable  Operations Based on Cash Flow from Operations -
We will focus on target companies that are profitable or nearly profitable on an
operating cash flow basis.  Typically, we would not expect to invest in start-up
companies unless there is a clear exit strategy in place.

Potential  for Future  Growth - We will  generally  require  that a  prospective
target  company,  in addition to  generating  sufficient  cash flow to cover its
operating  costs and service its debt,  demonstrate  an ability to increase  its
revenues and operating  cash flow over time.  The  anticipated  growth rate of a
prospective target company will be a key factor in determining the value that we
ascribe  to any  warrants  or other  equity  securities  that we may  acquire in
connection with an investment in debt securities.

Exit Strategy - Prior to making an investment  in a portfolio  company,  we will
analyze the  potential  for that company to increase the liquidity of its common
equity through a future event that would enable us to realize  appreciation,  if
any, in the value of our equity interest. Liquidity events may include:

     o    an initial public offering,
     o    a private sale of our equity interest to a third party,
     o    a merger or an acquisition of the portfolio company, or
     o    a purchase of our equity  position by the portfolio  company or one of
          its stockholders.

We may  acquire  warrants  to  purchase  equity  securities  and/or  convertible
preferred stock of the eligible portfolio companies in connection with providing
financing.  The terms of the warrants,  including the expiration date,  exercise
price and terms of the equity  security for which the warrant may be  exercised,



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will be negotiated  individually with each eligible portfolio company,  and will
likely be affected by the price and terms of  securities  issued by the eligible
portfolio company to other venture  capitalists and other holders. We anticipate
that most  warrants  will be for a term of five to ten  years,  and will have an
exercise price based upon the price at which the eligible portfolio company most
recently  issued  equity  securities  or, if a new equity  offering is imminent,
equity securities. The equity securities for which the warrant will be exercised
generally  will be common  stock of which  there may be one or more  classes  or
convertible  preferred  stock.  Substantially  all the warrants  and  underlying
equity  securities will be restricted  securities under the 1933 Act at the time
of the issuance.  We will generally  negotiate for registration  rights with the
issuer that may provide:

     o    "piggyback"  registration  rights,  which will permit us under certain
          circumstances, to include some or all of the securities owned by us in
          a registration statement filed by the eligible portfolio company, or
     o    in  circumstances,  "demand"  registration  rights permitting us under
          certain  circumstances,  to require the eligible  portfolio company to
          register  the  securities  under  the 1933 Act,  in some  cases at our
          expense.  We will generally  negotiate net issuance  provisions in the
          warrants,  which will allow us to receive upon exercise of the warrant
          without  payment of any cash a net amount of shares  determined by the
          increase in the value of the issuer's  stock above the exercise  price
          stated in the warrant.

Liquidation  Value of  Assets -  Although  we do not  intend  to  operate  as an
asset-based  lender,  the prospective  liquidation  value of the assets, if any,
collateralizing  any debt securities that we hold will be an important factor in
our credit analysis. We will emphasize both tangible assets, such as:

     o    accounts receivable,
     o    inventory, and
     o    equipment,

and intangible assets, such as:

     o    intellectual property,
     o    customer lists,
     o    networks, and
     o    databases.

Investment Process

Due  Diligence  -  If a  target  company  generally  meets  the  characteristics
described above, we will perform initial due diligence, including:

     o    company and technology assessments,
     o    existing management team,
     o    market analysis,
     o    competitive analysis,
     o    evaluation of management, risk analysis and transaction size,
     o    pricing, and



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     o    structure analysis.

Much of this  work will be done by  management  and  professionals  who are well
known by management.  The criteria  delineated above provide general  parameters
for our  investment  decisions.  We intend to pursue an  investment  strategy by
further  imposing  such  criteria and reviews that best insures the value of our
investments.  As unique circumstances may arise or be uncovered, not all of such
criteria will be followed in each instance but the process  provides a guideline
by  which  investments  can be  prudently  made  and  managed.  Upon  successful
completion of the  preliminary  evaluation,  we will decide whether to deliver a
non-binding  letter of intent  and move  forward  towards  the  completion  of a
transaction.

In our review of the management team, we look at the following:

     o    Interviews with management and significant shareholders, including any
          financial or strategic sponsor;
     o    Review of financing history;
     o    Review of management's track record with respect to:
          o    product development and marketing,
          o    mergers and acquisitions,
          o    alliances,
          o    collaborations,
          o    research  and   development   outsourcing   and  other  strategic
               activities;
     o    Assessment of competition; and
     o    Review of exit strategies.

In our review of the financial conditions, we look at the following:

     o    Evaluation of future financing needs and plans;
     o    Detailed analysis of financial performance;
     o    Development of pro forma financial projections; and
     o    Review of assets and liabilities, including contingent liabilities, if
          any, and legal and regulatory risks.

In our review of the products and services of the portfolio company,  we look at
the following:

     o    Evaluation of intellectual property position;
     o    Review of existing customer or similar agreements and arrangements;
     o    Analysis of core technology;
     o    Assessment of collaborations;
     o    Review of sales and marketing procedures; and
     o    Assessment of market and growth potential.

Upon  completion  of these  analyses,  we will conduct  on-site  visits with the
target company's management team. Also, in cases in which a target company is at



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a mature  stage  of  development  and if  other  matters  that  warrant  such an
evaluation, we will obtain an independent appraisal of the target company.

Ongoing Relationships with Portfolio Companies

Monitoring - We will  continuously  monitor our portfolio  companies in order to
determine  whether they are meeting our financing  criteria and their respective
business  plans.  We may decline to make  additional  investments  in  portfolio
companies that do not continue to meet our financing  criteria.  However, we may
choose to make additional  investments in portfolio companies that do not do so,
but we believe that we will nevertheless perform well in the future.

We will monitor the  financial  trends of each  portfolio  company to assess the
appropriate  course of action for each company and to evaluate overall portfolio
quality. Our management team and consulting professionals, who are well known by
our management  team,  will closely  monitor the status and  performance of each
individual company on at least a quarterly and, in some cases, a monthly basis.

We will use several  methods of evaluating and monitoring  the  performance  and
fair value of our debt and equity  positions,  including  but not limited to the
following:

     o    Assessment  of  business   development   success,   including  product
          development,  financings,  profitability  and the portfolio  company's
          overall adherence to its business plan;
     o    Periodic and regular  contact with  portfolio  company  management  to
          discuss financial position, requirements and accomplishments;
     o    Periodic and regular formal update  interviews with portfolio  company
          management and, if appropriate, the financial or strategic sponsor;
     o    Attendance at and participation in board meetings;
     o    Review of monthly and  quarterly  financial  statements  and financial
          projections for portfolio companies.

Managerial Assistance - As a business development company, we will offer, and in
many cases may  provide,  significant  managerial  assistance  to our  portfolio
companies. This assistance will typically involve:

     o    monitoring the operations of our portfolio companies,
     o    participating in their board and management meetings,
     o    consulting with and advising their officers, and
     o    providing other organizational and financial guidance.


Diversification

As a BDC, we must invest at least 70% of our total assets in  qualifying  assets
consisting  of  investments  in eligible  portfolio  companies and certain other
assets  including  cash and cash  equivalents.  In  order to  receive  favorable
pass-through tax treatment on its distributions to our  shareholders,  we intend
to  diversify  our pool of  investments  in such a manner so as to  qualify as a



                                 Page 12 of 90
<PAGE>

diversified closed end management  investment company.  However,  because of the
limited  size of the  funding  which is  likely to be  available  to us, we will
likely be classified as a  non-diversified  closed end investment  company under
the 1940 Act. Until we qualify as a registered  investment  company, we will not
be  subject to the  diversification  requirements  applicable  to RICs under the
Internal Revenue Code. Therefore, we will not receive favorable pass through tax
treatment on distributions to our  shareholders.  In the future, we will seek to
increase the  diversification of our portfolio so as to make it possible to meet
the RIC diversification  requirements, as described below. We cannot assure you,
however, that we will ever be able to meet those requirements.

To qualify as a RIC, we must meet the issuer diversification standards under the
Internal  Revenue  Code that require  that,  at the close of each quarter of our
taxable year,

     o    not more than 25% of the market  value of our total assets is invested
          in the securities of a single issuer, and
     o    at least 50% of the market value of our total assets is represented by
          cash, cash items, government securities, securities of other RICs, and
          other securities.

Each investment in these other securities is limited so that not more than 5% of
the market value of our total assets is invested in the  securities  of a single
issuer and we do not own more than 10% of the outstanding voting securities of a
single  issuer.  For  purposes  of the  diversification  requirements  under the
Internal Revenue Code, the percentage of our total assets invested in securities
of a portfolio  company will be deemed to refer,  in the case of  financings  in
which we commit to provide  financing  prior to funding the  commitment,  to the
amount of our total assets  represented by the value of the securities issued by
the eligible  portfolio company to us at the time each portion of the commitment
is funded.

Investment Amounts

The  amount  of  funds  committed  to a  portfolio  company  and  the  ownership
percentage  received  will  vary  depending  on the  maturity  of the  portfolio
company,  the quality and  completeness  of the portfolio  company's  management
team,  the perceived  business  opportunity,  the capital  required  compared to
existing capital,  and the potential return.  Although  investment  amounts will
vary considerably,  we expect that the average  investment,  including follow-on
investments, will be between $25,000 and $1,000,000.

Competition

Our primary  competitors to provide  financing to target  companies will include
private  equity and venture  capital funds,  other equity and  non-equity  based
investment funds and investment banks and other sources of financing,  including
traditional  financial services companies such as commercial banks and specialty
finance companies.  Many of these entities have substantially  greater financial
and  managerial  resources  than we will have.  We believe that our  competitive
advantage  with  regard to quality  target  companies  relates to our ability to
negotiate  flexible  terms and to complete our review process on a timely basis.
We cannot assure you that we will be successful in implementing our strategies.



                                 Page 13 of 90
<PAGE>

Current Portfolio Companies

On December 16, 2005, we entered into a stock purchase  agreement to acquire all
issued and outstanding shares of the capital stock of ACL Consulting Corporation
(ACL),  a Texas  corporation  majority owned by a former officer and director of
the Company providing business  consulting  services to companies that desire to
go public.

The  purchase  price of the shares was  $1,593,000.  The  consideration  for the
acquisition  was  comprised  of three  components:  (1) $735,000 in cash paid at
closing,  (2) a $458,000 secured  promissory note delivered at closing,  and (3)
400,000 shares of Series A Redeemable Convertible Preferred Stock of the Company
with a value at issuance of $400,000 (Notes 3, 4 and 5).

During 2007 we liquidated our investment in ACL and  transferred by dividend the
securities owned by ACL, net of ACL obligations assumed by the Company.

We currently own 100% of ACL  Consulting and plan to dissolve the company during
2008.

HealthSport, Inc. is a fully integrated developer,  manufacturer and marketer of
unique and proprietary  branded and private label edible film strip  nutritional
supplements  and  over-the-counter  drugs.  We acquired out  investment  when we
liquidated our investment in ACL.

We also own an investment in three portfolio companies with a cost basis of $393
on which we have placed no value.


Valuation Methodology

As an investment  company under the  Investment  Company Act of 1940, all of the
Company's  investments  must  be  carried  at  market  value  or fair  value  as
determined by Management for investments which 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.

Beginning  December  16,  2005,  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,  our 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  and outside  professionals  as  necessary  under our
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.  In situations  that warrant such an  evaluation,  an
independent business valuation may be obtained.

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



                                 Page 14 of 90
<PAGE>

faith. As a result,  determining fair value requires that judgment be applied to
the specific  facts and  circumstances  of each  portfolio  investment.  We must
determine the fair value of each individual  investment on a quarterly basis. We
will record  unrealized  depreciation  on  investments  when we believe  that an
investment  has  become  impaired,  including  where  realization  of an  equity
security is doubtful.  Conversely,  we will record unrealized appreciation if we
believe that the  underlying  portfolio  company has  appreciated  in value and,
therefore, our investment has also appreciated in value, where appropriate.

As an investment company,  we invest primarily in illiquid securities  including
equity securities of private companies. The structure of each equity security is
specifically  negotiated to enable us to protect our investment and maximize our
returns.  We  generally  include  many  terms  governing  ownership  parameters,
dilution  parameters,  liquidation  preferences,  voting rights, and put or call
rights. Our investments are generally subject to some restrictions on resale and
generally have no established trading market. Because of the type of investments
that we make and the nature of our business,  our valuation  process requires an
analysis of various factors. Our fair value methodology includes the examination
of,  among  other  things,  the  underlying  investment  performance,  financial
condition and market changing events that impact valuation.


ITEM 1A:    RISK FACTORS

In the normal course of business in an effort to keep our  shareholders  and the
public informed about our operations and portfolio of  investments,  we may from
time-to-time issue certain statements, either in writing or orally, that contain
or may contain forward-looking  information.  Generally, these statements relate
to our  business  plans or  strategies  or  portfolio  companies,  projected  or
anticipated  benefits or consequences of such plans or strategies,  projected or
anticipated  benefits of new or follow-on  investments  made by or to be made by
us, or  projections  involving  anticipated  purchases or sales of securities or
other  aspects of our  operating  results.  Forward-looking  statements  are not
guarantees of future performance and are subject to risks and uncertainties that
could cause  actual  results to differ  materially.  As noted  elsewhere in this
report,  our operations and portfolio of investments  are subject to a number of
uncertainties,  risks,  and  other  influences,  many of which are  outside  our
control,  and any one of which,  or a  combination  of which,  could  materially
affect the results of our operations, or our NAV, the market price of our common
stock, and whether any forward-looking statements made by us ultimately prove to
be accurate.

Investing  in SCPS  involves  a number  of  significant  risks  relating  to our
business and investment  objective.  As a result, there can be no assurance that
we will achieve our  investment  objective.  In  addition,  the  following  risk
factors are applicable to an investment in our common stock.

GENERAL RISK FACTORS

Investments in the Company by new shareholders will be diluted immediately.

Some of our  present  shareholders  may have  acquired an interest in our common
stock at a total cost less than the total cost that newer investors will pay for
their shares.  Therefore,  the newer investors may bear a greater  proportion of
the risk of loss  (measured  by the cost of shares).  As of December  31,  2007,



                                 Page 15 of 90
<PAGE>

there were  100,000,000  shares of common stock authorized and after the reverse
split of one share for each  twenty  shares  outstanding  in May 2007 there were
687,770 common shares outstanding.

We may sell additional equity in the future that may further dilute the value of
existing shareholders' investment.

Reductions  in the  price of our stock  resulting  from the  performance  of our
portfolio  or other  market  conditions  might result in stock being sold to new
investors,  including  management,  at prices  below the price paid by  existing
shareholders.  Senior  management may be granted the right,  and others may have
the right,  under certain  circumstances,  to acquire  additional  shares of our
common stock at a price equal to the market price as it exists at a point in the
future.  If such a grant of a right  occurred  at a time  when the  price of the
stock has fallen  relative to the current market value and falls below the price
paid by existing  shareholders,  management might be given the right to purchase
stock at a price below  existing  shareholders'  cost. In either of these cases,
the value of existing shareholders' investment would be further diluted.

Limitation of liability and indemnification of management.

While limitations of liability and  indemnification  are themselves  limited, we
have instituted provisions in our bylaws indemnifying,  to the extent permitted,
against and not making management liable for, any loss or liability  incurred in
connection  with our affairs,  so long as such loss or liability arose from acts
performed in good faith and not involving any fraud, gross negligence or willful
misconduct.   Therefore,  to  the  extent  that  these  provisions  provide  any
protection to management,  that  protection may limit the right of a shareholder
to collect damages from members of management.  Management is accountable to the
shareholder as a fiduciary and, consequently, members of management are required
to exercise good faith and integrity in handling our affairs.

Our business may become subject to extensive regulation at the federal and state
levels.  The value of securities we own may be adversely  impacted by subsequent
regulatory changes.

Our operations are and will be affected by current and future legislation and by
the  policies  established  from  time to  time by  various  federal  and  state
regulatory authorities. It is not possible to predict what changes, if any, will
be made to existing federal and state  legislation and regulations or the effect
that such changes may have on our future  business and earnings  prospects.  Our
current investment strategy includes the purchase of unregistered  securities in
both  private  companies  as  well  as  private  placements  offered  by  public
companies.  We are able to purchase  securities  pursuant to  exemptions  to the
registration  requirements of United States Federal  securities laws. Changes in
such laws or their  interpretation  could adversely impact our ability to resell
such  securities  which  would  have a  negative  effect  on the  value  of such
securities as well as impact our overall  investment  strategy and the liquidity
of our investments.  In such an event, we may need to reformulate our investment
strategy or we may choose to liquidate.

We cannot guarantee paying dividends to our stockholders.



                                 Page 16 of 90
<PAGE>

We are allowed by our articles of incorporation  and/or by-laws to pay dividends
to our stockholders.  However, there can be no guarantee we will have sufficient
revenues to pay dividends during any period. We intend to make  distributions on
a  quarterly  basis to our  stockholders  out of assets  legally  available  for
distribution.  We cannot assure you that we will achieve  investment  results or
maintain a tax status  that will allow or require  any  specified  level of cash
distributions or year-to-year increases in cash distributions.  In addition, due
to the asset coverage test applicable to us as a business  development  company,
we may be limited in our  ability to make  distributions.  Investors  in need of
liquidity  through the payment of  dividends  should  refrain  from common stock
which does not have a dividend requirement.

Investing in our shares may involve a high degree of risk.

The investments we make in accordance  with our investment  objective may result
in a higher amount of risk than alternative investment options and volatility or
loss of principal. Our investments in portfolio companies may be speculative and
aggressive,  and therefore,  an investment in our shares may not be suitable for
someone with low risk tolerance.

The market price of our common stock may fluctuate significantly.

The market price and  liquidity of the market for shares of our common stock may
be  significantly  affected  by numerous  factors,  some of which are beyond our
control  and may not be directly  related to our  operating  performance.  These
factors, may adversely affect our ability to raise capital through future equity
financings. These factors include:

     o    significant  volatility  in the  market  price and  trading  volume of
          securities   of  business   development   companies,   which  are  not
          necessarily related to the operating performance of these companies;

     o    changes in regulatory  policies or tax guidelines,  particularly  with
          respect to RICs or business development companies;

     o    our common  stock is unlikely  to be followed by any market  analysts,
          and there may be few  institutions  acting  as market  makers  for the
          common stock which can adversely affect its price;

     o    loss of or inability to qualify for RIC status or BDC status;

     o    changes in earnings or variations in operating results;

     o    changes in the value of our portfolio of investments;

     o    any  shortfall in revenue or net income or any increase in losses from
          levels expected by investors or securities analysts;

     o    departure of one or more of our key personnel;



                                 Page 17 of 90
<PAGE>

     o    operating performance of companies comparable to us;

     o    potential legal and regulatory matters;

     o    changes in prevailing interest rates;

     o    general economic trends and other external factors; and

     o    loss of a major funding source.


Sales of  substantial  amounts of our common stock in the public market may have
an adverse effect on the market price of our common stock.

As of December 31, 2007, we have 687,770 shares of common stock outstanding.  We
plan to raise funds in the future  through sales of our common stock pursuant to
Regulation  E, which  provides in part for  issuance of freely  trading  shares.
Sales of  substantial  amounts of our common stock or the  availability  of such
shares  for sale could  adversely  affect the  prevailing  market  price for our
common stock. If this occurs and continues, it could impair our ability to raise
additional  capital through the sale of equity securities should we desire to do
so.

Our  Board  of  Directors  also has  authority,  without  action  or vote of the
shareholders,  to issue all or part of our authorized but unissued  shares.  Any
such  issuance will dilute the  percentage  ownership of  shareholders  and may,
subject to the regulations pertaining to the minimum prices for which shares may
be sold,  further dilute the book value of the common stock. These issuances may
also serve to enhance existing  management's  ability to maintain control of the
Company.

We have the right,  but do not intend to issue senior  securities in the future,
including  debt.  If we were to reverse that  decision and offer for sale and/or
issue senior securities,  you will be exposed to additional risks, including the
typical risks associated with leverage.

You  will  be  exposed  to  increased  risk of  loss  if we  incur  debt to make
investments.  If we do incur debt,  a decrease  in the value of our  investments
would have a greater negative impact on the value of our common stock than if we
did not use debt.

     o    Our ability to pay dividends would be restricted if our asset coverage
          ratio  were not at least 200% and any  amounts  that we use to service
          our  indebtedness  would not be available  for dividends to our common
          stockholders.

     o    It is likely that any debt we incur will be  governed by an  indenture
          or other  instrument  containing  covenants  restricting our operating
          flexibility.

     o    We and you as shareholders will bear the cost of issuing and servicing
          our senior securities.

     o    Any convertible or exchangeable securities that we issue in the future
          may have rights,  preferences and privileges more favorable than those
          of our common stock.



                                 Page 18 of 90
<PAGE>

Our investments may require us to raise additional capital on different terms.

We will require additional  capital in the future. For additional  requirements,
we may raise capital by issuing equity or convertible debt securities,  and when
we do, the percentage ownership of our existing stockholders will be diluted. In
addition,  any new  securities  we issue  could  have  rights,  preferences  and
privileges senior to our existing equity (although we do not intend to sell debt
or preferred equity interests).

Our ability to raise capital as a BDC is limited by the requirement  that we not
sell shares below the NAV/S without approval of a majority of our  shareholders.
While we do not  anticipate  that the NAV/S  calculation  will ever  result in a
negative number or a nominally  positive  number,  the Company would be severely
limited in its ability to sell  shares if such a negative  number or a nominally
positive number were to be the result of a NAV/S calculation.

Increases in market  interest  rates may both reduce the value of our  portfolio
investments and increase our cost of capital.

We expect that we may offer loans to our  portfolio  companies  with interest at
fixed rates and the value of these investments  could be negatively  affected by
increases in market interest  rates. In addition,  an increase in interest rates
would  make it more  expensive  to use debt to  finance  our  investments.  As a
result,  a significant  increase in market  interest rates could both reduce the
value of our portfolio investments and increase our cost of capital, which would
reduce our net investment income.

The lack of liquidity in our investments may adversely affect our business.

We will generally make investments in private  companies.  Substantially  all of
these  securities  will be subject to legal and other  restrictions on resale or
will otherwise be less liquid than publicly traded  securities.  The illiquidity
of our investments may make it difficult for us to sell such  investments if the
need arises.  In addition,  if we are required to liquidate  all or a portion of
our portfolio  quickly,  due to changes in capital  needs or  otherwise,  we may
realize  significantly less than the value at which we have previously  recorded
our investments.  In addition,  we may face other restrictions on our ability to
liquidate  an  investment  in a  portfolio  company to the extent that we or our
investment adviser has material non-public  information regarding such portfolio
company.

 We may experience fluctuations in our quarterly and annual results.

We could experience  fluctuations in our quarterly and annual operating  results
due to a number of factors,  including the interest or dividend rates payable on
the debt or equity  securities we acquire,  performance  and/or  default rate on
securities we acquire,  the level of our expenses,  variations in and the timing
of the  recognition  of realized and unrealized  gains or losses,  the degree to
which we encounter  competition in our markets and general economic  conditions.
As a result of these  factors,  results for any period should not be relied upon
as being indicative of performance in future periods.



                                 Page 19 of 90
<PAGE>

We may not realize gains or income from our investments.

We seek to generate both current income and capital  appreciation.  However, the
securities,  in which we invest, may not appreciate and, in fact, may decline in
value,  and the issuers of debt securities,  in which we invest,  may default on
interest and/or principal payments.  Accordingly,  we may not be able to realize
gains  from  our  investments,  and  any  gains  that we do  realize  may not be
sufficient to offset any losses we experience.

Your influence in matters  requiring  shareholder  action will be subject to the
probability that most shareholders will follow management's direction.

There is only one major  shareholder  with an  interest of more than ten percent
and no consortium of shareholders has been identified with a block of control or
who would likely  exercise voting control over all matters that may be submitted
for approval by our shareholders.  Without such a controlling block,  management
positions  will be the most  likely to be  presented  to  shareholders  and more
likely to influence  shareholder  decisions  (assuming a fact that  shareholders
will  likely  "vote  with"  management).  Therefore,  while the number of shares
controlled by the officers and directors is less than a majority, their position
of control is material and significant.

Pursuant  to our  articles  of  incorporation,  our Board of  Directors  has the
authority  to issue  shares of stock  without any further  vote or action by the
stockholders.  The issuance of stock under certain  circumstances could have the
effect of delaying or preventing a change in control of the Company or may deter
takeover attempts.

Our articles of  incorporation  contain  provisions  that may have the effect of
discouraging,  delaying  or  making  more  difficult  a change  in  control  and
preventing the removal of incumbent directors. The existence of these provisions
may reduce any premiums over market price that a potential  acquirer would offer
to shareholders for their shares of our common stock and may discourage attempts
to gain control without the consent of the Board of Directors. While shares must
be sold for cash or other  securities,  the Board of  Directors  might choose to
sell shares to a party with views  consistent  with those of management  further
limiting the likelihood of a change in control.


GENERAL RISKS ASSOCIATED WITH BUSINESS DEVELOPMENT COMPANIES

BDCs generally require  substantial amounts of time to realize the benefits from
investments.

Venture  capital  investments  typically  take from four to eight years from the
date of initial investment to reach a state of maturity at which liquidation can
be considered practical.  We have not completed funding of our current portfolio
company and we anticipate that there may be an additional period of time ranging
from three to six months before we have obtained funding and completed investing
that  funding  in  our  portfolio  companies  for  our  first  round  of  equity
investments.  In light of the  foregoing,  it is unlikely  that any  significant
distributions of the proceeds from the liquidation of equity investments will be
made for several years after inception, if at all.



                                 Page 20 of 90
<PAGE>

Our present senior  management team has limited  experience  managing a business
development company under the Investment Company Act of 1940.

The  1940  Act  imposes  numerous  constraints  on the  operations  of  business
development companies. For example,  business development companies are required
to  invest  at least  70% of their  total  assets  primarily  in  securities  of
privately held or thinly traded U.S. public  companies,  cash, cash equivalents,
U.S.  government  securities and other high quality debt investments that mature
in one year or less.  The lack of  experience of our senior  management  team in
managing a portfolio of assets under such  constraints  may hinder their ability
to take  advantage  of  attractive  investment  opportunities  and, as a result,
achieve our investment  objective.  Within the BDC format, the information about
deals and deal flow generated by our senior  management in connection with their
investment and portfolio management activities will have a significant impact on
our  future  success  as a  BDC.  The  senior  management  team  will  evaluate,
structure,  negotiate  terms and close  investments on those terms,  monitor and
service our  investments  and their  abilities  to perform  these  functions  as
members of a BDC will also have a significant  impact on our future success as a
BDC.

We  will be  wholly  dependent  for  the  selection,  structuring,  closing  and
monitoring  of  all  of  our  investments  on the  diligence  and  skill  of our
management,  acting under the  supervision  of our Board of  Directors.  None of
these individuals has substantial  experience,  within or under a BDC investment
and management format, in acquiring and investing in growth stage companies, the
negotiation  of the  terms  of  such  investments  and  the  monitoring  of such
investments after they are made. In addition, we will engage outside consultants
and  professionals  known to management to assist in evaluating  and  monitoring
portfolio companies and maintaining regulatory compliance.

While we believe that our  management  possesses  certain  fundamental  business
skills that will increase our  likelihood to succeed,  our  management  team has
limited experience  operating a BDC and must be considered as inexperienced when
it comes to the both the day to day operations of an investment  company and the
management of investments.  We intend to rely on the general skills and business
acumen  of our  management  team as well as  engaging  other  professionals  and
consultants  from time to time to insure that it gains the expertise to manage a
BDC.

We may change our investment policies without further shareholder approval.

Although we are limited by the 1940 Act with  respect to the  percentage  of our
assets  that must be  invested  in  qualified  portfolio  companies,  we are not
limited with respect to the minimum  standard that any  investment  company must
meet, nor the industries in which those  investment  companies must operate.  We
may make  investments  without  shareholder  approval and such  investments  may
deviate significantly from our historic operations. Any change in our investment
policy or  selection  of  investments  could  adversely  affect our stock price,
liquidity, and the ability of our shareholders to sell their stock.

We may allocate the net proceeds from stock sales in ways with which you may not
agree.

We will have significant  flexibility in investing the net proceeds of our stock
sales.  We may use the net  proceeds in ways with which you may not agree or for
investments other than those contemplated at the time we sell the stock,  unless



                                 Page 21 of 90
<PAGE>

such  change in the use of  proceeds  is subject to  stockholders'  approval  or
prohibited by law.

Our investments may not generate sufficient income to cover our operations.

While we intend to make  investments  into those  qualified  companies that will
provide the greatest  overall return on our investment,  we are required to make
investments  into those  companies  which,  whether due to lack of experience or
financial  instability  (including  insolvency),  may present the greatest risk.
This is in conformity with the Small Business  Investment  Incentive Act of 1980
which amended the 1940 Act and permitted the creation of BDC's. However, certain
of those  investments  may fail, in which case we will not receive any return on
our investment.  In addition, our investments may not generate income, either in
the immediate  future,  or at all. As a result,  we may have to sell  additional
stock,  or borrow  money,  to cover our operating  expenses.  The effect of such
actions  could cause our stock price to decline or, if we are not  successful in
raising additional  capital,  we could cease to continue as a going concern.  It
should be noted that our operational  costs are higher as a result of our having
elected to be governed as a BDC.

Shares in a BDC will likely trade at a discount.

Shares of many closed-end  investment  companies and most BDC's frequently trade
at a discount to their net asset  value.  This  characteristic  is separate  and
distinct  from the risk that our net asset value  could  decrease as a result of
investment  activities.  This likely discount in share pricing in the market may
pose a greater risk to investors  expecting to sell their shares in a relatively
short period after purchase.  We cannot predict whether our shares will trade at
prices above, at or below our net asset value.

Regulations governing our operation as a business development company affect our
ability to raise, and the way in which we raise, additional capital.

We have the right to issue debt  securities  or preferred  stock  and/or  borrow
money from banks or other financial institutions, which we refer to collectively
as "senior securities," only in amounts such that our asset coverage, as defined
in the 1940 Act, equals at least 200% after each issuance of senior  securities,
the  maximum  amount  permitted  by the 1940  Act.  If the  value of our  assets
declines,  we may be unable to satisfy  this test.  If that  happens,  we may be
required  to sell a portion  of our  investments  or sell  additional  shares of
common stock and, depending on the nature of our leverage, to repay a portion of
our indebtedness at a time when such sales may be disadvantageous.  In addition,
any future  issuance of  additional  shares of our common stock could dilute the
percentage ownership of our current stockholders in us.

As a business development company regulated under provisions of the 1940 Act, we
are not  generally  able to issue and sell our common stock at a price below net
asset value per share.  We may,  however,  sell our common  stock,  or warrants,
options or rights to acquire our common stock,  at a price below the current net
asset value of our common  stock (1) if our Board of Directors  determines  that
such  sale is in the  best  interests  of us and our  stockholders,  and (2) our
stockholders  approve  such  sale.  In any such  case,  the  price at which  our



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securities are to be issued and sold may not be less than a price which,  in the
determination of our Board of Directors,  closely  approximates the market value
of such securities (less any sales load).

In  addition,  we may in the future  seek to  securitize  or  hypothecate  loans
previously  made  by us  to  generate  cash  for  funding  new  investments.  To
securitize or hypothecate these loans, we may contribute a pool of such loans to
a  wholly-owned  subsidiary.  This could  include the sale of  interests  in the
subsidiary  on a  non-recourse  basis to  purchasers  who we would  expect to be
willing to accept a lower interest rate to invest in investment grade loan pools
although  we would  expect to retain a portion of the equity in the  securitized
pool of loans. An inability to  successfully  securitize and sell all of part of
such a loan  portfolio  could  limit our  ability  to grow our  business,  fully
execute our business strategy and decrease our earnings,  if any. Moreover,  the
successful  securitization  of our loan  portfolio  might  expose  us to  losses
because the  residual  loans in which we do not sell  interests  will tend to be
those that are riskier and more likely to generate losses.

Our election to be governed as a BDC will require us to comply with  significant
regulatory requirements.

We elected to be regulated as a Business  Development Company under the 1940 Act
and be  subject  to  Sections  54  through  65 of said Act.  As a result of this
election,  the Company is subject to the provisions of 1940 Act as it applies to
BDCs as of the  date of  such  election.  Being  subject  to the BDC  provisions
requires  us  to  meet   significant   numbers  of   regulatory   and  financial
requirements.  Compliance  with these  regulations  is expensive  and may create
financial problems for us in the future. These laws and regulations,  as well as
their interpretation,  may be changed from time to time. Accordingly, any change
in these  laws or  regulations  could  have a  material  adverse  effect  on our
business.

Specifically,  it must be noted that there are increased  costs  associated with
compliance  with the 1940 Act as a result of our election to become a BDC. These
costs  include  costs  associated  with  the  increased  demand  for  compliance
including  oversight by our Chief Compliance  Officer and counsel to the Company
as well as increased costs due to accounting  methodology  and valuations  which
increase the time and work required of both our accounting service providers and
independent  auditors.  These costs  require us to expend  capital and resources
that might  otherwise  be used to meet the needs or  opportunities  relating  to
investments and/or our portfolio companies or other income-producing assets.

If we do not remain a business  development  company,  we might  continue  to be
regulated as a closed-end  investment  company  under the 1940 Act,  which would
decrease  our  operating  flexibility.   We  cannot  assure  you  that  we  will
successfully retain our BDC status.

If our primary investments are deemed not to be qualifying assets, we could lose
our status as a business  development  company or be  precluded  from  investing
according to our current business plan.

Under the 1940 Act,  in order to maintain  our status as a business  development
company,  we must not acquire any assets other than "qualifying  assets" unless,
at the time of and after giving effect to such acquisition,  at least 70% of our
total  assets  are  qualifying   assets.   If  we  acquire  mezzanine  loans  or



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dividend-paying equity securities from an issuer that has outstanding marginable
securities at the time we make an investment,  these  acquired  assets cannot be
treated  as  qualifying  assets  since the  issuer  might not be  considered  an
"eligible portfolio company" under the 1940 Act. "Marginable securities" include
any  non-equity  security,  pursuant to certain 1998  amendments to Regulation T
under the Securities Exchange Act of 1934, as amended, which raises the question
as to whether a private  company  that has  outstanding  debt  securities  would
qualify as an eligible portfolio company.

We operate in a highly competitive market for investment opportunities.

A large number of entities will compete with us to make the types of investments
that we plan to make in target portfolio  companies.  We will compete with other
business  development  companies,  public  and  private  funds,  commercial  and
investment banks and commercial financing companies. Many of our competitors are
substantially  larger and have  considerably  greater  financial,  technical and
marketing  resources than we do. For example,  some competitors may have a lower
cost of funds and access to funding  sources  that are not  available  to us. In
addition,  some of our  competitors may have higher risk tolerances or different
risk  assessments,  which  could  allow  them to  consider  a wider  variety  of
investments and establish more relationships than us.  Furthermore,  many of our
competitors  are not subject to the  regulatory  restrictions  that the 1940 Act
imposes on us as a business  development  company. We cannot assure you that the
competitive  pressures  we face will not have a material  adverse  effect on our
business,  financial  condition and results of operations.  Also, as a result of
this competition,  we may not be able to take advantage of attractive investment
opportunities  from time to time,  and we can offer no assurance that we will be
able to identify and make  investments  that are consistent  with our investment
objective.

We may never be able to qualify for the income tax benefits offered to RICs.

We will be classified  as a  non-diversified  investment  company under the 1940
Act.  Until we  achieve a  threshold  level of  diversification,  we will not be
subject to the applicable  provisions for RICs under the Internal  Revenue Code.
Therefore,  we  will  not  receive  favorable  pass  through  tax  treatment  on
distributions  to our  shareholders.  This  means  that we will be  taxed  as an
ordinary corporation on our taxable income even if that income is distributed to
shareholders,  and all  distributions  out of our  earnings  and profits will be
taxable to  shareholders  as dividends.  Thus,  this income will be subject to a
double layer of taxation.

RISKS ASSOCIATED WITH INVESTMENTS AND PORTFOLIO COMPANIES

There are costs associated with the purchase and sale of securities.

While the general approach of a BDC may suggest a long-term  holding position of
the  securities of its portfolio  companies,  some of our strategies may include
purchases of different  classes of  securities  or frequent  trading to maximize
profits  and, as a  consequence,  risks  related to  turnover  and costs such as
brokerage  commissions  may be greater than for an investment in a single entity
for a single class of security held for a longer  period of time.  Our operating
expenses,  including,  but not limited to, fees paid to accountants,  attorneys,
fees to  execute  trades,  manage  investments  and fees paid to any  investment
advisor  may, in the  aggregate,  constitute a high  percentage  relative to the



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expenses and fees than for an  investment  in a single entity for a single class
of security held for a longer period of time.

There are numerous risks arising from investing in securities.

The  securities  industry is  generally  competitive  and methods of  investment
strategy involve a degree of risk. We will compete with firms, including many of
the larger  securities and investment  banking firms,  which have  substantially
greater financial resources and research staffs. Where we purchase securities in
portfolio companies for appreciation,  our profitability  substantially  depends
upon our ability to correctly assess the future price movements of stocks. There
can be no assurance that we will be able to accurately  predict price  movements
of securities purchased.

Security investments generally involve a high degree of risk. The performance of
securities  in which we may invest are  subject to  numerous  factors  which are
neither within the control of nor  predictable by us. Such factors can include a
wide range of economic,  political,  competitive and other  conditions which may
affect  investments  in general or specific  industries or companies.  In recent
years,  the  securities  markets  have  become  increasingly  volatile  and this
volatility has increased the degree of risk.

Our  investments in prospective  portfolio  companies may be risky and you could
lose all or part of your investment.

We  will  invest  in  companies  that  have  relatively  short  or no  operating
histories.  These  companies  will be  subject to all of the  business  risk and
uncertainties  associated with any new business  enterprise,  including the risk
that these companies may not reach their  investment  objective and the value of
our investment in them may decline  substantially  or fall to zero.  Most of the
portfolio  companies  into which we intend to invest will be considered  "growth
stage" companies.

Investments in growth stage  companies  offer the  opportunity  for  significant
gains. However, each investment involves a high degree of business and financial
risk that can result in substantial losses. Among these are the risks associated
with:

     o    these companies may have limited financial resources and may be unable
          to meet their  obligations  under their securities that we hold, which
          may be  accompanied  by a  deterioration  in the value of their equity
          securities or of any collateral  with respect to debt securities and a
          reduction in the  likelihood of us realizing on any  guarantees we may
          have obtained in connection with our investment;

     o    they may have shorter operating histories,  narrower product lines and
          smaller  market  shares than larger  businesses,  which tend to render
          them more vulnerable to competitors' actions and market conditions, as
          well as general economic downturns;

     o    because many of these companies are privately held  companies,  public
          information  is generally not available  about these  companies.  As a
          result,  we will  depend on the ability of our  investment  adviser to
          obtain  adequate  information  to evaluate  these  companies in making
          investment  decisions.  If our investment adviser is unable to uncover
          all  material  information  about these  companies,  it may not make a



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          fully  informed  investment  decision,  and we may  lose  money on our
          investments;

     o    they are more likely to depend on the  management  talents and efforts
          of a  small  group  of  persons;  therefore,  the  death,  disability,
          resignation  or termination of one or more of these persons could have
          a material  adverse  impact on our portfolio  company and, in turn, on
          us;

     o    companies  operating  at a loss  or  with  substantial  variations  in
          operating  results  from  period to  period,  with the need  for,  but
          generally  limited  ability to  provide  for  internally,  substantial
          additional  capital to support  expansion  or to achieve or maintain a
          competitive position;

     o    these companies may face intense  competition,  including  competition
          from  companies  with  greater  financial  resources,  more  extensive
          development,  manufacturing,  marketing, and service capabilities, and
          larger number of qualified managerial and technical personnel; and

     o    they may have less  predictable  operating  results,  may from time to
          time be parties to litigation,  may be engaged in changing  businesses
          with  products  subject  to a risk of  obsolescence  and  may  require
          substantial  additional  capital to support their operations,  finance
          expansion or maintain their  competitive  position.  In addition,  our
          executive officers, directors and our investment adviser could, in the
          ordinary  course of business,  be named as  defendants  in  litigation
          arising from our investments in the portfolio companies.


Economic  recessions or downturns could impair our portfolio  companies and harm
our operating results.

Our portfolio companies will generally be affected by the conditions and overall
strength of the national, regional and local economies,  including interest rate
fluctuations,  changes in  markets  and  changes in the prices of their  primary
commodities and products. These factors could adversely impact the customer base
of potential portfolio  companies.  As a result, many of our portfolio companies
may be  susceptible  to economic  slowdowns or  recessions  and may be unable to
repay loans or meet other  obligations  during  these  periods.  Therefore,  our
non-performing assets are likely to increase,  and the value of our portfolio is
likely to decrease,  during these periods.  Adverse economic conditions also may
decrease the value of collateral securing some of our loans and the value of our
equity  investments.  Economic  slowdowns or recessions  could lead to financial
losses in our  portfolio  and a decrease  in  revenues,  net income and  assets.
Unfavorable economic conditions also could increase our funding costs, limit our
access to the  capital  markets or result in a decision by lenders not to extend
credit to us. These events could prevent us from increasing investments and harm
our operating results.

A  portfolio  company's  failure to satisfy  financial  or  operating  covenants
imposed  by us or  other  investors  or  lenders  could  lead to  defaults  and,
potentially, termination of loans and foreclosure on secured assets, which could
trigger  cross-defaults  under other  agreements  and  jeopardize  our portfolio
company's  ability to meet its obligations  under the debt or equity  securities
that we hold.  We may incur  expenses to the extent  necessary to seek  recovery
upon default or to negotiate new terms,  which may include the waiver of certain
financial covenants, with a defaulting portfolio company. In addition, if one of



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our portfolio companies were to go bankrupt,  even though we may have structured
our  interest as senior debt or  preferred  equity,  depending  on the facts and
circumstances,  including  the extent to which we actually  provided  managerial
assistance to that portfolio  company,  a bankruptcy court might  recharacterize
our debt or equity  holding  and  subordinate  all or a portion  of our claim to
those of other creditors.

Our  portfolio  companies  may incur debt or issue equity  securities  that rank
equally with, or senior to, our investments in such companies.

We intend to invest  primarily  in  mezzanine  debt and  dividend-paying  equity
securities issued by our portfolio  companies.  Our portfolio  companies usually
will have,  or may be  permitted  to incur,  other debt,  or issue other  equity
securities,  that rank equally  with,  or senior to, the  securities in which we
invest.  By their  terms,  such  instruments  may  provide  that the holders are
entitled to receive payment of dividends, interest or principal on or before the
dates on which we are entitled to receive  payments in respect of the securities
in which we invest. Also, in the event of insolvency, liquidation,  dissolution,
reorganization  or  bankruptcy  of a portfolio  company,  holders of  securities
ranking senior to our investment in that  portfolio  company would  typically be
entitled  to receive  payment  in full  before we receive  any  distribution  in
respect of our  investment.  After  repaying the senior  security  holders,  the
portfolio  company may not have any  remaining  assets to use for  repaying  its
obligation to us. In the case of securities  ranking  equally with securities in
which we invest, we would have to share on an equal basis any distributions with
other security holders in the event of an insolvency, liquidation,  dissolution,
reorganization or bankruptcy of the relevant portfolio company. In addition,  we
may not be in a position to control any portfolio company in which we invest. As
a result, we are subject to the risk that a portfolio company in which we invest
may make business  decisions  with which we disagree and the  management of such
company,  as  representatives  of the holders of their common  equity,  may take
risks or  otherwise  act in ways  that do not  serve  our  interests  as debt or
preferred equity investors.

We may not be able to fully  realize the value of any  collateral  securing  any
debt investments made into portfolio companies.

Although we expect that a  substantial  amount of our debt  investments  will be
protected  by  holding  security  interests  in  the  assets  of  the  portfolio
companies,  we may not be able to fully  realize  the  value  of the  collateral
securing any such investments due to one or more of the following factors:

     o    since these debt  investments  will be  primarily  made in the form of
          unsecured or wrap-loans,  the liens on the collateral, if any, will be
          subordinated  to those of the  senior  secured  debt of the  portfolio
          companies, if any. As a result, we may not be able to control remedies
          with respect to the collateral;

     o    the  collateral  may not be  valuable  enough  to  satisfy  all of the
          obligations under our secured loan,  particularly  after giving effect
          to the repayment of secured debt of the  portfolio  company that ranks
          senior to our loan;

     o    bankruptcy  laws may limit  our  ability  to  realize  value  from the
          collateral and may delay the realization process;



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     o    our rights in the collateral may be adversely  affected by the failure
          to perfect security interests in the collateral;

     o    how  effectively  the  collateral  would be  liquidated  and the value
          received could be impaired or impeded by the need to obtain regulatory
          and contractual consents; and

     o    by its nature,  some or all of the  collateral may be illiquid and may
          have no readily ascertainable market value. The liquidity and value of
          the  collateral  could be impaired  as a result of  changing  economic
          conditions, competition, and other factors, including the availability
          of suitable buyers.

Our success  will depend upon the  success of the  portfolio  companies  and, in
great part, upon the abilities of their management.

Although our management  expects to provide portfolio  companies with assistance
(particularly with regard to capital formation,  major personnel decisions,  and
strategic  planning),  the  day-to-day  operations  will  be  controlled  by the
management of the portfolio  companies.  As the portfolio companies have not all
been  identified,  investors must rely upon our  management to select  portfolio
companies that have, or can obtain, the necessary management resources.  We will
depend on the  diligence,  skill and network of business  contacts of the senior
management  of each of the  portfolio  companies  in  which  we  invest  and the
professionals chosen by them, subject to the oversight of our senior management,
and  the  information  and  interaction  between  management  of  the  portfolio
companies and our  management.  Our future  success will depend to a significant
extent on the continued  service of the senior management team of each portfolio
company,  the departure of any of whom,  could have a material adverse effect on
our ability to achieve our investment objective. Problems may arise at portfolio
companies that local management do not recognize or cannot resolve. In addition,
the management of portfolio companies may conceal the existence of problems from
us.

Many of our portfolio  investments  will be recorded at fair value as determined
in good  faith  by our  board of  directors  and,  as a  result,  there  will be
uncertainty as to the value of our portfolio investments.

A large  percentage of our portfolio  investments  will consist of securities of
privately  held or  thinly  traded  public  companies.  The fair  value of these
securities  may not be  readily  determinable.  We will value  these  securities
quarterly  at fair value as  determined  in good faith by our Board of Directors
based on input  from our audit  committee  with or  without  the  benefit  of an
opinion from a third party  independent  valuation firm. We may also be required
to value any publicly  traded  securities  at fair value as  determined  in good
faith by our Board of Directors to the extent  necessary to reflect  significant
events affecting the value of those  securities.  Our Board of Directors may, to
the extent  circumstances  warrant it,  utilize the  services of an  independent
valuation firm to aid it in determining  the fair value of any  securities.  The
types of factors that may be considered in fair value pricing of our investments
include  the  nature  and  realizable  value of any  collateral,  the  portfolio
company's  ability to make payments and its  earnings,  the markets in which the
portfolio  company  does  business,  comparison  to publicly  traded  companies,
discounted cash flow and other relevant  factors.  Because such valuations,  and



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particularly  valuations  of  private  securities  and  private  companies,  are
inherently uncertain,  may fluctuate over short periods of time and may be based
on  estimates,  the  determinations  of fair value by our Board of Directors may
differ  materially  from the values that would have been used if a ready  market
for these securities existed. Our net asset value could be adversely affected if
the  determinations  regarding the fair value of our investments were materially
higher  than the values that we  ultimately  realize  upon the  disposal of such
securities.

Limitations on  availability  of investment  capital may adversely  affect other
investments.

We may be reliant on the  availability of capital to generate  profits under our
investment  strategy and such  availability will depend, in part, on our ability
to  timely  liquidate  existing  positions  in order to  reinvest  the  proceeds
thereof.  To the extent that we own securities  which are not subject to a valid
registration  statement  or otherwise  available  for trading  under  applicable
securities laws, our ability to liquidate our position in such securities may be
limited.  We intend to require some of our portfolio companies to use their best
efforts to cause a registration  statement covering the resale of the securities
purchased  by us to be  filed  and  declared  effective  by the  SEC  or  become
otherwise freely tradeable.  However,  there can be no guarantee that the SEC or
other  regulating body will declare such a registration  statement  effective or
permit  such  security to become  free of  restrictions  within such period and,
until such securities become freely tradable, we will likely be unable to freely
liquidate  such  interests  in  restricted  securities  in the manner and at the
prices  desired.  This resulting  lack of liquidity  could impair our ability to
generate  the cash flow from these  positions to timely pay our  liabilities  or
obtain  funds for the  purpose of  reinvestment.  Although we intend to maintain
adequate liquidity to achieve our future investment objectives,  there can be no
assurance this can be accomplished in all circumstances.

Portfolio companies are likely to need additional funding.

We expect that many  portfolio  companies will require  additional  financing to
satisfy their working capital  requirements.  The amount of additional financing
needed will depend upon the maturity and objectives of the  particular  company.
Each round of venture financing, whether from us or other investors is typically
intended to provide a portfolio  company  with enough  capital to reach the next
major valuation milestone. If the funds provided are not sufficient, a portfolio
company may have to raise  additional  capital at a price  unfavorable to us and
the other  existing  investors.  The  availability  of  capital is  generally  a
function of capital market conditions that are beyond our control or the control
of any  portfolio  company.  We cannot  assure  you that our  management  or the
managements of portfolio companies will be able to predict accurately the future
capital  requirements  necessary  for success or that  additional  funds will be
available to portfolio  companies from any source.  If funding is not available,
some portfolio companies may be forced to cease operations.

BDC investments are generally illiquid.

We  anticipate  that  most  of our  holdings  in  portfolio  companies  will  be
securities  that are subject to restrictions  on resale.  Generally,  unless the
securities are  subsequently  registered under the 1933 Act, we will not be able
to sell these  securities  unless we meet all of the  conditions  of Rule 144 or
another  rule under the 1933 Act that  permits  limited  sales  under  specified



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conditions.  When restricted securities are sold to the public, we may be deemed
an underwriter,  or possibly a controlling  person, with respect thereto for the
purpose of the  Securities Act and may be subject to liability as such under the
1933 Act. These restrictions could require us to hold securities or refrain from
sale and be unable to liquidate a position even at a loss.

Even if we meet all of the  conditions  of the 1933 Act,  there may be no market
for the  securities  that we hold.  These  limitations  on  liquidity of a BDC's
investments  could  prevent a successful  sale  thereof,  result in delay of any
sale, or  substantially  reduce the amount of proceeds  that might  otherwise be
realized.  It is possible  that one or more of the  portfolio  companies may not
qualify to rely on such exemptions or to use a registration  statement.  In such
event, we would end up owning  "restricted"  securities  subject to resale under
Rule 144

There are risks which  result from the  inherent  concentration  of  investments
prior to diversification.

While we intend to allocate our investments among different portfolio companies,
it is possible  that,  prior to our  achieving  diversification,  a  significant
amount of or all of our investments  and, hence, our NAV could, at any one time,
be invested in the  securities  of just a few  portfolio  companies.  Thus,  our
success and its NAV would be  dependent  on the success of just a few  portfolio
companies  and all of the risks  associated  with  ownership  of such  portfolio
companies including success dependent on management, success dependent on market
conditions  within the industry or field of such  portfolio  companies,  success
dependent on achieving the business  objectives of such portfolio  companies and
success  dependent on economic  conditions and other conditions  relative to the
operation of such portfolio companies, would become risks borne by us.

There  are  risks   associated   with   investments   in  companies  with  small
capitalization.

The portfolio  companies that we expect to invest in are thinly  capitalized and
generally will have a market  capitalization  below $100 million (and frequently
substantially  less). These companies  generally do not have experience,  market
awareness,  tracking by analysts,  institutional investors and other benefits of
larger companies that result in more marketability and more stability pricing of
their  securities.  This  impacts the  liquidity of  securities  issued by those
portfolio companies.  It is expected that the securities of most, if not all, of
the portfolio companies will be thinly traded. This could present a problem when
we  determine  to  liquidate  our  position.  We may not be  able  to  sell  the
securities  in the time frame and at the price we would  like.  Furthermore,  in
certain  situations,  as a result of a security  being thinly  traded,  we could
experience a  significant  loss in value  should we be forced to  liquidate  our
investment as a result of rapidly changing market conditions or other factors.

There are risks  associated  with  investments in companies with securities that
are not readily marketable.

We may  invest in  securities  that are  initially,  or that later  become,  not
readily  marketable.  For example,  we may acquire  restricted  securities of an
issuer in a private  placement  pursuant  to an  arrangement  whereby the issuer
agrees  to  register  the  resale  of those  securities,  or,  in the case of an
investment in convertible or exchangeable securities,  the securities underlying
such  securities,  within a certain period of time. Such  registration  requires



                                 Page 30 of 90
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compliance with United States Federal and state securities laws and the approval
of the SEC.  Unless and until such  registration  or compliance  with applicable
regulation  occurs,  there  is  likely  to  be  no  market  for  the  restricted
securities.  No  assurance  can be given  that  issuers  will not  breach  their
obligation to obtain or meet such  registration or other compliance  obligation.
Similarly,  securities that are at one time  marketable may become  unmarketable
(or more difficult to market) for a number of reasons.  For example,  securities
traded on a securities  exchange or quotation system may become  unmarketable if
delisted from such exchange or quotation system for among other reasons, failing
to satisfy the  requirements  for continued  listing,  which may include minimum
price requirements. In addition, we may acquire restricted securities, for which
no market exists, which are convertible or exchangeable into common stock of the
issuer.  No  assurances  can be given that a portfolio  company which has sold a
convertible  security  requiring  exchange  or  conversion,  will not breach its
obligation to convert or exchange such securities upon demand, in which case our
liquidity may be adversely affected.  In general, the stability and liquidity of
the   securities   in  which  we  invest  will  depend  in  large  part  on  the
creditworthiness of the issuers.  Issuers' creditworthiness will be monitored on
an  ongoing  basis by us.  If  there is a  default  by the  issuer,  we may have
contractual  remedies  under  the  applicable  transaction  documents.  However,
exercising  such  contractual  rights  may  involve  delays in  liquidating  our
position and the incurrence of additional costs.

Portfolio  companies  in which  investments  are  made may have  publicly-traded
securities  but those  companies  or their  securities  may  become  subject  to
restrictions  due to  non-compliance.  Our ability to generate  profits from our
investment  activities  may be  adversely  affected  by a failure  of  portfolio
companies to comply with registration, conversion, exchange or other obligations
under the agreements pursuant to which such securities have been sold to us. The
failure of an issuer to  register  the resale of its  securities  sold to us may
decrease  the  amount  of  available  capital  with  which we may  pursue  other
investment  opportunities  or  meet  current  liabilities.   We  may  invest  in
securities  that are convertible  into or  exchangeable  for common stock of the
issuer,  the  resale  of which by us is (or is to be)  registered.  If an issuer
refuses,  is unable to, or delays in timely  honoring  its  obligation  to issue
conversion or exchange securities, our ability to liquidate our position will be
adversely affected, and our profits may be adversely affected.

We have not yet identified all of the potential investments for our portfolio.

We have not yet identified all of the potential  investments  for our portfolio,
and,  thus,  you will not be able to evaluate all of our  potential  investments
prior to purchasing  shares of our common  stock.  This factor will increase the
uncertainty, and thus the risk, of investing in our shares.

We may sustain losses from fraud within our portfolio companies.

The risk of fraud losses on our assets  varies  with,  among other  things,  the
effectiveness of security procedures utilized. Management anticipates that fraud
losses,  if any, will be unlikely as controls and other  security  measures will
have been adopted by each portfolio  company as a condition to our investment to
protect against fraudulent  misappropriation of cash and other assets.  However,
although our  management  believes  that any loss due to fraud will be unlikely,
there can be no assurance that fraud loss experience will not become material in
amount.  Fraud at the BDC level is far less likely as BDC's are required to have
and to have tested controls to limit this possibility. It must be noted that, in
addition to basic controls as to financial  data,  BDC's are required to have in



                                 Page 31 of 90
<PAGE>

place certain  safeguards which may render risks to investment assets from fraud
to be nominal  but these  risks do exist and even  requirements  such as holding
physical  certificates of shares in portfolio companies in a safe do not, in and
of themselves, eliminate the possibility of fraud.

Our investments in foreign securities may involve  significant risks in addition
to the risks inherent in U.S. investments.

Our  investment  strategy  contemplates  potential  investments in securities of
foreign  companies.  Investing in foreign  companies may expose us to additional
risks not typically  associated  with investing in U.S.  companies.  These risks
include  changes  in  exchange   control   regulations,   political  and  social
instability, expropriation, imposition of foreign taxes, less liquid markets and
less  available  information  than is  generally  the case in the  U.S.,  higher
transaction  costs,  less  government  supervision  of  exchanges,  brokers  and
issuers,  less developed  bankruptcy laws,  difficulty in enforcing  contractual
obligations, lack of uniform accounting and auditing standards and greater price
volatility.  Although  we  expect  that  most  of our  investments  will be U.S.
dollar-denominated,  our investments  that are denominated in a foreign currency
will be subject to the risk that the value of a particular  currency will change
in relation to one or more other  currencies.  Among the factors that may affect
currency  values are trade  balances,  the level of short-term  interest  rates,
differences  in  relative  values of  similar  assets in  different  currencies,
long-term  opportunities for investment and capital appreciation,  and political
developments.

We may employ hedging  techniques to minimize  these risks,  but we can offer no
assurance  that such  strategies  will be  effective.  If we  engage in  hedging
transactions,   we  may  expose   ourselves  to  risks   associated   with  such
transactions.  We may utilize  instruments such as forward  contracts,  currency
options  and  interest  rate  swaps,  caps,  collars and floors to seek to hedge
against  fluctuations  in the relative  values of our portfolio  positions  from
changes in currency exchange rates and market interest rates.  Hedging against a
decline  in the  values  of our  portfolio  positions  does  not  eliminate  the
possibility of fluctuations in the values of such positions or prevent losses if
the values of such positions decline.  However, such hedging can establish other
positions designed to gain from those same developments,  thereby offsetting the
decline in the value of such portfolio  positions.  Such hedging transaction may
also limit the  opportunity  for gain if the values of the  portfolio  positions
should increase.  Moreover,  it may not be possible to hedge against an exchange
rate or interest rate fluctuation  that is so generally  anticipated that we are
not able to enter into a hedging transaction at an acceptable price. The success
of our hedging  transactions  will depend on our  ability to  correctly  predict
movements,  currencies and interest  rates.  Therefore,  while we may enter into
such  transactions  to seek to reduce  currency  exchange rate and interest rate
risks,  unanticipated  changes in currency  exchange rates or interest rates may
result in poorer overall  investment  performance  than if we had not engaged in
any such hedging  transactions.  In addition,  the degree of correlation between
price  movements  of the  instruments  used  in a  hedging  strategy  and  price
movements in the  portfolio  positions  being hedged may vary.  Moreover,  for a
variety of reasons,  we may not seek to establish a perfect  correlation between
such hedging  instruments  and the portfolio  holdings  being  hedged.  Any such
imperfect  correlation  may prevent us from  achieving  the  intended  hedge and
expose us to risk of loss. In addition, it may not be possible to hedge fully or
perfectly  against  currency  fluctuations  affecting  the  value of  securities
denominated  in non-U.S.  currencies  because the value of those  securities  is
likely to fluctuate as a result of factors not related to currency fluctuations.



                                 Page 32 of 90
<PAGE>

RISKS OF THE COMPANY AT ITS PRESENT STAGE

Although  we have  been in  existence  for a number  of  years,  we may still be
considered to have a limited operating history as a BDC. We are a relatively new
business development company with limited resources and sources of revenues.

We were formed in March of 1996 and we have commenced investment  operations but
the  extent  of  our  investment  activities  may  characterize  us  as a  newer
investment  company. We made our election to become a BDC on March 7, 2006, and,
as we have made an investment in only one portfolio  company within our targeted
industry, we have limited experience relating to the identification,  evaluation
and acquisition of target businesses and,  accordingly,  there is only a limited
basis upon which to evaluate our prospects  for achieving our intended  business
objectives.  We have limited  resources  and have realized  limited  revenues to
date. In addition,  we will not achieve any revenues until, at the earliest,  we
are able to obtain funding, make investments and sell our position of securities
in an underlying portfolio company for a profit. We will be wholly dependent for
the selection,  structuring, closing and monitoring of all of our investments on
the diligence and skill of our  management,  acting under the supervision of our
Board of Directors. None of these individuals has substantial experience, within
the BDC business  format,  in acquiring and investing in growth stage companies,
the  negotiation  of the terms of such  investments  and the  monitoring of such
investments  after they are made.  We cannot  assure you that we will attain our
investment objective.

We are subject to all of the business risks and  uncertainties  associated  with
any new  business  enterprise,  including  the risk that we will not achieve our
investment  objective and that the value of your  investment in us could decline
substantially or fall to zero.

We will be confronted by competition from entities having substantially  greater
resources and experience.

Other entities and individuals compete for investments similar to those proposed
to be made by us,  many of whom  will  have  greater  financial  and  management
resources than we do.  Furthermore,  we must comply with  provisions of the 1940
Act  pertaining to BDCs and, if we qualify as a RIC,  provisions of the Internal
Revenue Code  pertaining to RICs might restrict our flexibility as compared with
our competitors.  The need to compete for investment  opportunities  may make it
necessary for us to offer portfolio companies more attractive  transaction terms
than  otherwise  might be the  case.  These  factors  may  prevent  us from ever
becoming profitable.

We have historically incurred losses and losses may continue in the future.

We have  historically  lost money.  Accordingly,  we may experience  significant
liquidity and cash flow problems if we are not able to raise additional  capital
as needed and on acceptable  terms.  No assurances  can be given that we will be
successful in reaching or maintaining profitable operations.

Distributions  to  shareholders  may never  equal  the  amount  invested  by the
shareholders.



                                 Page 33 of 90
<PAGE>

We cannot assure you that any  distributions to shareholders  will be made by us
or that aggregate distributions,  if any, will equal or exceed the shareholders'
investment  in us. Sales of  portfolio  company  securities  will be a principal
source  of  distributable  cash to  shareholders.  The  Board of  Directors  has
absolute  discretion in the timing of distributions to shareholders.  Securities
acquired by us through equity investments will be held by us and will be sold or
distributed at the sole discretion of the Board of Directors.

There are significant  potential  conflicts of interest,  which could impact our
investment returns

Our  executive  officer(s)  and  Director(s)  serve or may serve as officers and
directors  of entities who operate in the same or related line of business as we
do. Accordingly,  they may have obligations to investors in those entities,  the
fulfillment  of  which  might  not  be in  the  best  interests  of  us  or  our
stockholders.  It is  possible  that new  investment  opportunities  that  would
otherwise meet our  investment  objective may come to the attention of one these
entities,  and, if so, such opportunity might not be offered,  or otherwise made
available,  to us.  However,  our executive  officer(s) and  Director(s) do have
fiduciary  obligations  to  act  in our  best  interests  and  must,  in  such a
circumstance or conflict,  endeavor to allocate  investment  opportunities  in a
fair and  equitable  manner  over  time so as not to  discriminate  one  company
against another,  where equal fiduciary obligations are owed. In addition,  they
may not be available to us if there are time conflicts involving other entities.

Our  common  stock is  subject  to the  "Penny  Stock"  rules of the SEC and the
trading market in our  securities is limited,  which makes  transactions  in our
stock cumbersome and may reduce the value of an investment in our stock.

The Securities and Exchange  Commission has adopted Rule 15g-9 which establishes
the  definition  of a "penny  stock,"  for the  purposes  relevant to us, as any
equity  security  that has a market price of less than $5.00 per share or option
to acquire any equity  security  with an  exercise  price of less than $5.00 per
share,  subject to certain  exceptions.  For any  transaction  involving a penny
stock, unless exempt, the rules require:

     o    that a broker or dealer approve a person's account for transactions in
          penny stocks; and

     o    the broker or dealer receive from the investor a written  agreement to
          the transaction,  setting forth the identity and quantity of the penny
          stock to be purchased.

In order to approve a person's  account for  transactions  in penny stocks,  the
broker or dealer must:

     o    obtain financial  information and investment  experience objectives of
          the person; and

     o    make a reasonable  determination that the transactions in penny stocks
          are suitable for that person and the person has  sufficient  knowledge
          and  experience in financial  matters to be capable of evaluating  the
          risks of transactions in penny stocks.

The broker or dealer  must also  deliver,  prior to any  transaction  in a penny
stock, a disclosure  schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:



                                 Page 34 of 90
<PAGE>

     o    sets  forth  the  basis  on  which  the  broker  or  dealer  made  the
          suitability determination; and

     o    that the broker or dealer  received a signed,  written  agreement from
          the investor prior to the transaction.

Generally,  brokers may be less willing to execute  transactions  in  securities
subject  to the  "penny  stock"  rules.  This  may  make it more  difficult  for
investors to dispose of our common stock and cause a decline in the market value
of our stock.

Disclosure  also has to be made about the risks of  investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative,  current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock  transactions.  Finally,  monthly  statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

We have limited operating history upon which to base your investment decision.

While we  started  operations  in March of  1996,  we have a  limited  operating
history available to evaluate the likelihood of the success of our business.  We
became a BDC on March 7, 2006.  Our  prospects  should be considered in light of
the risks,  expenses and  uncertainties  that may be  encountered by development
stage companies. Among other things, we must build our customer base, respond to
competitive  developments,  attract, retain and motivate qualified employees and
establish and maintain our  technologies,  products,  and services on an ongoing
basis.  There can be no assurance that we will be successful in addressing  such
risks and implementing our business strategy.

As a result of our lack of  operating  history,  and the other  risks  described
herein,  we are unable to accurately  forecast our revenues.  Our future expense
levels are based  predominately  on our operating  plans and estimates of future
revenues,  and to a large extent are fixed.  We may be unable to adjust spending
in a  timely  manner  to  compensate  for  revenues  that  do  not  materialize.
Accordingly,  any  significant  shortfall  in revenues or lack of revenue  would
likely have an immediate  material  adverse  effect on our  business,  operating
results and financial condition.

Our ability to generate  revenues  will  depend  upon many  factors.  We will be
required  to build our  business by  implementing  operational  systems,  hiring
additional employees, developing and implementing a marketing and sales strategy
and implementing our technology applications. Our expenses will initially exceed
our revenues and no  assurances  can be made that we will become  profitable  or
provide positive cash flows.


We cannot assure you that we will be successful in selling the common shares or,
if sold, at what price.  We have limited assets without the sale of these common
shares and we cannot assure you that we will attain our investment objective.



                                 Page 35 of 90
<PAGE>

As of the date of filing of our Form 10K, we have  minimal  cash or other assets
and net worth from which to invest in successful  portfolio  companies to insure
our success.  Our success will depend, in part, upon raising the necessary funds
to fund investments.

Restrictions  imposed  upon the resale of our  capital  stock may require you to
hold your stock for an indefinite period of time.

None of the  securities  to be issued based upon future sales will be registered
under the  Securities  Act. The common stock to be sold is intended to be exempt
from  registration  pursuant  to  Regulation  E  which  permits,  in  conformity
therewith,  issuance of shares without restriction on further transfer. While we
do not anticipate such an adverse  decision or  determination on the part of the
Securities and Exchange Commission, the SEC has the right, even after permitting
the offering to become effective,  to enjoin the sale of securities or determine
that such  sales are not  exempt  under  Regulation  E. While we will make every
effort to insure our compliance with the requirements  under Regulation E, there
can be no  assurance  of such  exemption;  as the SEC does  not,  as a matter of
policy,  affirmatively  indicate the  effectiveness  of the  notification  under
Regulation E.

CERTAIN GOVERNMENT REGULATIONS

We operate in a highly regulated environment. The following discussion generally
summarizes certain government regulations.


BUSINESS  DEVELOPMENT  COMPANY.  A business  development  company is defined and
regulated by the 1940 Act. A business  development  company must be organized in
the  United  States  for the  purpose of  investing  in or lending to  primarily
private companies and making managerial assistance available to them. A business
development  company may use capital  provided by public  shareholders  and from
other sources to invest in long-term, private investments in businesses.

As a business  development  company,  we may not  acquire  any asset  other than
"qualifying  assets" unless,  at the time we make the acquisition,  the value of
our qualifying  assets  represent at least 70% of the value of our total assets.
The principal categories of qualifying assets relevant to our business are:

(1) Securities  purchased in transactions not involving any public offering from
the  issuer  of such  securities,  which  issuer  (subject  to  certain  limited
exceptions) is an eligible portfolio company,  or from any person who is, or has
been  during  the  preceding  13 months,  an  affiliated  person of an  eligible
portfolio  company,  or from any other  person,  subject to such rules as may be
prescribed  by the SEC. An "eligible  portfolio  company" is defined in the 1940
Act as any issuer which:

     (a)  is  organized  under  the  laws  of,  and has its  principal  place of
          business in, the United States;

     (b)  is not an investment  company (other than a small business  investment
          company wholly owned by the business development company) or a company
          that would be an investment  company but for certain  exclusions under
          the 1940 Act; and



                                 Page 36 of 90
<PAGE>

     (c)  satisfies any of the following:

          o    does not have any class of  securities  with  respect  to which a
               broker or dealer may extend margin credit;
          o    is  controlled  by a business  development  company or a group of
               companies  including  a  business  development  company  and  the
               business  development  company has an affiliated  person who is a
               director of the eligible portfolio company; or
          o    is a small and solvent  company  having  total assets of not more
               than $4  million  and  capital  and  surplus  of not less than $2
               million.

(2) Securities of any eligible portfolio company which we control.

(3) Securities purchased in a private transaction from a U.S. issuer that is not
an  investment  company  or from  an  affiliated  person  of the  issuer,  or in
transactions  incident  thereto,  if the issuer is in bankruptcy  and subject to
reorganization  or if the  issuer,  immediately  prior  to the  purchase  of its
securities was unable to meet its obligations as they came due without  material
assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible  portfolio  company purchased from any person in a
private  transaction  if there is no ready  market  for such  securities  and we
already own 60% of the outstanding equity of the eligible portfolio company.

(5)  Securities  received in exchange for or  distributed  on or with respect to
securities  described  in (1) through (4) above,  or pursuant to the exercise of
warrants or rights relating to such securities.

(6) Cash, cash  equivalents,  U.S.  Government  securities or high-quality  debt
maturing in one year or less from the time of investment.

To include  certain  securities  described  above as  qualifying  assets for the
purpose of the 70% test, a business  development  company must make available to
the  issuer  of  those  securities  significant  managerial  assistance  such as
providing   significant   guidance  and  counsel   concerning  the   management,
operations,  or business  objectives  and  policies of a portfolio  company,  or
making loans to a portfolio company.  We offer to provide managerial  assistance
to each of our portfolio companies.

As a business development company, we are entitled to issue senior securities in
the form of stock or senior securities representing indebtedness, including debt
securities and preferred  stock, as long as each class of senior security has an
asset coverage ratio of at least 200% immediately after each such issuance.  See
"Risk  Factors."  We may also be  prohibited  under the 1940 Act from  knowingly
participating  in certain  transactions  with our  affiliates  without the prior
approval of our Independent  Directors and, in some cases, prior approval by the
SEC.

As with  other  companies  regulated  by the 1940 Act,  a  business  development
company   must  adhere  to  certain   other   substantive   ongoing   regulatory
requirements.  A  majority  of  our  directors  must  be  persons  who  are  not
"interested persons," as that term is defined in the 1940 Act. Additionally,  we
are  required  to provide and  maintain a bond  issued by a  reputable  fidelity
insurance company to protect the business development company. Furthermore, as a



                                 Page 37 of 90
<PAGE>

business  development company, we are prohibited from protecting any director or
officer  against any liability to the company or our  shareholders  arising from
willful  misfeasance,  bad faith,  gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.

We maintain a code of ethics that establishes procedures for personal investment
and  restricts  certain  transactions  by our  personnel.  Our  code  of  ethics
generally does not permit  investment by our employees in securities that may be
purchased or held by us. Our code of ethics is attached as Exhibit 14.

We may not change the nature of our  business  so as to cease to be, or withdraw
our election as, a business  development  company unless authorized by vote of a
"majority of the outstanding voting  securities," as defined in the 1940 Act, of
our shares.  A majority of the  outstanding  voting  securities  of a company is
defined  by the 1940 Act as the  lesser  of:  (i) 67% or more of such  company's
shares present at a meeting if more than 50% of the  outstanding  shares of such
company  are  present  and  represented  by proxy,  or (ii) more than 50% of the
outstanding shares of such company.

We are periodically examined by the SEC for compliance with the 1940 Act.


ITEM 2:           PROPERTIES

Our chief  executive  officer is providing our corporate  office at 3651 Lindell
Road,  Suite D #146, Las Vegas,  Nevada 89103 at no cost. The fair value of this
rental space is not  material.  We believe these  facilities,  which are in good
physical condition, are adequate for our needs for the next 12 to 24 months.


ITEM 3:           LEGAL PROCEEDINGS

We are not currently subject to any legal proceedings, nor, to our knowledge, is
any legal proceeding threatened against us.


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

There were no matters  submitted to a vote of security holders during the fourth
quarter.







                                 Page 38 of 90
<PAGE>



                                     PART II

ITEM 5:        MARKET  FOR  REGISTRANT'S  COMMON  EQUITY,   RELATED  STOCKHOLDER
               MATTERS AND PURCHASES OF EQUITY SECURITIES MARKET

Our Common Stock trades on the Over the Counter  Bulletin Board  ("OTCBB") under
the symbol: SMCA.OB.

HISTORICAL MARKET PRICE DATA FOR THE COMMON STOCK OF SMALL CAP STRATEGIES, INC.

These prices represent prices between  broker-dealers  and do not include retail
markups and markdowns or any commission to  broker-dealers.  In addition,  these
prices do not reflect prices in actual transactions.

The  following  table sets forth the range of high and low closing  sales prices
(as adjusted for the one for twenty stock split which was effective December 21,
2006 and the reverse  stock split of one for twenty  shares which was  effective
May 21, 2007) for our Common Stock for the periods indicated:

                                                      High               Low

     Fiscal Year Ending December 31, 2007

            First Quarter                          $   1.80           $  0.40
            Second Quarter                         $   0.80           $  0.16
            Third Quarter                          $   0.25           $  0.25
            Fourth Quarter                         $   0.55           $  0.16

     Fiscal Year Ending December 31, 2006

            First Quarter                          $   3.60           $  2.00
            Second Quarter                         $   5.60           $  2.04
            Third Quarter                          $   3.00           $  1.80
            Fourth Quarter                         $   2.40           $  1.00

NUMBER OF SHAREHOLDERS AND TOTAL OUTSTANDING SHARES

As of December 31, 2007, there were approximately 1,936 holders of record of our
common stock and we had 687,770 common shares issued and  outstanding  after the
one share for twenty share reverse split effective May 21, 2007.




                                 Page 39 of 90
<PAGE>

DIVIDENDS

The Company  has not  historically  paid cash  dividends.  The Company  does not
anticipate paying any cash dividends in the foreseeable future.

MERGER
Effective September 30, 2006, Photonics Corporation ("Photonics"),  a California
corporation, merged into Small Cap Strategies, Inc. ("SCPS", the "Company", "we"
or "us"), a Nevada corporation, with SCPS 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 and to  increase  the number of
shares of common stock authorized from 200,000,000 to 2,000,000,000.  All common
shares of Photonics were exchanged on a one-for-one  basis for stock in SCPS. As
discussed  below,  Photonics had 50,000,000  shares of $.001 par value preferred
stock  authorized,  of  which  400,000  shares  had  been  designated  Series  A
Convertible  Preferred  Stock. At September 30, 2006,  immediately  prior to the
merger,  Photonics had no preferred  stock issued or  outstanding.  SCPS did not
authorize  any  preferred  stock in its  articles  of  incorporation  in Nevada.
Accordingly, there is no preferred stock authorized, issued or outstanding after
the merger on September 30, 2006. In addition,  the shareholders  authorized the
board of  directors  to effect a reverse  stock  split  with-in  the next twelve
months.  On December 5, 2006, the board of directors  authorized a reverse stock
split of one share for each twenty shares outstanding,  to be effective December
21, 2006. On May 15, 2007,  the board of directors  authorized a second  reverse
stock split of one share for each twenty shares outstanding, to be effective the
dated filed with the Nevada Secretary of State, May 21, 2007.  Accordingly,  all
share  transactions  and disclosures  have been restated as if the reverse stock
split occurred before all periods presented.


OPTIONS

As of  December  31,  2007,  there are 21,698  common  shares  reserved  for the
exercise of options  held by a former  management  team at an exercise  price of
$4.00 per share. The former management team is G. Thomas Bailey (18,385), Joseph
"Chip"  Langston  (1,750),  and Michael  Craven  (1,563).  All other options and
option agreements have been cancelled.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The  Company's  stock  option plan (the 1997 Stock  Option  Plan) allows for the
issuance  of  incentive  and   nonqualified   stock  options  to  employees  and
consultants  of the Company.  Options  granted  under the Plan are generally for
periods  not to exceed ten years and  generally  must be at prices not less than
100% and 85%, for incentive and nonqualified stock options, respectively, of the
estimated  fair  value of the  stock on the date of grant as  determined  by the
Board of Directors.  Options granted to shareholders who own greater than 10% of
the  outstanding  stock are established at the estimated fair value of the stock
on the date of grant.  Stock  options  granted  by the  Company  to  others  are
primarily for legal and investment banking services.

In  connection  with  the  Company's  acquisition  of SGI in 2001,  the  Company
renegotiated  the  stock  options   previously  granted  to  former  members  of
management.  These options for 21,698 common stock shares were  considered a new



                                 Page 40 of 90
<PAGE>
<TABLE>
<CAPTION>

grant pursuant to SFAS No. 123R, Share-Based Payment (Note 2). These options are
fully vested,  do not expire and are exercisable at $4.00 per share, the closing
bid price of the Company's  common stock on the date of grant.  Accordingly,  no
compensation  was  charged  to  income  using  the  intrinsic  value  method  of
accounting. These options were granted from the 1997 Stock Option Plan.

On February 24, 2004,  the Company  established  the 2004 Stock Plan (the Plan).
The plan  registered,  via an S8 registration  statement,  up to 2,250 shares of
common stock to be issued to qualified recipients.  Eligible participants in the
Plan shall be such key employees, non-employee directors, and consultants of the
Company  and its  subsidiaries,  whether or not  members  of the  Board,  as the
Committee,  in its  sole  discretion,  may  designate  from  time to  time.  The
Committee's  designation  of a  participant  in any year shall not  require  the
Committee  to  designate  such person to receive  awards in any other year.  The
designation  of a participant  to receive an award under one portion of the Plan
does not require the Committee to include such participant  under other portions
of the Plan. The Committee  shall consider such factors as it deems pertinent in
selecting  participants  and in  determining  the  types  and  amounts  of their
respective awards.

During the year ended  December  31,  2005,  the Company  issued 1,250 shares of
common  stock,  under the 2004 Stock  Plan,  as payment for $40,000 of legal and
consulting  services,  reducing the shares of common stock  available for future
awards under the stock plan to 1,000 shares at December 31, 2007 and 2006.

The following table summarizes certain information as of December 31, 2007, with
respect to compensation plans (including individual  compensation  arrangements)
under which our common stock is authorized for issuance:

                                Number of securities to be
                                  issued upon exercise of     Weighted average exercise      Number of securities
                                   outstanding options,         price of outstanding        remaining available for
Plan category                       warrants and rights     options, warrants and rights        future issuance
-------------                       -------------------     ----------------------------        ---------------
<S>                                 <C>                     <C>                                 <C>

Equity compensation plans approved
  by security holders
          1997 Plan                          21,698                   $    4.00                           -
          2004 Plan                              -                        -                            1,000
Equity compensation plans not
  approved by security holders                   -                        -                               -
                                          ---------                                              -----------

Total                                        21,698                   $    4.00                        1,000
                                          =========                                              ===========

</TABLE>

PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

At December 31, 2006, we had a stock subscription  receivable from Shocker Index
100 LP with a balance of $361,627. We had substantial doubt about the ability of
Shocker  to make  payment  on the  obligation  in a  reasonable  period of time.
Accordingly,  on March 20, 2007,  our Board of Directors  agreed to exchange our
note  receivable  from Shocker,  for the return of 113,009  shares of our common
stock. The transaction was recorded effective December 31, 2006.



                                 Page 41 of 90
<PAGE>

ITEM 6:       SELECTED FINANCIAL DATA

The following table sets forth selected financial data as of and for each of the
three fiscal years ended  December 31, 2007,  2006 and 2005, and is derived from
our audited  financial  statements.  The data set forth below  should be read in
conjunction  with "Item 8: Financial  Statements" and related Notes to Financial
Statements appearing elsewhere herein and "Item 7: "Management's  Discussion and
Analysis of Financial Condition and Results of Operations".

                                         2007         2006       2005(a)
                                         ----         ----       -------

Revenues                              $ 231,954    $ 562,146   $    --

Administrative expenses                 186,244      246,694      86,125

Net earnings (loss) from operations      45,710      315,452     (86,125)

Other Income (Expense)                   11,564         --       166,960

Earnings (loss) before income taxes      57,274      315,452      80,835

Net earnings (loss) from operations
  available to common shareholders       95,213      315,452      79,520

Net realized and unrealized
  gains (losses)                       (452,532)     183,835        --

Net increase (decrease) in net
  assets from operations              $(357,319)   $ 499,287   $  79,520

Income (loss) per share
       Basic and Diluted              $    (.63)   $    1.11   $     .26

Balance Sheet Data:
Investments at fair value             $ 137,020    $ 504,564   $ 315,729
Cash                                      3,653          326     607,245
Total assets                            180,447      504,890     922,974
Total liabilities                        18,854       89,375     685,331
Net assets (liabilities)                161,593      415,515    (263,672)
Common stock outstanding
  at year end                           687,770      387,770     330,773

(a)  The  statement  of  operations  in 2005  includes  $1,600  in net loss from
     operations  which occurred in the period from December 16, 2005 to December
     31, 2005,  when the Company was  considered an investment  company.  During
     2005 and before December 16, 2005, the Company was in the Development Stage
     and did not have any operations.


                                 Page 42 of 90
<PAGE>

ITEM 7:             MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATION

Management's Analysis of Business

We will have significant  relative  flexibility in selecting and structuring our
investments.  We will not be subject to many of the regulatory  limitations that
govern traditional lending institutions such as banks. We will seek to structure
our  investments  so as to take  into  account  the  uncertain  and  potentially
variable financial  performance of our portfolio  companies.  This should enable
our  portfolio  companies  to retain  access to  committed  capital at different
stages in their  development and eliminate some of the  uncertainty  surrounding
their  capital  allocation  decisions.  We will  calculate  rates of  return  on
invested capital based on a combination of up-front commitment fees, current and
deferred  interest rates and residual values,  which may take the form of common
stock,  warrants,  equity  appreciation  rights or future contract payments.  We
believe that this flexible  approach to structuring  investments will facilitate
positive,  long-term relationships with our portfolio companies and enable us to
become a  preferred  source of capital to them.  We also  believe  our  approach
should enable debt financing to develop into a viable alternative capital source
for  funding  the  growth of target  companies  that wish to avoid the  dilutive
effects of equity financings for existing equity holders.

Longer  Investment  Horizon - We will not be subject to periodic  capital return
requirements. These requirements, which are standard for most private equity and
venture  capital funds,  typically  require that these funds return to investors
the initial  capital  investment  after a  pre-agreed  time,  together  with any
capital  gains on such capital  investment.  These  provisions  often force such
funds to seek the return of their  investments  in portfolio  companies  through
mergers,  public equity  offerings or other  liquidity  events more quickly than
they  otherwise  might,  which can result in a lower overall return to investors
and adversely affect the ultimate viability of the affected portfolio companies.
Because we may invest in the same  portfolio  companies as these  funds,  we are
subject to these risks if these funds  demand a return on their  investments  in
the portfolio  companies.  We believe that our flexibility to take a longer-term
view should  help us to maximize  returns on our  invested  capital  while still
meeting the needs of our portfolio companies.

Established Deal Sourcing Network - We believe that,  through our management and
directors,  we have solid contacts and sources from which to generate investment
opportunities. These contacts and sources include:

     o    public and private companies,
     o    investment bankers,
     o    attorneys,
     o    accountants,
     o    consultants, and
     o    commercial bankers.

However,  we  cannot  assure  you  that  such  relationships  will  lead  to the
origination of debt or other investments.



                                 Page 43 of 90
<PAGE>

Investment Criteria

As a matter of policy,  we will not purchase or sell real estate or interests in
real estate or real estate investment trusts except that we may:

     o    purchase  and  sell  real  estate  or  interests  in  real  estate  in
          connection  with  the  orderly  liquidation  of  investments,   or  in
          connection with foreclosure on collateral;
     o    own the  securities  of companies  that are in the business of buying,
          selling or developing real estate; or
     o    finance the purchase of real estate by our portfolio companies.

We will limit our  investments in more  traditional  securities  (stock and debt
instruments) and will not, as a matter of policy:

     o    sell  securities  short  except  with  regard  to  managing  the risks
          associated  with  publicly-traded  securities  issued by our portfolio
          companies;
     o    Purchase  securities  on  margin  (except  to the  extent  that we may
          purchase securities with borrowed money); or
     o    engage in the purchase or sale of commodities or commodity  contracts,
          including  futures  contracts  except  where  necessary in working out
          distressed loan; or
     o    investment situations or in hedging the risks associated with interest
          rate  fluctuations,  and,  in such  cases,  only  after all  necessary
          registrations  or  exemptions  from  registration  with the  Commodity
          Futures Trading Commission have been obtained.

Prospective  Portfolio  Company  Characteristics  - We have  identified  several
criteria  that we  believe  will  prove  important  in  seeking  our  investment
objective with respect to target companies.  These criteria will provide general
guidelines for our investment  decisions;  however,  we caution readers that not
all of these criteria will be met by each prospective portfolio company in which
we choose to invest.

Experienced  Management - We will generally require that our portfolio companies
have an  experienced  president  or  management  team.  We will also require the
portfolio  companies to have in place proper  incentives to induce management to
succeed and to act in concert with our interests as investors,  including having
significant  equity  interests.  We intend to  provide  assistance  in this area
either  supervising   management  or  providing  management  for  our  portfolio
companies.

Products or Services - We will seek  companies  that are involved in products or
services  that  do  not  require  significant  additional  capital  or  research
expenditures. In general, we will seek target companies that make innovative use
of proven technologies or methods.

Proprietary  Advantage - We expect to favor companies that can demonstrate  some
kind of proprietary  sustainable  advantage  with respect to their  competition.
Proprietary advantages include, but are not limited to:

     o    patents or trade secrets with respect to owning or  manufacturing  its
          products, and
     o    a  demonstrable   and   sustainable   marketing   advantage  over  its
          competition



                                 Page 44 of 90
<PAGE>

Marketing  strategies  impose unusual  burdens on management to be  continuously
ahead of its competition, either through some kind of technological advantage or
by being continuously more creative than its competition.

Profitable or Nearly Profitable  Operations Based on Cash Flow from Operations -
We will focus on target companies that are profitable or nearly profitable on an
operating cash flow basis.  Typically, we would not expect to invest in start-up
companies unless there is a clear exit strategy in place.

Potential  for Future  Growth - We will  generally  require  that a  prospective
target  company,  in addition to  generating  sufficient  cash flow to cover its
operating  costs and service its debt,  demonstrate  an ability to increase  its
revenues and operating  cash flow over time.  The  anticipated  growth rate of a
prospective target company will be a key factor in determining the value that we
ascribe  to any  warrants  or other  equity  securities  that we may  acquire in
connection with an investment in debt securities.

Exit Strategy - Prior to making an investment  in a portfolio  company,  we will
analyze the  potential  for that company to increase the liquidity of its common
equity through a future event that would enable us to realize  appreciation,  if
any, in the value of our equity interest. Liquidity events may include:

     o    an initial public offering,
     o    a private sale of our equity interest to a third party,
     o    a merger or an acquisition of the portfolio company, or
     o    a purchase of our equity  position by the portfolio  company or one of
          its stockholders.

We may  acquire  warrants  to  purchase  equity  securities  and/or  convertible
preferred stock of the eligible portfolio companies in connection with providing
financing.  The terms of the warrants,  including the expiration date,  exercise
price and terms of the equity  security for which the warrant may be  exercised,
will be negotiated  individually with each eligible portfolio company,  and will
likely be affected by the price and terms of  securities  issued by the eligible
portfolio company to other venture  capitalists and other holders. We anticipate
that most  warrants  will be for a term of five to ten  years,  and will have an
exercise price based upon the price at which the eligible portfolio company most
recently  issued  equity  securities  or, if a new equity  offering is imminent,
equity securities. The equity securities for which the warrant will be exercised
generally  will be common  stock of which  there may be one or more  classes  or
convertible  preferred  stock.  Substantially  all the warrants  and  underlying
equity  securities will be restricted  securities under the 1933 Act at the time
of the issuance.  We will generally  negotiate for registration  rights with the
issuer that may provide:

     o    "piggyback"  registration  rights,  which will permit us under certain
          circumstances, to include some or all of the securities owned by us in
          a registration statement filed by the eligible portfolio company, or

     o    in  circumstances,  "demand"  registration  rights permitting us under
          certain  circumstances,  to require the eligible  portfolio company to
          register  the  securities  under  the 1933 Act,  in some  cases at our
          expense.  We will generally  negotiate net issuance  provisions in the
          warrants,  which will allow us to receive upon exercise of the warrant
          without  payment of any cash a net amount of shares  determined by the



                                 Page 45 of 90
<PAGE>

          increase in the value of the issuer's  stock above the exercise  price
          stated in the warrant.

Liquidation  Value of  Assets -  Although  we do not  intend  to  operate  as an
asset-based  lender,  the prospective  liquidation  value of the assets, if any,
collateralizing  any debt securities that we hold will be an important factor in
our credit analysis. We will emphasize both tangible assets, such as:

     o    accounts receivable,
     o    inventory, and
     o    equipment,

and intangible assets, such as:

     o    intellectual property,
     o    customer lists,
     o    networks, and
     o    databases.

Investment Process

Due  Diligence  -  If a  target  company  generally  meets  the  characteristics
described above, we will perform initial due diligence, including:

     o    company and technology assessments,
     o    existing management team,
     o    market analysis,
     o    competitive analysis,
     o    evaluation of management, risk analysis and transaction size,
     o    pricing, and
     o    structure analysis.

Much of this  work will be done by  management  and  professionals  who are well
known by management.  The criteria  delineated above provide general  parameters
for our  investment  decisions.  We intend to pursue an  investment  strategy by
further  imposing  such  criteria and reviews that best insures the value of our
investments.  As unique circumstances may arise or be uncovered, not all of such
criteria will be followed in each instance but the process  provides a guideline
by  which  investments  can be  prudently  made  and  managed.  Upon  successful
completion of the  preliminary  evaluation,  we will decide whether to deliver a
non-binding  letter of intent  and move  forward  towards  the  completion  of a
transaction.

In our review of the management team, we look at the following:

     o    Interviews with management and significant shareholders, including any
          financial or strategic sponsor;
     o    Review of financing history;
     o    Review of management's track record with respect to:



                                 Page 46 of 90
<PAGE>

          o    product development and marketing,
          o    mergers and acquisitions,
          o    alliances,
          o    collaborations,
          o    research  and   development   outsourcing   and  other  strategic
               activities;
     o    Assessment of competition; and
     o    Review of exit strategies.

In our review of the financial conditions, we look at the following:

     o    Evaluation of future financing needs and plans;
     o    Detailed analysis of financial performance;
     o    Development of pro forma financial projections; and
     o    Review of assets and liabilities, including contingent liabilities, if
          any, and legal and regulatory risks.

In our review of the products and services of the portfolio company,  we look at
the following:

     o    Evaluation of intellectual property position;
     o    Review of existing customer or similar agreements and arrangements;
     o    Analysis of core technology;
     o    Assessment of collaborations;
     o    Review of sales and marketing  procedures;  and o Assessment of market
          and growth potential.

Upon  completion  of these  analyses,  we will conduct  on-site  visits with the
target company's management team. Also, in cases in which a target company is at
a mature  stage  of  development  and if  other  matters  that  warrant  such an
evaluation, we will obtain an independent appraisal of the target company.

Ongoing Relationships with Portfolio Companies

Monitoring - We will  continuously  monitor our portfolio  companies in order to
determine  whether they are meeting our financing  criteria and their respective
business  plans.  We may decline to make  additional  investments  in  portfolio
companies that do not continue to meet our financing  criteria.  However, we may
choose to make additional  investments in portfolio companies that do not do so,
but we believe that we will nevertheless perform well in the future.

We will monitor the  financial  trends of each  portfolio  company to assess the
appropriate  course of action for each company and to evaluate overall portfolio
quality. Our management team and consulting professionals, who are well known by
our management  team,  will closely  monitor the status and  performance of each
individual company on at least a quarterly and, in some cases, a monthly basis.

We will use several  methods of evaluating and monitoring  the  performance  and
fair value of our debt and equity  positions,  including  but not limited to the
following:



                                 Page 47 of 90
<PAGE>

     o    Assessment  of  business   development   success,   including  product
          development,  financings,  profitability  and the portfolio  company's
          overall adherence to its business plan;
     o    Periodic and regular  contact with  portfolio  company  management  to
          discuss financial position, requirements and accomplishments;
     o    Periodic and regular formal update  interviews with portfolio  company
          management and, if appropriate, the financial or strategic sponsor;
     o    Attendance at and participation in board meetings;
     o    Review of monthly and  quarterly  financial  statements  and financial
          projections for portfolio companies.

Managerial Assistance - As a business development company, we will offer, and in
many cases may  provide,  significant  managerial  assistance  to our  portfolio
companies. This assistance will typically involve:

     o    monitoring the operations of our portfolio companies,
     o    participating in their board and management meetings,
     o    consulting with and advising their officers, and
     o    providing other organizational and financial guidance.

Investment Amounts

The  amount  of  funds  committed  to a  portfolio  company  and  the  ownership
percentage  received  will  vary  depending  on the  maturity  of the  portfolio
company,  the quality and  completeness  of the portfolio  company's  management
team,  the perceived  business  opportunity,  the capital  required  compared to
existing capital,  and the potential return.  Although  investment  amounts will
vary considerably,  we expect that the average  investment,  including follow-on
investments, will be between $25,000 and $1,000,000.

Competition

Our primary  competitors to provide  financing to target  companies will include
private  equity and venture  capital funds,  other equity and  non-equity  based
investment funds and investment banks and other sources of financing,  including
traditional  financial services companies such as commercial banks and specialty
finance companies.  Many of these entities have substantially  greater financial
and  managerial  resources  than we will have.  We believe that our  competitive
advantage  with  regard to quality  target  companies  relates to our ability to
negotiate  flexible  terms and to complete our review process on a timely basis.
We cannot assure you that we will be successful in implementing our strategies.

FORWARD LOOKING STATEMENTS

Certain  statements  contained in this report that are not  historical  fact are
"forward-looking  statements" as that term is defined in the Private  Securities
Litigation  Reform Act of 1995. The words or phrases "will likely  result," "are
expected  to,"  "will  continue,"  "is  anticipated,"  "believes,"  "estimates,"
"projects" or similar expressions are intended to identify these forward-looking



                                 Page 48 of 90
<PAGE>

statements.  These statements are subject to risks and uncertainties  beyond our
reasonable  control  that  could  cause  our  actual  business  and  results  of
operations  to differ  materially  from those  reflected in our  forward-looking
statements.  The safe harbor  provisions  provided in the Securities  Litigation
Reform Act do not apply to  forward-looking  statements  we make in this report.
Forward-looking  statements  are  not  guarantees  of  future  performance.  Our
forward-looking  statements  are  based on  trends  which we  anticipate  in our
industry  and our good  faith  estimate  of the  effect on these  trends of such
factors as industry capacity,  product demand and product pricing. The inclusion
of projections  and other  forward-looking  statements  should not be regarded a
representation by us or any other person that we will realize our projections or
that any of the  forward-looking  statements  contained in this  prospectus will
prove to be accurate.


RESULTS OF  OPERATIONS  FOR THE YEAR ENDED  DECEMBER  31, 2007  COMPARED TO YEAR
ENDED DECEMBER 31, 2006 AND TO YEAR ENDED DECEMBER 31, 2005

REVENUES

During the year ended  December 31, 2007, we received a dividend from our wholly
owned portfolio  company,  ACL in the amount of $231,131 and had interest income
from cash  investments  of $823.  During the year ended  December 31,  2006,  we
received a cash dividend  from our wholly owned  portfolio  company,  ACL in the
amount of $562,146.

The Company did not produce any revenue in the period  ended  December  31, 2005
inasmuch as it had ceased operations in contemplation of a significant change in
its business model.  With no operations under its old model and the fact that it
had not commenced acting as a BDC, save the acquisition of a portfolio  company,
there were no opportunities for revenue during 2005.

COSTS AND EXPENSES

We had total  costs  and  expenses  in the  amount of  $174,680,  $246,694,  and
($80,835) during the years ended December 31, 2007, 2006 and 2005, respectively.
The  2005  period  included  a gain  on  extinguishment  of  debt  of  $174,133.
Accordingly, our actual expenses were $93,298.

The 2007  period  decreased  $72,014  (29%) from the 2006  period.  The  primary
decreases  were  $48,923  of legal,  audit and  consulting  fees and  $28,000 in
director fees. The increase in  compensation  and benefits of $15,647 was mostly
offset by miscellaneous income of $11,564.

The 2006 period  increased  $153,396  (164%) from the 2005  period.  The primary
increases  were  $56,535  in legal,  audit and  professional  fees,  $57,950  in
compensation  and  benefits  and  $30,000 in  director  fees.  The  increase  in
professional  fees was the  result  of  increased  accounting  and  audit  costs
associated  with the acquisition of ACL and the conversion to a BDC. These costs
decreased in 2007. The increase in  compensation  and benefits and director fees
is the result of converting from an inactive holding company to a BDC.




                                 Page 49 of 90
<PAGE>

NET REALIZED AND UNREALIZED GAINS AND LOSSES

As an investment  company under the  Investment  Company Act of 1940, all of our
investments  must be carried  at market  value or fair  value as  determined  by
management for investments which 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.

Beginning  December  16,  2005,  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,  our 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  and outside  professionals  as  necessary  under our
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.  In situations  that warrant such an  evaluation,  an
independent business valuation may be obtained.

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.  We must
determine the fair value of each individual  investment on a quarterly basis. We
will record  unrealized  depreciation  on  investments  when we believe  that an
investment  has  become  impaired,  including  where  realization  of an  equity
security is doubtful.  Conversely,  we will record unrealized appreciation if we
believe that the  underlying  portfolio  company has  appreciated  in value and,
therefore, its investment has also appreciated in value, where appropriate.

As an investment company,  we invest primarily in illiquid securities  including
equity securities of private companies. The structure of each equity security is
specifically  negotiated to enable us to protect our investment and maximize our
returns.  We  generally  include  many  terms  governing  ownership  parameters,
dilution  parameters,  liquidation  preferences,  voting rights, and put or call
rights. Our investments are generally subject to some restrictions on resale and
generally have no established trading market. Because of the type of investments
that we make and the nature of our business,  our valuation  process requires an
analysis of various factors. Our fair value methodology includes the examination
of,  among  other  things,  the  underlying  investment  performance,  financial
condition and market changing events that impact valuation.

During the year ended December 31, 2007, we recognized a realized loss of $4,952
and an unrealized  loss of $447,580.  Both the realized loss and unrealized loss
arose principally from our investment in Healthsport, Inc. During the year ended
December 31, 2006,  we  recognized a realized  loss of $5,000 and an  unrealized
gain of $188,835.  The realized  loss arose from our  investment  in  Elitegroup
Ventures Nevada, Inc. We made this investment early in 2006; however, Elitegroup
was  unable  to  raise  sufficient  capital  to  implement  its  business  plan.
Accordingly,  we wrote off our  investment.  The unrealized  gain of $188,835 is
from our  investment  in ACL. At December 31, 2006,  ACL had cash of $20,571 and
investments in marketable equity securities valued at $589,100, for total assets



                                 Page 50 of 90
<PAGE>

of  $609,671.  ACL had  liabilities  of  $105,107  and  equity in net  assets of
$504,564,  which is the amount we used to value our investment.  At December 31,
2005,  our carrying value in our investment in ACL was our net cost of $315,729.
The  increase  in value of  $188,835 to  $504,564  accounts  for the  unrealized
appreciation.  We applied the same  methodology  in valuing the ACL  investments
that would have been used had we owned the investments directly.  All ACL assets
have now been  transferred to the Company along with assumption of any remaining
ACL debt, all of which was paid by December 31, 2007. We plan to dissolve ACL in
2008.


CAPITAL EXPENDITURES

We  plan to  raise  funds  to be used in  making  investments  in  other  as yet
unidentified portfolio companies.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007, we had net assets of $161,593 as compared to net assets of
$415,515 at December 31, 2006.  This decrease of $253,922  consisted of earnings
from operations of $95,213,  sales of common stock for $30,000, the contribution
to capital of  liabilities in the amount of $73,396 and less the net decrease in
net assets from stock transactions of $452,532.

During the year ended December 31, 2007, total assets declined  $324,443,  which
includes a decrease in investments  of $367,544  offset by an increase in income
tax refund receivable of $37,939,  an increase in cash of $3,327 and an increase
in  office  equipment,  net of  $1,835.  During  this same  period,  liabilities
decreased  $70,521;  the major  components  of the  decrease  were a decrease in
accounts payable of $6,751, a decrease in amounts due related parties of $59,355
and a decrease in accrued expenses of $4,414.  The combination of the decline in
assets  along with the decline in  liabilities  resulted in the  decrease in net
assets.

We currently have sufficient value in marketable  equity  securities which could
be sold and the proceeds to cover our planned  2008  expenses of  operation.  We
would expect to raise  additional  funds in the event we purchase any additional
investments.

NET ASSET VALUE

As a Business Development Company, certain of our activities and disclosures are
made in reference to Net Asset Value 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  to our  common  shareholders.  As of the date of the
financial  information  in this  report,  the value of our  portfolio  of assets
including  investments in equity  securities and cash is $180,447 and from this,
are  subtracted  liabilities  and  debts of  $18,854.  There  are no  shares  of
preferred stock  outstanding but the rights of preferred  stockholders  would be
included  if there  were.  The Net Asset Value is  therefore  $161,593.  We have
687,770 common shares outstanding at December 31, 2007; therefore, the Net Asset
Value per Share is $0.2350.



                                 Page 51 of 90
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

There  are  several  new  accounting  pronouncements  issued  by  the  Financial
Accounting  Standards Board ("FASB") which are not yet effective.  Each of these
pronouncements,  as  applicable,  has been or will be  adopted  by the  Company.
Management does not believe any of these  accounting  pronouncements  has had or
will have a material  impact on the  Company's  financial  position or operating
results.

In September  2006,  the FASB issued SFAS No. 157, "Fair Value  Measures".  This
Statement  defines fair value,  establishes a framework for measuring fair value
in generally  accepted  accounting  principles,  expands  disclosures about fair
value  measurements,  and applies  under other  accounting  pronouncements  that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements.  However,  the FASB anticipates that for some entities,
the  application of SFAS No. 157 will change current  practice.  SFAS No. 157 is
effective  for fiscal years  beginning  after  November 15, 2007,  which for the
Company  would be its fiscal  year  beginning  January 1, 2008.  The  Company is
currently evaluating the impact of SFAS No. 157 but does not expect that it will
have a material impact on its financial statements.

In  February  2007,  the FASB issued  SFAS No.  159,  The Fair Value  Option for
Financial  Assets and  Financial  Liabilities  ("SFAS  159").  SFAS 159  expands
opportunities to use fair value measurements in financial  reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair  value.  SFAS 159 will be  effective  for us on January 1, 2008.  We are
currently   evaluating  the  impact  of  adopting  SFAS  159  on  our  financial
statements.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements,  an amendment of ARB No. 51" ("SFAS  160").
SFAS 160 establishes  accounting and reporting  standards for the noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160
is  effective  on  January 1, 2009 for the  Company.  The  Company is  currently
evaluating the impact of adopting SFAS 160.




                                 Page 52 of 90
<PAGE>



ITEM 7A:        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and
prices.  We are  primarily  exposed to equity  price risk.  The  following  is a
discussion of our equity market risk.

Equity price risk 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 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.


Basis of presentation

The preparation of financial  statements in conformity  with Generally  Accepted
Accounting Principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.














                                 Page 53 of 90
<PAGE>

ITEM 8:           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SCHEDULES
                  OF FINANCIAL RATIOS

                           SMALL CAP STRATEGIES, INC.
                              FINANCIAL STATEMENTS
                                TABLE OF CONTENTS



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.......................55

STATEMENTS OF NET ASSETS......................................................56

STATEMENTS OF OPERATIONS......................................................57

STATEMENTS OF CASH FLOWS...................................................58-59

STATEMENTS OF CHANGES IN NET ASSETS...........................................60

SCHEDULES OF INVESTMENTS...................................................61-62

NOTES TO FINANCIAL STATEMENTS..............................................63-75

SCHEDULES OF FINANCIAL RATIOS.................................................76






















                                 Page 54 of 90
<PAGE>

             Report of Independent Registered Public Accounting Firm


Board of Directors
Small Cap Strategies, Inc.
Las Vegas, Nevada


We  have  audited  the  accompanying  statements  of net  assets  of  Small  Cap
Strategies,  Inc. (the  "Company") at December 31, 2007 and 2006,  including the
schedules  of  investments  as of December  31,  2007 and 2006,  and the related
statements  of  operations,  cash flows and  changes in net assets for the years
ended December 31, 2007 and 2006, the period December 16, 2005 through  December
31,  2005 and the period  January  1, 2005  through  December  15,  2005.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Small Cap Strategies,  Inc., as
of December 31, 2007 and 2006, and the results of its operations, its cash flows
and changes in net assets for the above  referenced  periods in conformity  with
accounting principles generally accepted in the United States of America.

As  discussed  in  Note  2  to  the  financial  statements,  certain  accounting
principles  used  in the  preparation  of  the  financial  statements  beginning
December 16, 2005 (upon  becoming an  investment  company  under the  Investment
Company Act of 1940) are different than those of prior periods and therefore are
not directly comparable.



/s/ Turner, Stone & Company, LLP
--------------------------------
Turner, Stone & Company, LLP

Certified Public Accountants
Dallas, Texas
April 14, 2008




                                 Page 55 of 90
<PAGE>
<TABLE>
<CAPTION>


                           SMALL CAP STRATEGIES, INC.
                            Statements of Net Assets
                  As of December 31, 2007 and December 31, 2006

                                                                             2007           2006
                                                                         -----------    -----------
<S>                                                                      <C>            <C>
ASSETS
Investments in, net of advances from controlled portfolio companies;
     cost of $315,729 at December 31, 2006                              $      --      $   504,564
Investment in non-controlled portfolio companies; cost of $395,765 at
     December 31, 2007                                                      137,020           --
                                                                        -----------    -----------
          Total investments                                                 137,020        504,564
Cash and cash equivalents                                                     3,653            326
Income tax refund receivable                                                 37,939           --
Office equipment, less accumulated depreciation of $24 in 2007                1,835           --
                                                                        -----------    -----------
  TOTAL ASSETS                                                              180,447        504,890
                                                                        -----------    -----------

LIABILITIES
  Accounts payable                                                            4,813         11,564
  Accrued expenses                                                             --            4,415
  Amounts due related parties                                                14,041         73,396
                                                                        -----------    -----------
  TOTAL LIABILITIES                                                          18,854         89,375
                                                                        -----------    -----------
NET ASSETS                                                              $   161,593    $   415,515
                                                                        ===========    ===========

Commitments and contingencies (Note 8)

COMPOSITION OF NET ASSETS
  Common stock, $.001 par value, 100,000,000 shares authorized;
   687,770 and 387,770 shares issued and outstanding at
     December 31, 2007 and 2006, respectively                           $       688    $       388
  Additional paid in capital                                              2,620,390      2,517,293
  Accumulated deficit:
    Accumulated net operating loss                                       (2,190,788)    (2,286,001)
    Net realized loss on investments                                         (9,952)        (5,000)
    Net unrealized appreciation (depreciation) of investments              (258,745)       188,835
                                                                        -----------    -----------
NET ASSETS                                                              $   161,593    $   415,515
                                                                        ===========    ===========
NET ASSET VALUE PER SHARE                                               $    0.2350    $    1.0717
                                                                        ===========    ===========
</TABLE>




                See accompanying notes to financial statements.



                                 Page 56 of 90
<PAGE>
<TABLE>
<CAPTION>

                           SMALL CAP STRATEGIES, INC.
                            Statements of Operations
               Three Years Ended December 31, 2007, 2006 and 2005
                                                                                                            Prior to
                                                                                                          Becoming an
                                                                                                          Investment
                                                                                                            Company
                                                                                    Period from           Period from
                                                                                   Dec. 16, 2005          Jan. 1, 2005
                                                      2007              2006      to Dec. 31, 2005      to Dec. 15, 2005
                                                      ----              ----      ----------------      ----------------
<S>                                                   <C>               <C>       <C>                   <C>

Dividends from wholly owned portfolio
     company                                       $ 231,131         $ 562,146         $    --                $    --
Interest income from cash investments                    823              --                --                     --
                                                   ---------         ---------         ---------              ---------
          Total income                               231,954           562,146              --                     --
Costs and Expenses:
  Legal, audit and consulting fees                    92,433           141,356              --                   84,821
  Compensation and benefits                           73,597            57,950              --                     --
  Director fees                                        2,000            30,000              --                     --
  Transfer agent fees                                  4,575             2,811              --                    1,178
  Other general and administrative expenses           10,138            10,432               126                   --
  Interest expense                                     3,501             4,145             1,474                  5,699
  Other income                                       (11,564)             --                --                     --
  Gain on extinguishment of debt                        --                --                --                 (174,133)
                                                   ---------         ---------         ---------              ---------
                                                     174,680           246,694             1,600                (82,435)
Earnings (loss) before income taxes                   57,274           315,452            (1,600)                82,435
Income taxes                                         (37,939)             --                --                     --
                                                   ---------         ---------         ---------              ---------
Net earnings (loss) from operations                   95,213           315,452            (1,600)                82,435
Dividends on 6% preferred stock                         --                --               1,315                   --
                                                   ---------         ---------         ---------              ---------
Net earnings (loss) applicable to
     common stock                                     95,213           315,452            (2,915)                82,435
                                                   ---------         ---------         ---------              ---------
Net realized and unrealized gain (loss):
  Net realized loss on investments, net of
    income tax benefit of $0 for 2007,
    2006 and 2005, respectively                       (4,952)           (5,000)             --                     --
  Change in unrealized appreciation (deprec-
     iation of controlled affiliate investments,
     net of deferred tax expense of $0 in 2007,
     2006 and 2005, respectively                    (447,580)          188,835              --                     --
                                                   ---------         ---------         ---------              ---------
Net increase (decrease) in net assets
     from operations                               $(357,319)        $ 499,287         $  (2,915)             $  82,435
                                                   =========         =========         =========              =========

Net increase (decrease) in net assets
  from operations per share:
     Basic and diluted                             $ (0.6276)        $  1.1097         $ (0.0089)             $  0.2661
                                                   =========         =========         =========              =========
Weighted average shares outstanding:
     Basic and diluted                               569,366           449,941           328,429                309,780
                                                   =========         =========         =========              =========
</TABLE>


                See accompanying notes to financial statements.


                                  Page 57 of 90
<PAGE>
<TABLE>
<CAPTION>

                           SMALL CAP STRATEGIES, INC.
                            Statements of Cash Flows
               Three Years Ended December 31, 2007, 2006 and 2005
                                                                                                                       Prior to
                                                                                                                    Becoming an
                                                                                                                      Investment
                                                                                                                        Company
                                                                                                 Period from         Period from
                                                                                                Dec. 16, 2005        Jan. 1, 2005
                                                                   2007            2006         to Dec. 31, 2005    to Dec. 15, 2005
                                                                   ----            ----        ------------------   ----------------
<S>                                                                <C>             <C>         <C>                  <C>

Cash flows from operating activities:
Net increase (decrease) in net assets from operations
  applicable to common stock                                   $  (357,319)   $   499,287         $    (2,915)        $    82,435
Adjustments to reconcile net increase (decrease) in
  net assets from operations to net cash used in
  operating activities:
     Change in unrealized (appreciation) depreciation
        of investments in portfolio companies                      447,580       (188,835)               --                  --
     Dividends received from portfolio company as
        investments in other portfolio companies                  (172,963)          --                  --                  --
     Net realized loss on investments in portfolio companies         4,952          5,000                --                  --
     Decpreciation                                                      24           --                  --                  --
     Common stock issued for services                                 --             --                  --                40,000
     Increase in income tax refund receivable                      (37,939)          --                  --                  --
     Increase (decrease) in accounts payable                        (6,751)          --                  --              (222,530)
     Increase (decrease) in taxes payable                          (49,451)          --                  --                  --
     Accrued preferred dividends                                      --             --                 1,315                --
     Increase (decrease) in accrued expenses                        (4,414)         6,930               1,474               5,699
     Due to shareholder                                             14,041           --                  --                  --
                                                               -----------    -----------         -----------         -----------
      Net cash provided by (used) in operating activities         (162,240)       322,382                (126)            (94,396)
                                                               -----------    -----------         -----------         -----------
Cash flows from investing activities:
Cash payments made for investment acquisitions                     (22,622)        (5,000)           (735,000)               --
Proceeds from sale of investments in portfolio companies           160,048           --                  --                  --
Purchase of office equipment                                        (1,859)          --                  --                  --
Cash distributions received from portfolio company
     investment                                                       --             --             1,277,271                --
                                                               -----------    -----------         -----------         -----------
      Net cash provided by (used) in investing activities          135,567         (5,000)            542,271                --
                                                               -----------    -----------         -----------         -----------
Cash flows from financing activities:
Proceeds from note payable - affiliate                                --             --                65,000              35,000
Repayment of advances from stockholders                               --          (35,199)               --                  --
Repayment of loan from officer                                        --         (458,000)               --                  --
Redemption of preferred stock                                         --         (501,315)               --                  --
Proceeds from sale of common stock                                  30,000         71,528                --                  --
Payment of preferred dividends                                        --           (1,315)               --                  --
Advances from stockholders                                            --             --                  --                59,396
                                                               -----------    -----------         -----------         -----------
      Net cash provided by (used) in financing activities           30,000       (924,301)             65,000              94,396
                                                               -----------    -----------         -----------         -----------
Net increase (decrease) in cash and cash equivalents                 3,327       (606,919)            607,145                --
Cash and cash equivalents, beginning of period                         326        607,245                 100                 100
                                                               -----------    -----------         -----------         -----------
Cash and cash equivalents, end of period                       $     3,653    $       326         $   607,245         $       100
                                                               ===========    ===========         ===========         ===========

                                                                                                                        (Continued)



                See accompanying notes to financial statements.



                                 Page 58 of 90
<PAGE>

                           SMALL CAP STRATEGIES, INC.
                       Statements of Cash Flows, Continued
               Three Years Ended December 31, 2007, 2006 and 2005
                                                                                                                       Prior to
                                                                                                                    Becoming an
                                                                                                                      Investment
                                                                                                                        Company
                                                                                                 Period from         Period from
                                                                                                Dec. 16, 2005        Jan. 1, 2005
                                                                 2007            2006           to Dec. 31, 2005   to Dec. 15, 2005
                                                                 ----            ----          -----------------   ----------------

Supplemental Cash Flow Information:
     Interest paid                                             $  3,501       $ 11,318            $   --              $   --
     Income taxes paid                                           53,826           --                  --                  --

Supplemental disclosure of non-cash investing
     and financing activities:
Common stock issued:
     In exchange for services                                  $   --         $   --              $   --              $ 40,000
     As settlement of shareholder advances                         --             --                 8,200                --
Note payable incurred in conjunction with acquisition              --             --               458,000                --
Amounts due related parties contributed to capital               73,396           --                  --                  --
Convertible preferred stock issued in
     conjunction with acquisition                                  --             --               500,000                --

</TABLE>


                See accompanying notes to financial statements.





                                 Page 59 of 90
<PAGE>
<TABLE>
<CAPTION>

                           SMALL CAP STRATEGIES, INC.
                       Statements of Changes in Net Assets
               Three Years Ended December 31, 2007, 2006 and 2005

                                                                                                                  Prior to
                                                                                                               Becoming an
                                                                                                                  Investment
                                                                                                                   Company
                                                                                            Period from          Period from
                                                                                           Dec. 16, 2005        Jan. 1, 2005
                                                           2007             2006          to Dec. 31, 2005     to Dec. 15, 2005
                                                           ----             ----         -----------------     ----------------
<S>                                                        <C>              <C>          <C>                   <C>

Changes in net assets from operations:
  Net earnings (loss) from operations
     available to common stock                        $  95,213          $ 315,452          $  (2,915)         $  82,435
  Net realized loss on sale of investments, net          (4,952)            (5,000)              --                 --
  Change in net unrealized appreciation
     (depreciation) of investments, net                (447,580)           188,835               --                 --
                                                      ---------          ---------          ---------          ---------
    Net increase (decrease) in net assets
     from operations                                   (357,319)           499,287             (2,915)            82,435
                                                      ---------          ---------          ---------          ---------

Capital stock transactions:
  Cash proceeds from sale of common stock                30,000             71,528               --                 --
  Note payable applied to purchase common stock            --              100,000               --                 --
  Accrued interest payable applied to purchase of
     common stock                                          --                8,372               --                 --
  Amount due related parties contributed to capital      73,397
  Common stock issued for services                         --                 --                 --               40,000
  Issuance of convertible preferred stock in
     conjunction with acquisition of ACL                   --                 --             (100,000)              --
  Issuance of common stock for settlement of               --
     shareholder advances                                  --                 --                8,200               --
    Net increase (decrease) in net assets from
                                                      ---------          ---------          ---------          ---------
          stock transactions                            103,397            179,900            (91,800)            40,000
                                                      ---------          ---------          ---------          ---------
Net increase (decrease) in net assets                  (253,922)           679,187            (94,715)           122,435
Net assets (liabilities), beginning of period           415,515           (263,672)          (168,957)          (291,392)
                                                      ---------          ---------          ---------          ---------
Net assets (liabilities), end of period               $ 161,593          $ 415,515          $(263,672)         $(168,957)
                                                      =========          =========          =========          =========
</TABLE>



                See accompanying notes to financial statements.





                                 Page 60 of 90
<PAGE>
<TABLE>
<CAPTION>


                           SMALL CAP STRATEGIES, INC.
                             Schedule of Investments
                               December 31, 2007

   Percent/
    shares        Date of                                                          Historical    Fair
    owned        acquisition                                                          cost       value
    -----        -----------                                                          ----       -----
<S>              <C>                                                                <C>         <C>

Investments in, net of advances from controlled portfolio companies:

      100%       Dec-05    ACL Consulting Corporation; in process of
                           liquidation                                               $   --     $   --
      100%       Oct-01    The Sarasota Group, Inc.; inactive                            --         --
                                                                                     --------   --------
                           Total controlled portfolio companies                          --         --
                                                                                     --------   --------

Investments in non-controlled portfolio companies:
   263,500       Various   HealthSport, Inc. (HSPO.OB); a fully integrated
                           developer, manufacturer and marketer of unique and
                           proprietary branded and private label edible film strip
                           nutritional supplements and over-the-counter drugs         395,372    137,020
   Various       Various   Miscellaneous                                                  393       --
                                                                                     --------   --------
                           Total non-controlled portfolio companies                   395,765    137,020
                                                                                     --------   --------
                                Total investments                                    $395,765    137,020
                                                                                     ========

                           Cash and other assets, less liabilities                                24,573
                                                                                                --------
                           Net assets at December 31, 2007                                      $161,593
                                                                                                ========

</TABLE>

                See accompanying notes to financial statements.







                                 Page 61 of 90
<PAGE>
<TABLE>
<CAPTION>

                           SMALL CAP STRATEGIES, INC.
                             Schedule of Investments
                               December 31, 2006

   Percent       Date of                                                          Historical          Fair
    Owned        Acquisition                                                        Cost              Value
    -----        -----------                                                        ----              -----
<S>              <C>                                                              <C>                <C>

Investments in, net of advances from controlled portfolio companies:

          100%   Dec-05    ACL Consulting Corporation; provides professional
                           services to businesses; 34.2% of total assets          $ 315,729          $ 504,564
          100%   Oct-01    The Sarasota Group, Inc.; inactive                         --                 --
                                                                                  ---------          ---------
                           Total investments at December 31, 2006                 $ 315,729            504,564
                                                                                  =========
                           Cash and other assets, less liabilities                                     (89,049)
                                                                                                     ---------
                           Net assets (liabilities) at December 31, 2006                             $ 415,515
                                                                                                     =========



</TABLE>





                See accompanying notes to financial statements.










                                 Page 62 of 90
<PAGE>


                           SMALL CAP STRATEGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1:           GENERAL ORGANIZATION AND BUSINESS

Effective September 30, 2006, Photonics Corporation ("Photonics"),  a California
corporation,  merged into Small Cap Strategies,  Inc. ("SCPS", the "Company"), a
Nevada  corporation,  with SCPS 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 and to increase the number of shares
of common stock authorized from 200,000,000 to 2,000,000,000.  All common shares
of Photonics were exchanged on a one-for-one basis for stock in SCPS.  Photonics
also had 50,000,000  shares of $.001 par value  preferred stock  authorized,  of
which 400,000 shares had been designated  Series A Convertible  Preferred Stock.
At  September  30,  2006,  immediately  prior to the  merger,  Photonics  had no
preferred  stock issued or  outstanding.  SCPS did not  authorize  any preferred
stock in its  articles  of  incorporation  in Nevada.  Accordingly,  there is no
preferred stock authorized,  issued or outstanding after the merger on September
30, 2006. In addition,  the  shareholders  authorized  the board of directors to
effect a reverse  stock split  with-in the next  twelve  months.  On December 5,
2006,  the board of directors  authorized a reverse stock split of one share for
each twenty shares  outstanding,  to be effective  December 21, 2006. On May 15,
2007,  the board of  directors  authorized a second  reverse  stock split of one
share for each twenty  shares  outstanding,  to be effective the date filed with
the Nevada Secretary of State, May 21, 2007. Accordingly, all share transactions
and disclosures have been restated as if the reverse stock split occurred before
all periods  presented.  The Company is currently  traded on the OTCBB under the
symbol SMCA.OB.

Photonics   Corporation   formerly  dba  DTC  Data   Technology,   a  California
corporation,  began from a merger of Photonics Corp. with DTC Data Technology in
March of 1996. The Company designed,  developed,  and marketed Integrated Device
Electronics  (IDE),  Small Computer  Systems  Interface  (SCSI) disk  controller
cards, and Input/Output  (I/O) products for personal  computers.  However,  as a
result of recurring  significant  operating  losses,  in June 1999, the board of
directors voted to shut down business operations and attempt to sell the Company
or its assets.  Since that date and through  December 15, 2005,  the Company was
inactive and in the development stage (see below).

On  November  28,  2000,  the  Company  merged  with  REPipeline.com,   a  Texas
corporation, an Internet vertical service provider to the commercial real estate
industry,  by issuing  45,320  common stock shares valued at $18,128 in exchange
for  all  of  the  outstanding  common  stock  of  REPipeline.com,  Inc.  (REP).
Immediately  after the  merger,  the  Company  transferred  the net  assets  and
business   operations   to   REPipeline.com,   Inc.,  a  Delaware   corporation,
incorporated on June 8, 2000 as a wholly owned subsidiary of the Company.

Prior  to  this  merger  on  July  10,  2000,  REPipeline.com,   Inc.,  a  Texas
corporation,  also  incorporated on June 8, 2000,  agreed to purchase the assets
and   assume   the   certain    liabilities   and   shareholder's    equity   of
RealEstate4Sale.com.  RealEstate4Sale.com (RE4S) was incorporated in Colorado on
August 17, 1999, and its purpose was to provide  commercial real estate listings
on the  Internet.  However,  the  concept  was  deemed to be too  narrow for the
marketplace,  which requires a wider variety of services to the commercial  real



                                 Page 63 of 90
<PAGE>

estate market over the Internet, which is best addressed by the expanded concept
of REP.

The  transaction was accounted for as a reverse merger using the purchase method
of accounting with REP acquiring Photonics for financial reporting purposes. The
purchase  price of Photonics was  allocated  among its net assets based on their
relative  fair  values.  Because  Photonics  did not  have any  assets  and only
liabilities and had no business operations, no portion of the purchase price was
allocated to goodwill.  Instead,  the excess of the purchase price over the fair
value of net assets acquired was charged against operations.

In October 2001, the Company acquired all of the outstanding common stock of The
Sarasota Group, Inc. (SGI), a Florida corporation,  in exchange for the issuance
of 1,000,000  convertible preferred stock shares and 35,500 common stock shares.
At the same time, the Company's then current officers and directors resigned and
the Company elected new officers and directors. Since then, the preferred shares
of stock have been cancelled.

SGI was  incorporated  on  November  13,  2001,  and both prior to and after the
acquisition  had no assets,  liabilities  or business  operations.  The purchase
price,  which exceeded the fair value of net assets  acquired,  has been charged
against operations and reflected in the accompanying  financial statements as an
acquisition cost.

In December 2005, the Company  entered into a Stock Purchase  Agreement with ACL
Consulting  Corporation  (ACL),  an entity  majority  owned by an officer of the
Company.  The Stock  Purchase  Agreement  has rights of  rescission  that can be
exercised by the Seller.  The Stock Purchase Agreement was effective on December
16, 2005.

Upon   acquisition   of  ACL  on  December  16,  2005,   the  Company  became  a
non-diversified  internally  managed,  closed-end  investment  company under the
Investment  Company Act of 1940, as amended,  and no longer considered itself as
being in the development stage.

During 2007, the Company  liquidated  its  investment in ACL and  transferred by
dividend  the  securities  owned by ACL, net of ACL  obligations  assumed by the
Company. The Company plans to dissolve ACL during 2008.


NOTE 2:           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
Beginning December 16, 2005, the accompanying  financial  statements reflect the
separate  accounts of Small Cap  Strategies,  Inc.,  and the related  results of
operations.  In accordance with Article 6 of Regulation S-X under the Securities
Act of 1933 and the  Securities  Exchange  Act of  1934,  the  Company  does not
consolidate portfolio company investments in which the Company has a controlling
interest.

Prior to December 16, 2005, the accompanying  consolidated  financial statements
included the  accounts of the Company and those of its wholly owned  subsidiary,



                                 Page 64 of 90
<PAGE>

The Sarasota Group, Inc., a Florida corporation.  All intercompany transactions,
accounts, and balances have been eliminated in the consolidation.  There were no
material  intercompany  transactions  during the periods presented.  SGI did not
have any assets,  liabilities,  or business  operations  at the time the Company
became  an  investment  company,  therefore,  there  was  no  cumulative  effect
recognition in the accompanying financial statements upon becoming an investment
company.

Although  the nature of the  Company's  operations  and its  reported  financial
position,  results  of  operations,  and its cash flows are  dissimilar  for the
periods  prior to and  subsequent  to its becoming an  investment  company,  its
financial  position  for the  years  ended  December  31,  2007 and 2006 and its
operating  results,  cash flows and  changes in net assets for each of the years
ended  December  31, 2007,  2006 and 2005  (separated  as  indicated  above) are
presented  in the  accompanying  financial  statements  pursuant to Article 6 of
Regulation S-X. In addition, the accompanying  footnotes,  although different in
nature as to the required disclosures and information reported therein, are also
presented as they relate to each of the above referenced periods.

Conversion to an Investment Company
-----------------------------------
The Company's  results of operations for 2005 are divided into two periods.  The
period from January 1, 2005 to December 15, 2005 reflects the Company's  results
prior to becoming an  investment  company  under the  Investment  Company Act of
1940, as amended. The period from December 16, 2005 to December 31, 2005 and the
years ended  December  31, 2007 and 2006,  reflect the  Company's  results as an
investment  company  under  the  Investment  Company  Act of 1940,  as  amended.
Accounting  principles  used  in the  preparation  of the  financial  statements
beginning  December  16, 2005 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 - see  corresponding  sections  below for
further discussions.

Development Stage Activities
----------------------------
Through  December 15, 2005, the Company was inactive and considered to be in the
development stage. Accordingly,  all of the Company's operating results and cash
flows  reported in the  accompanying  financial  statements for periods prior to
this date were  considered to be those related to development  stage  activities
pursuant  to  Statements  of  Financial   Accounting  Standards  (SFAS)  No.  7,
Accounting and Reporting by Development  Stage  Enterprises.  With the Company's
acquisition of ACL Consulting Corporation, the Company is no longer considered a
development stage company.

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.

Net Increase (Decrease) in Net Assets from Operations per Share
---------------------------------------------------------------
Basic  net  increase  (decrease)  in net  assets  from  operations  per share is
computed by dividing  the net earnings  (loss)  amount  adjusted for  cumulative
dividends on preferred  stock  (numerator)  by the  weighted  average  number of



                                 Page 65 of 90
<PAGE>

common shares outstanding during the period (denominator).  Diluted net increase
(decrease) in net assets from  operations per share amounts  reflect the maximum
dilution that would have resulted from the assumed exercise of stock options and
from the assumed conversion of the Series A Convertible Preferred Stock. Diluted
net increase  (decrease) in net assets from  operations per share is computed by
dividing the net earnings  (loss) amount  adjusted for  cumulative  dividends on
preferred  stock by the  weighted  average  number  of  common  and  potentially
dilutive securities outstanding during the period. For all periods presented the
above potentially dilutive securities are excluded from the computation as their
effect is anti-dilutive.

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.

Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows,  the Company  considers all highly
liquid  investments  purchased with an original maturity date of three months or
less to be cash equivalents. None of the Company's cash is restricted.

Valuation of Investments (as an Investment Company)
---------------------------------------------------
As an investment  company under the  Investment  Company Act of 1940, all of the
Company's  investments  must be carried at market value or fair value. The value
is  determined  by  management  for  investments   which  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.

Beginning  December  16,  2005,  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 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.  In  situations  that  warrant such an
evaluation, an independent business valuation may be obtained.

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



                                 Page 66 of 90
<PAGE>

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 invests primarily 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 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  investment  performance,  financial  condition and
market changing events that impact valuation.

Comprehensive Income
--------------------
SFAS  No.  130,  Reporting  Comprehensive  Income,   establishes  standards  for
reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains,  and  losses)  in a  full  set  of  general-purpose  financial
statements.  It requires that all items that are required to be recognized under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  SFAS No. 130 requires  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 required by SFAS No. 130.

Stock Based Incentive Program
-----------------------------
SFAS No. 123R,  Share-Based  Payment, a revision to SFAS No. 123, Accounting for
Stock-Based  Compensation  and  superseding  APB Opinion No. 25,  Accounting for
Stock  Issued  to  Employees,  establishes  standards  for  the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services,   including   obtaining  employee  services  in  share-based   payment
transactions.  SFAS No. 123R  applies to all awards  granted  after the required
effective date and to awards modified,  purchased,  or canceled after that date.
The Company  adopted SFAS No. 123R effective  January 1, 2006, with no impact on
financial position or results of operations.



                                 Page 67 of 90
<PAGE>

Recent Accounting Pronouncements
--------------------------------
There  are  several  new  accounting  pronouncements  issued  by  the  Financial
Accounting  Standards Board ("FASB") which are not yet effective.  Each of these
pronouncements,  as  applicable,  has been or will be  adopted  by the  Company.
Management does not believe any of these  accounting  pronouncements  has had or
will have a material  impact on the  Company's  financial  position or operating
results.

In September  2006,  the FASB issued SFAS No. 157, "Fair Value  Measures".  This
Statement  defines fair value,  establishes a framework for measuring fair value
in generally  accepted  accounting  principles,  expands  disclosures about fair
value  measurements,  and applies  under other  accounting  pronouncements  that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements.  However,  the FASB anticipates that for some entities,
the  application of SFAS No. 157 will change current  practice.  SFAS No. 157 is
effective  for fiscal years  beginning  after  November 15, 2007,  which for the
Company  would be its fiscal  year  beginning  January 1, 2008.  The  Company is
currently evaluating the impact of SFAS No. 157 but does not expect that it will
have a material impact on its financial statements.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities"  ("SFAS  159").  SFAS 159 expands
opportunities to use fair value measurements in financial  reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair  value.  SFAS 159 will be  effective  for us on January 1, 2008.  We are
currently   evaluating  the  impact  of  adopting  SFAS  159  on  our  financial
statements.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements,  an amendment of ARB No. 51" ("SFAS  160").
SFAS 160 establishes  accounting and reporting  standards for the noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160
is  effective  on  January 1, 2009 for the  Company.  The  Company is  currently
evaluating the impact of adopting SFAS 160.


NOTE 3:           INVESTMENTS AND VALUATION

On December 16, 2005,  the Company  entered into a stock  purchase  agreement to
acquire all issued and outstanding shares of the capital stock of ACL Consulting
Corporation  (ACL), a Texas  corporation  majority owned by a former officer and
director of the Company providing business consulting services to companies that
desire to go public.

The  purchase  price of the shares was  $1,593,000.  The  consideration  for the
acquisition  was  comprised  of three  components:  (1) $735,000 in cash paid at
closing,  (2) $458,000  secured  promissory  note delivered at closing,  and (3)
400,000  shares of Series A  Convertible  Preferred  Stock of the Company with a
value at issuance of $400,000 (Notes 3, 4 and 5).

During 2007 the Company  liquidated  its  investment in ACL and  transferred  by
dividend the  securities  owned by ACL, net of ACL  obligations  to the Company.
Accordingly,  no  value  is  placed  on the  investment  in ACL by the  board of
directors at December 31, 2007.



                                 Page 68 of 90
<PAGE>

The Company acquired an investment in HealthSport, Inc. from ACL. HealthSport is
a  fully  integrated   developer,   manufacturer  and  marketer  of  unique  and
proprietary branded and private label edible film strip nutritional  supplements
and  over-the-counter  drugs.  The board of directors of the Company  valued the
263,500 shares of  HealthSport  owned at December 31, 2007 at the market closing
price of $0.52 per share.

The Company also acquired an interest in three other  portfolio  companies  from
ACL, which the board of directors is valuing at $0.

The Company  acquired  240,000 shares of HealthSport in May 2007 in exchange for
its 8%  promissory  note payable in the amount of $535,200.  In September  2007,
both parties agreed to rescind the transaction.  The Company returned the shares
to the note holder and the note was returned to the Company and cancelled.


NOTE 4:  CAPITAL STRUCTURE

Merger
Effective September 30, 2006, Photonics Corporation,  a California  corporation,
merged into Small Cap Strategies,  Inc., a Nevada  corporation,  with SCPS 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 and to  increase  the number of shares of common  stock  authorized  from
200,000,000 to 2,000,000,000. All common shares of Photonics were exchanged on a
one-for-one  basis for stock in SCPS.  Photonics also had  50,000,000  shares of
$.001 par value  preferred  stock  authorized,  of which 400,000 shares had been
designated  Series  A  Convertible  Preferred  Stock.  At  September  30,  2006,
immediately  prior to the merger,  Photonics  had no  preferred  stock issued or
outstanding.  SCPS did not  authorize  any  preferred  stock in its  articles of
incorporation in Nevada.  Accordingly,  there is no preferred stock  authorized,
issued or outstanding  after the merger on September 30, 2006. In addition,  the
shareholders  authorized  the board of directors to effect a reverse stock split
with-in the next twelve  months.  On  December 5, 2006,  the board of  directors
authorized  a  reverse   stock  split  of  one  share  for  each  twenty  shares
outstanding,  to be effective  December 21, 2006. On May 15, 2007,  the board of
directors  authorized a second  reverse stock split of one share for each twenty
shares outstanding,  to be effective the date filed with the Nevada Secretary of
State, May 21, 2007.  Accordingly,  all share  transactions and disclosures have
been  restated  as if the  reverse  stock  split  occurred  before  all  periods
presented.

Common Stock
The Company is now authorized to issue 100,000,000 shares of common stock with a
par value of $.001 and each share having one voting right. There are 687,770 and
387,770 common shares outstanding at December 31, 2007 and 2006, respectively.


Preferred Stock
As noted  above,  at  September  30,  2006,  immediately  prior  to the  merger,
Photonics had no preferred stock issued or  outstanding.  SCPS did not authorize
any preferred  stock in its articles of  incorporation  in Nevada.  Accordingly,
there is no preferred stock  authorized,  issued or outstanding after the merger
on September 30, 2006.



                                 Page 69 of 90
<PAGE>

In April 2001, the Company amended its articles of incorporation to increase the
number of preferred stock shares  authorized from 6,000,000 shares to 50,000,000
shares,  reduced  the par value of the  preferred  stock from $1.00 to $.001 and
eliminated its previous rights and preferences.

On October 18,  2001,  in  connection  with the  Company's  merger with SGI, the
Company  issued  1,000,000   convertible   preferred  shares.  The  shares  were
convertible  into common stock in an amount such that,  when added to the common
shares already issued to SGI, SGI would own 70% of the outstanding common shares
of the  Company.  No other  rights or  privileges  exist,  with respect to these
shares. These shares were cancelled on May 8, 2003.

On December  15, 2005,  the Company  amended its  articles of  incorporation  to
designate  400,000 shares of the 50,000,000 shares of preferred stock authorized
as Series A Convertible Preferred Stock with a par value of $.001 per share.

Series A Convertible Preferred Stock - prior to September 30, 2006
On December 16, 2005,  in  connection  with the  acquisition  of ACL  Consulting
Corporation, the Company issued 400,000 shares of Series A Convertible Preferred
Stock (Series A Shares) (as noted above) with a par value of $.001 per share.  A
6% distribution  per share was payable per annum,  at the Company's  fiscal year
end, on a cumulative  basis based upon the  specified  redemption  value of each
share of Series A Shares. If any dividend or other  distribution was declared on
the common stock,  each holder of shares of Series A Stock on record on the date
of  declaration  would be entitled to receive the  equivalent  dividend or other
distribution  as if the  shares  had been  converted  into  common  stock at the
declaration date. All Series A Shares had equal voting rights with common stock.
The shares could have been  converted,  at any time, into shares of common stock
as  specified  by the  "conversion  ratio"  that  was in  effect  at the time of
conversion.  The  initial  "conversion  ratio" for the entire  class of Series A
Shares was equal to 12.5% of the total  outstanding  shares of common stock. The
Company had the right, at any time, to call for mandatory  redemption of all the
Series A Shares at a set redemption price of $1.25 per share.

The Company's  Series A Convertible  Preferred Stock (here and after referred to
as Series A Shares) is  redeemable  at the  option of the  holder and  therefore
falls outside of the scope of Statement on Financial Accounting Standards (SFAS)
No. 150,  Accounting for Certain Financial  Instruments with  Characteristics of
Both  Liabilities  and  Equity.  Accordingly,  they are  subject to Rule 5-02 of
Regulation S-X.

Pursuant  to Rule 5-02 of  Regulation  S-X,  the Series A shares are  considered
mandatorily  redeemable  and as such would be  presented  in the  balance  sheet
outside of  stockholders'  deficit.  The initial carrying amount of these shares
was recorded at its fair value at the date of issuance,  which was determined on
a per share  basis to equal the value at which  these  shares  were  redeemed in
January  2006.  In addition,  the carrying  value was increased by the amount of
accrued cumulative dividends at December 31, 2005.

At December 31, 2005,  $1,315 was accrued as dividends  payable on the Company's
Series A Shares.



                                 Page 70 of 90
<PAGE>

On January 24, 2006,  the Company  exercised its  redemption  right and redeemed
320,000 of the outstanding  400,000 shares at the redemption  price of $1.25 per
share,  totaling  $400,000 for which the officer  received a cash  payment.  The
remaining 80,000 shares were redeemed through the issuance of a $100,000 note to
the officer.

Purchase of the Company's common stock
At December  31,  2006,  the Company had a stock  subscription  receivable  from
Shocker  Index 100 LP with a balance of  $361,627.  The Company had  substantial
doubt  about the  ability  of Shocker to make  payment  on the  obligation  in a
reasonable  period  of  time.  Accordingly,  on March  20,  2007,  the  Board of
Directors of the Company agreed to exchange the Company's note  receivable  from
Shocker,  for the return of 113,009 shares of its common stock.  The transaction
was recorded effective December 31, 2006.

Stock appreciation rights
On May 26, 2006, the Shareholders and the Board of Directors  approved a plan to
provide  additional  compensation  to its  executive  officers.  Each  executive
officer  shall  receive a stock  appreciation  rights  contract  ("SAR") on each
one-year  anniversary  date of his or her employment with the Company based upon
the value of the common stock of the Company using the closing price on the date
of the award and the number of shares of common  stock which could be  purchased
for the amount of money paid to such executive  employee  during the previous 12
months of employment.  The SAR contract shall entitle such executive employee to
be paid  the  value,  in  cash,  of the  appreciation,  if any,  of such  shares
immediately  following the two-year anniversary of the granting of each such SAR
contract.  In the event that any executive  officer  leaves or terminates his or
her  employment  prior to said two year  anniversary  of such award,  except for
cause,  the  value  shall  be  calculated  as of  the  last  date  of his or her
employment.  No  executive  officer  shall have any right to receive any payment
under such SAR if terminated for cause. No SARs have been awarded as of December
31, 2007.


NOTE 5:  RELATED PARTY TRANSACTIONS

The  officers  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 officers 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.

At December 31, 2005, the Company had received $108,595 in non-interest  bearing
advances  from  director/shareholders.  During 2006,  $35,199 of this amount was
repaid.  During 2007,  the remaining  balance of $73,396 was  contributed to the
Company's capital.

At December 31, 2007, the Company owes its CEO $14,041 in accrued compensation.

On April 18, 2006,  the Company issued 169,227 shares of common stock with a par
value of $.001 to  Shocker,  a  limited  partnership  in which ACL owned a 42.9%
limited  partnership  interest at the time, and a related party,  for a purchase
price of  $541,527,  based on the  Company's  net  asset  value per  share.  The
consideration   consisted  of  $35,381  cash,  a  $406,146  stock   subscription



                                 Page 71 of 90
<PAGE>

receivable,  and  extinguishment  of the  Company's  $100,000  note  payable  to
Shocker.  The note was  unsecured  with an interest rate of 8% per annum and was
payable as Shocker  might from time to time  designate  in writing.  The Company
received a cash payment of $36,146 in October 2006 and total accrued interest in
the  amount  of  $8,373  was also  applied  to  reduce  the  stock  subscription
receivable. The stock subscription receivable may be summarized as follows:

       Original amount                                           $   406,146
       Cash payment received                                         (36,146)
       Accrued interest owed Shocker which was offset                 (8,373)
                                                                 -----------

       Stock subscription receivable                             $   361,627
                                                                 ===========

Effective  December 31,  2006,  the Company  exchanged  with  Shocker,  its note
receivable with a balance of $361,627 for 113,009 shares of its common stock.

On December 16, 2005, in  conjunction  with the stock purchase of ACL Consulting
Corporation,  the  Company  issued a secured  promissory  note in the  amount of
$458,000 to an officer of the Company.  Quarterly  payments of $114,500 were due
on the 1st day of the third month for a period of 360 days, beginning on January
1,  2006.  Interest  on the note was 6% per  annum  and  payable  in full on the
maturity date. In accordance with the stock purchase  agreement  entered into on
December  16,  2005 (Note 3), the seller had the right to rescind  the  purchase
agreement and maintain 100% ownership of ACL Consulting Corporation in the event
the Company failed to make any required  payments  pursuant to the terms of this
secured  promissory note. At December 31, 2005, accrued interest expense payable
totaled $1,144. On January 25, 2006, a payment of $458,000 plus accrued interest
of $2,931 was made to the officer to retire the note.

On December 16, 2005, in  conjunction  with the stock purchase of ACL Consulting
Corporation,  the  Company  indirectly  acquired a majority  owned  interest  in
Interim  Capital Corp (ICC),  the general  partner of Shocker,  at the time.  At
December 31, 2005, ACL Consulting  Corporation's  interest consisted of a 72.35%
share of Interim  Capital  Corporation.  On December 31, 2005, a majority of the
limited  partners  removed ICC as general partner and appointed FGT Consultants,
Inc., a Texas  corporation  wholly owned by a former officer of the Company,  as
general partner.

On June 14,  2006,  the  Company  repaid the  $100,000  note  issued to a former
officer as part of the Series A Convertible Preferred Stock redemption. The note
was non-interest  bearing until June 1, 2006, at which point interest  commenced
to accrue on the  outstanding  principal at a rate of 8% per annum.  The officer
waived the interest related to the note upon repayment, thus no interest expense
was recorded during 2006.

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
Enterprises, Inc., a Nevada corporation 100% owned by Bryce Knight.



                                 Page 72 of 90
<PAGE>
<TABLE>
<CAPTION>

NOTE 6:           PROVISION FOR INCOME TAXES

The Company  accounts for corporate income taxes in accordance with Statement of
Financial  Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the estimated  future tax consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and  liabilities  and their  respective tax bases. In addition,
future tax benefits,  such as those from net operating loss carry forwards,  are
recognized to the extent that  realization  of such benefits is more likely than
not.  Deferred tax assets and  liabilities  are measured using enacted tax rates
expected  to  apply  to  taxable  income  in the  years  which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that  includes the enactment  date.  At December 31, 2007,  the Company's
cost of its investments for federal income tax purposes is equal to its cost for
financial reporting purposes. The Company files a consolidated income tax return
with its wholly owned subsidiaries, SGI and ACL.

A reconciliation  of income tax expense at the statutory  federal rate of 34% to
income  tax  expense at the  Company's  effective  tax rate for the years  ended
December  31, 2007 and 2006,  for the period from  December 16, 2005 to December
31, 2005 and the period from January 1, 2005 to December 15, 2005 is as follows.


                                                                            Dec. 16, 2005      Jan. 1, 2005
                                                2007             2006      to Dec. 31, 2005  to Dec. 15, 2005
                                             ---------        ---------        ---------        ---------
<S>                                          <C>              <C>              <C>              <C>

Tax expense (benefit) computed at
    statutory rate                           $(134,400)       $ 169,800        $  (1,000)       $  28,000
Non-deductible item                              1,461            9,200             --               --
Increase (decrease) in valuation allowance      95,000         (179,000)           1,000          (28,000)
                                             ---------        ---------        ---------        ---------

Provision (benefit) for income taxes         $ (37,939)       $    --          $    --          $    --
                                             =========        =========        =========        =========

</TABLE>

As of December 31, 2007, the Company has  approximately  $69,000 of capital loss
available to offset future capital gains, which expire through the year 2011.

At December 31, 2007 and 2006,  significant components of the Company's deferred
tax assets (benefits) are summarized below.

                                             2007             2006
                                          ---------        ---------
         Deferred Tax Assets:
Net Capital Loss Carry Forward            $  23,700        $  33,400
Investments                                  88,000          (64,200)
Tax liability of portfolio company             --             47,500
Less Valuation Allowance                   (111,700)         (16,700)
                                          ---------        ---------
          Total deferred tax assets            --               --

Deferred Tax Liabilities                       --               --
                                          ---------        ---------

Net Deferred Tax Assets                   $    --          $    --
                                          =========        =========



                                 Page 73 of 90
<PAGE>

The tax refund of $37,939 from  carryback of the 2007 net operating loss to 2006
was received in April 2008.


NOTE 7:           STOCK OPTION AND EMPLOYEE BENEFIT PLANS

STOCK OPTION PLANS
The  Company's  stock  option plan (the 1997 Stock  Option  Plan) allows for the
issuance  of  incentive  and   nonqualified   stock  options  to  employees  and
consultants  of the Company.  Options  granted  under the Plan are generally for
periods  not to exceed ten years and  generally  must be at prices not less than
100% and 85%, for incentive and nonqualified stock options, respectively, of the
estimated  fair  value of the  stock on the date of grant as  determined  by the
Board of Directors.  Options granted to shareholders who own greater than 10% of
the  outstanding  stock are established at the estimated fair value of the stock
on the date of grant.  Stock  options  granted  by the  Company  to  others  are
primarily for legal and  investment  banking  services.  In connection  with the
Company's acquisition of SGI in 2001, the Company renegotiated the stock options
previously  granted to former  members of  management.  These options for 21,698
common shares were  considered a new grant  pursuant to SFAS No.  123(R).  These
options are fully vested,  do not expire and are exercisable at $4.00 per share,
the  adjusted  closing bid price of the  Company's  common  stock on the date of
grant.  Accordingly,  no compensation  was charged to income using the intrinsic
value method of  accounting.  These  options  were granted  under the 1997 Stock
Option Plan.
On February 24, 2004,  the Company  established  the 2004 Stock Plan (the Plan).
The plan  registers,  via an S8  registration  statement,  up to 2,250 shares of
common stock to be issued to qualified recipients.  Eligible participants in the
Plan shall be such key employees, non-employee directors, and consultants of the
Company  and its  subsidiaries,  whether or not  members  of the  Board,  as the
Committee,  in its  sole  discretion,  may  designate  from  time to  time.  The
Committee's  designation  of a  participant  in any year shall not  require  the
Committee  to  designate  such person to receive  awards in any other year.  The
designation  of a participant  to receive an award under one portion of the Plan
does not require the Committee to include such participant  under other portions
of the Plan. The Committee  shall consider such factors as it deems pertinent in
selecting  participants  and in  determining  the  types  and  amounts  of their
respective awards.

During the year ended  December  31,  2005,  the Company  issued 1,250 shares of
common  stock,  under the 2004 Stock  Plan,  as payment for $40,000 of legal and
consulting  services,  reducing the shares of common stock  available for future
awards under the stock plan to 1,000 shares at December 31, 2007 and 2006.


EMPLOYEE BENEFIT PLANS
The Company adopted a Shared Savings Plan (the SSP) covering  substantially  all
of its  employees.  The SSP  allows  employees  to defer from 2% to 12% of their
compensation  to the  maximum  amount  permitted  by law.  Employee  and Company
contributions  are  considered tax deferred under Section 401(k) of the Internal



                                 Page 74 of 90
<PAGE>

Revenue  Code.  Under the terms of the SSP,  the  Company can  contribute,  on a
quarterly basis,  shares of its common stock to each employee's account equal in
value to 40% of the employee's  contributions,  limited, however to $2,000 or 6%
of   compensation   per  calendar   year,   whichever  is  less.  The  Company's
contributions vest at the rate of 25% for each full year of service, as defined,
but become 100% vested upon normal retirement,  disability or death. Neither the
Company nor any of its employees have made any contributions to this plan.



EXECUTIVE PROFIT SHARING

On May 26,  2006,  the  Shareholders  and Board of  Directors  approved a profit
sharing plan for its  executive  officers.  The Company will pay each  executive
officer a bonus pursuant to the following cash-distribution profit sharing plan,
payable on a quarterly basis.

1.       At the end of each  quarter,  a profit  sharing pool will be determined
         based on the Company's  performance  during that quarter and calculated
         to be twenty  percent  (20%) of the net  profits  achieved  during that
         quarter.
2.       The sum to be paid to each  executive  officer  shall  equal his or her
         proportional  percentage  of  the  total  base  salaries  paid  to  all
         executive  officers during the quarter  multiplied by the amount of the
         profit  sharing pool and shall be paid with all  mandatory  deductions,
         including Federal withholding  calculated at the flat IRS bonus rate of
         27%.
3.       This plan is a cash-distribution plan and is not intended as nor should
         it be treated as a deferred  compensation  plan.  The Company  will not
         take any  steps to cause  the  profit-sharing  plan  described  in this
         section to comply with the Employee  Retirement  Income Security Act of
         1974 or any provision of the Internal Revenue Code of 1986 nor will the
         Company seek any tax-advantaged treatment of the payments made pursuant
         to the profit-sharing plan.

None of the above may be used or interpreted in any manner inconsistent with the
Investment  Company Act of 1940 and any  limitations  imposed by such Act or the
rules and  regulations  promulgated  thereunder  shall  govern and control  this
additional compensation.

Compensation  in the amount of $43,597 was due from the profit  sharing plan for
2007 to the Chief Executive Officer, Mr. Knight.


NOTE 8:                    COMMITMENTS AND CONTINGENCIES

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. Our chief executive
officer is providing the space at no cost.



                                 Page 75 of 90
<PAGE>
<TABLE>
<CAPTION>

                           SMALL CAP STRATEGIES, INC.
                          Schedules of Financial Ratios
               Three Years Ended December 31, 2007, 2006 and 2005

                                                                                                                 Prior to
                                                                                                                 Becoming an
                                                                                                                 Investment
                                                                                                                  Company
                                                                                              Period from       Period from
                                                                                             Dec. 16, 2005      Jan. 1, 2005
                                                              2007              2006        to Dec. 31, 2005  to Dec. 15, 2005
                                                      -----------------  -----------------  ---------------   ----------------
<S>                                                   <C>                <C>                <C>               <C>

Per share information:
Net asset value, beginning of period                          $ 1.0717          $ (0.7980)       $ (0.5221)        $ (0.9760)
Net increase (decrease) from operations                         0.1672             0.7011          (0.0089)           0.2661
Net change in realized and unrealized appreciation
     (depreciation) on investments                             (0.7948)            0.4086                -                 -
Net increase (decrease) from stock transactions                (0.2091)            0.7600          (0.2670)           0.1878
                                                      -----------------  -----------------  ---------------   ---------------
Net asset value, end of period                                $ 0.2350           $ 1.0717        $ (0.7980)        $ (0.5221)
                                                      =================  =================  ===============   ===============

Per share market value:
  Beginning of period                                         $ 1.6000           $ 3.0000         $ 2.2000          $ 2.0000
  End of period                                                 0.1700             1.6000           3.0000            2.2000
Investment return, based on market price at end of
  period (1)                                                      -89%               -47%              36%               10%

Ratios/supplemental data:
Net assets end of period                                     $ 161,593          $ 415,515       $ (263,672)       $ (168,957)
Average net assets                                             268,674            571,413         (216,315)         (230,175)

Ratio of expenses to average net assets                          65.0%              42.8%            -0.7%            -39.8%
Ratio of increase (decrease) in net assets from
     operations to average net assets                          -133.0%              87.0%             1.3%            -35.8%

Weighted average number of shares outstanding:
     Basic and diluted                                         569,366            449,941          328,429           309,780

Number of shares outstanding, end of period                    687,770            387,770          330,773           323,273

(1) Periods of less than one year are not annualized.

</TABLE>







                                 Page 76 of 90
<PAGE>

ITEM 9:             CHANGES IN AND DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING
                    AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T):         CONTROLS AND PROCEDURES

     1.   Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer, evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e)  and  15d-15(e)  under the Exchange  Act) as of December 31, 2007 (the
"Evaluation  Date").  Based upon that  evaluation,  the chief executive  officer
concluded  that,  as  of  the  Evaluation  Date,  our  disclosure  controls  and
procedures are effective to ensure that information  required to be disclosed by
us in the reports that we file or submit under the Exchange Act (i) is recorded,
processed,  summarized  and reported,  within the time periods  specified in the
SEC's  rules  and  forms  and  (ii)  is  accumulated  and  communicated  to  our
management,  including its chief  executive  officer,  as  appropriate  to allow
timely decisions regarding required disclosure.

     2.   Internal Control over Financial Reporting

          (a)  Management's  Annual  Report on Internal  Control Over  Financial
               Reporting

The management of the Company is responsible  for  establishing  and maintaining
adequate internal control over financial reporting and for the assessment of the
effectiveness  of internal control over financial  reporting.  As defined by the
SEC,  internal control over financial  reporting is defined in Rule 13a-15(f) or
15d-15(f)  promulgated under the Exchange Act as a process designed by, or under
the supervision of, the Company's  principal  executive and principal  financial
officers and effected by the Company's board of directors,  management and other
personnel,   to  provide  reasonable  assurance  regarding  the  reliability  of
financial  reporting and the  preparation  of financial  statements for external
purposes in  accordance  with  generally  accepted  accounting  principles.  The
Company's  internal  control  over  financial  reporting is supported by written
policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable   detail,   accurately  and  fairly  reflect  the   transactions  and
dispositions  of the Company's  assets;  (2) provide  reasonable  assurance that
transactions  are  recorded as  necessary  to permit  preparation  of  financial
statements in accordance with generally accepted accounting  principles and that
receipts and  expenditures of the Company are being made only in accordance with
authorizations  of the  Company's  management  and  directors;  and (3)  provide
reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use or  disposition  of the  Company's  assets  that  could have a
material effect on the financial statements.

The  Company's  internal  control  system was  designed  to  provide  reasonable
assurance  to the  Company's  management  and board of directors  regarding  the
preparation  and  fair  presentation  of  published  financial  statements.  All
internal control systems, no matter how well designed, have inherent limitations
which may not prevent or detect  misstatements.  Therefore,  even those  systems
determined to be effective can provide only reasonable assurance with respect to



                                 Page 77 of 90
<PAGE>

financial statement preparation and presentation.  Projections of any evaluation
of  effectiveness  to future  periods are subject to the risk that  controls may
become  inadequate  because  of  changes  in  conditions,  or that the degree of
compliance with the policies or procedures may deteriorate.

Management  conducted  an  evaluation  of the  effectiveness  of  the  Company's
internal  control over  financial  reporting as of December 31, 2007.  In making
this assessment,  management used the framework set forth in the report entitled
"Internal  Control-Integrated  Framework"  issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. The COSO framework summarizes
each of the components of a company's internal control system, including (i) the
control  environment,  (ii) risk  assessment,  (iii)  control  activities,  (iv)
information and  communication,  and (v) monitoring.  Based on this  evaluation,
management   concluded  that  the  Company's  internal  control  over  financial
reporting was not effective as of December 31, 2007,  primarily due to a lack of
segregation of duties.

This  annual  report does not include an  attestation  report of our  registered
public  accounting  firm regarding  internal  control over financial  reporting.
Management's  report was not subject to  attestation  by our  registered  public
accounting  firm  pursuant to  temporary  rules of the  Securities  and Exchange
Commission  that permits us to provide only  management's  report in this annual
report.

(b)      Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection
with the  evaluation  required by Rules  13a-15(d)  or 15d-15(d)  that  occurred
during the fiscal quarter ended December 31, 2007 that has materially  affected,
or  is  likely  to  materially  affect,  our  internal  control  over  financial
reporting.


ITEM 9B:          OTHER INFORMATION

None.









                                 Page 78 of 90
<PAGE>



                                    PART III

ITEM 10:             DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table includes the names,  ages and positions of our directors and
executive  officers as of December 31, 2007.  There are no family  relationships
between the officer and directors. A summary of the background and experience of
each of these individuals immediately follows the table.


      NAME          AGE         POSITION               OFFICER OR DIRECTOR SINCE
--------------------------------------------------------------------------------

Bryce Knight        24        President, CEO, CFO               2005
                              and Director

Paul Johnson        59        Director                          2005

Joel Holt           77        Director                          2006


Bryce Knight  serves as  President,  CEO,  CFO and Director of the Company.  Mr.
Knight  also  served as  Vice-President  and Chief  Financial  Officer of Global
Beverage  Solutions,  Inc.  (OTCBB:  GBVS) until  February 23,  2007.  He is the
President  of  Knight  Enterprises,  Inc.  and  Knight  Consulting  Corporation,
corporate  strategy and financial  consulting  firms,  as well.  Previously  Mr.
Knight  worked with  General  Electric as a financial  analyst for its  consumer
products  division  and with  Robert  Bosch Tool  Corporation  in the  marketing
department.  Mr. Knight graduated with honors from Bellarmine  University with a
Business Administration degree and a Master's of Business Administration.

Paul Johnson  serves as a Director for the Company.  He specializes in designing
and directing the implementation of new and innovative  business  strategies and
in recruiting the best talent to develop and grow  businesses.  Over the past 20
years his companies have created major innovations in rapid business development
strategies, knowledge management, and software interface design.

Mr. Johnson is President of Homeland Safety International and is responsible for
the strategic planning and business development for the Company. In addition, he
serves  as an  executive  consultant  to  several  developing  companies  in the
Dallas/Ft.  Worth, Texas area. Mr. Johnson is an active participant in strategic
planning and business  development in each of these companies.  Over the past 15
years he has founded seven  technology-related  companies,  the largest of which
was Multimedia  Learning,  Inc.  (ranked 154th on the "Inc. 500" in 1996).  From
1991-1998, Mr. Johnson served as CEO of Multimedia Learning, Inc. Mr. Johnson is
a graduate of City College of New York and is a veteran of the Vietnam war.

Joel Holt serves as a Director for the Company.  He holds a B.S. degree from the
Medical College of Virginia in both Physical  Therapy and Biology.  He served in
various and  progressively  more responsible  sales and marketing  positions for
Proctor and Gamble  Company for 35 years.  In 1987, he was  instrumental  in the



                                 Page 79 of 90
<PAGE>

formation of Keystone  Laboratories,  Inc., a forensic drug-testing  laboratory,
where he served as President for 12 years.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section  16(a) of the Exchange Act  requires  our  officers and  directors,  and
persons who own more than 10% of a registered class of our equity securities, to
file reports of ownership  and change in ownership  with the SEC. Our  officers,
directors and greater than 10%  stockholders  are required by SEC regulations to
furnish us with  copies of all  Section  16(a)  forms they file.  We believe our
directors  did not make their Form 3 filings when they became  directors and the
Form 5's for the three directors were filed late.

CODE OF ETHICS

SCPS has  adopted a code of ethics  for its  officers  and  directors,  which is
attached as Exhibit 14 to the March 31, 2007 Form 10-Q.

AUDIT COMMITTEE

On March 6, 2006 the Company  formerly  chartered an audit  committee to provide
guidance and direction in matters  relating to the accounting of the Corporation
and  review and  preparation  of  independent  accounting  statements  and other
matters  relating to financial  accounting  all for the best  governance  of the
Corporation.

The Audit  Committee is comprised  of two members,  Joel Holt and Paul  Johnson,
both  of  whom  are  independent  directors  of the  Company.  The  Company  has
determined that Joel Holt qualifies as the Audit Committee Financial Expert.

The Audit Committee has received and discussed the audited financial  statements
with  management;  has  discussed  with the  independent  auditors  the  matters
required to be  discussed  by the  statement  on Auditing  Standards  No. 61, as
amended; has received the written disclosure and the letter from the independent
accountants  required by  Independence  Standards  Board  Standard No. 1 and has
discussed  with  the  independent   accountant  the   independent   accountant's
independence; and based on the forgoing reviews and discussions, has recommended
to the board of directors that the audited  financial  statements be included in
the Company's annual report on Form 10-K.

NOMINATING COMMITTEE

Our independent directors serve as the nominating committee.



                                 Page 80 of 90
<PAGE>
<TABLE>
<CAPTION>

ITEM 11:          EXECUTIVE COMPENSATION

The following  table sets forth the cash and other  compensation  we paid during
the last three fiscal years to our chief executive officer,  president and other
individuals who served as executive  officers and whose total  compensation  was
$100,000 or more.

(a)      Summary compensation table

                                                                                  Directors Fee
Name and                                        Salary          Bonus            Earned or Paid             Total
Principal Position                Year            ($)            ($)               In Cash ($)               ($)
------------------                ----            ---            ---               -----------               ---
<S>                               <C>           <C>             <C>    <C>         <C>                     <C>

Bryce Knight                      2007       $ 30,000           $43,597(a)                 -             $ 73,597
PEO and PFO since                 2006       $ 30,000                 -            $   7,500             $ 37,500
September 19, 2006                2005              -                 -                    -                    -

Mark Lindberg                     2007            N/A               N/A                  N/A                  N/A
PFO until                         2006       $ 22,500                              $   7,500             $ 30,000
September 19, 2006                2005              -                 -                    -                    -

</TABLE>

     (a)  The bonus to Mr.  Knight  includes  $29,556 which was paid and $14,041
          which was accrued pursuant to the executive profit sharing plan.

Mr. Knight's  compensation is paid to Knight Enterprises,  Inc., which is wholly
owned by Mr. Knight.

Required columns for bonus, stock awards,  option awards,  non-entity  incentive
plan   compensation,   change  in  pension  value  and   nonqualified   deferred
compensation  earnings  and all other  compensation  are omitted  from the table
above as the amounts are all zero.

Narrative discussion of compensation

Compensation for our officers and directors is based on comparative compensation
levels for similar positions and time.

The Company does not have any current  employment  agreements  with its officers
and directors. The company intends to pay its Executives and Directors salaries,
wages,  or  fees  commensurate   with  experience  and  industry   standards  in
relationship to the success of the company.

                            Stock appreciation rights
On May 26, 2006, the Shareholders and the Board of Directors  approved a plan to
provide  additional  compensation  to its  executive  officers.  Each  executive
officer  shall  receive a stock  appreciation  rights  contract  ("SAR") on each
one-year  anniversary  date of his or her employment with the Company based upon
the value of our common  stock using the closing  price on the date of the award
and the number of shares of common stock which could be purchased for the amount



                                 Page 81 of 90
<PAGE>

of money  paid to such  executive  employee  during  the  previous  12 months of
employment.  The SAR contract shall entitle such  executive  employee to be paid
the value,  in cash,  of the  appreciation,  if any, of such shares  immediately
following the two-year anniversary of the granting of each such SAR contract. In
the event that any executive  officer leaves or terminates his or her employment
prior to said two year  anniversary of such award,  except for cause,  the value
shall be calculated as of the last date of his or her  employment.  No executive
officer shall have any right to receive any payment under such SAR if terminated
for cause. No SARs have been awarded as of December 31, 2007.

                            Executive profit sharing

On May 26,  2006,  the  Shareholders  and Board of  Directors  approved a profit
sharing plan for its  executive  officers.  The Company will pay each  executive
officer a bonus pursuant to the following cash-distribution profit sharing plan,
payable on a quarterly basis.

     1.   At the end of each quarter,  a profit  sharing pool will be determined
          based on the Company's  performance during that quarter and calculated
          to be twenty  percent  (20%) of the net profits  achieved  during that
          quarter.
     2.   The sum to be paid to each  executive  officer  shall equal his or her
          proportional  percentage  of  the  total  base  salaries  paid  to all
          executive  officers during the quarter multiplied by the amount of the
          profit  sharing pool and shall be paid with all mandatory  deductions,
          including Federal withholding calculated at the flat IRS bonus rate of
          27%.
     3.   This  plan is a  cash-distribution  plan  and is not  intended  as nor
          should it be treated as a deferred compensation plan. The Company will
          not take any steps to cause the profit-sharing  plan described in this
          section to comply with the Employee  Retirement Income Security Act of
          1974 or any  provision of the  Internal  Revenue Code of 1986 nor will
          the Company seek any  tax-advantaged  treatment  of the payments  made
          pursuant to the profit-sharing plan.

None of the above may be used or interpreted in any manner inconsistent with the
Investment  Company Act of 1940 and any  limitations  imposed by such Act or the
rules and  regulations  promulgated  thereunder  shall  govern and control  this
additional compensation.

Compensation in the amount of $43,597 was due Mr. Knight from the profit sharing
plan for 2007.


     (b)  Grants of plan-based awards table

There  were no  grants  of  plan-based  awards  during  the year  for the  named
individuals.

     (c)  Outstanding equity awards at fiscal year-end table

There  were no  outstanding  equity  awards  at  fiscal  year-end  for the named
individuals.

     (d)  Option exercises and stock vested table

There were no option  exercises  during  the year and no stock  vested at fiscal
year-end for the named individuals.



                                 Page 82 of 90
<PAGE>

     (e)  Pension benefits

There are no pension plans.

     (f)  Nonqualified  defined  contribution  and other  nonqualified  deferred
          compensation plans

There are no nonqualified  defined  contribution or other nonqualified  deferred
compensation plans.

     (g)  Potential payments upon termination or change-in-control

There are no potential  payments upon termination or  change-in-control  for the
named individuals.

     (h)  Compensation of directors

                                                        Directors Fee
                                                       Earned or Paid
Name                                                     In Cash ($)
----                                                     -----------

Paul Johnson                                          $       1,000

Joel Holt                                             $       1,000

Director  compensation  paid to  executive  officers  is included in the summary
compensation table above.

Directors, including executive officers, are compensated $1,000 for each meeting
during the year. There was one meeting during 2007.

The  columns  for  stock  awards,  option  awards,   non-equity  incentive  plan
compensation,  change in pension value and  nonqualified  deferred  compensation
earnings  and all other  compensation  are omitted as there was no other form of
compensation for the directors.

     (i)  Compensation committee interlocks and insider participation

The outside directors serve as the compensation committee.

     (j)  Compensation committee report

Based on the  compensation  discussion  and  analysis  required  by Item  402(b)
between the compensation  committee and management,  the compensation  committee
recommended  to the Board of  Directors  that the  compensation  discussion  and
analysis be included in the 10-K, see Item 11(a) above.





                                 Page 83 of 90
<PAGE>


ITEM 12:          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                  AND RELATED STOCKHOLDER MATTERS

The following  table sets forth,  as of December 31, 2007,  certain  information
concerning the beneficial ownership of each class of our voting stock held by:

     -    each  beneficial  owner of 5% or more of our  voting  stock,  based on
          reports filed with the SEC and certain other information;

     -    each of our directors;

     -    each of our executive officers; and

     -    all of our executive officers and directors as a group.

There were 687,770 shares of our common stock issued and outstanding at December
31, 2007.


         NAME AND ADDRESS (1)                COMMON (2)             % COMMON
         --------------------                ----------             --------

         Shocker 100 Index LP                   56,219                8.2%

         Bryce Knight                          300,000               43.6%

         Paul Johnson                                -                -

         Joel Holt                                   -                -

         Officers and Directors
             as a group                        300,000               43.6%


(1)  The address of all parties listed is C/O Small Cap  Strategies,  Inc., 3651
     Lindell Road, Suite D#146, Las Vegas, Nevada 89103.

(2)  Unless otherwise indicated,  we believe that all persons named in the table
     have sole voting and investment  power with respect to all shares of common
     stock  beneficially  owned by them. A person is deemed to be the beneficial
     owner of  securities  which may be acquired  by such person  within 60 days
     from the date on which  beneficial  ownership is to be determined  upon the
     exercise of options,  warrants or convertible securities.  Shares are as of
     December 31, 2007.




                                 Page 84 of 90
<PAGE>

ITEM 13           CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                  INDEPENDENCE

The  officers  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 officers 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.

At December 31, 2005, the Company had received $108,595 in non-interest  bearing
advances  from  director/shareholders.  During 2006,  $35,199 of this amount was
repaid.  During 2007,  the remaining  balance of $73,396 was  contributed to the
Company's capital.

At December 31, 2007, the Company owes its CEO $14,041 in accrued compensation.

On April 18, 2006,  the Company issued 169,227 shares of common stock with a par
value of $.001 to  Shocker,  a  limited  partnership  in which ACL owned a 42.9%
limited  partnership  interest at the time, and a related party,  for a purchase
price of  $541,527,  based on the  Company's  net  asset  value per  share.  The
consideration   consisted  of  $35,381  cash,  a  $406,146  stock   subscription
receivable,  and  extinguishment  of the  Company's  $100,000  note  payable  to
Shocker.  The note was  unsecured  with an interest rate of 8% per annum and was
payable as Shocker  might from time to time  designate  in writing.  The Company
received a cash payment of $36,146 in October 2006 and total accrued interest in
the  amount  of  $8,373  was also  applied  to  reduce  the  stock  subscription
receivable.  The balance of the stock  subscription  receivable  of $361,627 was
exchanged with Shocker for 113,009 shares of our common stock effective December
31, 2006.

On December 16, 2005, in conjunction with the stock purchase of ACL, the Company
issued a secured  promissory note in the amount of $458,000 to an officer of the
Company.  Quarterly  payments of $114,500 were due  commencing on the 1st day of
the third month for a period of 360 days, beginning on January 1, 2006. Interest
on the note was 6% per  annum  and  payable  in full on the  maturity  date.  On
January 25, 2006, a payment of $458,000 plus accrued interest of $2,931 was made
to the officer to retire the note.

On December 16, 2005, in conjunction with the stock purchase of ACL, the Company
indirectly  acquired a majority interest in Interim Capital Corp (ICC). On March
30, 2006, the Company's  Board of Directors  approved the sale of ACL's interest
in ICC. The Company  entered into a Stock  Purchase  Agreement  with Shocker 200
Index, LP, a related party through a common director, on March 31, 2006. $76,000
was exchanged in consideration for 7,600,000 shares of ICC,  representing 72.35%
of ICC's outstanding common stock.

On June 14, 2006,  the Company  repaid the $100,000 note issued to an officer as
part of the  Series  A  Convertible  Preferred  Stock  redemption.  The note was
non-interest  bearing until June 1, 2006, at which point  interest  commenced to
accrue on the  outstanding  principal  at a rate of 8% per  annum.  The  officer
waived the interest related to the note upon repayment, thus no interest expense
was recorded during the nine months ended September 30, 2006.



                                 Page 85 of 90
<PAGE>

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
Enterprises, Inc., a Nevada corporation 100% owned by Bryce Knight.


ITEM 14:          PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees. The aggregate fees billed for professional  services rendered by our
current principal  accountants for the audit of our annual financial  statements
and review of our quarterly  financial  statements  were $11,756 and $49,032 for
the years ended  December 31, 2007 and 2006,  respectively,  including  billings
received  through  January 31, 2008. The 2007 amount includes only the quarterly
reviews.

Audit-Related Fees: None

Tax Fees - None by current auditor.

All Other Fees - None.




















                                 Page 86 of 90
<PAGE>



                                     PART IV

ITEM 15:          EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


(a)  The following documents are filed as part of this report:

     1.   Financial Statements - The following financial statements of Small Cap
          Strategies, Inc. are contained in Item 8 of this Form 10-K:

          o    Report of Independent Registered Public Accountant
          o    Statements of Net Assets at December 31, 2007 and 2006
          o    Statements  of  Operations - For the fiscal years ended  December
               31, 2007, 2006 and 2005
          o    Statements  of Cash Flows - For the fiscal  years ended  December
               31, 2007, 2006 and 2005
          o    Statements  of Changes in Net Assets - For the fiscal years ended
               December 31, 2007, 2006 and 2005
          o    Schedule of Investments - At December 31, 2007 and 2006
          o    Notes to the  Financial  Statements o Financial  Highlights - For
               the fiscal years ended December 31, 2007, 2006 and 2005

     2.   Financial  Statement  Schedules were omitted, as they are not required
          or are not applicable,  or the required information is included in the
          Financial Statements.

     3.   Exhibits - The  following  exhibits  are filed with this report or are
          incorporated herein by reference to a prior filing, in accordance with
          Rule 12b-32 under the Securities Exchange Act of 1934.

Exhibit               Description
-------               -----------

31.1      Certificate of Chief  Executive  Officer and Chief  Financial  Officer
          required  by  Rule  13a-14(a)  or  Rule  15d-14(a)  of the  Securities
          Exchange  Act of 1934,  as  adopted  pursuant  to  Section  302 of the
          Sarbanes-Oxley Act of 2002 (filed herewith).

32.1      Certificate of Chief  Executive  Officer and Chief  Financial  Officer
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002 (filed herewith).






                                 Page 87 of 90
<PAGE>

                                    SIGNATURE

Pursuant to the  requirements  of Section 3 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

DATE:   April 14, 2008                      SMALL CAP STRATEGIES, INC.


                                            /s/ Bryce Knight
                                            ----------------
                                            Bryce Knight
                                            President, Chief Executive Officer
                                            and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the  following  persons on behalf of the  Registrant in
the capacities and on the dates indicated.

DATE                                        SIGNATURE/TITLE

April 14, 2008                               /s/ Bryce Knight
                                            --------------------------
                                            Bryce Knight
                                            President, Chief Executive Officer,
                                            Chief Financial Officer and Director

April 14, 2008                              /s/ Paul Johnson
                                            --------------------------
                                            Paul Johnson
                                            Director

April 14, 2008                              /s/ Joel Holt
                                            -----------------------------------
                                            Joel Holt
                                            Director







                                 Page 88 of 90
<PAGE>